UNIVERSITY OF GHANA BUSINESS SCHOOL

SOCIAL RESPONSIBILITY AND ETHICS

UGBS 207

PROFESSOR R. E. HINSON

Introduction

• CSR is central to a whole range of concepts and issues relating to businesses and their role in society.

• The term has become very popular in recent years and thereby vulnerable to suffering the same fate as other popular terms in management literature.

• Because of this, it is useful to briefly consider where the idea of corporate social responsibility came from and how it has developed.

• In understanding corporate social responsibility, it is important to examine the genesis of the term, its meaning and its application to business activities.

Emergence of Corporate Social Responsibility

• Various texts in ancient times included material suggestion that moral obligations existed for those engaging in trade and commerce.

• In modern times, the first substantial publications on the role of business in society can be traced to as early as 1930s, but corporate social responsibility emerged as an area of general concern for companies only in the 1960s.

• This reflected increasing pressures on placed on companies to assume a greater responsibility for correcting the harmful impacts of their operations, a role traditionally performed by society as a whole.

Emergence of Corporate Social Responsibility

• In this context, corporate social responsibility was seen as method self-regulation distinct from both government legislation and managerial ethics.

• By the 1980s governments had introduced legislation on many of the issues that had lead to the emergence of corporate social responsibility in the 1960s.

• The most recent wave of interest in corporate social responsibility has been marked by some new development. First, the debate is now more about how to make substantial commitments rather than whether to make them at all. Secondly, there has been an increasing interest in the topic in Europe initiatives on corporate social responsibility.

Defining Corporate Social Responsibility

• Corporate social responsibility can be defined as the accommodation of corporate behavior to society’s values and expectations.

• According to Howard Bowen, CSR is an obligation that arises from the impact corporate decisions and actions have on the lives of people.

Defining Corporate Social Responsibility

• CSR concerns the acceptance of voluntary or additional responsibilities beyond those motivated by economic interest and the law.

• Davis defined CSR as ‘the firm’s consideration of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm.

DEFINITIONS OF CORPORATE SOCIAL RESPONSIBILITY ( CSR)

Forstater et al. (2002) define CSR as:

“ a company’s actions that contribute to sustainable development through the company’s core business activities, social investment and public policy debate.”

McWilliams and Siegel (2001) define CSR as: “actions that appear to further some social good beyond the interest of the firm and which are required by law.”

KEY CONCEPTS

Some key words appear in these definitions: Stakeholder

Concerns/ needs

Voluntary

Approaches to social responsibility

Several views have been developed of the responsibilities of businesses e.g.

Milton Friedman,

Archie Caroll, and

Andrew Carnegie

Friedman’s View

Friedman is of the view that the social responsibility of business is to increase profit within the requirements of the law.

If a business person acts “responsibly” by cutting the price of the firm’s produce to prevent inflation, by making expenditures to reduce pollution, or by hiring the hard-core unemployed, that person is spending the shareholders’ money for a general interest.

Carroll’s View

Archie Carroll is of the view that managers of business organisations have four responsibilities:

Economic responsibilities involve the production of goods and services of value to society so that the firm can repay its creditors and stockholders.

Legal responsibilities are defined by government in laws that are expected to be obeyed.

Ethical responsibilities require that a firm follows the generally held beliefs about how one should act in society.

Discretionary responsibilities are the purely voluntary obligations a corporation assumes, i.e. philanthropic contributions. – The difference between ethical and discretionary responsibilities is that few people expect an

organisations to fulfil ethical ones.

Carnegie’s View

Andrew Carnegie, the founder of US Steel Corporation, views corporations’ social responsibilities on two main principles: The Charity Principle and The Stewardship Principle.

The charity principle requires that more fortunate members of society assist its less fortunate members, including the unemployed, the handicapped, the sick and the elderly.

The stewardship principle requires businesses and wealthy individuals to view themselves as the stewards, or caretakers, of their property. Carnegie holds the idea that the rich hold their money “in trust” for the rest of society and can use it for any purpose that society deems legitimate.

