Corporate Social Responsibility

Corporate Social
Responsibility
(CSR)
Introduction
• Social responsibility is a business’s obligation to pursue policies, make
decisions, and take actions that benefit society.
• Unfortunately, because there are strong disagreements over to whom and
for what in society organizations are responsible, it can be difficult for
managers to know what is or will be perceived as socially responsible
corporate behavior.
•
To Whom Are Organisations Socially
Responsible?
• There are two perspectives on to whom organizations are socially
responsible:
1) The shareholder model
2) The stakeholder model.
The Shareholder Model
• According to Nobel prize-winning economist Milton Friedman, the only social
responsibility that organizations have is to satisfy their owners, that is,
company shareholders.
• This view--called the shareholder model--holds that the only social
responsibility that businesses have is to maximize profits.
• By maximizing profit, the firm maximizes shareholder wealth and satisfaction.
• More specifically, as profits rise, the company stock owned by company
shareholders generally increases in value.
The Shareholder Model cont.
• Friedman argues that it is socially irresponsible for companies to divert
their time, money, and attention from maximizing profits to social causes
and charitable organizations.
• The first problem he sees is that organizations cannot act effectively as
moral agents for all company shareholders.
• While shareholders are likely to agree on investment issues concerning a
company, it’s highly unlikely that they possess common views on what
social causes a company should or should not support.
The Shareholder Model cont.
• The second major problem, according to Friedman, is that the time, money, and attention diverted to
social causes undermine market efficiency.
• In competitive markets, companies compete for raw materials, talented workers, customers, and
investment funds.
• Spending money on social causes means there is less money to purchase quality materials or to hire
talented workers who can produce a valuable product at a good price.
• If customers find the product less desirable, sales and profits will fall.
• If profits fall, stock prices will decrease and the company will have difficulty attracting investment funds
that could be used to fund long-term growth.
• In the end, Friedman argues, diverting the firm’s money, time, and resources to social causes hurts
customers, suppliers, employees, and shareholders.
The Stakeholder Model
• By contrast, under the stakeholder model, management’s most important
responsibility is long-term survival (not just maximizing profits), which is
achieved by satisfying the interests of multiple corporate stakeholders (not just
shareholders).
• Stakeholders are people or groups with a legitimate interest in a company.
Since stakeholders are interested in and affected by the organization's actions,
they have a "stake" in what those actions are.
• Consequently, stakeholder groups may try to influence the firm to act in their
own interests.
Types of Stakeholders
• Some stakeholders are more important to the firm’s survival than others.
• Primary stakeholders are groups, such as shareholders, employees, customers, suppliers,
governments, and local communities, on which the organization depends for long-term
survival.
• So when managers are struggling to balance the needs of different stakeholders, the
stakeholder model suggests that the needs of primary stakeholders take precedence over the
needs of secondary stakeholders.
• However, contrary to the shareholder model, no primary stakeholder group is more or less
important than another, since all are critical to the firm’s success and survival.
• So managers must try to satisfy the needs of all primary stakeholders.
Types of Stakeholders
• Secondary stakeholders, such as the media and special interest groups, can
influence or be influenced by the company.
• Yet in contrast to primary stakeholders, they do not engage in regular transactions
with the company and are not critical to its long-term survival.
• Consequently, meeting the needs of primary stakeholders is usually more important
than meeting the needs of secondary stakeholders.
• While not critical to long-term survival, secondary stakeholders are still important,
because they can affect public perceptions and opinions about socially responsible
behavior.
For What are Organisations Socially
Responsible?
• A century ago, society expected businesses to meet their economic and legal
responsibilities and little else.
• Today, however, when society judges whether businesses are socially responsible,
ethical and discretionary responsibilities are considerably more important than they
used to be.
• Historically, economic responsibility, making a profit by producing a product or
service valued by society, has been a business’s most basic social responsibility.
• Organizations that don’t meet their financial and economic expectations come under
tremendous pressure.
For What are Organisations Socially
Responsible?
• Legal responsibility is the expectation that companies will obey a society’s laws and
regulations as they try to meet their economic responsibilities.
• Ethical responsibility is society’s expectation that organizations will not violate
accepted principles of right and wrong when conducting their business.
• Because different stakeholders may disagree about what is or is not ethical, meeting
ethical responsibilities is more difficult than meeting economic or legal
responsibilities.
• Discretionary responsibilities pertain to the social roles that businesses play in
society beyond their economic, legal, and ethical responsibilities.
Social Responsiveness
• Social responsiveness is the strategy chosen by a company to respond to
stakeholders’ economic, legal, ethical, or discretionary expectations concerning
social responsibility.
• A social responsibility problem exists whenever company actions do not meet
stakeholder expectations.
• One model of social responsiveness identifies four strategies for responding to
social responsibility problems: reactive, defensive, accommodative, and proactive.
• These strategies differ in the extent to which the company is willing to act to meet
or exceed society’s expectations.
Social Responsiveness cont.
• A company using a reactive strategy will do less than society expects.
• It may deny responsibility for a problem or “fight all the way” any suggestions that the
company should solve a problem.
• By contrast, a company using a defensive strategy would admit responsibility for a problem,
but would do the least required to meet societal expectations.
• A company using an accommodative strategy would accept responsibility for a problem and
take a progressive approach by doing all that was expected to solve the problem.
• Finally, a company using a proactive strategy would anticipate responsibility for a problem
before it occurred, do more than expected to address the problem, and lead the industry in its
approach.

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