Business Ethics

Session 3 – 2017

Prof Thomas Maak

Last week
• Introduction: Business in an environment of
contested values
• Business ethics as discipline and umbrella
term
• Current ethical challenges
• The purpose of business
Corporate Social Responsibility - CSR
In today’s session
• CSR history & evolution
• CSR mindsets – a character typology
• Your choice for the character analysis
Evolution of
Corporate Social Responsibility
Evolution of CSR
• 1950s: The Beginning in the US
Frank Abrams (top exec with Standard Oil):
"Managerial Responsibilities in a Complex World" (1951)
Harvard Business Review
Howard Bowen: ‚The Social Responsibilities of the Businessman‘
(1953)
Evolution of CSR
• 1960s: The discussion starts
e.g. Davis (1960): social responsibility refers to „businessmen‘s
decisions and actions taken for reasons at least partially beyond
the firm‘s direct economic or technical interest.“ (1967): „The
substance of SR arises from the concern for the ethical
consequences of one‘s acts as they might affect the interests
of others.“
 Evolution of CSR
• 1970s: Intensification
Rising social awareness and ecological concerns
• Friedman, NYT Magazine
• CED (1971): 3 circles of SR
– basic responsibilites
– social & economic responsibilites
– emerging responsibilities
The Social Responsibility of Business is to Increase its Profits
by Milton Friedman The New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company.
When I hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," I am reminded of the wonderful line about the Frenchman who discovered at
the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned "merely" with profit but
also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution
and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are–or would be if they or anyone else took them seriously–preaching pure and unadulterated
socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades. ..
 „CSR“ - Milestones

Peace
awareness
Movement

Beginning of
sustainability Foundation of
discussion Greenpeace

Frank Milton
Abrams Friedman
1951 NY TIMES
Magazine
1970
Howard
Bowen The
business •oil crisis
1953
of
•Club of Rome
business is
business
1950 1962 1968 1970 1971-79mmm year
1971-73
1970s:

Evolution of CSR
• enlightened self-interest (Steiner, 1973)
• beyond obeying the law (that‘s what every good citizen does...) (Davis, 1973)
• concerns with the needs and goals of society
Eels & Walton, 1974)
• different meanings: legal responsibility, being ethical, charitable action,
legitimacy...
• Corporate Social Performance (Sethi, 1975; Carroll, 1979)
 „CSR“ - Milestones Age of desaster-
entering risk society
(Beck, 1986)

awareness R. Edward
Freeman
1984
Stakeholder
Theory

Our common future-The

Brundtland Report (1987)

Sustainable development
“…development that meets the needs of the present
Without compromising the ability of future generations
To meet their needs.”

1984-89 year
Evolution of CSR
• 1980s: More research & the emergence of „Business Ethics“
- business ethics as discipline
- inquiry: moral status of the corp
«Can we hold corporations morally accountable for what they do?»
1982: discussion around corp moral agency (e.g. Donaldson 1982)
• 1984: Edward Freeman: „Stakeholder Management“
• Bhopal, Exxon Valdez lead to public discussions on CR:
→ Europe enters CSR discussion
• 1987: European Business Ethics Network; Journal of Business Ethics
 „CSR“ - Milestones
Agenda 21 Shell shocked-Corporate
(ir)responsibility and the
power of NGOs
Fighting global capitalism-
and discovering the dark

awareness
side of stakeholder society
•Brent Spar
•Nigeria
•The battle of
Seattle
•Fighting the
neoliberalist
paradigm

Rio Earth
Summit

1992 1995-96 1999 year

year
UN Global Compact
„In an age of interdependence, global citizenship –
based on trust, and a sense of shared responsibility – is
a crucial pillar of progress. At a time when more than 1
billion people are denied the very minimum
requirements of human dignity, business cannot afford
to be seen as the problem. Rather, it must work with
governments and all other actors in society...to tackle
the interlocking crises of hunger, disease,
environmental degradation and conflict that are holding
back the developing world.“
Some facts about the ‚developing‘ world:
• Half the world (3 billion people) live on less than 2
dollars a day
• GDP of the 48 poorest nations is less than the wealth
of the world three richest people combined
• 20% of the people in the developed nations consume
86% of the world‘s goods
• 51% of the world‘s 100 hundreds wealthiest bodies
are corporations
• 50.000 people die of poverty every day – a child dies
of poverty every three seconds
 „CSR“ - Milestones
Mainstreaming Johannesburg- Corporate scandals
of CSR begins World Summit on
SD in the shadow
of 9-11

awareness

„Aids is our business“

Enron,
Porter & Prahalad &
WorldCom
Kramer Hammond
and beyond
HBR '01 HBR '01
Corporate Serving the
Philanthropy World's Poor

