Chapter 1

Is Business Ethics an oxymoron?

To say that business ethics is an oxymoron suggests that there are not, or cannot be, ethics in business:
that business is in some way unethical (i.e. that business is inherently bad), or that it is, at best, amoral
(i.e. outside of our normal moral considerations). However, just because such malpractices take place
does not mean that there are not some kinds of values or principles driving such decisions. Revelations
of corporate malpractice should not therefore be interpreted to mean that thinking about ethics in
business situations is entirely redundant. After all, as various writers have shown, many everyday
business activities require the maintenance of basic ethical standards, such as honesty, trustworthiness,
and co-operation. Business activity would be impossible if corporate directors always lied; if buyers and
sellers never trusted each other; or if employees refused to ever help each other. Similarly basic
principles of fairness help ensure that people in business feel adequately rewarded for working hard
rather than being evaluated on irrelevant criteria such as how good they are at golf or how nice their
hair is. Whichever way one looks at it, there appears to be good reason to suggest that business ethics
as a phenomenon, and as a subject, is not an oxymoron.

Definition

Business ethics is the study of business situations, activities, and decisions where issues of right and
wrong (morally) are addressed.

Business Ethics and the Law

Law is essentially an institutionalization or codification of ethics into specific social rules, regulations,
and proscriptions. The law might be said to be a definition of the minimum acceptable standards of
behaviour. However, the law does not explicitly cover every possible ethical issue in business—or for
that matter outside of business. For example, just as there is no law preventing you from being
unfaithful to your significant other.

Similarly, it is possible to think of issues that are covered by the law but which are not really about
ethics. For example, the law prescribes whether we should drive on the right or the left side of the road.
Although this prevents chaos on the roads, the decision about which side we should drive on is not an
ethical decision as such.

In one sense then, business ethics can be said to begin where the law ends. Business ethics is primarily
concerned with those issues not covered by the law, or where there is no definite consensus on whether
something is right or wrong. For this reason, it is often said that business ethics is about the ‘grey areas’
of business, or where, as Treviño and Nelson (2014: 39) put it, ‘values are in conflict’.

As we shall see many times over in this book, the problem of trying to make decisions in the grey areas
of business ethics, or where values may be in conflict, means that many of the questions we face are
equivocal. What this suggests is that there simply may not be a definitive ‘right’ answer to many
business ethics problems. It is often not just a matter of deciding between right and wrong, but between
courses of action that different actors, for different reasons, both believe are right—or both believe are
wrong. So studying business ethics should help you to make better decisions, but this is not the same as
making unequivocally right decisions. Business ethics is principally about developing good judgement.
So studying business ethics should help you to make better decisions, but this is not the same as making
unequivocally right decisions. Business ethics is principally about developing good judgement. So
studying business ethics should help you to make better decisions, but this is not the same as making
unequivocally right decisions. Business ethics is principally about developing good judgement.

Defining morality, ethics, and ethical theory

Morality is concerned with the norms, values, and beliefs embedded in social processes which define
right and wrong for an individual or a community.

Ethics is concerned with the study of morality and the application of reason to elucidate specific rules
and principles that determine morally acceptable courses of action. Ethical theories are the codifications
of these rules and principles.

According to this way of thinking, morality precedes ethics, which in turn precedes ethical theory.

All individuals and communities have morality, a basic sense of right or wrong in relation to particular
activities. Ethics represents an attempt to systematize and rationalize morality, typically into generalized
normative rules that supposedly offer a solution to situations of moral uncertainty. The outcomes of the
codification of these rules are ethical theories, such as rights theory or justice theory.

Why is Business ethics important?

1. Business has huge power within society

Business affects almost every aspect of our lives, and can even have a major impact on the democratic
process of government. Evidence suggests that many members of the public are uneasy with such
developments. For instance, one recent poll revealed that a large majority of the US population believe
that lobbyists (71%), major companies (67%), and banks and financial institutions (67%) have too much
power. This raises a host of ethical questions and suggests we need to find new answers to the question
of how we can either restrain this power or ensure that it is used for social good rather than exploitation
of the less powerful.

