Topic 5-6

Theories of Social Responsibility,

The Corporate Social Audit and
Corporate Sustainability
What is CSR?
 The phrase “corporate social responsibility” refers
to a corporation’s responsibilities or obligations
toward society.
 What those obligations include:
 Do companies have a responsibility to donate to
charities or to give their employees higher wages and
customers safer products?
 Or are they obligated to maximize profits for their
shareholders or stockholders?
 The title corporate social responsibility has two
meanings:

 First, it’s a general name for any theory of the

corporation that emphasizes both the responsibility to
make money; and the responsibility to interact ethically
with the surrounding community.
 Second, corporate social responsibility is also a specific
conception of that responsibility to profit while playing a
role in broader questions of community welfare.
The Institute of Directors, UK, 2002.

 “CSR is about business and other organizations

going beyond the legal obligations to manage the
impact they have on environment and society. In
particular, this could include how organizations
interact with their employees, suppliers, customers
and the communities in which they operate, as well
as the extent they attempt to protect the
environment.”
 Theories of Social Responsibility
 Four Theories for Social Responsibility:
1. Maximizing Profits
2. Moral Minimum
3. Stakeholder Interest
4. Corporate Citizenship
 Theories of Social Responsibility

Maximizing Moral
Profits Minimum

Corporate Stakeholder
Citizenship Interest
 1. Maximizing Profits

 A theory of social responsibility that says a

corporation has a duty to take actions that
maximize profits for shareholders.

 The interests of other stakeholder are not

important.
 2. Moral Minimum

 A theory of social responsibility that says a

corporation’s duty is to make a profit while
avoiding harm to others.

 As long as business avoids or corrects the

social injury, it has met its duty of social
responsibility.
Moral Minimum (continued)
 The legislative and judicial branches of
government have established laws that
enforce the moral minimum of social
responsibility on corporations.
 e.g., Occupational safety laws.
 e.g., Consumer protection laws for product
safety.
 3. Stakeholder Interest
 A theory of social responsibility that says a corporation must
consider the interests of all stakeholders, including stockholders,
employees, customers, suppliers, creditors, and local community.
 A stakeholder is “any identifiable group or individual who can
affect the achievement of an organization’s objectives or who is
affected by the achievement of an organization’s objectives.”
 A stakeholder is anyone the corporation can harm, benefit, or
influence, as well as anyone that can harm, benefit, or influence
the corporation. A stakeholder, in short, is anyone who has a
“stake” in what the company does.
For example
 General Motors impacts the lives of its customers when it
decides how much safety it will build into its cars, it impacts
employees when it sets salaries, it impacts the local
community when it shuts down a plant, and it impacts its
shareholders when it increases their dividends. On the other
hand, government can impact General Motors through the
laws and regulations it passes, creditors can impact it by
raising their interest rates or calling back a loan, and
suppliers can impact it by raising. their prices or lowering the
quality of the car parts they provide.
 General Motors’ stakeholders, then, include customers,
employees, local communities, stockholders, government,
creditors, and suppliers.
 Stakeholder theory is about who should get the profits.
 Stakeholder theory says that the manager should give
stockholders a fair share of profits, but in a way that allows
all other stakeholders to also get their fair share. For
example, investing in better working conditions for
employees or in safer products for consumers, or in
reducing pollution for the local community, even if this
reduces the share of profits stockholders would get.
 This theory was criticized because it is difficult to harmonize
the conflicting interests of stakeholders.
Employees Suppliers

Customers

Creditors Local
Community
 4. Corporate Citizenship
 A theory of responsibility that says a
business has a responsibility to do good and
helping to solve social problems.
 Corporations owe a duty to promote the
same social goals as do individual members
of society.
Corporate Citizenship (continued)
 This theory argues that corporations owe a
debt to society to make it a better place.
 This duty arises because of the social power
granted on corporations.
 A major criticism of this theory is that the
duty of a corporation to “do good” can not be
expanded beyond certain limits.
Theories of Social Responsibility – Summary

Theory Social Responsibility

Maximizing profits To maximize profits for stockholders.