2000 2001-9-11 2002 year

year
Evolution of CSR
• 1990s/2000s: Focus as well as diversification
• CSR and business ethics go mainstream – CSR reporting next financial reporting
• 6 of the past 10 AOM meetings on topics related to CSR, broadly defined
• New areas, incl. Political CSR
• GLRI & PRIME
• CSR officers in larger companies
• Professionalization of the domain
• Strategy goes CSR: Porter & ‘shared value’
CSR Definition

CSR as “practices that improve the

workplace and benefit society in ways that
go above and beyond what companies are
legally required to do.” (Vogel 2005: 2)

18
CSR Definition of European Commission

• EC defines CSR as “the responsibility of enterprises for their impacts on society”

(EC, 2011, p. 6)
• “Enterprises should have in place a process to integrate social, environmental,
ethical, human rights and consumer concerns into their business operations and
core strategy in close collaboration with their stakeholders,
with the aim of:
maximizing the creation of shared value for their owners/shareholders and for
their other stakeholders and society at large;
identifying, preventing and mitigating their possible adverse impacts.”
CSR Impact
Do no harm Do good
Aim Aim
avoiding ‘negative’ impact on society creating ‘positive’ impact on society

Behavior Behavior
Decisions & actions to refrain from harm (e.g. risk Decisions & actions to enhance societal welfare
management, avoiding accidents, product safety, (broadening access to products - BOP, contributing to
avoiding corrution) community development, social innovation)

Ethical classification Ethical classification

Kant: Duties of imperfect obligation Kant: Duties of perfect obligation

Based on Miska & Stahl (2012, AOM)

Multiple push effect
International Organizations

Consumers NGOs

Employees Regulators

Executives Governments

Companies Investors
Financial Markets
CSR Orientations
CSR is not the same concept in the minds of all…

Idealist Integrator
humanistic
(motives & values)
INTENTION

materialistic

Traditional Opportunity
Economist Seeker

one- multi-
dimensional dimensional
ACTION
(value creation / performance focus)

Source: Pless, N.M., Maak, T. & Waldman, D.A. (2012). "Thinking About Doing the Right Thing: Mapping the Responsibility Orientations of Leaders", Academy of
Management Perspectives,
Idealist
• Altruistic orientation, high degree of other regard
• Driven by social agenda and humanistic values – helping others, serving public
good, changing the world for the better
• Performance focus: social, environmental or humanitarian
• Business ventures led by idealists are often, but not always dedicated to create
social value, or broadly speaking value for society, specifically in those areas where
public systems fail and “where part of society is stuck” (Ashoka).
• → Business activities as a means to create social value
Idealist
• To whom & for what feels the idealist responsible?

• feels responsible towards people / stakeholders in need

• feels responsible for creating social value

• Doing the right thing means for the altruist leader to help people and
stakeholders in need by setting up a business and engaging others to
support the venture's mission.
Since 1994 HAGAR has helped around 100,000 vulnerable mothers and children to improve their lives with a
range of integrated social and economic projects addressing their needs.

SOCIAL SERVICES COMMERCIAL

ENTERPRISES
REHABILITATION
REINTEGRATION
• Shelter for mothers &
into labour market
children
• Foster home program
• Home for children with REINTEGRATION
disabilities
→ safe place to live
HAGAR • HAGAR Design
→ counselling
→ skill building • HAGAR Soya

• HAGAR Catering
PREVENTION
• Water Filters & Sanitation
• Health & Hygiene Edu.
• School Construction REINVESTMENT
•Teacher Training of profits
Economist
• Driven by materialistic values: profit, shareholder value and income
maximization
• Intention to maximize individual interests
• Performance focus: economic bottom line
Economist
• Motto: The business of business is business;
• Economically-oriented entities have a defensive approach towards social
responsibility.
• «The social responsibility of business is to increase its profits.» (Friedman
1970)
• They feel responsible for maximizing profits and shareholder value.
Economist
Economists only practice social responsibility

•if this is legally required,

•helps save costs,

•minimizes risks,

•directly and positively affects earnings & profits,

•or if pushed by shareholders/owners to do so.