2. Business has the potential to provide a major contribution to our societies

Whether in terms of producing the products and services that we want, providing employment, paying
taxes, acting as an engine for economic development, or solving complex social problems, business can
be a tremendous force for good. As a global survey conducted by McKinsey showed, only about 50% of
business executives actually think that corporations make a mostly or somewhat positive contribution to
society, while some 25% believe that their contribution is mostly or somewhat negative

3. Business malpractice has the potential to inflict enormous harm on individuals, communities,
and the environment

When the Rana Plaza building collapsed in Bangladesh in 2013, more than 1,000 garment workers
stitching clothes for suppliers of Western retailers died having been forced to return to work after the
building was evacuated and declared unsafe. Through helping us to understand more about the causes
and consequences of these malpractices, business ethics seeks to improve the human condition.
 4. The demands being placed on business to be ethical by its various stakeholders are becoming
more complex and challenging

It is critical to understand these challenges and to develop responses to them that address the demands
of stakeholders but also enable firms to perform their economic role effectively. Getting this balance
right remains a critical challenge for managers.

5. Employees face significant pressure to compromise ethical standards

For example, a survey of 500 financial services professionals in the UK and the US found that more than
one in four had observed wrongdoing in the workplace, while a quarter of respondents agreed that
financial services professionals might need to engage in unethical or illegal conduct in order to be
successful. Studying business ethics provides us with a way of looking at the reasons behind such
infractions, and the ways in which such problems might be dealt with by managers, regulators, and
others interested in improving ethical practice.

6. Business faces a trust deficit

Globally, only 18% of the general population trusts business leaders to tell the truth and just 19% trust
them to make ethical decisions. Enhancing business ethics will be a critical component in restoring that
trust in the future.

Business ethics in large versus small companies

As Laura Spence (1999) suggests, these differences include the lack of time and resources that small
business managers have available to focus on ethics, their autonomy and independence with respect to
responsibilities to other stakeholders, and their informal trust-based approach to managing ethics. They
have also been found to assess their employees as their single most important stakeholder.

Large corporations, on the other hand, tend to have much more formalized approaches to managing
business ethics. They have considerably more resources available to develop sophisticated ethics and
compliance management programmes. That said, they are constrained by the need to focus on
profitability and shareholder value, as well as the very size and complexity of their operations.

Globalization

Globalization has become one of the most prominent buzzwords of recent times. One effect of
globalization has been that risk of all kinds—not just fiscal, but also physical—have increased for
businesses, no matter where they operate. Information travels far and fast, confidentiality is difficult to
maintain, markets are interdependent and events in far-flung places can have immense impact virtually
anywhere in the world.

In the context of business ethics, this controversy over globalization plays a crucial role. After all,
corporations—most notably multinational corporations (MNCs)—are at the centre of the public’s
criticism on globalization. They are accused of exploiting workers in developing countries, destroying the
environment, and, by abusing their economic power, engaging developing countries in a so-called ‘race
to the bottom’. However true these accusations are in practice, there is no doubt that globalization is
the most current and demanding arena in which corporations have to define and legitimatize the ‘rights
and wrongs’ of their behaviour.
What is globalization?

The new and game-changing feature ‘globalization’ is that it makes real-time social, political, economic,
and cultural exchanges possible between people or organizations without any need for direct physical
contact. Globalization makes these interactions possible regardless of how close or how far away the
different partners are actually located from each other. To get a good grasp on what globalization
means, two main developments in the last few decades are particularly important.

- The first development is technological in nature. Modern communications technology, from the
telephone through to the internet, open up the possibility of connecting and interacting with
people despite the fact that there are large geographical distances between them. Furthermore,
the rapid development of global transportation technologies allows people to easily meet with
other people all over the globe.
- The second development is political in nature. Territorial borders have been the main obstacles
to worldwide connections between people. Only 25 years ago it was still largely impossible to
enter the countries in the Eastern bloc without lengthy visa procedures, and even then,
interactions between people from the two sides were very limited.

Global communications, global products, and global financial systems and capital markets are only the
most striking examples of globalization in the world economy. There are many other areas where
globalization in this sense is a significant social, economic, and political process.

