Week 5

Corporate Social Responsibility (CSR)

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Recap

• The power of organisational context

• Organisational culture
• Formal and Informal Cultural Systems,
• The relationship between:
o Leadership & Organisational culture
o Ethics codes and behaviour

2
Overview

• The concept of CSR

• Core characteristics of CSR
• Corporate social responsibility perspectives
o Classical view (Milton Friedman)

o Contemporary view (Carroll)

o Stakeholder view (Edward Freeman)

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Apple 'failing to protect Chinese factory workers'
https://www.youtube.com/watch?v=kSvT02q4h40

4
Nike was criticised for poor working condition
https://www.youtube.com/watch?v=Vf_02xwQ4PQ

5
Coca-Cola Vietnam being watched for tax evasion

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Vedan admits to polluting parts of Thi Vai River
https://www.youtube.com/watch?v=50VZA6lc2ek

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Formosa Steel Plant - Massive Fish Deaths
• Formosa released toxic wastewater into the ocean.
• Causing massive fish deaths in several central provinces of Viet Nam.
• Who gets what?
Who has to suffer?

8
Toyota to pay $1.3 B for deadly defect cover-up
• Toyota misled US consumers by concealing
and making deceptive statements over two
safety issues that caused cars to accelerate
even as drivers tried to slow them down.
o https://www.youtube.com/watch?v=X8jGTwXP
EXs
o http://www.abc.net.au/news/2014-03-20/toyota
-pays-1-3-billion-for-defect-cover-up-statement
s/5332894

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• Do you think corporations have responsibilities to society?
• If yes, to whom?
Why?

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11
Growing Need and Pressure
• Corporations have a strong impact on society
• As a result, there is a growing need and pressure for them to be
socially responsible toward many parties/stakeholders.

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Responses from Companies
• Companies have responded to that growing need and pressure by pursuing
various activities, e.g.,
o Developing quality and safe products,
o Improving employees’ working conditions,
o Treating employees fairly and respect human rights everywhere,
o Protecting the environment,
o Contributing to the development of local communities, and
o Doing philanthropy…

•These activities have been characterised by a very common term:

Corporate Social Responsibility.

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Responses from Companies
1. Some companies fail to perform their social responsibilities and then pursue them to
respond/react to the pressure/concerns from stakeholders
• Examples:
o Since the early 2000s, Coca-Cola Company, its subsidiaries and products, have been
criticized by various groups, concerning a variety of issues, including health effects,
environmental issues, and business practices.
o Coca Cola now pursues various CSR activities to respond to these concerns.
o Similarly, Apple and Nike were criticized for poor treatment of their suppliers’ workers,
but they now work hard to raise ‘factory labor and safety standards’.
o Nike, for example, warns its contract manufacturers that: “adhere to new labor and
sustainability standards or risk losing Nike’s business”.
• This approach is reactive, and the firm has to play catch–up to repair damage (Trevino,
Nelson, 2014).

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Responses from Companies
2. Some companies strategically analyze their practices and actively pursue CSR activities
• These firms actively pursue CSR activities in areas where their business may potentially
be harmful to society
• This may help them to avoid damage of reputation (and thus profit), maintain legitimacy, and
ensure a good corporate citizen.
o For example, Starbucks is committed to “100% ethically sourced coffee” and
protection of environment.
o Starbucks only purchases coffee from farmers who preserve forests
• The firms following this approach also actively pursue CSR activities that the companies
are good at and may bring profit to the companies.
o For example, Toyota develops hybrid cars.
(Trevino, Nelson, 2014)

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Responses from Companies
3. Some companies just pursue CSR activities because of ethical reasons, i.e. it is the right
thing to do
• Merck, an American pharmaceutical company, invested about $200 million to develop a
medicine for the river blindness disease which affected millions of people in developing
countries.
• Honda strictly pursues its philosophy of fuel economy to protect the environment.

(Trevino, Nelson, 2014)

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So, what is CSR ?
• Numerous definitions – No single definition that is universally accepted.
• Here are some notable definitions of CSR:
1. ‘the firm’s consideration of, and response to, issues beyond the narrow economic,
technical, and legal requirements of the firm’ (Davis, 1973);
2. ‘a way in which enterprises give consideration to the impact of their operations on society’
(International Labour Organisation);
3. “a way of realizing its ‘social responsibilities’ beyond making a profit for its shareholders”
(Corporate Responsibility Coalition – CORE, 2011)
4. a way in which businesses ‘try to do good to the people while conducting their business.
But profit-making still remains their main goal’ (Grameen Bank – Bangladesh)
5. ‘a concept whereby companies integrate social and environmental concerns in their
business operations and in their interaction with their stakeholders on a voluntary basis’
(Commission of the European Communities, 2002)

