3.1 What is Corporate Social Responsibility
- Social Responsibility of a business is the expectations that business will do more than what is required by law and profit maximization.
- It is a “firm’s obligation to constituent groups in society other than stockholders, and beyond that prescribed by Law.
- The stakeholders of a business include shareholders, employees, society, community, Government, competitors, customers, suppliers and creditors.
Social responsibility refers to the manager’s duty or obligations to make decisions that
- nurture,
- protect,
- enhance,
- promote
the welfare and well-being of stakeholders and society as a whole.Managers are being socially responsible when they:-
v provide severance payment to help laid off workers make ends meet until they can find another job.
v provide workers with opportunities to enhance their skills and acquire additional education so they can remain productive and do not become obsolete because of changes in technology
v allow employees to take time off when they need to, and provide health care and pension benefits to employees
v contribute to churches or support various civic minded activities in the cities or towns in which they are located
v decide to keep open a factory whose closure would devastate the local community
v decide to keep a company’s operations in the country to protect the jobs of the country’s people rather than move operations to another country.
v decide to spend money to improve a new factory so that it will not pollute the environment
v decide not to invest in countries that have poor human rights records
v choose to help poor countries develop an economic base to improve living conditions
Social responsibility of business to the various stakeholder
(1) Responsibility within the company (to employees)
o Working conditions
- Right to safe workplace
o Equal employment opportunity in a workplace regardless of race, sex, religion, age and ethnic affiliation
o Affirmative action – Programs that attempt to remedy historical problems of discrimination by increasing the number of chances for employment, promotion, etc for the discriminated groups
o Reverse discrimination: Discrimination that makes it more difficult for the non-discriminated to get hired, or promoted.
o Diversity training programs
Programs that attempt to get workers to understand and value individual cultural differences within the organization’s workforce.
o Economic security
The company should ensure:-
(a) Employees have a steady, uninterrupted employment and earning a living wage.
(b) That those who are no longer working are provided for either by providing pension or gratuity
o Employee dignity and freedom from sexual harassment
Organizations must ensure no form of harassment at work for any employee.
o Excessive executive compensation
No “excessive” compensation for executives
o Conflict of interest
Managers should not influence a company decision which is clouded by the chance for a personal gain;
(2) Responsibility to customers
Right to safety the right of customers to use products that do not unnecessarily put them in danger.
Right to be informed the right to be protected against
§ fraudulent
§ deceitful
§ grossly misreading information
§ advertising
§ labeling
r other practices, and to be given the facts one needs to make an informed choice.
(3) Responsibility to competitors
o Society expects the company to engage in behaviors that do not interfere with free enterprise such as:-
§ monopoly,§ price fixing,§ price discrimination,
§ monopoly,§ price fixing,§ price discrimination,
and behavior that tends to lessen competition.
(4) Responsibilities to suppliers and creditors
o As a commercial customer, a company has the responsibility to deal with its suppliers in a fair and honest manner.
o It is also obliged to pay its bills on time.
o It is also obliged to avoid deception in negotiations
o Creditors should be shown authentic financial statements
o The company’s financial statements should be accurate.
(5) Responsibilities to investors and shareholders
o Companies should seek to maximize profits for their investors
o Managers should not use information they have about the company to personally benefit.
(6) Responsibility to community
o Organizations should give support to the communities they live in by donating to charities and other social courses.
(7) Responsibility to government
o Companies should fully comply with the law enacted by Federal, Central or Local authorities.
(9) The Society includes
The Public – The society is adversely affected by
- Air pollution
- Water pollution
- Land pollution
§ Pollution: Threats to the physical environment caused by human activities in an industrial society.
§ Air pollution: Is threatened by gaseous discharges and dust particles.
§ Water pollution: Water is polluted by industrial by-products, oil spills, run off from farm lands, mining and urban centers.
§ Land pollution: Disposal of industrial waste directly into the ground is probably the single greatest threat facing the environment today.