Globalization and Business Ethics

Globalization as defined in terms of the closer integration of economic activities is particularly relevant
for business ethics, and this is evident in three main areas—culture, law, and accountability.

- Cultural Issues

As business becomes less fixed territorially, so corporations increasingly engage in overseas markets,
suddenly finding themselves confronted with new and diverse, sometimes even contradictory ethical
demands. Moral values that were taken for granted in the home market may get questioned as soon as
corporations enter foreign markets. For example, attitudes to racial and gender diversity in North
America may differ significantly to those in Middle Eastern countries. Again, while Scandinavians tend to
regard child labour as strictly unethical, some South Asian countries might have a different approach.

The reason why there is a potential for such problems is that while globalization results in the
‘deterritorialization’ of some processes and activities, in many cases there is still a close connection
between the local culture, including moral values, and a certain geographical region. For example,
Europeans largely disapprove of capital punishment, while many Americans appear to regard it as
morally acceptable. On the one hand, globalization makes regional difference less important since it
brings regions together and encourages a more uniform ‘global culture’. On the other hand, in eroding
the divisions of geographical distances, globalization reveals economic, political, and cultural differences
and confronts people with them.

- Legal Issues
The more economic transactions lose their connection to a certain territorial entity, the more they
escape the control of the respective national governments. The power of a government has traditionally
been confined to a certain territory; for example, French laws are only binding on French territory, UK
laws on UK territory, and so on. As soon as a company leaves its home territory and moves part of its
production chain to, for example, an emerging economy, the legal framework becomes very different.
Consequently, managers can no longer simply rely on the legal framework when deciding on the right or
wrong of certain business practices. If, as we said earlier, business ethics largely begins where the law
ends, then globalization increases the demand for business ethics because globalized economic activities
are beyond the control of national (territorial) governments.

- Accountability Issues

What this means is that the more economic activities become global, the less governments can control
them, and the less they are open to democratic control by the people affected by them. Consequently,
the call for direct (democratic) accountability of MNCs has become louder in recent years, as evidenced,
for example, by the Occupy movement that we mentioned above. Put simply, globalization leads to a
growing demand for corporate accountability

Sustainability

While we regard this idea of sustainability as the long-term maintenance of systems according to social,
economic, and environmental considerations as sufficient for determining the essential content of the
concept, it is evident that sustainability as a phenomenon also represents a specific goal to be achieved.
The framing of sustainability as a goal for business is encapsulated most completely in the notion of a
‘triple bottom line’.

The triple bottom line (TBL) is a term coined by the sustainability thought leader John Elkington. His view
of the TBL is that it represents the idea that business does not have just one single goal—namely adding
economic value—but that it has an extended goal which necessitates adding environmental and social
value too.

- Environmental Perspectives

The basic principles of sustainability in the environmental perspective concern the effective
management of physical resources so that they are conserved for the future. All biosystems are
regarded as having finite resources and finite capacity, and hence sustainable human activity must
operate at a level that does not threaten the health of those systems. Even at the most basic level, these
concerns suggest a need to address a number of critical business problems, such as the impacts of
industrialization on biodiversity, the continued use of non-renewable resources such as oil, steel, and
coal, as well as the production of damaging environmental pollutants like carbon dioxide and other
greenhouse gases from industrial plants and consumer products. At a more fundamental level though,
these concerns also raise the problem of economic growth itself, and the vexed question of whether
future generations can really enjoy the same living standards as us without a reversal of the trend
towards ever more production and consumption.

- Economic Perspectives
The implications for business ethics of such thinking occur on different levels. A narrow concept of
economic sustainability focuses on the economic performance of the corporation itself: the
responsibility of management is to develop, produce, and market those products that secure the long-
term economic performance of the corporation. A broader concept of economic sustainability would
include the company’s attitude towards and impacts upon the economic framework in which it is
embedded.

- Social Perspectives

The key issue in the social perspective on sustainability is that of social justice. Social variables refer to
social dimensions of a community or region and could include measurements of education, equity and
access to social resources, health and well-being, quality of life, and social capital.
Chapter 2

Key features of a corporation:

A corporation is essentially defined in terms of legal status and the ownership of assets.

