Chapter Five:

Corporate
Social
Responsibility

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 Chapter Objectives
After reading this chapter, you will be able to:
1. Define corporate social responsibility.
2. Distinguish key components of the term responsibility.
3. Describe and evaluate the economic model of corporate social
responsibility.
4. Describe and evaluate the stakeholder model of corporate social
responsibility.
5. Describe and evaluate the integrative model of corporate social
responsibility.
6. Explain the role of reputation management as motivation behind CSR.
7. Evaluate the claims that CSR is "good" for business.

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 Introduction: Corporate Social Responsibility
• This chapter addresses corporate social responsibility (CSR)
and how firms opt to meet this perceived responsibility.
• Businesses have a social responsibility to obey the law.
• Economically, businesses have a social responsibility to
produce the goods and services society demands.
• There are ambiguities involved in each of the three terms
corporate, social, and responsibilities.
• The primary question of CSR is the extent to which businesses
and the managers who run them have ethical responsibilities
beyond producing goods and services within the law.

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 Ethics and Social Responsibility 1

The words responsible and responsibility are used in several

different ways.
• One meaning attributes something as a cause for an event or action.
• In a second sense, to be responsible does carry ethical connotations.
• When a business is responsible to someone or for something, it indicates what
a business ethically ought or should do.

• Product safety and liability laws involve these meanings of being responsible.

• Corporate social responsibility refers to the ethical expectations that

society has for business.
• Ethical responsibilities are those things that we ought, or should, do, even if
sometimes we would rather not.

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 Ethics and Social Responsibility 2

Philosophers often distinguish three different levels of ethical

responsibilities on a scale from less to more obligatory.
• Do good.
• Volunteering.
• Charitable work.

• Prevent harm.
• Good Samaritan.
• Use renewable energy

• Do not cause harm to others.

• A duty or an obligation.
• Enforced by law and results in legal punishment.

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 Ethics and Social Responsibility 3

The strongest sense of responsibility is not to cause harm.

• Even when not explicitly prohibited by law, ethics demands we not cause
avoidable harm.
• Overrides business’s pursuit of profit.

Is there a responsibility to prevent harm?

• A more inclusive understanding of corporate social responsibility would
hold that business has a responsibility to prevent harm.

Is there a responsibility to do good?

• Most wide-ranging, standard of CSR holds that business has a social
responsibility to do good things and to make society a better place.
• Is philanthropy something that every business ought to do?z

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 Ethics and Social Responsibility 4

• There are competing understandings of corporate social

responsibility and management’s role in fulfilling these
responsibilities.
• The narrow economic model of CSR directs managers to
maximize profit and shareholder wealth within legal limits.
• The stakeholder model assets that neither a business nor the
employees are exempt from ordinary ethical responsibilities.
• The integrative model of CSR says that part of the managerial
responsibility to shareholders is to serve the social good.

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 Figure 5.1: Models of Corporate Social Responsibility

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 Corporate Social Responsibility 1

Corporations are people.

Mitt Romney

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 Economic Model of CSR 1

The general definition of the term corporate social responsibility

(CSR) is the ethical responsibilities that a business has to the
society in which it operates.
From an economic perspective, a business is an institution.
• By doing this, the business is creating jobs and wealth that provide further
social benefits.

The law created a form of business called a corporation, which

promotes these economic ends by limiting the liability of
individuals for the risks involved in these activities.

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 Economic Model of CSR 2

The economic model of CSR holds that businesses’ sole social

responsibility is to fulfill the economic functions they were
designed to serve.
• Managers are employees, or agents, of stakeholders and must work to
further stakeholder’s interests, primarily by maximizing profits.
• Many observers identify this perspective as the dominant model of CSR
and refer to it as managerial capitalism.

Places shareholders at the center of the corporation.

• Managers have a fiduciary duty to pursue profit within the law.

Corporations are expected to obey legal mandates.

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 Economic Model of CSR 3

Business has no social responsibilities beyond the economic and

legal ends for which it was created.
Economist Milton Friedman suggests that managers fulfill their
ethical responsibility by increasing shareholder wealth and
pursuing profit.
• This common view of corporate social responsibility has its roots in the
utilitarian tradition and in neoclassical economics.

Within this dominant economic model, there is room to pursue

social responsibilities.

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 Economic Model of CSR 4

Business has no obligation, but is free to contribute to social

causes as a matter of philanthropy.
• It builds goodwill and/or a good reputation, provides tax deduction, and
builds goodwill or a good reputation within the community.
• Some support causes that have little or no business or financial payoff as a
matter of giving back to their communities.

The economic model in which business support for a social cause

is done simply because it is the right thing to do differs from the
reputational version only in terms of the underlying motivation.

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