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Core characteristics of CSR

(Crane, Matten & Spence 2014)

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Voluntary
• CSR is about voluntary activities that go beyond those prescribed by
the law.
• For example, McDonald’s, KFC, Pret A Manger, and Pizza Hut
voluntarily agreed in 2011 to introduce calorie labelling in the UK on
their food and beverage items.
(Crane, Matten & Spence 2014)

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Managing externalities
• Externalities are the positive and negative side-effects of corporations’ economic
behaviour
• However, externalities are born by others, not the corporations, and are not taken into
account in a firm’s decision-making process, and also not included in the market price
for goods and services.
• Pollution is a classic example of an externality - local communities bear the costs of
manufacturers’ actions.
• Many CSR activities deal with such externalities (for example, minimizing carbon
emissions, calculating the social and economic impacts of downsizing, or reducing
the health impacts of ‘toxic’ products).

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Multiple stakeholder orientation
• Undeniably, firms have responsibilities to shareholders
• However, firms also rely on various other stakeholders such as
consumers, employees, suppliers, and local communities to survive
and prosper.
• As a result, firms have responsibilities not only to shareholders, but
also to various other stakeholders.
• CSR thus involves considering the interests of, and the impact on,
multiple stakeholders other than just shareholders.
(Crane, Matten & Spence 2014)

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Alignment of social and economic responsibilities
• While CSR may be about going beyond a narrow focus on
shareholders and profitability, many also believe that it should not,
however, conflict with profitability.
• This feature gives rise to a heated debate – i.e. how firms can be both
profitable and socially responsible in doing CSR.
• However, it is widely accepted that CSR may support long-term
business growth and success.
(Crane, Matten & Spence 2014)

22
Practices and values
• CSR is clearly about a particular set of business practices and
strategies that deal with social issues,
• However, it is also about something more than that – namely a set of
values such as fairness, respect, and integrity that underpins these
practices.
(Crane, Matten & Spence 2014)

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Beyond philanthropy
• In some regions of the world, CSR is mainly about philanthropy – i.e.
corporate donation towards the less fortunate.
• However, ‘real’ CSR is more than just philanthropy and community
giving.
• It is about how the entire operation of a firm (e.g., production,
marketing, procurement, human resource management, logistics,
finance…) impacts upon society.
(Crane, Matten & Spence 2014)

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CSR - Summary
• CSR has gained prominence in recent years
• CSR has six core characteristics.
• It focuses on the company’s responsibilities towards its stakeholders.
• In the previous weeks, we consider ethics of individuals. This week,
with CSR, we are looking at ethical behaviour of corporations.
• By considering that corporations have responsibilities towards society,
we also hold them morally responsible for their actions as we hold
individuals morally responsible for their actions.

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Different Views on Social Responsibility of
Corporations
1. Classical view – Milton Friedman

2. Contemporary view - Carroll

3. Stakeholder view – Edward Freeman

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Classical View – Milton Friedman
The case against CSR
• Milton Friedman considered that
• Primary goal and motivation of business is profit.
• Thus, there is one and only one social responsibility of business – that is to make
as much money for the stockholders as possible.
• Importantly, a corporation executive is an agent serving his principals/shareholders.
• Thus, a corporation executive does not have the right to spend someone else’s
money – i.e. shareholders’, customers’ or employees’ money – to further social
interests.
• Suppose he could spend someone else’s money, how is he going to do that ?
(Friedman, 2002)

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Classical View – Milton Friedman
The case against CSR
• To Friedman, if we want companies to behave responsibly, we should
establish a legal framework with rules and regulations to require
companies to do so.

• For example, to protect environment or ensure quality products, there

should be law governing these issues and corporations have to follow
the law.
(Friedman, 2002)

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2. Contemporary View - Carroll
• According to Carroll, the social responsibility of business consists of four different
types of responsibility
o Economic responsibilities,
o Legal responsibilities,
o Ethical responsibilities, and
o Discretionary/philanthropic responsibilities.

• These types of responsibility are tied together as a whole and must be considered
by the companies simultaneously.