Legal status: Legally, corporations are regarded as independent from those who work in them, manage
them, invest in them, or receive products or services from them. Corporations are separate entities in
their own right. For this reason, corporations are regarded as having perpetual succession, i.e. as an
entity, they can survive the death of any individual investors, employees, or customers—they simply
need to find new ones.

Ownership of assets: Rather than shareholders or managers owning the assets associated with a
corporation, the corporation owns its own assets. The factories, offices, computers, machines, and other
assets operated by, say, Samsung, are the property of Samsung, not of its shareholders. Shareholders
simply own a share in the company that entitles them to a dividend and some say in certain decisions
affecting the company.

Corporations are typically regarded as ‘artificial persons’ in the eyes of the law

That is, they have certain rights and responsibilities in society, just as an individual citizen might.

Corporations are notionally ‘owned’ by shareholders but exist independently of them

The corporation holds its own assets, and shareholders are not responsible for the debts or damages
caused by the corporation (they have limited liability).

Managers and directors have a ‘fiduciary’ responsibility to protect the investment of shareholders.

This means that senior management is expected to hold shareholders’ investment in trust and to act in
their best interests.

Can a corporation have social responsibilities?

Milton Friedman argued:

1. Only human beings have a moral responsibility for their actions

The first substantial point is that corporations are not human beings and therefore cannot assume true
moral responsibility for their actions. Since corporations are set up by individual human beings, it is
those human beings who have moral responsibility for the actions of the corporation.

2. It is managers’ responsibility to act solely in the interests of shareholders

The second concern is that as long as a corporation abides by the legal framework society has set up for
business, the only responsibility of the managers of the corporation is to make profit, because it is for
this task that the firm has been set up and the managers have been employed. Acting for any other
purpose constitutes a betrayal of their special responsibility to shareholders and thus essentially
represents a ‘theft’ from shareholders’ pockets.
 3. Social issues and problems are the proper province of the state rather than corporate
managers.

The critics’ third main point is that managers should not, and cannot, decide what is in society’s best
interests. This is the job of government. Corporate managers are neither trained to set and achieve
social goals, nor (unlike politicians) are they democratically elected to do so

*Friedman’s first point*

Can a corporation be morally responsible for its actions?

1. Legal Identity

Perhaps the strongest case for assigning responsibility to a corporation comes from the legal perspective
because corporations have a distinct legal identity. Corporations enter into contracts, they are subject to
a host of legal requirements, including paying taxes, ensuring the safety of their products and meeting
environmental obligations. Corporations can sue other entities, and vice versa, and they can be subject
to all sorts of legal prosecutions. Corporations can also claim a number of rights.

2. Agency

Corporations can also be said to decide and act independent of their members (Moore 1999). This
argument is based on the idea that every organization has a corporate internal decision structure that
directs corporate decisions in line with predetermined goals (French 1979). Such an internal decision
structure is manifested in various elements—such as corporate policies and procedures—that, acting
together, result in the majority of corporate actions being regarded as the result of corporate, not
individual, decisions. Corporations have an organized framework of decision making that establishes an
explicit or implicit purpose for these decisions.

3. Organizational Culture

All companies have a set of beliefs and values that set out what is generally regarded as right or wrong
in the corporation—namely, the organizational culture (Moore 1999). These values and beliefs are
widely believed to be a strong influence on the individual’s ethical decision-making and behavior.

4. Functional identity

corporations present themselves and interact with customers and other stakeholders as if they were
distinct persons. Often associated with their brand, companies interact with customers as objects of
affection (e.g. McDonalds’ ‘I’m lovin’ it’ slogan), or companionship (e.g. Jack Daniels’ ‘Become a friend of
Jack’ feature)—or just put up a human face as the brand to begin with, such as Colonel Sanders
(Kentucky Fried Chicken) or Mr Clean (Procter & Gamble). As we will see later in this chapter, many
corporations refer to themselves as corporate ‘citizens’ and espouse the aspiration to act as a good
neighbour and partner with other members of society.