Arguments for And Against CSR

Profit maximization

Milton Friedman and other activists advanced the idea of shareholder value being in conflict with CSR. According to their view, companies are misusing the resources that are entrusted to them if they engage in CSR. In contrast, others have argued that it is the interest of business and its owners to comply with the societal values and take an active role in society as this is in line with the long-term interest of business. Furthermore, CSR has a positive effect on reputation, through which companies can gain more customers, employees and other benefits.

Arguments for And Against CSR

Resource fit.

A second area of dispute is the role of business in addressing social problems. It may be argued that business has valuable resources that could be used to tackle social problems, for example by helping with the management of operational performance. It has however been argued in opposition to this that while companies may possess significant competencies, they lack the specific knowledge, skills and experience needed to deal with societal problem – knowledge such as the particular technical expects to communicate effectively with highly disadvantage clients.

Arguments for And Against CSR

• Lack of accountability.

Because of their structure, companies are mainly accountable to their shareholders rather than to society at large. This is why some have argue that companies should not engage in social activities and why business should focus on pursuing economic profit rather than performing other roles in society. The proponents of this view have therefore argued that CSR undermines democracy – part of this argument being that in the case of unethical or irresponsible practice by business, it is the responsibility of the prevailing government to reform those regulations that have allowed companies to misbehave in the first place. According to this view, CSR is somehow bad because it diverts attention from government , which is the body that should control the market for the benefit of society.

CRITICISMS /ARGUMENTS AGAINST CSR

Friedman (1962) argues that the only social responsibility of business is to make profit within the law. Some arguments against CSR are based on the following issues:

“The business of business is business.”

Useless PR exercise

The idea of theft

Lack of Regulation of CSR

Imposes unequal cost to organisations

CRITICISMS/ARGUMENTS FOR CSR

Arguments in favour of firm CSR engagements are based on: Interdependence of firms and the society

Stakeholder interest may transcend financial benefits

Benefits of CSR-

Helps attract qualified staff Minimizes government intervention

ARGUMENTS FOR CSR

Improves Corporate Image – Goodwill

Leads to improved financial performance

THE PRINCIPLES OF CSR

There are three principles serving as justification for CSR engagements by firms:

1. Sustainability

2. Accountability

3. Transparency

PRINCIPLES OF CSR

Sustainability Sustainability implies that society must at all times use no more of its

resources than can be generated. It is concerned with how the actions of the present have recurring effects upon the opportunities of the future.

PRINCIPLES OF CSR (CON’T)

Accountability

Here an organisation must recognise that its actions generally affect the external environment and therefore assume responsibility for the effects of its actions.

PRINCIPLES OF CSR

Transparency Transparency, in principle, means that all acts are obvious or

communicated to all concerned.

As a principle of CSR, transparency indicates that organisations make clear all reports of their actions and that those reports, whether in facts or figures, give accurate and detailed information of the relevant information.

PROMINENCE OF CSR

Key drivers of CSR engagements in recent years have been identified as:

Sustainable development Globalization Governance ( UN, OECD, Signing of Compacts) Corporate sector impact Communications (Technological Advancement) Ethical consumerism Finance (pressure from investors) Strategic Business Tool Social awareness and education Crises management

FORMS OF CSR ISSUES

Areas of Social Responsibility Concerns:

Concern for Consumers Are products safe and well designed? Are products priced fairly? Are advertisements clear and not deceptive? Are credit terms clear? Is adequate product information available? Are customers treated fairly by salespeople?

FORMS OF CSR ISSUES(CON’T)

Concern for Employees Are employees paid fair wages? Are employees provided safe work environment? Are workers hired, promoted, and treated fairly without

regard to sex, race, colour, or creed? Are employees given special training and educational

opportunities? Are handicapped people given employment

opportunities? Does the business help rehabilitate employees with

physical, mental, or emotional problems?

FORMS OF CSR ISSUES(CON’T)

Concern for Environment Is the environment adequately protected from unclean air and water,

excessive noise, and other types of pollution?

Are products and packages biodegradable or recyclable?

Are any by-products that pose a safety hazard to society (such as nuclear waste or commercial solvents) carefully handled and properly treated or disposed of?

FORMS OF CSR ISSUES(CON’T)

Concern for Society in General Does the firm support minority and community enterprises by purchasing

from them or subcontracting to them?

Are donations made to help develop and support education, art, health, and community development programmes?

Is the social impact of plant locations or relocations considered by managers who make those decisions?