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Carroll’s Pyramid of
Corporate Social Responsibility

Philanthropic responsibilities

Ethical responsibilities

Legal responsibilities

Economic responsibilities
(Carroll 1991, 1998)

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 Desired

Expected

Required

Required
(Carroll 1991, 1998)

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Corporate Social Responsibilities
1. Economic responsibilities
• The primary function of business is to produce goods and services for society, while
making an acceptable profit.
• This responsibility is the bedrock of CSR. Without financial viability, other responsibilities
are dubious.
2. Legal responsibilities
• Business is required to carry out its work lawfully.
• However, it should be noted that
o Law is only the minimum standards of acceptable behaviour
o Not every societal expectation has been codified into law
o Law is not always up to date
o Laws may lag behind ethical thinking
(Carroll, 2014)
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Corporate Social Responsibilities
3. Ethical responsibilities
• Ethical responsibilities go beyond legal responsibilities to include more general
responsibility to avoid harm and do what is right, just, and fair.

• Business ethics is concerned with ‘knowing ethics’ and ‘doing ethics’

4. Philanthropic responsibilities
• Responsibilities to contribute resources (time, money, goods, services...) to the
community, and improve quality of life.

• Voluntary endeavour - failure to be philanthropic not considered unethical.

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Problems with the Pyramid -
Four Faces Approach
• The four responsibilities actually overlap substantially.
• Philanthropic responsibility should be within the economic and ethical
spheres
• The pyramid structure creates the impression of hierarchy which is
untrue.
• Carroll updated this pyramid structure of CSR into a “Three Domain
Approach”.

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Three Domain Approach -
Schwartz & Carroll (2003)
Legal
Legal

Legal & Economic Legal & Ethical

Legal, Economic &

Ethical

Economic Ethical
Economic & Ethical

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3. Stakeholder Theory (Freeman)
• Stake: an interest in, or a right to, something

• Stakeholders: any group or individual who can affect or is affected

by the achievement of the Organisation’s purpose (Freeman 2010).

• ‘Businesses can be understood as a set of relationships among groups

that have a stake in the activities that make up the business’.
(Freeman 2008)

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Stakeholders

(Freeman 2008)

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3. Stakeholder Theory (Freeman)
• Corporations ought to create as much values for stakeholders as possible.

• No stakeholder’s interest is viable in isolation of the other stakeholders’

interests.

• Stakeholder theory thus contrasts with the classical view which puts
shareholders at the center of the firm (over and above the interests of customers,
suppliers, employees and other stakeholders).

• Stakeholder theory considers stakeholder interests as joint, as a single unit, as

inherently tied together.

(Freeman 2008)

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Shareholder/classic &
Stakeholder views of the firm
Why do organisations exist?
Shareholder/classical view Stakeholder view

To maximise shareholder To create sustainable value, not

wealth wealth, for all stakeholders

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Three Aspects of the Stakeholder Theory

(Donaldson & Preston 1995)

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Three Aspects of the Stakeholder Theory
The stakeholder theory makes three important points:
• First, a corporation is a combination of interconnected interest groups (descriptive
aspect)
• Second, corporations that adopt CSR will be more successful than corporations that
do not - other things being equal (instrumental aspect)
• Third, and most importantly, creating/maximizing values for ALL stakeholders
is the right thing to do under various normative ethical theories such as
utilitarianism, duties-based theories, Kantianism, justice ethics, and virtue ethics
(normative aspect).

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The Normative Aspect
• Utilitarianism:
o Creating/maximizing values for ALL stakeholders is the right thing to do under utilitarianism.
o Do you know why ?
o It produces the best outcomes for all stakeholders.
• Duties-based theories:
o Do companies have moral duties towards stakeholders (e.g., consumers, employees,
shareholders, and communities) ?
o Why ?
o Stakeholders are affected by companies’ operation & they have basic rights that need to be
respected.
o Creating/maximizing values for ALL stakeholders helps companies fulfill their moral
duties towards various stakeholders.
o Thus, it is the right thing to do under the duties-based theories.

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The Normative Aspect
• Creating/maximizing values for ALL stakeholders is the right thing to do under
justice ethics.
• This is because…
o Creating/maximizing values for ALL stakeholders helps to allocate benefits
fairly among all stakeholders
 (this is distributive justice - who gets how much of the Organisational
outcomes cake?)
o Creating/maximizing values for ALL stakeholders also helps to answer the
question as to who gets a say in deciding how the benefits should be
shared (the decision making process)
 (this is procedural justice - who gets a say in deciding how the cake is
baked/shared).

