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Topic 3 CSR

This document discusses corporate responsibility and different views on the role and obligations of corporations. It covers: 1) The narrow economic view that corporations only have an obligation to maximize profits for shareholders. The broad view is that corporations have social responsibilities beyond shareholders. 2) The stakeholder approach argues corporations should consider the interests of all groups impacted by their operations, such as employees, communities, suppliers and customers - not just shareholders. 3) Institutionalizing ethics through codes of conduct and training can enhance economic efficiency by building trust, and some of the most profitable companies are also the most socially responsible.

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vivian yee
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31 views25 pages

Topic 3 CSR

This document discusses corporate responsibility and different views on the role and obligations of corporations. It covers: 1) The narrow economic view that corporations only have an obligation to maximize profits for shareholders. The broad view is that corporations have social responsibilities beyond shareholders. 2) The stakeholder approach argues corporations should consider the interests of all groups impacted by their operations, such as employees, communities, suppliers and customers - not just shareholders. 3) Institutionalizing ethics through codes of conduct and training can enhance economic efficiency by building trust, and some of the most profitable companies are also the most socially responsible.

Uploaded by

vivian yee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Topic 3

Corporate Responsibility
Reading: Chapter 4
LEARNING OBJECTIVES
• Define and understand corporate social responsibility
and corporate moral responsibility
• Define the broad and narrow economic views
• Understand the importance of institutionalising ethics
within corporations
• Explore the stakeholder approach
• Have a preliminary and basic understanding of
‘stakeholder approach’ towards corporate governance
Corporate responsibility

• For the corporation, the world is without borders or


central governance.

• Corporations represent another source of political


and economic power.

• Of the world’s top 10 economies, about half belong


to corporations.
What is a corporation?

• An entity that can endure beyond the natural lives of


its members and that can sue and be sued as an
entity.

• The entity can own property and borrow funds for


ventures of limited liability.

• Limited liability means that the members are liable


for the debts of the corporation only up to the extent
of their investments.
Corporations
• Corporations have their existence officially recognised
by the law.

• Shareholders are entitled to a dividend from profits


only when dividends are declared by the corporation.

• Corporations may be either for profit or non-profit.

• Corporations may be privately owned or owned, in part


or whole, by the government.
Corporate moral agency
• Corporations are legal agents but are they moral
agents?

• Corporations enjoy the same status and functions in


society as human beings.

• They can own property, enter into contracts, and make


decisions.
Should corporations, then, be held morally responsible for
their actions?
Vanishing individual responsibility

The sheer size and impersonal structure of the


corporation can result in a diffusion of responsibility.
It is difficult to assign individual responsibility because
corporate structure envelops members.
Who should be responsible for actions?
 Should we attribute moral agency to corporations?
 Should we accept that people are willing to abrogate
themselves of any personal responsibility?
 These two options are not necessarily mutually exclusive.
Rival views of corporate responsibility

• Narrow view: profit maximisation


 ‘Business has no social responsibilities other than to maximise
profits’.
 The purpose of any business is to make profits for its
shareholders; management’s only duty is to protect the
interests of the shareholders.
 The only obligation that business has to others is to stay
‘within the rules of the game’.
Broad view
 social purpose
Broad view: social purpose
Corporations are a human creation invented to serve
human needs.
Business has other obligations in addition to the pursuit of
profit.
Corporations have an obligation to consider the interests of
all groups upon which they have an impact.
The social contract: business has a duty to consider its
impact on society.
Debating corporate responsibility
Arguments for the narrow view
The ‘invisible hand’
Let government do it.
Business can’t handle it.
Corporations lack the expertise.
Corporations will impose their values on us.
The invisible hand

Corporations should not be held morally responsible for


non-economic matters.

To do so would distort the economic mission of business.

It would undermine the foundations of the free-enterprise


system.
Crticisms of the invisible hand argument
Modern corporations bear little resemblance to the self-
sufficient farmers and craftspeople that Adam Smith based
his theory upon.

Modern corporations operate in a political and social


environment in which they are pressured by public opinion
and other outside influences.

Socially responsible corporate behaviour is positively


correlated with financial success.
Let government do it

Corporations are profit-oriented and will profit


themselves while impoverishing society.

Only a strong system of government can, and


should, bring corporations under control.
Criticisms of this approach
It is a blueprint for an intrusive government.

Many questionable activities will be overlooked.

Government can only prescribe behaviour for broad


issues; it cannot anticipate specific moral challenges.

Is government a creditable custodian?


THE BUSINESS CAN’T HANDLE IT
ARGUMENT

It is misguided to encourage corporations to address


non-business issues.
they lack the necessary expertise
they will impose their materialistic values on society

Yet some corporations have demonstrated that they


accept responsibility for the well-being of their
immediate and wider communities.
Corporations lack the expertise

Corporate executives lack the moral and social expertise


to make anything other than economic decisions.

To assign them non-economic responsibilities would be


to place social welfare in the hands of inept
custodians.

Yet, sometimes, it is only business that has the expertise,


talent and resources to tackle problems.
Corporations will impose their values on us

If corporations stray from purely economic matters, they


will impose their values on society.

Rather than moralising corporate activity, they will


materialise society.

Yet corporations already exert considerable discretionary


power over society.
Shareholders and the corporation: narrow view

Corporations should be run entirely for the benefit of


its shareholders.

Shareholders select corporate managers to act as


their agents and advance their interests.
 This argument only holds true for some smaller
companies and venture capitalists investing in a start up
company.

Management has a fiduciary duty to its shareholders.


Shareholders and the corporation: the broad view

The duty to make a profit does not trump a company’s other


responsibilities.

The agency relationship creates an obligation, but that


obligation is not absolute.

Firms are so focused on the bottom line that they are willing
to sacrifice all other values; they should take a broader
view of their responsibilities.
Ethical codes and economic efficiency

There are limits to what the law can achieve so it is


important that companies examine their implicit and
explicit codes of conduct, and their corporate moral
culture.
Ethical codes and economic efficiency

Although adherents of both the broad and narrow


views of CSR tend to assume that ethical behaviour
means less economic efficiency, the most morally
responsible companies are consistently among the
most profitable.
Ethical codes and economic efficiency

Two cases where maximising profits is socially


inefficient:
Where costs such as pollution are not paid for; and
Where the seller has considerably more information
about the product he is selling than does the buyer.

• An effective moral code that, for example, sets


minimal standards of performance and requires full
disclosure of information enhances economic
efficiency by building consumer trust and
confidence.
Corporate moral codes

To institutionalise ethics managers must:


 articulate the firm’s goals;
 adopt an ethical code applicable to all;
 set up an ethics committee to oversee, develop and monitor
the code; and
 incorporate ethics training into all employee development
programs.

For a code to be effective, it must be realistic.


STAKEHOLDER APPROACH

For whose benefit should the corporation be


operated?
 The narrow view contends that a business operates for the
benefit of its shareholders.
 But business operations have an economic and social impact
on society that stretches far beyond its shareholders.

The stakeholder approach attempts to consider the


interests of all upon whom the business has an
impact
Stakeholder approach
Primary impact:
 employees
 local community
 suppliers
 customers
 shareholders

Secondary relationship:
 government
 legal bodies
 the environment

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