Business 303 Sheppard Business Society Ethics Week

Business 303 Sheppard Business Society & Ethics, Week 5: Corporate Social Responsibility (CSR) Pro & Con

BUSINESS ETHICS WEEK 6: MAIN QUESTIONS 1. 2. 3. 4. 5. 6. 7. What is Corp. Social Responsibility. Where does this discussion come from? What are the for & against arguments regarding the Libertarian CSR view. What is the Managerial CSR view? What is the Stakeholder view of CSR? How do the views fit together? Are there some alternatives to CSR? 2

1 a. What is CSR? • The notion that corporations have an obligation to constituent groups in society other than stockholders and beyond that prescribed by law Jerry, or union contract. – Voluntary. – Broad obligation. Cut out the Tom Jones jokes or I’m going to revoke your degree. Tom Jones, C. M. R. 1980 3

1 b. CSR, So What? • There is a gap between today’s law and the law of the future. • What’s legal and irresponsible today may well be illegal tomorrow. • Examples: – Hooker Chemical & Love Canal. – Most Asbestos Cases. • Paul Brouder… • Death Benefit Cheaper than worker’s Comp. 4

2. What is the current debate? • The issue as to the proper role of corporations regarding their responsibility to society. • Origins in: – State creation of the Corp. – Legitimacy argument. – Noblesse Oblige. 5

3. Libertarian View (1/7) [241 -45] • Business as ‘unwitting puppet. ’ – They are the unwitting accomplices to the expansion of the (socialist) welfare state. – They are helping the expansion of the state into private affairs. – This results in loss of personal freedom to pursue ones ends in a free market. – Flaw in the argument: • U. S. origins of the Distrust of Big Government. 6

3. Libertarian View (2/7) [241 -45] • Direct responsibility to employers. – The fiduciary responsibility managers have to the shareholders. – If return is less than might otherwise be the case the mgr. hasn’t acted legally. • Voluntary vs. ‘social’ responsibilities. – One may volunteer their own efforts for whatever efforts they feel are beneficial. – When agents do it on behalf of a principal without permission they are 7 acting ultra vires.

3. Libertarian View (3/7) [241 -45] • Using the money of the shareholders. – Managers have a fiduciary responsibility to the shareholders. – They have been hired to maximize profits as best they can. – To use funds for any other purpose is tantamount to embezzlement. 8

3. Libertarian View (4/7) [241 -45] • Darwinian struggle for survival. [267] – Lose focus & others will crush you. – Flaws in the argument: • Pay for what you buy / Legitimate Altruism • The opposite may be true. • Caveat Emptor [239] – Buyers know markets are fraught with peril. – Flaws in the argument: • The assumption is that consumers understand complex issues. • Risks may not be known or knowable. 9

3. Libertarian View (5/7) [241 -45] • Business vs. civil servants. – Not the managers job to act in the social interest / We elect people to do this job. – Who are managers to self select themselves to do this job. – Managers are effectively imposing a tax (or spending monopoly profits. – Flaws in the argument: • May be better to have Powerful organizations influenced by both Voice & Exit (Hirschman). • Do you really want big government doing it all. 10

3. Libertarian View (6/7) [241 -45] • The ‘suicidal impulse’ of business. – To undertake CSR is to cut one’s competitive position. – This would violate managers’ obligation to shareholders. • Freedom vs. conformity. – Notion that CSR compels those in an otherwise free market to undertake acts they would not otherwise take on. 11

3. Libertarian View (7/7) [241 -45] • The expertise of business – What do managers know about addressing social issues, let experts handle it. – Flaws in the argument: • You can learn. • We expect you to have broad knowledge. • New expertise can be bought (computers). 12

4. An Opposing View (1/4) • Promissory argument [246] – The idea that managers made a promise to shareholders to maximize profit. – Flaws in the argument: • Few shareholders directly purchased shares from the company. • In many cases employees & communities have a larger ‘investment’ in the firm. • Why, under such circumstances, would shareholders hold primacy? 13

4. An Opposing View (2/4) • Agency argument [247] – The notion that managers, as agents of the shareholders, must profit maximize. – Flaws in the argument: • Again, employees & communities have a larger ‘investment’ in the firm. • As agents, managers have wide discretion to pursue acts that may include CSR to insure in the company’s long term health. • Who says shareholders, as principles, only want profit maximization. 14