→ very basic and selective pursuit of CSR

Opportunity seeker (strategist)
• Driven by materialistic values and a strategic
orientation: awareness of external developments,
responsive towards key stakeholders
(instrumental view)

• Motto: Doing well be doing good

Opportunity seeker (strategist)
Opportunity seeker (strategist)
Engage in CSR…

• ...when it offers strategic opportunities, supports strategic positioning

and contributes to realizing competitve advantages (Porter & Kramer)

• CSR efforts primarily derived from business case (e.g. Walmart,

Nestlé,)
Opportunity seeker (strategist)
Jeff Immelt, CEO, GE
„We are investing in environmentally cleaner
technology because we believe it will increase our
revenue, our value and our profits... Not because it
is trendy or moral, but because it will accelerate our
growth and make us more competitive.“

Speech in Washington, DC, on May 9th 2005, cited in The Economist May 14th 2005, p. 63
‘Shared value’
Porter and Kramer (2011):

The concept of shared value, in contrast, recognizes that societal needs,

not just conventional economic needs, define markets. It also
recognizes that social harms or weaknesses frequently create internal
costs for firms — such as wasted energy or raw materials, costly
accidents, and the need for remedial training to compensate for
inadequacies in education. And addressing societal harms and
constraints does not necessarily raise costs for firms, because they can
innovate through using new technologies, operating methods, and
management approaches—and as a result, increase their productivity
and expand their markets
 Tom’s of Maine

Ben & Jerry’s

Idealist Integrator
humanistic
(motives & values)
INTENTION

materialistic

Economist Strategist

one- multi-
dimensional dimensional
ACTION
(value creation / performance focus)

Source: Pless, N.M., Maak, T. & Waldman, D.A. (2012). "Thinking About Doing the Right Thing: Mapping the Responsibility Orientations of
Leaders", Academy of Management Perspectives, online first
Integrator
• Driven by humanistic values
• Reconcile profit & principles
• Self-understanding: Business in society,being a good corporate citizen
• Performance focus: multiple bottom lines (people, planet, profit & principles
= sustainable values creation)
› creating value for business and society
• Social value creation is an integral part of the business purpose
Integrator

•Purpose of business: to create long-term value for stakeholders in business

and society
•Profit making not seen as the purpose of business, but as an outcome
•Their goal is to fulfill a higher purpose through business
•Integrators are often visionaries who are ahead of things
Integrator
Anita and Gordon Roddick, Founder of The Body Shop
Purpose of the business: “the pursuit of social and environmental change” (1991).

Ray Anderson, Chairman of Interface

“For those who think business only exists to make a profit, I suggest they think again. Business
makes a profit to exist. Surely it must exist for some higher, nobler purpose than that.” (2005)

John Mackey, CEO of Whole Foods (http://www.youtube.com/watch?v=CYJl3DOMGM8)

“ I believe that the enlightened corporation should try to create value for all of its constituencies.
From an investor's perspective, the purpose of the business is to maximize profits. But that's not the
purpose of the business in terms of its own needs and desires… It's a question of finding the
appropriate balance and trying to create value for all of our stakeholders.”
Conclusion
• There are divergent perspectives of CSR, ranging from narrow definitions to
comprehensive definitions
• This has implications at the indivdiual and organizational level:
- decision making
- scope and time frame of CSR engagements
- leadership image & organizational reputation
(perceived authenticity, credibility and trust)
- quality of stakeholder relations
- competitiveness in a market for virtue
CSR Orientations
CSR is not the same concept in the minds of all…

Idealist Integrator
humanistic
(motives & values)
INTENTION

materialistic

Traditional Opportunity
Economist Seeker

one- multi-
dimensional dimensional
ACTION
(value creation / performance focus)

Source: Pless, N.M., Maak, T. & Waldman, D.A. (2012). "Thinking About Doing the Right Thing: Mapping the Responsibility Orientations of Leaders", Academy of
Management Perspectives,
Graded team exercise
• Regroup into your teams from the last session
• Select a Company of your choice, e.g.
Atlassian, BHP, Fonterra, or International…
• Investigate their CSR report, mission statement, and so forth…
• Create one summary slide on where you think the Company sits: Idealist,
Economist, Strategist, Integrator
• Present in class
• Then write a more in-depth report in line with instructions