CORPORATE SOCIAL RESPONSIBILITY (CSR)

It refers to the responsibilities that a business

has to the society in which it operates.
CORPORATE SOCIAL RESPONSIBILITY (CSR)

From an economic perspective: A business is an

institution that exists to produce goods and
services demanded by society and, by engaging
in this activity, the business creates jobs and
wealth that benefit society further.
§The law has created a form of business called
corporations, which limits the liability of individuals
for the risks involved in the business activities.
THE CSR DEBATE

Two schools of thought

§In the free market view (Economics Model), the
job of business is to create wealth with the
interests of the shareholders as the guiding
principle
§The corporate social responsibility view is that
business organization should be concerned
with social issues
FRIEDMAN’S DEFINITION OF SR

“social responsibility of business is to increase

its profits . . . the corporation is an
instrument of the stockholders who own it. If
the corporation makes a contribution, it
prevents the individual stockholder himself
deciding how he should dispose of his
funds.”

Milton Friedman 1970

ECONOMIC MODEL OF CSR

It hold that business’ sole duty is to fulfill the

economic functions businesses were
designed to serve.
According to this model, the social
responsibility of business managers is
simply to pursue profit within the law.
Profit is a direct measure of how well a
business firm is meeting society’s
expectations
 ECONOMIC MODEL OF CSR

Profit is an indication that business is

efficiently and successfully producing the
goods and services that society demands.
This model denies that business has any
social responsibilities beyond the economic
and legal ends for which it was created.
 ECONOMIC MODEL OF CSR

It has its roots in the utilitarian tradition and in

neoclassical economics.
§Primary social responsibility of business
managers: Pursue maximum profits for
shareholders.
§By pursuing profits, business managers will
allocate resources to their most efficient
uses.
 ECONOMIC MODEL OF CSR

§Consumers who most value a resource will be

willing to pay the most for it; so profit is the
measure of optimal allocation of resources.
§The pursuit of profit will continuously work
towards the optimal satisfaction of consumer
demand: Optimal social good (Utilitarianism
interpretation)
 THE FREE MARKET CASE AGAINST CORPORATE
SOCIAL RESPONSIBILITY

The only social responsibility of business is to

create shareholder wealth
The efficient use of resources will be reduced if
businesses are restricted in how they can
produce
 THE FREE MARKET CASE AGAINST CORPORATE
SOCIAL RESPONSIBILITY

The pursuit of social goals dilutes businesses’

primary purpose
Corporate management cannot decide what is
in the social interest
Costs will be passed on to consumers
It reduces economic efficiency and profit
THE FREE MARKET CASE AGAINST CORPORATE SOCIAL
RESPONSIBILITY

Directors have a legal obligation to manage

the company in the interest of shareholders
– and not for other stakeholders
CSR behaviour imposes additional costs
which reduce competitiveness
CSR places unwelcome responsibilities on
businesses rather than on government or
individuals
THE CSR VIEW

Businesses do not have an unquestioned

right to operate in society
Those managing business should recognize
that they depend on society
THE CSR VIEW

Business relies on inputs from society and on

socially created institutions
There is a social contract between business
and society involving mutual obligations
that society and business recognize that
they have to each other
ARGUMENTS FOR SOCIALLY-RESPONSIBLE BEHAVIOR

• It is the ethical thing to do

• It improves the firm’ public image
• It is necessary in order to avoid
excessive regulation
• Socially responsible actions can be
profitable
ARGUMENTS FOR SOCIALLY-RESPONSIBLE
BEHAVIOR
• Improved social environment will be
beneficial to the firm
• It will be attractive to some investors
• It can increase employee motivation
• It helps to corrects social problems
caused by business
BENEFITS OF GOOD CSR
BEHAVIOR

• It aids the attraction and retention of

staff
• It attracts green and ethical
investment
• It attracts ethically conscious
customers
BENEFITS OF GOOD CSR
BEHAVIOR
• It can lead to a reduction in costs through
re-cycling
• It differentiates the firm from its competitor
and can be a source of competitive
advantage
• It can lead to increased profitability in the
long run
ETHICS AND SOCIAL RESPONSIBILITY

