Chapter 03 - Corporate Social Responsibility

CHAPTER 3
CORPORATE SOCIAL RESPONSIBILITY

INTRODUCTION

Corporate social responsibility challenges businesses to attend to and interact with

the firm’s stakeholders while they pursue traditional economic goals. Both market and
nonmarket stakeholders expect businesses to be socially responsible, and many
companies have responded by making social goals a part of their overall business
operations. What it means to act in socially responsible ways is not always clear, thus
producing controversy about what constitutes such behavior, how extensive it should be,
and what it costs to be socially responsible.

PREVIEW CASES

GSK Biologicals

Is GSK Biologicals, under the leadership of Jean Stephenne, acting responsibly

towards the firm’s stockholders, or are his concerns for helping the poor and sick
clouding his business judgment? Should businesses be more concerned about serving
customers where the need is greatest, or focus on securing profits? Is it possible that in
the long run, Stephenne’s strategy will actually make more money for his company than a
more conventional strategy might?

The GSK Biologicals story illustrates that socially responsible actions may result in
short-term costs for a firm. However, Stephenne may see the long-term benefit for the
firm, both economically and socially, by acting in a socially responsible manner. By
acting responsibly toward low- and middle-income Latin American residents, Stephenne
may be opening up a new market for GSK Biologicals. Or, it is possible, that
Stephenne’s actions are purely altruistic and an expression of the charity principle, terms
explained later in the chapter, and he simply wants to help those in need and is in a
position as president of GSK Bio, to do so.

Teaching Tip: Socially Responsible Companies

Students could search the Internet using the websites
provided in Exhibit 3.A for examples of corporate social
responsibility or examples of socially responsible businesses.

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CHAPTER OUTLINE
I. THE MEANING OF CORPORATE SOCIAL RESPONSIBILITY

A. The Many Responsibilities of Business

B. Social Responsibility and Corporate Power

Teaching Tip: Iron Law Responsibility

Students could look at local or national business periodicals
or the Internet for examples of businesses who have abused
their power and encountered the wrath of social interest
groups or the government. For example, Microsoft, Enron,
WorldCom, Wal-Mart and others.
II. HOW CORPORATE SOCIAL RESPONSIBILITY BEGAN

A. The Charity Principle

Teaching Tip: The Charity Principle

An in-class exercise could begin by targeting local
businesses and discover through corporate documents or
secondary sources their charitable contribution strategy. Do
they have a corporate charitable foundation? How much do
they annually contribute to charities? Who are the recipients
of the firms’ charitable giving? What do these firms
contribute – cash, employee time, in-kind services or
products?

B. The Stewardship Principle

III. THE CORPORATE SOCIAL RESPONSIBILITY DEBATE

Teaching Tip: The CSR Debate

Students could be divided into teams and assigned one side
of the CSR debate or each pro and con issue in the debate for
in-class presentations. Students could support their debate
position by acquiring quotes from local executives via
interviews or from corporate documents, such as annual
reports or press releases.

A.

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B. Arguments for Corporate Social Responsibility

* Balances corporate power with responsibility

* Discourages government regulations

* Promotes long-term profits for business

* Improves business value and reputation

* Corrects social problems caused by business

Teaching Tip:
Businesses for Social Responsibility on Video*
In this segment, reporter Paul Solman attends the annual
convention of Business for Social Responsibility (BSR) and
interviews representatives of McDonalds, Greyston Bakery,
Eileen Fisher, Hewlett-Packard, and Green@Work about the
costs and benefits of corporate social responsibility (CSR).
This segment may be used with the discussion of the pros
and cons of CSR in Ch. 3.
* The video segment is from the Public Broadcasting Services’s “News
Hour with Jim Lehrer” and is available on the Instructor’s Resource
Manual DVD that accompanies the textbook, available upon request
from the publisher.
B. Arguments against Corporate Social Responsibility

* Lowers economic efficiency and profits

* Imposes unequal costs among competitors

* Imposes hidden costs passed on to stakeholders

* Requires social skills business may lack

* Places responsibility on business rather than individuals

Teaching Tip: Pros and Cons of Social Responsibility

In a take-off on the popular television show, The Apprentice,
students “compete for the job of Vice President of Social
Responsibility” for a fictitious firm by forming into teams
and designing a socially responsible program for a local
firm. Then, students (or the instructor) could question the
social program and eliminate the teams with the weaker
programs until a winner is declared.

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IV. BALANCING ECONOMIC, LEGAL, AND SOCIAL RESPONSIBILIES

Teaching Tip: Balance Multiple Responsibilities

Current business periodicals abound with examples
describing how firms must balance their economic, legal and
social responsibilities. Students might discuss “why” a firm
emphasized one responsibility over the others, or critique a
firm’s strategy -- possibly offering a “better” solution that
more equitably balances the firm’s multiple responsibilities.

A. Economic and Social Responsibilities: Enlightened Self-Interest

B. Legal Requirements versus Corporate Social Responsibility

C. Stockholder Interests versus Other Stakeholders Interests

GETTING STARTED

KEY LEARNING OBJECTIVES

1. Understanding the basic meaning of corporate social responsibility.

Corporate social responsibility means that a corporation should be held accountable for
any of its actions that affect people, their communities, and their environment. Businesses
must recognize their vast power and wield it to better society.

