Business and Public

1. Chapter 5
Introduction to Sociology
This chapter:
 Defines the idea of corporate social responsibility and explains how it
has expanded in meaning and practice over time.
 Explains more about how corporations carry out their social
responsibilities.

2. Merck & Co., Inc. Opening Case
 For centuries river blindness, or onchocerciasis, has tortured
humanity in tropical regions.
 In 1975 scientists at Merck discovered a compound that killed animal
parasites. Introduced as a veterinary drug, they believed it could also
help humans.
 Neither those in need nor their governments could afford to buy the
drug.
 In 1987, Merck decided to provide the drug at no cost.
“Merck’s donations of medicine are a stellar example of old-fashioned
philanthropy the way it has been done in America since the rise of big
companies..”

3. The Evolving Idea of Social Responsibility
 The fundamental idea is that corporations have duties that go beyond
carrying out their basic economic function in a lawful manner.
 Over time the doctrine has evolved to require more expansive action
by companies largely because:
 Stakeholder groups have gained more power to impose their agendas
 The ethical and legal philosophies underlying it have matured
Corporate social responsibility (The duty of a corporation to create
wealth in ways that avoid harm to, protect, or enhance societal assets).

4. Social Responsibility in Classical Economic
Theory
 Throughout American history, classical capitalism has been the basic
inspiration for business.
 In this view, a business is socially responsible if it maximizes profits
while operating within the law.
 The idea that markets harness low motives and work them into social
progress has always attracted skeptics.
 Today the classical ideology still commands the economic landscape,
but ethical theories of broader responsibility have worn down its
prominences.

5. The Early Charitable Impulse
 Most colonial era businesses practiced frugality, yet charity was a
coexisting virtue.
 The wealthy endowed social causes as individuals, not through their
companies.
 Steven Girard changed the climate of education in the United States by bequeathing
$6 million for a school to educate orphaned boys.
 John D. Rockefeller systematically gave away $550 million over his lifetime.
 Andrew Carnegie gave $350 million over his lifetime to causes that would elevate
the culture of a society.
 Carnegie believed fortunes should not be wasted by paying higher wages or giving
gifts to poor people.

6. The Early Charitable Impulse (continued)
 People such as Andrew Carnegie and Herbert Spencer believed in
the doctrine of social Darwinism when it came to charity.
 Social Darwinism held that charity interfered with the natural
evolutionary process in which society shed its less fit to make way for
the better adapted.
 Additionally, courts consistently held charitable gifts to be ultra vires
(beyond the law) because charters granted by states when corporations
were formed did not expressly permit them.

7. Social Responsibility in the Late Nineteenth
and Early Twentieth Centuries
 Giving, no matter how generous, was a narrow kind of social
responsibility often unrelated to a company’s impacts on society.
 During the Progressive era, three interrelated themes of broader
responsibility emerged:
 Managers were trustees
 Managers had an obligation to balance multiple interests
 Many managers subscribed to the service principle

8. Social Responsibility in the Late Nineteenth
and Early Twentieth Centuries (continued)
 Henry Ford – touted citizenship but was ultimately unconcerned about the
welfare of his employees.
 General Robert E. Wood – believed in responsibility to customers, the
public, employees, suppliers, and finally stockholders.
 1920s and beyond, organized charities began forming to which
corporations contributed:
 Community Chest
 Red Cross
 Boy Scouts

9. 1950–The Present
 Contemporary understanding of corporate social responsibility
formed during this period.
 Social Responsibilities of the Businessman
 Dissenters to this theory were conservative economists who claimed
that business is most responsible when it makes money efficiently, not
when it misapplies its energy to social projects.
 1971 – Bold statement by the Committee for Economic Development
outlining three concentric circles of responsibilities.
 1981 – Statement on Corporate Responsibility from the Business
Roundtable.

10. General Principles of Corporate Social
Responsibility
 Corporations are economic institutions run for profit.
All firms must follow multiple bodies of law.
Managers must act ethically
Corporations have a duty to correct the adverse social impacts they cause.
Social responsibility varies with company characteristics.
Managers should try to meet legitimate needs of stakeholders.
Corporate behavior must comply with norms in an underlying social
contract.
Corporations should also accept a measure of accountability toward society.

