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Corporate Social Responsibility

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Corporate Social Responsibility

Corporate Social Responsibility

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  • 1. Objectives Social Responsibility What is the role of companies? 250-366 What is corporate social responsibility? What are some approaches? Classical approach vs. – Stakeholder theory – Chapter 1 Corporate Social Responsibility Historical Perspective on CSR Classical economic model Corporate Social Responsibility (CSR) is Adam’s Smith invisible hand seriously considering the impact of a – Classical view held that society could best company’s action on society – determine its needs and wants through the invisible It requires the company to consider its acts in hand terms of a whole social system and is held More current model – stakeholder approach – responsible for the effects of its acts anywhere intervention is necessary in that system Should companies be responsible only Only Profits to stockholders? YES - Milton Friedman argues that company’s Executives don’t have the knowledge to sole responsibility is to increase profits exercise social responsibility Why? By giving away profits, the executive is imposing taxes on stockholders An executive is an employee of the owners of a – business – he/she is directly responsible to his Taxation is the responsibility of the government employers Executives should therefore take actions that Responsibility is to conduct business according to – are solely in the interests of stockholders needs of employers Make as much money while conforming to basic rules of society 1
  • 2. Other Arguments Against CSR Why are businesses being criticized? Social issues are not the concerns of businesses – US society is pluralistic Management’s role is to make as much money as possible – Prevents power being concentrated in the hands of – while conforming to the basic rules of society, both of those a few embodied by law and ethics There are diverse institutions pursuing their own – Managers do not have the expertise to make social interests decisions – they are oriented towards finance and Businesses have to satisfy all of the operations autonomous groups Business already have enough power – if given decision making power in the social domain, Businesses have to make all stakeholders businesses will be given too much power happy TV’s Role Prime-Time TV TV’s depiction of businesspeople is typically Straight news and investigative programs – portrayed as smirking, scheming, cheating – over 73% of executives indicated that business JR coverage was prejudiced against businesses Another study concluded that most In another study of CEO’s, around 70% businesspeople are depicted as wealthy, thought that newspapers and magazines report unscrupulous, and succeeding through less business news in a negative bias than honorable means – they are greedy, 60 minutes, Dateline etc. thrive on expose of unethical, and immoral business wrongdoings or questionable pratices Advertisements Stakeholder Theory of the Modern Other Issues Corporation Entitlement mentality – someone is owned Edward Freeman argues that the law now something because she is a member of society constrains the sole pursuit of stockholder interests Rights movement – rights to privacy, minority rights etc. “Managers bear a fiduciary relationship to stakeholders” Victimization philosophy – growing number of groups, individuals who view themselves as Stakeholders are those groups that have a being victimized stake in or claim on the firm Ex:suppliers, customers, employees, the community – 2
  • 3. Stakeholder Theory: Why? AND Other Arguments for CSR The legal argument – many laws effectively constraint The rise of large corporations has created social an organization’s ability to solely benefit stockholders problems and they should be responsible for solving these problems Need to take into consideration other stakeholders – Ex: Product liability laws, Labor Relations Act, Clean Long-range self-interest view – if a company wants a Air Act healthy future, it has to create the climate Argues that the needs of stakeholders need to be To ward off future government intervention and balanced – when relationships are imbalanced, regulation survival of the firm is in jeopardy “Business has resources” and “Let business try” Ex: When wages are too high or product quality too low – the – Public strongly supports it firm suffers Other Problems with the Free-Market Management’s Role? Theory Most businesses are not on equal footing with Must look after the health of the corporation consumers – they can manipulate demand However, this involves balancing the multiple Invisible hand is nonexistent regarding questionable claims of stakeholders advertising and poorly manufactured programs Owners – higher financial returns – Free markets are supposed to be efficient – but do they Customers – better R&D – produce the right products? Employees – higher wages and better benefits – Assumption of perfect competition – not always true Local community – better parks and day-care – People are not as rational as assumed facilities Why CSR? Consequences of bad CSR To meet federal regulations Consider Martha Stewart, Enron, WorldCom etc. etc. To meet public’s cries for ethical behavior To provide an assurance to socially In all cases, companies are suffering bad responsible investors publicity To prevent unethical conduct which can have Others have to pay fines – serious reputation and financial costs Evidence that unethical behaviors hurt Ex: Prudential Securities had to pay $700m in sales – companies in the long run of limited partnerships in 1994 Numerous other examples – 3
  • 4. Ex: Costco Wholesale Wal-Mart vs. Costco WAL-Mart COSTCO “We remain committed to running our company Wages start at $7.73/hour Wages start at$10/hr and living conscientiously by our code of ethics every day Top wage: $18/hr Average wage: $17/hr Wage as a percentage of Wages as a percentage To obey the law – total costs: 30% of total costs: 70% Take care of our members – Employee turnover: 44% Employee turnover: 17% Take care of our employees – No bonuses Bonuses of between $2k Respect our suppliers – to $3k to top performers Reward you, our shareholders – Response to the Criticism What does Wall Street think of Costco? Not all analysts are happy Costco shareholders don’t seem to mind Stock of Costco has risen 55% over past 5 years Business analysts argue that Costco is too – Stock of Wal-Mart have fallen by 10% generous with employees and customers – Hurting shareholders – money that should go to – shareholders is going to customers and employees 4