Moral minimum To avoid causing harm and to compensate for

harm caused.
Stakeholder interest To consider the interests of all stakeholders,
including stockholders, employees, customers,
suppliers, creditors, and local community.

Corporate citizenship To do good and solve social problems.

 The Corporate Social Audit
 Definition of Social Auditing (SA):
 SA: is a formal review used to measure the impact
that a corporation has on its clients, staff and
society as a whole.
 The purpose of a social responsibility audit is to
ensure that the company is doing all it can to
support non-tangible gains such as employee
satisfaction, community support and customer
loyalty.
What is Social Auditing?
SA is a management tool and accountability
mechanism which can enhance an organization’s
capacity to:
 Evaluate their impact on stakeholders.

 Determine how well they are living up to the values

they promote.
 Improve their strategic planning process by
identifying potential problems before they come up;
and
 Increase their accountability to the groups they
serve and depend on.
Reasons to conduct a SA:

 Know what is happening.

 Understand what people think and want.

 Tell people what you are achieving.

 Strengthen loyalty / commitment.

 Enhance decision-making.

 Improve overall performance.

The Corporate Social Audit :
 A social audit looks at factors such as :
1. a company’s record of charitable giving.
2. volunteer activity.
3. energy use.
4. work environment.
5. Worker safety.
6. Consumer protection.
 Social audits are optional--companies can choose
whether to perform them and whether to release the
results publicly or only use them internally.
The Corporate Social Audit :

 Corporate audits should be extended to

include the moral health of the corporation.

 Corporations that conduct social audits will

be more suitable to prevent unethical and
illegal behaviors by managers, employees,
and representatives.
The Corporate Social Audit (continued)

 The audit would examine how well:

 Employees have followed the company’s
code of ethics; and
 The corporation has met its duty of social
responsibility.
The Corporate Social Audit (continued)

Companies should institute the following

procedures when conducting a social audit:
1. An independent outside firm should be hired
to conduct the audit.
 This will ensure autonomy and objectivity.

2. The company’s staff should cooperate fully

with the auditing firm while the audit is being
conducted.
The Corporate Social Audit (continued)

Procedures for conducting the audit (continued):

3. The auditing firm should report its findings
directly to the company’s board of directors.
4. The board of directors should determine
how the company can:
 Better meet its duty of social responsibility;
and
 Use the audit to implement a program to
correct any insufficiency it finds.
 Corporate Sustainability
 Corporate sustainability : involves meeting
the needs of today’s stakeholders in a
manner that protects the environment and
resources needed for future generations,
directed at improving a company’s Triple
Bottom line (TBL).
 The TBL is an accounting framework that
includes three dimensions of performance:
social, environmental and economic.
 Corporate Sustainability

The Triple Bottom Line (TBL) is made up of:

"Social, Economic and Environmental"

"People, Profit, Planet "

Triple Bottom Line (TBL)
 What is triple bottom line reporting?

TBL reporting : “ is a framework for measuring

and reporting corporate performance against
economic, social and environmental factors”

 A move from one dimensional economic

reporting to three dimensional economic, social
and environmental reporting.
Economic factors:
 Generally accounting principles.
 Customers.
 Suppliers.
 Employees.

Social factors:
 Bribery and corruption.
 Child labor.
 Training and diversity.
Environmental factors:
 Energy.
 Water.
 Emissions, and waste.
 Triple Bottom Line (TBL)

TBL reporting enables organizations to:

1. Measure and manage their financial and non-
financial performance.
2. Have their performance and impacts
demonstrated independently.
3. Communicate effectively with consumers,
governments, investors, employees, other
stakeholders and supervisory groups.
 How is TBL reporting achieved?
 TBL reporting achieved through the application of
what is called the Global Reporting Initiative “GRI’.
 GRI is “a common framework for sustainability
reporting”
https://www.globalreporting.org/Pages/default.aspx

 Started in 1997 by the combination for Environmentally

Responsible Economies and the United Nations.
 Global Reporting Initiative “GRI”

 GRI became independent in 2002, and is an

official collaborating centre of the United
Nations Environment Programme (UNEP) and
works in cooperation with UN Secretary-
General.