4. An Opposing View (3/4) • Role argument [247] – CSR means that managers are overstepping their role. – Flaws in the argument: • If you reduced pollution more than the law required would courts say you could not? • Other issues of the best public interest. 15

4. An Opposing View (4/4) • Polestar argument [248] – Easiest & obvious guide to managers’ actions (moral decisions are difficult). – Notion that managers need a guide that logically gives primacy to shareholders. – Flaw in the argument: • Just because moral judgments are inherently difficult does not mean that they do not need to be made. 16

5. The Managerial View (1/2) • Scientific Management. – Our job is to improve performance. • Corp. Internal decision structure. – Inward looking hierarchical (Mechanistic). • Narrow definition of s-holders. • The explicit social contract. – Material advancement for discretion. • Moral Agency. – Is only possible for real live humans. 17

5. The Managerial View (2/2) • Managerial managers. – Neither transforming nor servant. • Pre-NIMBY. – Corporate influence. – The company owned town. • Stakeholders. – Inequality. • Legal regulation is sufficient. • Tolerance of imperfect competition. 18

6. The Stakeholder View (1/4) [246 -75] • New view of moral agency. – Top Management Teams & Boards have the ability to be moral agents. – These folks also are charged with developing & maintaining corp. culture. • Corp. Internal decision structure. – Strategic exchange in- / out- ward focus (Organic / Corp Culture argument). • Wider definition of s-holders. 19

6. The Stakeholder View (2/4) [246 -75] • Avoiding ‘tragedy of the commons. ’ – Reducing the spoiling of the air & water. • Equitable sharing of costs. – Internalization of externalities. • The implicit social contract. – Broad concern in exchange for profit. • Persons as ‘ends unto themselves. ’ 20

6. The Stakeholder View (3/4) [246 -75] • Solidarity & social-mindedness. • Co-op capitalism. – Cooperative moves • Social audit – Numerous different stakeholders with differing views of performance. – Looking at multiple bottom lines. 21

6. The Stakeholder View (4/4) [246 -75] • Altruistic vs. selfish motives? – At least a balance of interest. • Social efficiency. – What does it mean to say that the corporation provides value. • Ethical codes. – One critical step toward establishing an ethical corporate culture. – Be careful, the courts may hold you to it. – They’re only as good as the leadership. 22

7. Johnson & Johnson’s Credo (1/4) We believe our 1 st responsibility is to doctors, nurses & patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customer’s orders must be serviced promptly and accurately. Our suppliers & distributors must have an opportunity to make a fair profit.

7. Johnson & Johnson’s Credo (2/4) We are responsible to our employees, the men & women who work with us throughout the world. Everyone must be considered an individual. We must respect their dignity & recognize their merit. They must have a sense of security in their jobs. Compensation must be fair & adequate & working conditions clean, orderly and safe. Employees must feel free to make suggestions & complaints. There must be equal opportunity for employment, development & advancement for those qualified. We must provide competent management, and their actions must be just and ethical

7. Johnson & Johnson’s Credo (3/4) We are responsible to the communities in which we live & work and to the world community as well. We must be good citizens - support good works & charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment & natural resources.

7. Johnson & Johnson’s Credo (4/4) Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should earn a fair return.

8. Clash of the Three Visions Libertarian, Managerial, Stakeholder • The social duty of philanthropy. • Implicit social contract. – Written and unwritten laws. – Interpretation. – Global impact. • ‘Narrow’ stakeholder capitalism. – Primary stakeholders. • ‘Wide’ Stakeholder capitalism. – Secondary & tertiary stakeholders. 27

9. Alternatives to C. S. R. • Legal Regulation (Command & Control? ) • Taxation (Pollution Tax) • Legal Liability (We will be sued!) • Ethical Codes (Professions: Legal / Medical) 28

Midterm • Short Answer: 8 questions 7% each. • Multiple Choice 44 questions 1% each. • Some names to remember. – Jones – Kohlberg – Lindblom – Machiavelli Milgram ― Mintzberg ― Rest ― Zimbarto ― 29

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