 We can therefore conclude that corporations do indeed have some level of moral responsibility
that is more than the responsibility of the individuals constituting the corporation.

In the following sections, we will take a closer look at the second argument brought forward by
Friedman (and many of his followers). This questions any social responsibilities a corporation might have
beyond those that are based on the duty to produce profits for shareholders. In order to do so, we shall
primarily discuss the two most influential concepts to have arisen from the business ethics literature to
date: corporate social responsibility and stakeholder theory.

Corporate Social Responsibility

Q1. Why do corporations have social responsibilities?

BUSINESS REASONS

1. Enhance (long term) revenues

Corporations perceived as being socially responsible might be rewarded with extra and/or more satisfied
customers, while perceived irresponsibility may result in boycotts or other undesirable consumer actions

2. Reduce Costs

CSR can reduce costs as it helps in saving energy, reducing waste and cutting out inefficiencies.

3. Manage risk and uncertainty

Voluntarily committing to social actions and programmes may forestall legislation and ensure greater
corporate independence from government.

4. Maintaining the social license to operate

Making a positive contribution to society might be regarded as a long-term investment in a safer, better-
educated and more equitable community, which subsequently benefits the corporation by creating an
improved and stable competitive context in which to do business.

MORAL REASONS

1. The externalities argument

Externalities are the positive and social impacts of an economic transaction that are borne by those
other than the parties engaging in the transaction. Corporations create a variety of externalities of one
sort or the other. Whether through the provision of products and services, the employment of workers,
or through their ubiquitous advertising—corporations cannot escape responsibility for these impacts,
whether they are positive, negative, or neutral. Many regard corporations to have a moral responsibility
to deal with, in particular, the negative externalities they cause, such as pollution, resource depletion, or
community problems, insofar as these are not dealt with by governments.

2. The power argument

As powerful social actors, with recourse to substantial resources, corporations should use the power and
resources responsibly in society

3. The dependency argument

Corporations rely on the contribution of a much wider set of constituencies, or stakeholders in society
(such as consumers, suppliers, local communities), rather than just shareholders, and hence have a duty
to take into account the interests and goals of these stakeholders as well as those of shareholders.
Q2. What is the nature of these social responsibilities?

Carroll regards corporate social responsibility as a multilayered concept, which can be differentiated into
four interrelated aspects—economic, legal, ethical, and philanthropic responsibilities. He presents these
different responsibilities as consecutive layers within a pyramid, such that ‘true’ social responsibility
requires the meeting of all four levels consecutively, depending on the expectations present in society at
the time.

- Economic Responsibility

. Companies have shareholders who demand a reasonable return on their investments, they have
employees who want good jobs, and they have customers who want their products to satisfy their
needs. So the first responsibility of business is to be a well-functioning economic unit and to stay in
business. This first layer of CSR is the basis for all the subsequent responsibilities, which rest on this
(ideally) solid basis.

- Legal Responsibility

The legal responsibility of corporations demands that businesses abide by the law and ‘play by the rules
of the game’. Laws, as we have seen in Chapter 1, are the codification of society’s moral views, and
therefore abiding by these standards is a necessary prerequisite for any further reasoning about social
responsibilities

- Ethical Responsibility

These responsibilities oblige corporations to do what is right, just, and fair even when they are not
compelled to do so by the legal framework.

- Philanthropic responsibility

. The Greek word ‘philanthropy’ means literally ‘the love of the fellow human’. By using this idea in a
business context, the model incorporates activities that are within the corporation’s discretion to
improve the quality of life of employees, local communities, and ultimately society in general. This
aspect of CSR addresses a great variety of issues, including things such as charitable donations.