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The Normative Aspect
• Virtue Ethics:
o Creating/maximizing values for ALL stakeholders is the right thing to do under
virtue ethics
o This is because it helps to promote business virtues of the company/the
executives.
 e.g., loyalty to the interests of stakeholders, efficiency, fairness, respect, and
integrity…

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Summary of the debate: For & Against CSR
• The classic view argues against CSR.
• The contemporary view & stakeholder view argue for CSR
• Which view(s) do you think is/are more convincing?
• It seems that the contemporary view & stakeholder view are more convincing because …
o Corporations have impact on society => they should minimize the negative impact on society.
o These views are more consistent with the normative ethical theories;
o Corporations are born into and operate in society - part of society, it is thus reasonable to
required them to behave responsibly to society.
o In the words of Cadbury,
 the continued existence of companies is based on an implied agreement between
business and society
 The essence of this implied agreement is that companies shall not pursue their
immediate profit objectives at the expense of the long term interests of the community
(Cadbury, 2002).

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Further readings on the debate
The case against CSR – Karnani (2010)
Karnani’s arguments against CSR:
• “Companies that simply do everything they can to boost profits will end up increasing
social welfare”
• Problem - misalignment between private and public interests
o Executives choose profit - otherwise incompetent or selfish, CG problem.

• How then should we ensure good corporate behaviour?

1. Regulation 2. Activism
3. Self-regulation 4. Punishment - financial

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The case for CSR – Smith (2003)
• Global Iimpact of business demands greater CSR
• Enlightened self-interest
• Reputational risk
• Societal expectations – Social License to Operate (SLO)

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Conclusions
• There is a growing need, and pressure, for companies to be socially responsible.
• CSR has 6 core characteristics.
• There are three principal theories on CSR:
o Classic View: Against CSR;
o Contemporary and Stakeholder Views: For CSR

• Mixed findings on the relationship between CSR and company performance but
generally positive (Margolis and Walsh 2003).

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References
• Carroll, AB 1991, 'The pyramid of corporate social responsibility: Toward the moral management of Organisational
stakeholders', Business Horizons, vol. 34, no. 4, pp. 39-48.

• Carroll, AB 1998, 'The Four Faces of Corporate Citizenship', Business and Society Review, vol. 100, no. 1, pp. 1-7.

• Crane, A, Matten D & Spence, L (2014) Corporate Social Responsibility: Readings and Cases in a Global Context, 2nd edn,
Routledge, New York, USA.

• Donaldson, T & Preston, LE 1995, 'The stakeholder theory of the corporation: Concepts, evidence and implications',
Academy of Management Review, vol. 22, no. 1, pp. 65-91.

• Elkington, J Cannibals with Forks: The Triple Bottom Line of 21st Century Business, New Society Publishers, UK.

• Epstein, EM 1999, 'The continuing quest for accountable, ethical and humane corporate capitalism', Business & Society,
vol. 38, no. 3, pp. 253-67.

• Freeman, RE 2008, 'Managing for Stakeholders', in T Donaldson & PH Werhane (eds), Ethical Issues in Business: A
Philosophical Approach, 8 edn, Prentice Hall, London, pp. 39-53.

• Freeman, RE 2010, Strategic management: a stakeholder approach, Cambridge University Press, UK.

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References
• Friedman, M 2002, Capitalism and Freedom, Fortieth Anniversary Edition, University of Chicago Press.
• Friedman, M 2007, 'The social responsibility of business is to increase its profits', in WC Zimmerli, M Holzinger & K Richter
(eds), Corporate Ethics and Corporate Governance, Springer Berlin, pp. 173-8.
• Karnani, A 2010, 'The Case Against Corporate Social Responsibility', Wall Street Journal, 23 August 2010.
• Margolis, JD & Walsh, JP 2003, ‘Misery loves companies: Rethinking social initiatives by business’, Administrative Science
Quarterly, vol. 48: 265-305.
• Matten, D & Moon, J 2008, ‘Implicit and explicit CSR: a conceptual framework for a comparative understanding of
corporate social responsibility’, Academy of Management Review, vol.33(2): 404-424.
• Phillips, R, Freeman, RE & Wicks, AC 2003, 'What stakeholder theory is not', Business Ethics Quarterly, vol. 13, no. 4, pp.
479-502.
• Smith, NC 2003, ‘Corporate Social Resonsibility: Whether or How?’, California Management Review, Summer, vol.45 (4),
pp.52-76.Smith, NC (2003)
• Schwartz, MS & Carroll, AB 2003, ‘Corporate Social Responsibility: A Three-Domain Approach’, Business Ethics Quarterly,
vol. 13, no. 4 (Oct., 2003), pp. 503-530
• Wilmot, S 2001, 'Corporate moral responsibility: What can we infer from our understanding of organisations?’, Journal of
Business Ethics, vol. 30, pp. 161-9.

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