11. Are Social and Financial Performance
Related?
A recent review of 95 studies over 30 years found that a majority (53
percent) of businesses showed a positive relationship between profits
and responsibility, while only 5 percent showed a negative one.
Results inconsistent and ultimately inconclusive due to
methodological questions.
Safe to say corporations rated high in social responsibility are no less
profitable than lower rated firms

12. Corporate Social Responsibility in a Global
Context
By the end of the twentieth century the doctrine of corporate social
responsibility had been widely accepted in industrialized nations.
Recent debates over the duties of corporations in their international
operations.
International law is weak in addressing social impacts of business.
Giant corporations may not be subject to strong laws and regulations in
foreign countries.
In adapting to global economic growth corporations have used business
strategies that distance them from direct accountability or social harms.
More national regulation of multinational corporations is unlikely.

13. Corporate Social Responsibility in a Global
Context (continued)
 Extraterritoriality – enforcement is problematic.
Nongovernmental organizations (NGOs) – voluntary organizations
becoming powerful advocates of restricting corporate power outside
the borders of industrialized nations.
Pushed for UN-sponsored conferences on the environment, population, human
rights, social development, and gender.
Soft law – statements of philosophy, policy, and principle found in
nonbinding international conventions

14. Global CSR: Development of Norms and
Principles
Norm – a standard that arises over time and is enforced b social sanction or
law
Principle – a rule, natural law, or truth used as a standard to guide conduct
Milestones in the development of norms
U.N. Universal Declaration of Human Rights
Tripartite Declaration of Principles concerning Multinational Enterprises and Social
Policy
Norms on the Responsibilities of Transnational Corporations

15. Global CSR: Codes of Conduct
Codes of conduct set forth aspirations, principles, guidelines, and rules for
corporate behavior.
Created by companies, trade associations, NGOs, governments, and
international organizations.
The target is the corporation
The code’s effectiveness depends on how the corporation carries it out.
Many codes are weak because they lack the force of law

16. Global CSR: Reporting and Verification
Standards
 Sustainability reporting – the practice of a corporation publishing
information about its economic, social, and environmental
performance
Two problems of sustainability reporting:
Defining and measuring social performance is difficult
Reports are not comparable from company to company

17. Global CSR: Labeling and Certification
Schemes
 Influence the market on the demand side.
 Criteria for labels set by industry, NGOs, unions, and sometimes
governments.
 Certifications promote many ideals including human rights, fair
trade, and campaigns against child labor.

18. Global CSR: Management Standards
 Eco-Management and Audit Scheme (EMAS)
 International Standards Organization (ISO)

19. Global CSR: Social Investment and Lending
 U.N. Principles for Responsible Investment require signatories to
consider a company’s environmental, social, and governance
performance when they invest.
 FTSE4Good Global Index is intended to set the world standard for
investors seeking “companies that meet globally recognized corporate
responsibility standards.”
 International Finance Corporation (IFC) seeks to promote
development and reduce poverty by funding projects for corporations.

20. Global CSR: Government Actions and Civil
Society Vigilance
 Governments advance corporate responsibility through binding
regulation and by actively promoting voluntary actions.
 NGOs watch multinational corporations and police actions they see
as departing from emerging norms.

21. Assessing the Evolving Global CSR System
 As multinational corporations grew in power with the expansion of
global trade, a perceived deficiency in regulation was countered by
action within civil society.
 No company can remain aloof from the emerging global CSR system
that promotes and enforces corporate adherence to international CSR
standards
 An important issue is whether or not the emerging system is the most
appropriate way to regulate large corporations.

22. Concluding Observations
 Historically, corporations have been motivated primarily by the central
focus on profits.
 Corporations are now being pressured to alter this focus.
 The idea of corporate social responsibility has continuously expanded in
meaning.
 The power of stakeholders to define corporate duty has increased.
 The explosive growth of global trade and global corporations has created
new standards and practices of social responsibility tied to global norms.