LECTURE 7A:

ETHICS AND CORPORATE

SOCIAL RESPONSIBILITY (CSR)
ECONOMICS AND MANAGEMENT
OF ORGANIZATIONS (EMO) 1.5
22-04-2021
DR. KOEN VAN BOMMEL
K.VAN.BOMMEL@VU.NL
 INTRODUCTION

Agenda:
• Introduction
• The nature of ethics
• CSR: definition & context
• CSR drivers

2
 INTRODUCTION

After following this lecture you should be able to:

• Understand the sources of business ethics and the four rules of
ethical decision making
• Explain the changes in the context in which organizations operate
and their connection with ethics/CSR
• Explain the meaning of and difference between the ethical,
instrumental, stakeholder, and institutional drivers of ethics/CSR

3
 INTRODUCTION

The four essential managerial tasks: CSR does not relate to a

particular management function
or task, but ideally covers all
aspects of a company’s value
creation activities.

4
 ETHICAL ISSUES IN BUSINESS

Ethics
> The inner-guiding moral principles, values, and beliefs that
people use to analyze or interpret a situation and then decide
what is the right or appropriate way to behave (Jones &
George, 2020, p. 88)

5
 SOURCES OF ETHICS Dealing with fairness,
justice, poverty, and
the rights of the
individual

Figure 4.4 Personal standards

and values vis-à-vis
other people and
groups

Guiding principles of a
firm & managers of
Work-conduct of responsibility toward
profession, trade, or stakeholders (code of
craft ethics)

6
 RULES FOR ETHICAL DECISION MAKING
“do unto others “Measuring”
as you would benefit/harm to
have them do stakeholders
unto you”

No favouritism,
equal pay,
mutual fairness

Figure 4.2
7
 ETHICAL ISSUES IN BUSINESS

• Ethical issues in business are sometimes apparent and sometimes not so

apparent. Detecting them is the first important step.

• Answering the question “is it ethical?” is ambiguous and socially

constructed: there is no straightforward right or wrong answer and usually,
different people come to different answers based on different arguments.

• Both ethical and legal rules are relative: they change over time as ideas
about what is right/wrong change (e.g. slavery; child labour; Zwarte Piet
etc.) and ethical dilemmas and debates thus continue

• Difference between something being illegal and unethical (e.g. tax evasion
and tax avoidance)

8
 CSR IS HARD TO AVOID THESE DAYS ….

9
 CONTEXT OF CSR

10
 CONTEXT OF CSR

Definition of Corporate Social Responsibility (CSR) of the

European Commission:

“CSR is the responsibility of enterprises for their impacts on society. To fully meet
their social responsibility, 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” (EU Commission, 2011).

“The way a company’s managers and employees view their duty or obligation to
make decisions that protect, enhance, and promote the welfare and well-being of
stakeholders and society as a whole” (Jones & George, 2020, p. 107)

“Synonyms”: Corporate Responsibility; Corporate Sustainability; Triple Bottom

Line; People-Planet-Profit

11
 CONTEXT OF CSR

Trends affecting CSR:

> Increasing relevance of macro (social and
environmental) trends, problems & concerns and their
side effects

> Globalization of the firm and its supply chains

> Complex, fragmented and increasingly demanding business

environment (e.g. stakeholders) & societal expectations

> Closer connection between corporate strategy, profit and

sustainability
12
 CONTEXT OF CSR

Source: Ed Hawkins
Annual global temperatures 1850-2018
13
 CONTEXT OF CSR

Planetary boundaries:

Source: Rockstrom et al 2009

14
 CONTEXT OF CSR
Doughnut economics clip
Doughnut Economics:

Image: Kate Raworth and Christian Guthier/The Lancet Planetary Health

15
 CONTEXT OF CSR

Trends affecting CSR:

> Increasing relevance of macro (social and environmental)
trends, problems & concerns and their side effects

> Globalization of the firm and its supply chains

> Complex, fragmented and increasingly demanding business

environment (e.g. stakeholders) & societal expectations

> Closer connection between corporate strategy, profit and

sustainability

16
 GLOBAL SUPPLY CHAINS

17
 CONTEXT OF CSR

Trends affecting CSR:

> Increasing relevance of macro (social and environmental)
trends, problems & concerns and their side effects

> Globalization of the firm and its supply chains

> Complex, fragmented and increasingly demanding

business environment (e.g. stakeholders) & societal
expectations

> Closer connection between corporate strategy, profit and

sustainability
18
 CURRENT “HOT ISSUES” IN BUSINESS ETHICS/CSR:
PROFIT SHIFTING AND TAX AVOIDANCE

Tax avoidance is the legal usage of the tax regime to

one's own advantage, to reduce the amount of tax that is
payable by means that are within the law.

…the tax practices of some multinational companies

have become more aggressive, raising serious
compliance, fairness and ethical issues (OECD).

International tax jurisdiction may not have kept pace

with the changing business environment. Many rules are
still grounded in an economic environment characterized
by a low degree of global integration (OECD).

19
 CONTEXT OF CSR

Trends affecting CSR:

> Increasing relevance of macro (social and environmental)
trends, problems & concerns and their side effects

> Globalization of the firm and its supply chains

> Complex, fragmented and increasingly demanding business

environment (e.g. stakeholders) & societal expectations

> Closer connection between corporate strategy, profit

and sustainability

20
Strategy and CSR – Companies are reacting ....

21
 COMPANIES ARE REACTING…

…by integrating CSR into their core business strategies (or at least they say
so ….)