3.2 Philosophical bases for Social Responsibility
1) Religious Teaching
§ Thou shall not steal
§ Thou shall not kill
§ Do unto others as you would have them do unto you.
2) Utilitarianism
§ A philosophy used in making ethical decisions that aims at achieving the greatest good for the greatest number.
§ A manager using this philosophical basis will figure out the impact of his decision on everyone concerned, and choose the alternative that creates the most satisfaction for the most people.
§ You would reject activities that cater for narrow interests or those that failed to satisfy the needs of the majority.
3) Individual Rights
§ The other philosophical basis is the belief in the importance of individual rights.
§ Because a belief in another person’s rights implies that you have a duty to protect those rights, you would reject any decision that violates those rights.
§ You would for example not deceive or trick other people in acting against their interests.
4) Justice
§ In making decisions one might also be guided by principles of justice.
§ These principles include a belief that people should be treated equally, that rules should be applied consistently and that people who have harmed others should be held responsible and make restitution.
§ A just decision then is one that is fair, impartial, and reasonable in light of the rules that apply to the situation.
The four philosophical bases are not mutually exclusive alternatives.
On the contrary, most people combine some or all of them to reach a decision that will satisfy as many people as possible, without violating any person’s rights or treating anyone unfairly.
3.2 Arguments For Social Responsibility
ü People expect businesses and other institutions to be socially responsible.
ü It is in the best interest of the business to pursue socially responsible programs.
ü It improves the image of the firm.
ü Business should be involved in social projects because it has the resources.
ü Corporations must be concerned about society’s interests and needs because society in effect sanctions business operations.
ü If the business is not responsive to society’s needs the public will press for more government regulation requiring more socially responsible behavior.
ü Socially responsible actions may increase profits for the business in the long run.
Why Be Socially Responsible
When managers behave in a socially responsible manner, the following benefits result:
- workers and society benefit directly because organizations (rather than Government) bear some of the costs of helping workers and society
- The quality of life for all is increased. In fact if all companies adopted a caring attitude, a climate of caring would pervade the wider society. Crime would fall.
- Companies that are responsible towards their stakeholders benefit from increasing business and support.
It is therefore in the best interests of the business to be socially responsible
Evidence suggests that in the long-run, managers who behave socially responsibly will most benefit all organizational stakeholders (including stockholders).
Socially responsible companies in comparison with less socially responsible businesses are
- less risky investments,
- tend to be somewhat more profitable,
- have a more loyal and committed workforce
- have better reputation
which encourages stakeholders (including customers and suppliers) to establish long-term business relationship with them.
Socially responsible companies are also sought out by communities, which encourage them to locate in their cities and offer incentives such as tax reductions, and construction of roads and free utilities for their plants.
3. 4 Arguments against Social Responsibility
ü Violates sound economic business decision making that should rightfully concentrate on earning profits.
ü Might be illegal – executives do not have the legal right to use corporate resources to pursue social responsibility.
ü Costs are excessive compared to the benefits to society and would tend to raise prices to excessive levels.
ü Managers are not trained, nor do they possess the skills or resources to determine which socially desirable projects to support.
ü Concentrates too much power in the hands of business executives
ü Leads to the deterioration of the free enterprise system
ü It is the responsibility of managers to meet the interest of their shareholders as long as they stay within the law
ü Social responsibility is the responsibility of government not of business
ü Business is not equipped to deal with social responsibility activities
3.5 Factors that determine CSR
(1) Laws & Rules Regulations
(2) Cultural Values
(3) Industry and/or Company Ethical Codes of Behavior
(4) The dominant philosophical thoughts and ideals of the decision maker
(5) The Society’s level of awareness regarding business ethics
3.6 Dimensions of Social Responsibility
The strength of an organizations’ commitment to social responsibility ranges from low to high.
- Obstructionist approach
- This is at the low end of the range.