2. Knowing where and when the idea of social responsibility originated.

The idea of corporate social responsibility in the United States was adopted by business
leaders in the early 20th century. The central themes of social responsibility have been
charity—which means giving aid to the needy—and stewardship—acting as a public
trustee and considering all corporate stakeholders when making business decisions.

3. Examining the critical arguments for and against corporate social

responsibility.

Corporate social responsibility is a highly debatable notion. Some argue that its benefits
include discouraging government regulation, promoting long-term profitability for the
firm, and enhancing the company’s reputation. Others believe that it lowers efficiency,
imposes undue costs, and shifts unnecessary obligations to business.

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4. Assessing how business meet its economic and legal obligations while being
socially responsible.

Socially responsible businesses should attempt to balance economic, legal, and social
obligations. Following an enlightened self-interest approach, a firm may be economically
rewarded while society benefits from the firm’s actions. Abiding by legal requirements
can also guide businesses in serving various groups in society.

5. Investigating how business balances its responsibilities to multiple stakeholders,

including its stockholders.

Managers should consider all of the company’s stakeholders and their interests, not only
their shareholders. Management’s central goal is to promote the interests of all
stakeholders by pursuing multiple company goals. This broader, more complex task
emphasizes the long-run objectives and performance of the firm.

KEY TERMS AND CONCEPTS USED IN THE CHAPTER

charity principle, 48

corporate social responsibility, 45

enlightened self-interest, 56

iron law of responsibility, 47

legal obligations, 57

reputation, 52

stewardship principle, 49
INTERNET RESOURCES

www.csracademy.org.uk CSR Academy

www.csr-monitor.com CSR Monitor
www.csrwire.com The Newswire of Corporate Social
Responsibility
www.worldbank.org/wbi/corpgov/csr The World Bank Group, Corporate Governance
and Corporate Social Responsibility

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DISCUSSION CASE
HURRICANE KATRINA - CORPORATE SOCIAL RESPONSIBILITY IN
ACTION

Discussion Questions

1. Do the demonstrations of kindness described in this story exemplify the charity

principle or the stewardship principle, or both?

Clearly the demonstrations of kindness depicted in the Hurricane Katrina discussion

case exemplify charitable acts – people were in severe need after their homes and lives
were torn apart by the hurricane and people and companies came to the rescue. But, in
addition, there are elements of stewardship present as well since efforts were made to
restore the environmental damage caused by the hurricane, primarily to prevent the
destruction from occurring again with the next hurricane. The “public trust,” a core
element of the stewardship principle, was shaken after the tragedy and companies were
able to begin to restore that trust by their quick and responsible actions.

2. Which arguments for corporate social responsibility support the actions of the
companies profiled here, and which arguments against corporate social
responsibility raise questions concerning these actions?

Many of the arguments for and against socially responsible actions listed in the
chapter could be evoked in response to the discussion case story. Businesses may have
been fearful of government mandates to help out in the disaster (“discourages
government regulation”), thus firms acted voluntarily. But, more likely firms saw the
opportunity to balance social responsibility with potential economic advantage by
quickly supporting those in need with money, in-kind donations, and volunteer hours.
They sought to “promote long-term profits for business” and “improve business value
and reputation.”

However, there are arguments against corporate social responsibility that could be
discussed. The charitable actions depicted in the case could “lower economic efficiency
and profits” for the firms and might “impose unequal costs among competitors” or
“impose hidden costs passed on to stakeholders.” While good intentioned, it is not clear
that business possesses the “required skills” to address this problem. Alternatively,
individual contributions may be seen as more appropriate, rather than corporate
contributions.

3.

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4. Enlightened self-interest occurs when a business recognizes the interrelationship

between its company’s economic interests and its social obligations. Do you think
that the acts of corporate generosity described in this case represent examples of
enlightened self-interest? Why or why not?

As discussed above, it is likely that some of the motivation for the corporate acts of
kindness and support were a mix of social and economic interests, thus enlightened self-
interest. Unless the financial or product donations were made anonymously, the firm
undoubtedly was hoping for some positive image enhancement and long-term return on
this investment though increased customer loyalty or sales.

5. Is it businesses' duty to help those in extreme need, such as victims of Hurrican

Katrina, or is this the job of governments and individuals? How far should a
company go to assist the community, their employees and others affected by a
natural disaster?

This is a good question for debate. Some would argue that business has an
obligation to be involved in the community, especially during a disaster, since it uses
community resources. As part of the community, it should share in the good times as well
as the challenging times. While businesses should not bear all of the burdens of
restoring the damage caused by the hurricane, or other social disasters, business seems
to have some responsibility to be involved. As noted in the chapter, business possesses
(economic) power and should use its power wisely or may lose it – the Iron Law of
Responsibility.

“How far should a company go?” is an even more difficult question to answer.
Some firms are extensively involved in socially responsible actions because of the values
and commitment by their owner or CEO. The culture of a firm could support a more
extensive social responsibility strategy. Other firms see their financial livelihood
dependent upon the customers’ impressions of the firm – like Wal-Mart – which may
motivate the firm to be more involved than other firms.

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