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What Is CSR? - : Ch.5: Corporate Social Responsibility
What Is CSR? - : Ch.5: Corporate Social Responsibility
What is CSR?
- is behaviour in which firms engage that considers the interests of stakeholders outside of the
firm, along with and not solely including those of the firm itself.
- Definition depends upon the perspective you take as to WHY firms might engage in CSR:
o Legitimacy – acting in the firm’s interest
“The social responsibility of business encompasses the economic, legal, ethical,
and discretionary expectations that society has of organizations” – Carroll, 1979
CSR is what society says it is, and the firm itself doesn’t decide, it simply reacts -
Legitimacy
o Public responsibility – acting in society’s interest
Business corporations have an obligation to work for the social betterment –
Fredrick 1986
Firms must go beyond simply doing what is expected, but be proactive in
improving society since its success is a result of its use of that society - Public
responsibility
o Managerial discretion – acting in the individual’s interest
The firm’s consideration of, and response to, issues beyond the narrow
economic, technical, and legal requirements of the firm. . .(to) accomplish social
benefits along with the traditional economic gains – Davis, 1973
Managers have to balance society and performance, but do both - Managers’
discretion
Legitimacy
Public Responsibility
- Businesses are responsible for outcomes related to their primary and secondary areas of
involvement with society.
- Businesses are not responsible for solving all social problems, but they are responsible for
solving social problems they caused and to which they are related.
- Links firms with the ramifications of their operations without burdening them with too much
responsibility.
o Automakers and air pollution, recyclable cars etc.
o How strong does the link need to be? Where does the responsibility end?
- Lower behavioural expectations - not beholden to all of society
- Socially responsible behaviour is not therefore defined by “whims” of society, but by direct
results of the firm’s actions while still providing latitude within that range.
Managerial Discretion
- Managers are moral actors. Within every domain of corporate social responsibility, they are
obliged to exercise such discretion as is available to them, toward socially responsible outcomes
while at the same time maximizing profit.
- A firm’s social responsibilities are not met by an abstract organizational actor; they are met by
individual humans
o People make up firms and the people are responsible to society
o Relies on ethics, judgement and values of managers
- Managers are given positions of power to act on behalf of their organization. They should use
this power (discretion) to make their firm behave in a socially responsible manner.
- Suggests that CSR refers to acting responsibly to avoid creating problems as opposed to solving
existing problems
*Fundamental Question*
Economic View
- Does CSR lead to better firm performance or does better firm performance lead to CSR?
o Answering this question is the heart of the debate
Ethical View
- EV Positive (+)
o Businesses are beholden to seven constituencies; thus the firm is both an economic and
socially viable entity.
Of these constituencies’ customers are the primary responsibility because they
are the providers of revenue to the firm
o Shareholders are viewed as “providers of investment capital” but not the principles –
the firm itself is an autonomous entity
Managers are responsible for its actions and are therefore the principles
No agency situation exists
o Managers can and should create the culture of CSR
Investors know what they are getting into when they invest in the firm so they
exert no control over it
If they don’t believe in the firm, invest elsewhere
o Suggests that ethically managers must decide to act in a socially responsible manner
because they control vast resources
Profit is one, but not the only motive (to pay back investors) but also to gain the
resources to act responsibly
- EV NEGATIVE (-)
o Managers have a moral duty to ensure their business thrives
Duty to: – Customers – Suppliers – Employees – Shareholders – Society
o If CSR threatens the firm’s ability to maintain its obligations to its customers and other
stakeholders, the firm should not engage in it.
Stakeholders concerns over those not related to the firm.
Ethical View:
Varieties of CSR:
Corporate Social Responsibility
- Fundamental Question
- Should businesses act in a socially responsible manner? –
o Depends on your perspective:
Economic view (Freidman)
Ethical view
o Depends on your view of what CSR is
o Note that each perspective can be used for both sides of the argument
- Firms are more likely to be able to sustain long-term success for the benefit of shareholders if
they engage in socially responsible behaviour.
o Being good is not always directly rewarded but can be seen as an issue avoidance
strategy (which ultimately reduces potential costs and at worst, maintains profit levels).
o Increased shareholder value: CSR activities seen at worst as value neutral and in most
cases added value
o Revenue: positive relationship – attracts more customers who are often willing to pay
more
o Efficiency: waste reduction reduces costs; happy staff increase productivity
o Human and intellectual capital: attract “enlightened” talented employees
o Reduced risk profile: reduce oversight costs
o Innovation: new, better processes and products evolve out of socially responsive goals
o Legitimacy: societal acceptance = access to needed resources