Core Text 1 (Weeks 2 & 3): “Corporate Social Responsibility and

Business Ethics”

Adapted from: Hosmanek, A. J., Smith, B., & Dayton, M. J. (2023). “Corporate Social Responsibility
and Business Ethics”. (155 – 216). Business Law, Ethics, and Sustainability. OpenHawks OER.
https://open.umn.edu/opentextbooks/textbooks/1397

1.The role of business in society is a conten4ous and significant topic, par4cularly regarding
whether corpora4ons have social responsibili4es beyond maximising shareholder value.
Business ethics, which refers to the principles guiding behaviour in the business world, is
crucial in this discussion. Ethics involves dis4nguishing between right and wrong and making
decisions that align with moral values, which is essen4al for building trust with consumers,
employees, and other stakeholders.

2.Ethics and morality are oAen used interchangeably, both dealing with what is considered
right or wrong behaviour. While individuals are seen as having personal moral
responsibili4es, corpora4ons are also judged based on their collec4ve ac4ons. For instance,
companies like Enron have been deemed unethical due to their fraudulent ac4vi4es. The
term “good” can be confusing in this context; a company might be “good” in terms of
profitability but not necessarily ethical. Ethical behaviour involves honesty, fairness, and
respect for others.

3.Corporate Social Responsibility (CSR) is the idea that businesses should not only focus on
profits but also consider their impact on society and the environment. Companies are
expected to act in ways that benefit society, beyond what is required by law. The concept of
the Triple BoNom Line suggests that companies should focus on three P’s: People, Planet,

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and Profits (Elkington, 1997). Sustainable profitability involves balancing these three
aspects. Businesses must meet the ethical and social expecta4ons of various stakeholders,
including consumers, employees, NGOs, and government officials. Ignoring these
expecta4ons can harm a company’s reputa4on and long-term success (Freeman, 1984).

4.Stakeholder theory emphasises that businesses have responsibili4es to a wide range of

stakeholders, not just shareholders. Stakeholders are individuals or groups affected by a
company’s ac4ons, including customers, employees, suppliers, investors, communi4es, and
governments. Each group has different interests and expecta4ons. A company’s reputa4on is
built on the goodwill it generates among its stakeholders. Goodwill is an intangible asset
that reflects the posi4ve percep4on of the company by its stakeholders and can enhance the
company’s value and success. Therefore, in business, ethical behaviour and social
responsibility are not just about legal compliance but about building trust and sustainable
success. Companies that priori4se ethical prac4ces and consider the interests of all
stakeholders are more likely to thrive in the long run (Carroll, 1991).

5.Ethics and law are interconnected because laws oAen reflect moral views. For instance,
laws against chea4ng Medicare or laws against corrup4on in poli4cs or business are based
on collec4ve moral decisions. These laws indicate what society considers right or wrong.
Understanding the moral perspec4ves behind public debates on issues like stem-cell
research, medical marijuana, and abor4on is crucial. These debates oAen involve different
ethical perspec4ves, such as rights, social u4lity, virtue, and social jus4ce. People adopt
these perspec4ves, consciously or unconsciously, leading to clashes over basic values rather
than facts.

6.In business, the common belief is that good ethics is good business. As it was above
concluded, ethical businesses tend to perform beNer in the long run and are viewed more
favourably by customers. However, measuring this scien4fically is challenging due to the lack
of clear criteria for ethical excellence and the focus on short-term gains. An example is Royal
Dutch/Shell, which faced public backlash for environmental and human rights issues. This
led the company to reconsider its focus on short-term profits. The CEO admiNed that they
were surprised by the nega4ve reac4on from consumers, NGOs, and the media, highligh4ng
the importance of moral sensi4vity.

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7.The market does respond to unethical behaviour. The Sears Auto Centers case showed
that loss of goodwill can have long-las4ng effects, with customers avoiding the company
even years later. The Arthur Andersen case is another example. The accoun4ng firm was
involved in hiding Enron’s losses and faced a criminal convic4on for shredding documents.
Although the convic4on was overturned, the damage to Andersen’s reputa4on was
irreversible, leading to significant market share loss. Furthermore, Arthur Andersen’s story is
ironic because the firm was founded on integrity and straighdorward prac4ces. The
company’s moIo was “Think straight, talk straight,” and it built a reputa4on for integrity by
refusing to engage in unethical prac4ces for profit.

8. In conclusion, maximising profits while staying legally compliant is not an inspiring goal for
businesses. Organisa4ons need to strive for quality and excellence. Focusing on legal
loopholes for short-term gains oAen leads to dissa4sfac4on among the market,
shareholders, suppliers, and the community in the long term.

Reference list:

Carroll, A. B. (1991). “The Pyramid of Corporate Social Responsibility: Toward the Moral
Management of Organiza4onal Stakeholders”. Business Horizons, 34(4), 39–48.
hNps://doi.org/10.1016/0007-6813(91)90005-G

Elkington, J. (1997). Cannibals with Forks: The Triple Bo8om Line of 21st Century Business.
Capstone. Print.

Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Pitman. Print.

Glossary
1. Shareholder: A person or entity that owns shares in a company. Shareholders invest
money in the company and, in return, receive a portion of the company’s profits. The
shares are units of ownership in a company. When you buy shares, you become a
part-owner of that company. Shares can increase or decrease in value based on the
company’s performance and market conditions.
2. Enron: A large American energy company that went bankrupt in 2001 due to
widespread fraud and corruption. The Enron scandal is a famous example of
corporate misconduct. The company filed for bankruptcy in December 2001
following a massive accounting scandal. After the bankruptcy, Enron was
restructured and eventually renamed Enron Creditors Recovery Corporation,
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 focusing on liquidating its remaining assets1. The company ceased operations
entirely in 2007.
3. NGOs: (Non-Governmental Organisations) Independent organisations that are not
part of the government. They work on various issues like human rights,
environmental protection, and social development. They do not aim to make a
profit, so the focus is on positive change rather than generating revenue for
shareholders. rely on various sources of funding to support their activities, from
private donations, or government grants to corporate sponsorships (as part of a
business’s CSR) to membership fees or fundraising events.
4. Intangible asset: An asset that does not have a physical form but still has value.
Examples include patents, trademarks, and brand reputation.
5. Medicare: A government program in the United States that provides health
insurance to people aged 65 and older, as well as some younger people with
disabilities.
6. Royal/Dutch Shell: One of the world’s largest oil and gas companies, known for its
global operations in energy production and distribution. It is still operation but under
a new name since 2022, Shell plc. The headquarters then moved from the
Netherlands to the UK.
7. Public backlash: A strong negative reaction from the public against a company,
policy, or action. This can harm a company’s reputation and lead to financial losses.
8. Sears Auto Centres: A chain of automotive service centres in the United States,
formerly part of the Sears department store chain. They faced significant reputation
damage due to unethical practices. All Sears Auto Centres have been permanently
closed. While there are still a few remaining Sears department stores in the United
States, the automotive service centres have ceased operations
9. Arthur Andersen: A major accounting firm that was involved in the Enron scandal.
The firm was found guilty of obstructing justice by shredding documents related to
Enron’s financial misconduct. The company, as it was originally known, no longer
exists. The firm collapsed in 2002 following the scandal. However, the name has
been revived by former partners and now operates under the name Andersen and
focuses on tax and advisory services
10. Motto: A short phrase or sentence that expresses the beliefs or ideals of an
individual, group, or organisation. For example, a company’s motto might reflect its
commitment to quality or customer service.