Corporate Social Responsibility and Business Ethics

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Chapter 3
Corporate Social Responsibility and Business
Ethics Samuel C. Certo Ninth Edition
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Chapter Objectives(1 of 2)

• An understanding of the term corporate social
  responsibility.
• An appreciation of the arguments both for and
  against the assumption of social responsibilities
  by business.
• Useful strategies for increasing the social
  responsiveness of an organization.
• Insights into the planning, organizing,
  influencing, and controlling of social
  responsibility activities.

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Chapter Objectives(2 of 2)

• A practical plan for how society can help
  business meet its social obligations.
• An understanding of the relationship between
  ethics and management.

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Fundamentals of Social Responsibility(1 of 2)

• Corporate Social Responsibility
• Is the managerial obligation to take action that
  protects and improves both the welfare of society
  as a whole and the interest of the organization.
• According to the concept of corporate social
  responsibility, a manager must strive to achieve
  societal as well as organizational goals.

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Fundamentals of Social Responsibility(2 of 2)

• Material That Presents the Fundamentals of Social
  Responsibility of Businesses
• The Davis model of corporate social
  responsibility.
• Areas of corporate social responsibility
• Varying opinions on social responsibility
• Conclusions about the performance of social
  responsibility activities by business

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The Davis Model of Corporate Social
Responsibility(1 of 2)

• Proposition 1
• Social responsibility arises for social power.
• Proposition 2
• Business shall operate as a two-way open system,
  with open receipt of inputs from society and open
  disclosure of its operations to the public.
• Proposition 3
• The social costs and benefits of an activity,
  product, or service shall be thoroughly
  calculated and considered in deciding whether to
  proceed with it.

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The Davis Model of Corporate Social
Responsibility(2 of 2)

• Proposition 4
• The social costs related to each activity,
  product, or service shall be passed on to the
  consumer.
• Proposition 5
• Business institutions, as citizens, have the
  responsibility to become involved in certain
  social problems that are outside their normal
  areas of operation.

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Areas of Corporate Social Responsibility
Urban Affairs
Consumer Affairs
Employment Practices Affairs
Environmental Affairs
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Varying Opinions on Social Responsibility

• Arguments for Business Performing Social
  Responsibility Activities
• Since business is an influential member of
  society, it has the responsibility to help
  maintain and improve the overall welfare of
  society.
• Arguments against Business Performing Social
  Responsibility Activities
• Requiring business managers to pursue socially
  responsible objectives may be unethical, because
  it compels managers to spend money on some
  individuals that belongs to other individuals
  (i.e., the owners of the firm).

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Conclusions About the Involvement of Businesses
In Social Responsibility Initiatives

• Businesses Should Make a Concerted Effort to do
  the Following
• Perform all legally required social
  responsibility activities.
• Consider voluntarily performing social
  responsibility activities beyond those legally
  required.
• Inform all relevant individuals of the extent to
  which their organizational will become involved
  in performing social responsibility activities.

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Performing Required Social Responsibility
Activities
Table 3.1 Primary Functions of Federal Agencies
That Enforce Social Responsibility Laws
Federal Agency Primary Agency Functions Primary
Agency Functions Equal Employment Opportunity
Commission Investigates and conciliates
employment discrimination complaints that are
based on race, sex, or creed Office of Federal
Contract Compliance Programs Ensures that
employers holding federal contracts grant equal
employment opportunity to people regardless of
their race or sex Environmental Protection
Agency Formulates and enforces environmental
standards in such areas as water, air, and noise
pollution Consumer Product Safety
Commission Strives to reduce consumer
misunderstanding of manufacturers product
design, labeling, and so on, by promoting clarity
of these messages Occupational Safety and Health
Administration Regulates safety and health
conditions in nongovernment workplaces National
Highway Traffic Safety Administration Attempts to
reduce traffic accidents through the regulation
of transportation-related manufacturers and
products Mining Enforcement and Safety
Administration Attempts to improve safety
conditions for mine workers by enforcing all mine
safety and equipment standards
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Communicating the Degree of Social Responsibility
Involvement

• How Much Should a Company Do?
• Determining the extent to which a business should
  perform social responsibility activities beyond
  legal requirements is a subjective process.
• Despite this subjectivity, however, managers
  should have a well-defined position in this vital
  area and should inform all organizational members
  of that position.

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Determining if a Social Responsibility Exists

• Primary Challenge
• One challenge facing managers who are attempting
  to be socially responsive is to determine which
  specific social obligations are implied by their
  business situation.
• Tobacco companies, for example, are probably
  socially obligated to contribute to public
  health.
• Stakeholders
• Most organizations start by determining who their
  stakeholders are.
• Stakeholders are all individuals and groups that
  are directly or indirectly affected by an
  organizations decisions.