The benefit of the four-part model of CSR is that it structures the various social responsibilities into
different levels, yet does not seek to explain social responsibility without acknowledging the very real
demands placed on the firm to be profitable and legal. In this sense, it is fairly pragmatic. However, its
main limitation is that it does not adequately address the problem of what should happen when two or
more responsibilities are in conflict. For example, the threat of plant closures and/or job losses often
raises the problem of balancing economic responsibilities (of remaining efficient and profitable) with
ethical responsibilities to provide secure jobs to employees. A typical example is a company that
relocates its operations from the global North to a developing country. While this satisfies the economic
level in terms of boosting profits for shareholders and providing employment for hitherto unemployed
workers in the developing world, it can clash with ethical responsibilities in terms of abandoning long-
standing ties to workers and communities in the North and exploiting lower environmental or social
standards overseas.

CSR in an international context

The main reason for this is that the US tends to leave more discretion to companies over their social
responsibilities. This has led to a model of explicit CSR, which means CSR as a distinct, named activity of
private companies. Other countries have operated more of an implicit CSR model that sees social
responsibilities of business tightly embedded in the legal and institutional framework of society.

Basic Types of CSR Strategies

‘Traditional CSR’ is a rather long-standing approach to social responsibility, which in some ways has been
practised since the industrial revolution, but is still widespread around the globe. It considers CSR as part
of a strategy where a company generates its profits without too much consideration for wider societal
expectations. However, once the profit is generated, the company then distributes some of the value
created to projects, activities and causes that are important to stakeholders and will ultimately enhance
the wider image of the company and bolster its brand identity. Thus, CSR is ‘bolted on’ to the firm but
without any real integration with its core business. In Carroll’s model, CSR for these companies is mostly
about philanthropy and has very little to do with the other, lower levels of the pyramid. Typically,
companies will adopt a defensive or reactive approach to new societal demands, seeking to protect the
company and denying responsibility for the social issues at stake.

In the ‘Contemporary CSR’ approach companies see responsible behaviour as an opportunity to

generate profits while at the same time living up to expectations of society. Rather than unilaterally
‘dishing out’ money, they work with stakeholders to understand their interests and expectations, and
attempt to cater to their needs by offering business solutions that drive additional value for the firm and
their constituencies. CSR for these companies is integral, or ‘built in’ to core business.

Both strategic approaches ultimately then ask for ways of conceptualizing observable outcomes of
business commitment to CSR, namely corporate social performance.

Outcomes of CSR: corporate social performance

- Social policies
Explicit and pronounced corporate social policies stating the company’s values, beliefs, and goals with
regard to its social environment. For example, most major firms now explicitly include social objectives
in their mission statements and other corporate policies.

- Social programmes

specific social programmes of activities, measures, and instruments implemented to achieve social
policies. For example, many firms have implemented programmes to manage their environmental
impacts, based around environmental management systems such as ISO 14000 and EMAS

- Social Impacts

Social impacts can be traced by looking at concrete changes that the corporation has achieved through
the programmes implemented in any period. Obviously this is frequently the most difficult to achieve,
since much data on social impacts is ‘soft’ (i.e. difficult to collect and quantify objectively), and the
specific impact of the corporation cannot be easily isolated from other factors.

Stakeholder Theory of the Firm

Figure 2.4(a) shows the traditional model of managerial capitalism, where the company is seen as only
related to four groups. Suppliers, employees, and shareholders provide the basic resources for the
corporation, which then uses these to provide products for consumers. The shareholders are the
‘owners’ of the firm and consequently they are the dominant group whose interests should take
precedence.

In Figure 2.4(b), we find the stakeholder view of the firm, where the shareholders are one group among
several others. The company has obligations not only to one group, but also to a whole variety of other
constituencies that are affected by its activities. The corporation is thus situated at the centre of a series
of interdependent two-way relationships.

It is important to remember though that stakeholder groups also might have duties and obligations to
their own set of stakeholders, and to the other stakeholders of the corporation. This gives rise to a
network model of stakeholder theory (Rowley 1997), which is shown in Figure 2.4(c).

Why stakeholders matter?

Freeman (1984) himself gives two main arguments. First, on a merely descriptive level, if one examines
the relationship between the firm and the various groups to which it is related by all sorts of contracts, it
is simply not true to say that the only group with a legitimate interest in the corporation are
shareholders.