Different meanings of the word

responsible:
§Reliable or trustworthy.
§Attributing something as a cause for an
event or action.
§Attributing liability or accountability for
some event or action, creating an
obligation to make things right again.
 ETHICS AND SOCIAL RESPONSIBILITY

Responsibility as accountability: Heart of

CSR
§Actions for which a business can be held
accountable.
§To be concerned with society’s interests that
should restrict or bind business’s behavior.
§What a business should or ought to do for the
sake of society, even if this comes with an
economic cost.
ETHICS AND SOCIAL RESPONSIBILITY

Three different types of responsibilities, on a

scale from more to less demanding or
binding:
§Duty or obligation in order to indicate that they
oblige us in the strictest sense, is the responsibility
not to cause harm to others.
§To prevent harm even in those cases where one is
not the cause.
§To do good (Volunteer and charitable work)
MODELS OF CORPORATE SOCIAL RESPONSIBILITY
PHILANTHROPIC MODEL OF CSR

It holds that, like individuals, business is free

to contribute to social causes as a matter of
philanthropy.
§Business has no strict obligation to contribute to
social causes; but it can be a good thing when they
do so.
PHILANTHROPIC MODEL OF CSR

§Business has no ethical obligations to serve

wider social goods.
§Business should be encouraged to
contribute to society in ways that go beyond
the narrow obligations of law and economics.
PHILANTHROPIC MODEL OF CSR

Within the philanthropy model, there are

occasions in which charity work is done
because:
§It brings the firm good public relations.
§It provides a helpful tax deduction.
§It builds good-will and/or a good reputation within
the community.
PHILANTHROPIC MODEL OF CSR
In few cases, firms contribute to charity
anonymously, corporate support for the social
causes is not done for potential business
benefits, but instead because the business
manager or owner decides that it is simply a
good and right thing to do.
There is overlap between decision makers who
engage in the Philanthropic Model for
reputational reasons and those who follow the
economic view of business’s social
responsibilities.
PHILANTHROPIC MODEL OF CSR

The Philanthropic model in which business

support for a social cause is done simply
because it is the right thing to do differs
from the reputational version in terms of
the underlying motivation.
PHILANTHROPIC MODEL OF CSR

From the perspective of the narrow view of

CSR, only philanthropy done for
reputational reasons and financial ends is
ethically responsible.
§Business managers are the agents of owners,
they have no right to use corporate resources
except to earn owners greater returns on their
investment.
PHILANTHROPIC MODEL OF CSR

From the perspective of the philanthropic

model, philanthropy done for financial
reasons is not fully ethical and not truly
an act of social responsibility.
SOCIAL WEB MODEL OF CSR

It views business as a citizen of the society

in which it operates and, like all
members of a society, business must
conform to the normal ethical duties and
obligations that we all face.
According to philosopher Norman Bowie,
beyond the economic view’s duty to obey
the law, business has an equally
important ethical duty to respect human
rights.
SOCIAL WEB MODEL OF CSR

§Respecting human rights: “Moral

minimum”
§It is expected of every person, whether
they are acting as individuals or within
corporate institutions.
§Bowie identified his approach as a
“Kantian” theory of business ethics.
SOCIAL WEB MODEL OF CSR

“Kantian” theory of business ethics:

§Bowie began with the distinction between the
ethical imperatives to use no harm, to prevent
harm, and to do good.
§People have a strong ethical duty to cause no
harm, and only a prima facie duty to prevent
harm or to do good.
§In Bowie’s view, the obligation to cause no
harm overrides other ethical considerations.
SOCIAL WEB MODEL OF CSR

“Kantian” theory of business ethics:

§The pursuit of profit legitimately can be
constrained by the duty to cause no
harm.
§Managers are the agents of stockholder-
owners and their duty to stockholders
over-rides the ethical imperatives to
prevent harm, and to do good.
SOCIAL WEB MODEL OF CSR
According to Bowie, business has a social
responsibility to respect the rights of its
employees, even when not specified or
required by law.
§Right to safe and healthy workplaces
§Right to privacy
§Right to due process
According to Bowie, business has an ethical
duty to respect the rights of consumers, even
when not specified in law.
§Safe products
§Truthful advertising
SOCIAL WEB MODEL OF CSR