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Stakeholder Approach
Stakeholders of a Typical Modern Organization
and Examples of Social Obligations Managers Owe
to Them
Table 3.3
Stakeholder Social Obligations Owed Stockholders/o
wners of the organization To increase the value
of the organization Suppliers of materials To
deal with them fairly Banks and other lenders To
repay debts Government agencies To abide by
laws Employees and unions To provide safe working
environment and to negotiate fairly with union
representatives Consumers To provide safe
products Competitors To compete fairly and to
refrain from restraints of trade Local
communities and society at large To avoid
business practices that harm the environment
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Social Responsiveness and Decision
MakingFlowchart
1. Does a social responsibility really exist in
this case? 2. Does the firm have a right to
undertake this action? 3. Does an assessment of
all interests indicate that the action is
desirable? 4. Do benefits outweigh costs? 4A. Can
subcontracting or other means reduce the cost to
a net beneficial level? 5. Could this action be
better handled by other parties who are willing
to undertake the task? 6. Can we bear the cost of
this action? 7. Do we possess the managerial
competence to do the job? 7A. Can we acquire
needed competence through training or
recruitment? 7B. Can we subcontract the activity
to parties that possess the required competence?
No action
Consider
Consider
Undertake
Flowchart of social responsibility decision
making that generally will enhance the social
responsiveness of an organization
Figure 3.1
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Three Approaches to Meeting Social Obligations(1
of 2)
Social Obligation Approach
Social Responsibility Approach
Is an approach to meeting social obligations that
considers business to have primarily economic
purposes and confines social responsibility
activity largely to conformance to existing
legislation.
Is an approach to meeting social obligations that
considers business as having both societal and
economic goals.
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Three Approaches to Meeting Social Obligations(2
of 2)
Social Responsiveness Approach
Is an approach to meeting social obligations that
considers business to have societal and economic
goals as well as the obligations to anticipate
potential social problems and to work actively
toward preventing them from occurring.
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Integration of Social Responsibility Activates
and Planning Activities
ENVIRONMENTAL FORECASTS Social Economic Politic
al Technological
Result in
Result in
Result in
Long-Run Plans
Short-Run Plans
Management Action
FEEDBACK
Integration of social responsibility activities
and planning activities
Figure 3.2
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The Social Audit

• Social Audit
• A social audit is the process of measuring the
  present social responsibility activities of an
  organization. It monitors, measures, and
  appraises all aspects of an organizations social
  responsibility performance.

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Business Ethics

• Ethics
• Is our concern for good behavior our obligation
  to consider not only our own personal well-being
  but also that of other human beings.
• Business Ethics
• Involves the capacity to reflect on values in the
  corporate decision-making process, to determine
  how these values and decisions affect various
  stakeholder groups, and to establish how managers
  can use these observations in day-to-day company
  management.

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Why Ethics is a Vital Part of Management Practice
The employment of ethical business practices can
enhance overall corporate health in three
important areas
Productivity
Stakeholder Relations
Government Regulation
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A Code of Ethics

• Code of Ethics
• A code of ethics is a formal statement that acts
  as a guide for making decisions and acting within
  an organization.
• A total of 90 of Fortune 500 companies, and
  almost half of all other firms, have ethical
  codes.
• Codes of ethics commonly address such issues as
  conflict of interest, competitors, privacy of
  information, gift giving, and giving and
  receiving political contributions or business.

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Determining If Something Is or Isnt Ethical(1
of 3)

• The Golden Rule
• Act in a way that you would expect others to act
  towards you.
• The Utilitarian Principle
• Act in a way that results in the greatest good
  for the greatest number of people.
• Kants Categorical Imperative
• Act is such as way that the action taken under
  the circumstances could be a universal law, or
  rule, of behavior.

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Determining If Something Is or Isnt Ethical(2
of 3)

• The Professional Ethic
• Take actions that would be viewed as proper by a
  disinterested panel of professional peers.
• The TV Test
• Managers should always ask, Would I feel
  comfortable explaining to a national TV audience
  why I took this action?
• The Legal Test
• Is the proposed action or decision legal?
  Established laws are generally considered minimum
  standards for ethics.

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Determining If Something Is or Isnt Ethical(3
of 3)

• The Four-Way Test
• Managers can feel confident that a decision is
  ethical is they can answer yes to the following
  questions
• Is the decision truthful?
• Is it fair to all concerned?
• Will it build goodwill and better friendships?
• Will it be beneficial to all concerned?