Week 1

Introduction to CSR: defining CSR – contested terrain

General Motors - Malibu

Fire risk from fuel tank explosion Risk known since engineer’s report in

1973 500 fatalities per annum Cost of legal claim = $2.40 per car Cost of rectifying problem = $8.59 per

car 1993 claim awarded $1.2billion punative

damages

“People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public or some contrivance to raise prices.”

Adam Smith – The Wealth of Nations

“whether or not business should undertake CSR, and the forms that

responsibility should take, depends upon the economic perspective of the firm that

is adopted”.

Moir (2001)

CSR “analyses economic, legal, moral, social and physical aspects of environment”.

Barnard (1938)

“there is one and only one social responsibility of business – to use its resources and engage in

activities designed to increase its profits so long as it stays within the rules of the game, which is

to say, engages in open and free competition without deception or fraud”.

Friedman (1970)

“business encompasses the economic, legal, ethical and discretionary

expectations that society has of organization at a given point in time”.

Carroll (1979)

“business turns a social problem into economic opportunity and economic

benefit, into productive capacity, into human competence, into well-paid jobs,

and into wealth”.

Drucker (1984)

“in the modern commercial area, companies and their managers are subjected to well

publicised pressure to play an increasingly active role in [the welfare of] society.”

Balabanis, Phillips and Lyall (1998)

“there is a positive relationship between disclosure level and CSR. That is, firms

that engage in socially responsive activities provide more informative and extensive disclosures than do firms that

are less focused on advancing social goals.”

Gelb and Strawser (2001)

CSR “is a concept whereby companies integrate social and environmental concerns in their

business operations and in their interaction with their stakeholders on a voluntary basis”

European Commission (2002)

There is a sound business case for social

responsibility

Department of Trade & Industry (DTI)

"....every large corporation should be thought of as a social enterprise; that is an entity whose

existence and decisions can be justified insofar as they serve public or social purposes"

Dahl (1972)

Socially responsible behaviour leads to increased economic

performance

Crowther (2002)

“a certain amount of rhetoric may be inevitable in the area of social responsibility. Managers

may even believe that making statements about social responsibility insulates the firm from the

necessity of taking socially responsible action.”

Robertson and Nicholson (1996)

What has caused the interest in CSR?

Social context Political context Economic context

The case of Enron

Collapsed 2002 Audit failure – Andersons collapsed Accounting irregularities Fraud Employees and shareholders loss

Bhopal, India

1984 Worst pollution episode in history Union Carbide chemical plant 100’s dead, 1000’s injured Pollution of water etc still present No compensation paid to date

The case of BCCI

Bank of Credit & Commerce International closed down in July 1991

1.4 million depositors Losses > $10billion Fraud Audit failure

Oil pollution

Torrey Canyon, 1969 Amoco Cadiz, 1993 The Prestige, 2003 Alaska Siberia Nigeria

Why did it go wrong?

Rights & responsibilities Risk & rewards Corporate power Accounting

‘If the confidence of the public in the integrity of accountants’ reports is shaken, their value is

gone. To preserve the integrity of his reports, the accountant must insist upon absolute

independence of judgment and action. The necessity of preserving this position of

independence indicates certain standards of conduct.’

Arthur Andersen, 1932