Social Rights
and Ethics Charter

22
Wrap-up part 1:
• Managing ethics is complex, as it is difficult to find easy
solutions and different rules for ethical decision making exist

• Recognition of strategic aspects of CSR, globalization of firms

and its supply chain, changes in the business constellation &
societal expectations, and social & environmental
trends/problems are important contextual factors affecting
organizations and their ethical choices.

23
 CSR DRIVERS
e.g., Aguilera et al., 2007; Bansal & Roth, 2000; Campbell, 2007; Garriga & Mele, 2004

Ethical

CSR

24
 CSR DRIVERS

!
Companies are unlikely
motivated for CSR by a
Ethical single driver alone.
motives

• It is an illusion that there is

Instru always a “hard” business
mental case.
motive
Stakeholder &
Institutional • It is probably also an illusion
motives that “ethics” alone is
sufficient, other factors (e.g.
societal pressure) at work.

25
 ETHICS AS A DRIVER FOR CSR

• A personal feeling of responsibility to “do no harm” and Probably the least

behave ethically. important driver...

• Corporations cause social problems, and hence have an

ethical responsibility to solve those they have caused and to In sum, such
prevent further social problems arising. “ethical
responsibilities”
• Corporations rely on the contribution of a wide set of constituencies, or consist of what is
stakeholders, rather than just shareholders, and hence have a moral duty to take generally expected
into account the interests of these stakeholders and of shareholders.
by society over and
above economic and
• As powerful social actors, with recourse to substantial
legal expectations!
resources, corporations should use their power and resources
responsibly in society.

• All corporate activities have social impacts of one sort or another and
corporations cannot escape responsibility for those impacts, whether
they are positive, negative, or neutral.

26
 THE BUSINESS CASE AS A DRIVER FOR CSR –
THE INSTRUMENTAL VIEW

“Good ethics is good business” / “doing well by doing good”

> Cases where increased business ethical behaviour directly increases profits,
e.g. if saving resources in the production process decreases costs (easy to
quantify).
> Links business ethics to financial performance and competitiveness (a hard
business case).

“Enlightened self-interest”
> Corporations take on social responsibilities insofar as doing so promotes their
own self-interest.

27
 THE BUSINESS CASE AS A DRIVER FOR CSR –
THE INSTRUMENTAL VIEW

> Creating Shared Value or CSV (Porter & Kramer 2011) as one of the most prominent
examples of the hard/instrumental business case view on CSR:

“policies and operating practices that enhance the competitiveness of a

company while simultaneously advancing the economic and social conditions in
the communities in which it operates. Shared value creation focuses on
identifying and expanding the connections between societal and economic
progress” (p. 6)

> CSV proposes to transform social problems relevant to the corporation into business
opportunities, thereby contributing to the solving of societal challenges whilst
simultaneously driving greater profitability (i.e., creating win-win scenarios)  social
goals to a strategic level rather than a feel-good response to external pressure

28
 THE BUSINESS CASE AS A DRIVER FOR CSR –
THE INSTRUMENTAL VIEW

“We have not solved any problems with this marginal definition of
CSR based on ethical assumptions and ‘doing the right thing’. With
all due respect, it does not stick with CEO’s and in board rooms. It
just hasn’t moved the needle. We are in an economic, social and
environmental mess. Get rid of the old-style CSR, it’s time to fully
integrate CSR in the business and integrally link it to profit
maximization. Let’s look at society’s problems through capitalist
glasses and try to solve these problems by making lots of money.
Capitalism 2.0”
(sustainability manager)
 THE BUSINESS CASE AS A DRIVER FOR CSR –
THE INSTRUMENTAL VIEW

> Examples around reconceiving products and markets:

> Seeking out social problems where serving consumers and contributing to
the common good might be achieved in parallel

> Environmentally friendly/friendlier products

> Tailored products for developing economies

> Unexplored ‘low-value’ markets in developed economies

30
 OUTSIDE PRESSURES AS DRIVER:
THE STAKEHOLDER VIEW

Stakeholder pressure (consumers, governmental regulation, investors, employees, etc.):

> Consumers: Protect brand & reputation; avoid boycotts
> Governments: Avoid regulation
> Investors: Socially Responsible Investment
> Employees: Attractive employer
> NGO’s: Avoid actions/negative publicity

Stakeholder “can affect or is affected

by the achievement of the organization’s
objective” (Freeman 1984: 46)

Figure 4.1

31
 OUTSIDE PRESSURES AS DRIVER:
THE STAKEHOLDER VIEW

Legitimacy/social licence to operate:

> Acting in accordance with societal expectations: a long-term investment in a
safer, better-educated and more equitable community may benefit the
corporation by creating an improved and stable competitive context in which
to operate.
> Issues of trust, reputation, goodwill at stake

Often very hard to quantify (a “soft” business

case)

32
 OUTSIDE PRESSURES AS DRIVER:
THE INSTITUTIONAL VIEW
“Isomorphism” (see DiMaggio & Powell, 1983):
> Probably the most important, but least tangible driver for business ethics: everyone is doing it!
> It has become “the rule of the game”
> Companies engage in business ethics/CSR independent of whether it contributes to profits; they do
so because all of their competitors do!

Examples:
> KPMG survey: “the debate whether to report is over”
> “Semi-voluntary” industrial self-regulation
> Global ethics standards (e.g. UN Global Compact; Global Reporting Initiative; UTZ; etc.)

Probably will
become the most
important driver...

33
Wrap-up part 2:

• Drivers for CSR can be categorizes as ethical; instrumental;

stakeholder or institutional

• Ethical is arguably the least important one, instrumental

currently the most dominant one with stakeholder &
institutional becoming increasingly important

34