BUSI 3351 Business Ethics

Chapter 2: Framing Business Ethics:

Corporate Responsibility, Stakeholders, and Citizenship

College of Business Administration

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Overview
• Analyse the notion of responsibility for
corporations
• Distinguish the various concepts of CSR
• Present the stakeholder theory of the firm
• Outline the concept of corporate accountability
• Critically examine the notion of corporate
citizenship
• Discuss implications of these – mostly US-born –
concepts for different regions

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Key features of a corporation
• A corporation is essentially defined in terms of legal
status and the ownership of assets
• Corporations are typically regarded as ‘artificial
persons’ in the eyes of the law
• Corporations are notionally ‘owned’ by
shareholders, but exist independently of them
• Managers and directors have a ‘fiduciary’
responsibility to protect the investment of
shareholders

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Can a corporation have social
responsibilities?

• Milton Friedman’s classic article is “The social

responsibility of business is to increase its profits”
(1970)
• Friedman vigorously argued against the notion of
social responsibilities for corporations based on
three main arguments:
• Only human beings have a moral responsibility for their
actions
• It is managers’ responsibility to act solely in the interests
of shareholders
• Social issues and problems are the proper province of the
state rather than corporate managers

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Can a corporation be morally responsible
for its actions?

• Long and complex debate but generally supported

by literature for some degree of responsibility
accredited to corporations. Argument based on:
• Every organisation has a corporate internal decision
structure which directs decisions in line with
predetermined goals (French 1979)
• All organisations manifest a set of beliefs and values that
lay out what is generally regarded as right or wrong in
the corporation – organizational culture (Moore 1999)

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From Obligations to Responsiveness to
Responsibility

• Classical view: the view that management’s only

social responsibility is to maximize profits
• Social obligation: when a firm engages in social
actions because of its obligation to meet certain
economic and legal responsibilities (being ethical,
giving back to the society, improving social and
environmental conditions)
• Social screening: Applying social criteria (screens)
to investment decisions

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Corporate Social Responsibility
• Corporate social responsibility (CSR) is a company’s
commitment to manage the social, environmental and
economic effects of its operations responsibly and in
line with public expectations.
• Corporate social responsibility: The attempt by
companies to meet the economic, legal, ethical, and
philanthropic demands of a given society at a particular
point in time

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CSR activities may include
• Company policies that insist on working with partners who
follow ethical business practices
• Reinvesting profits in health and safety or environmental
programs
• Supporting charitable organizations in the communities where
a company operates
• Promoting equal opportunities for men and women at the
executive level
• Some aspects of CSR may be required by law. For example,
banks and hospitals are legally required to protect people’s
private information. Others are voluntary.
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Why do corporations have social
responsibilities?

• Business reasons (‘enlightened self-interest’)

– Extra and/or more satisfied customers
– Employees may be more attracted/committed
– Forestall (prevent) legislation
– Long-term investment which benefits corporation
• Moral reasons:
– Corporations cause social problems
– Corporations should use their power responsibly
– All corporate activities have some social impacts
– Corporations rely on the contribution of a wide set
of stakeholders in society, not just shareholders
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Carroll’s four-part model of corporate
social responsibility

Desired by society
Philanthropic
Responsibilities
Expected by society
Ethical
Responsibilities

Required by society
Legal
Responsibilities
Required by society
Economic
Responsibilities

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CSR and strategy: corporate social
responsiveness

• Strategies of CSR
– Traditional CSR
• Focus on risk. Reactive.
• No clear link to value creation and business model. CSR
is a distribution of created value.
• “CSR is bolted on”
– Contemporary CSR
• Focus on reward. Proactive.
• Clear link to value creation and business model. CSR is
value creation.
• “CSR is built-in”

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Examples of CSR
• Hewlett Packard has a global social innovation
division. They have over 300K employees
worldwide. Corporate guidelines encourage every
employee to spend up to 4 hours monthly of
company time volunteering in the community:
painting fences, building houses, using technical
skills outside the company, etc. This is an example
of corporate initiative and an innovative startup
business model.
• TOM’s

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Stakeholder theory of the firm
• Theory developed by Edward Freeman (1984)
• A stakeholder of an organization is:
• …any group or individual who can affect, or is affected by,
the achievement of the organization’s objectives
(Freeman 1984:46)
• More precise definition of ‘affects’ and ‘affected by’
(Evan and Freeman 1993)
• Principle of corporate rights - the corporation has the
obligation not to violate the rights of others
• Principle of corporate effect – companies are
responsible for the effects of their actions on others
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Stakeholder theory of the firm

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Why stakeholders matter
• Milton Friedman – businesses should only be run in
the interests of their owners
• Freeman - others have a legitimate claim on the
corporation
• Legal perspective
• ‘Stake’ in corporation already protected legally in some way
(e.g. legally binding contracts)
• Economic perspective
• Externalities – outside contractual relationships
• Agency problem – short term interests of ‘owners’ vs. long
term interests of managers, employees, customers etc.

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Corporate accountability
• Corporate accountability refers to whether a
corporation is answerable in some way for the
consequences of its actions
• Firms have begun to take on the role of ‘political’
actors – taken up many of the functions previously
undertaken by government because:
• Governmental failure
• Increasing power and influence of corporations

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The problem of democratic
accountability

• Who controls corporations?

• To whom are corporations accountable?
• Key to corporate accountability is transparency
• Transparency is the degree to which corporate
decisions, policies, activities and impacts are
acknowledged and made visible to relevant
stakeholders

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Defining corporate citizenship: three
perspectives

• A limited view of CC
• this essentially equates CC with corporate philanthropy
• An equivalent view of CC
• this essentially equates CC with CSR
• An extended view of CC
• this acknowledges the extended political role of the
corporation in society

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Three views of corporate citizenship

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An extended view of CC

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Assessing corporate citizenship as a
framework for business ethics

Extended view of CC adds something significant that helps

us frame business ethics in new ways:
• Helps us better see the political role of the corporation
• Clarifies the demand for corporate accountability
• Helps to understand business in relation to common
citizenship rights within different cultures and some of
the challenges posed by globalization
• The rights of citizenship have strong links to the goal of
sustainability
• Provides a critical perspective on corporations’ social role
that is more in keeping with non-US ways of thinking
about business ethics
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Corporate Citizenship
Statements

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