- In this approach managers choose not to behave in a socially responsible way.
- Instead they behave unethically and illegally and do all they can to prevent knowledge of their behavior from reaching other organizational stakeholders and society at large.
- This type of approach obviously leads to loss of reputation of the company and also devastation for all stakeholders involved.
- Eventually the organizations are unable to sustain themselves when they lose the support of their stakeholders.
- Defensive approach
- In this approach managers indicate at least a commitment to ethical behavior.
- Here managers stay within the law and abide strictly with legal requirements but they make no attempt to exercise social responsibility beyond what the law dictates.
- All they ensure is that their employees behave legally and they do not harm others.
- But when making ethical choices, they put claims and interests of their stakeholders first, at the expense of other stakeholders.
- The Defensive approach reflects the philosophy of the capitalist system.
- In a capitalist economic system, managers are there to maximize shareholder interests as long as they are within the law.
- It is not a manager’s job to make socially responsible choices; their job is to abide by the rules that have been legally established.
- Accommodative approach
- In this approach managers acknowledge the need to support social responsibility.
- They agree that organizational members ought to behave legally and ethically and they try to balance the interests of different stakeholders against one another so that the claims of stakeholders are seen in relation to the claims of other stakeholders.
- Managers adopting this approach want to make choices that are reasonable in the eyes of society and want to do the right thing when called on to do so.
- Proactive approach
In this approach managers actively embrace the need to behave in socially responsible ways.
They go out of their way to learn about the needs of different stakeholders and are willing to utilize organizational resources to promote the interests not only of stakeholders, but of the other stakeholders.
Dimensions of social responsibility
Obstructionist | Defensive | Accommodative | Proactive |
 |
low social responsibility high social responsibility
3.7 How should managers decide which social issues they will respond to:-
i) All illegal behavior should not be tolerated
ii) Whistle-blower should be protected. Whistle-blower is a term used to refer to a person who reports illegal or unethical behavior and takes a stand against unscrupulous managers or other stakeholders who are pursuing their own ends
iii) Social audit - is a tool that allows managers to analyze the profitability and social return of socially responsible actions.
§ The managers use the tool to rank various alternative courses of action according to both their profitability and their social benefits.
§ When this framework is used decisions showing both high profitability and high social benefits are the most likely to be implemented.
§ Decisions with high profitability but negative social effects would worry a socially responsible organization and would not be implemented
iv) Application of Ethical Standards and Values
§ Managers’ own ethics and values influence their behavior and strongly influence whether they will take a pro-active approach to social responsibility or not
§ An organization’s code of ethics usually printed in its annual reports and mission statements also influences how conscientiously managers seek to support the interests of their stakeholders.
3.8 Evolution of CSR
i) Prior to 1900
- Business had only one responsibility: to make profit. The Social Responsibility of business was to make profit within the Law.
- Phrases such as “survival of the fittest,” “buyer beware” “Let sleeping dogs lie,” etc were popular capitalist slogans and reflected the view of the day regarding corporate (social) responsibility.
ii) 1900 – 1960
- During this period, journalists and human rights crusaders saw the
§ poor quality of products,
§ exploitation of workers,
§ destruction of the environment,
and decided to come to the defense of the stakeholders of the business organization.
- They used the power of the press to stir up public indignation and agitated for reform.
- Largely through their efforts, a number of laws were passed to limit the power of monopolies, and to establish safety standards for food and drugs.
(iii) After 1960
- After the 1960’s management theorists have tended to consider businesses as having many more stakeholders than shareholders.
- These other stakeholders include employees, the Public the suppliers and many others.
- In addition many other large corporate organizations associated their success with social satisfaction and therefore decided to provide to society what the society needed - social goods and services.
- The business realized that its long-term interests were intrinsically intertwined with that of the society in which it operated.
- This approach has prevailed and even been strengthened as we approach the 21st century.