Stakeholder theory
§Every business decision affects a wide
variety of people, benefiting some and
imposing costs on others.
§The economic model argues that the
firm should be managed for the sole
benefit of stockholders
§The stakeholder theory argues, on factual, legal,
economic, and ethical grounds, that this is an
inadequate understanding of business.
SOCIAL WEB MODEL OF CSR
Stakeholder theory
§Stakeholder theory argues that the narrow
economic model fails both as an accurate
descriptive and as a reasonable normative
account of business management.
§Factual, economic considerations diminish
the plausibility of the economic model.
SOCIAL WEB MODEL OF CSR
§ The economic model appeals to two fundamental ethical
norms for its justification: utilitarian considerations of
social well-being and individual rights.
§ On each of these normative accounts, due consideration
must be given to all affected parties.
§ The stakeholder theory acknowledges this fact by requiring
management to balance the ethical interests of all affected parties.
§ Balancing will require management to maximize stockholder
interests; but not always.
§ In its Kantian formulation, stakeholder theory argues that
the overriding moral imperative is to treat all people as
ends and never as means only.
SOCIAL WEB MODEL OF CSR
Stakeholder theory of corporate social responsibility is
proven ethically superior than the classical model.
According to Freeman:
§ The stakeholder theory does not give primacy to one stakeholder
group over another, though there will be times when one group will
benefit at the expense of others.
§ The management must keep the relationships among stakeholders in
balance.
SOCIAL WEB MODEL OF CSR

Stakeholders theory recognizes:

§Some stakeholders have different power and
impact on decisions than others.
§Organizations have distinct missions, priorities
and values, affecting the final decisions.
Therefore, social responsibility would require
decisions to prioritize competing and conflicting
responsibilities.
 INTEGRATIVE MODEL OF CSR

Non-profit organizations: Pursue social ends

as the very core of their mission.
§Examples: NGOs, foundations, professional
organizations, schools, colleges, and
government agencies.
 INTEGRATIVE MODEL OF CSR

Some for-profit organizations have social

goals as a central part of the strategic
mission of the organization.
§Social entrepreneurship
§Example: Grameen bank
§Sustainability
§Interface corporation
INTEGRATIVE MODEL OF CSR

Even advocates of the narrow economic

model of CSR agree that these social goals
should be part of every business model.
Social entrepreneurs demonstrate that profit
is not incompatible with doing good, and
therefore that one can do good profitably.
INTEGRATIVE MODEL OF CSR

Some argue that the ethical responsibilities

associated with sustainability are relevant
to every business concern.
Sustainability offers a model of CSR that
suggests that ethical goals should be at
the heart of every corporate mission.
 INTEGRATIVE MODEL OF CSR

The implications of sustainability in the

Integrative Model of CSR.
§Sustainability holds that a firm’s financial goals
must be balanced against, and perhaps even over-
ridden by, environmental considerations.
 INTEGRATIVE MODEL OF CSR

§Defenders of sustainability point out that all

economic activity exists within a biosphere that
supports all life.
§They argue that present model of economics is
already running up against the limits of the
biosphere’s capacity to sustain life.
 INTEGRATIVE MODEL OF CSR

§The success of a business must be judged

not only against the financial bottom line of
profitability, but also against the ecological
and social bottoms lines of sustainability.
§A firm that is environmentally unsustainable — In
the long-term, financially unsustainable.
 Corporate Social Responsibility Continuum

Do more than
Integrate social
required; e.g.
objectives and
Fight social engage in
business goals
responsibility philanthropic
initiatives giving
Maximize Balance
firm’s profits and
profits to social
the objectives
exclusion of
all else
Do what it
takes to make Comply; do
Lead the
a profit; skirt what is
industry and
the law; fly legally Articulate social
other
below social required value objectives
businesses
radar with best
practices
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