From a legal perspective, there are far more groups apart from shareholders that appear to hold a
legitimate ‘stake’ in the corporation since their interests are already protected in some way. There are
not only legally binding contracts to suppliers, employees, or customers, but also an increasingly dense
network of laws and regulations enforced by society, which make it simply a matter of fact that a large
spectrum of different stakeholders have certain rights and claims on the corporation.

A second group of arguments comes from an economic perspective. An important aspect here is the
agency problem: one of the key arguments for the traditional model is that shareholders are seen as the
owners of the corporation, and consequently managers have their dominant obligation to them. This
view, however, only reflects the reality of shareholders’ interests in a very limited number of cases
(Stout 2012). The majority of shareholders do not invest in shares predominantly to ‘own’ a company (or
parts of it), nor do they necessarily seek for the firm to maximize its long-term profitability. In the first
place, shareholders often buy shares for speculative reasons, and it is the development of the share
price that is their predominant interest—and not ‘ownership’ in a physical corporation.

A new role for management

According to Freeman, this broader view of responsibility towards multiple stakeholders assigns a new
role to management. Rather than being simply agents of shareholders, management has to take into
account the rights and interests of all legitimate stakeholders. While they still have a fiduciary
responsibility to look after shareholders’ interests, managers must integrate this with the interests of
other stakeholders for the long-term survival of the corporation, rather than maximizing the interest for
just one group at a time.

Furthermore, since the company is obliged to respect the rights of all stakeholders, this could suggest a
further obligation to allow stakeholders to take part in managerial decisions that substantially affect
their welfare and their rights.

By now it should be fairly evident that Friedman’s (1970) first and second arguments against the social
role and responsibilities of the corporation face considerable dissent from those advocating a CSR
and/or stakeholder position. However, there is still one final aspect of his argument that we have not
yet addressed, namely whether corporate managers should be involved in decisions about public
welfare

Corporate Citizenship: the firm as a political actor

In a ‘limited view’ of CC many refer to philanthropy as the main activity of a virtuous corporate citizen
that shares its wealth with its ‘fellow citizens’. Others refer to CC in a way that mainly is synonymous to
CSR, equating good neighbourly behaviour to a responsible role of business in society. In the context of
the political nature of the corporations as outlined so far in this section, however, we prefer to use the
‘extended view’ of CC proposed by Matten and Crane (2005) which deliberately embraces the political
elements of business ethics (also sometimes referred to as ‘political CSR’, see Scherer and Palazzo 2011).
The extended view of CC takes as its starting point the notion of ‘citizenship’, and the dominant idea in
most industrialized societies that citizenship is defined as a set of individual rights (Faulks 2000: 55–82).
Following the still widely accepted categorization by T.H. Marshall (1965), liberal citizenship comprises
three different rights:

Social rights—these provide the individual with the freedom to participate in society, such as the right to
education, health care, or various aspects of welfare. These are sometimes called ‘positive’ rights since
they are entitlements towards third parties.

Civil rights—these provide freedom from abuses and interference by third parties (most notably the
government); among the most important are the rights to own property, to engage in ‘free’ markets, or
exercise freedom of speech. These are sometimes called ‘negative’ rights since they protect the
individual against the interference of stronger powers.
Political rights—these include the right to vote or the right to hold office and, generally speaking, enable
the individual to participate in the process of governance beyond the sphere of his or her own privacy

Hence, given this emerging role for corporations in the administration of civil, social, and political rights,
the extended view suggests that corporate citizenship is essentially about how corporations govern the
rights of individual citizens. These rights are governed by the corporation in different ways. With regard
to social rights, the corporation basically either supplies or does not supply individuals with social
services and hence largely takes on either a providing or an ignoring role. In the case of civil rights,
corporations either capacitate or constrain citizens’ civil rights, and thus can be viewed as assuming
more of an enabling or a disabling role. Finally, in the realm of political rights, the corporation is
essentially an additional conduit for the exercise of individuals’ political rights—hence, the corporation
primarily assumes a channelling or a blocking role.

It is evident that corporate citizenship may be the result either of a voluntary, selfinterest-driven
corporate initiative, or of a compulsory, public pressure-driven corporate reaction—either way it places
corporations squarely in a political role rather than just an economic one.