Business Ethics and

Corporate Social
Responsibility
2. Framing Business Ethics
 Learning Outcomes
• Explain why corporations have social responsibilities.

• Explain Corporate Social Responsibility in terms of its

levels, strategies, and outcomes.

• Explain the stakeholder theory of the firm.

• Apply the concepts of corporate citizenship,

accountability, and transparency to the political role of a
corporation.

• Critically evaluate the implications of applying these

theories and concepts to different international contexts.
Towards a framework for business
ethics

What is a corporation?

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Key features of a corporation
• A corporation is essentially defined in terms of legal
status and the ownership of assets

• Corporations are typically regarded as ‘artificial

persons’ in the eyes of the law

• Corporations are notionally ‘owned’ by

shareholders, but exist independently of them

• Managers and directors have a ‘fiduciary’

responsibility to protect the investment of
shareholders
Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 Can a corporation have social responsibilities?

• Milton Friedman’s classic article is “The social

responsibility of business is to increase its profits”
(1970)

• Friedman vigorously argued against the notion of

social responsibilities for corporations based on
three main arguments:
• Only human beings have a moral responsibility for
their actions
• It is managers’ responsibility to act solely in the
interests of shareholders
• Social issues and problems are the proper province of
the state rather than corporate managers
Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Can a corporation be morally responsible for its
actions? “Only Human Beings”
• Legal Identity:
• Legal requirements/obligations, can sue or be sued, claim to a
number of rights.

• Agency:
• Every organisation has a corporate internal decision structure
which directs decisions in line with predetermined goals (French
1979) Corporation decisions not individual.

• Organizational Culture:
• All organisations manifest a set of beliefs and values that lay out
what is generally regarded as right or wrong in the corporation –
organizational culture (Moore 1999)

• Functional Identity:
• Interact with other stakeholders as distinct persons, partners with
other members in society.
Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Corporate Social Responsibility

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 Why do corporations have social responsibilities?

• Business reasons (‘enlightened self-interest’)

• Enhance (long-term) revenues
• Reduce Costs
• Manage risk and uncertainty
• Maintaining the social license to operate

• Moral reasons:
• Corporations cause social problems
• Corporations should use their power responsibly
• All corporate activities have some social impacts
• Corporations rely on the contribution of a wide set of
stakeholders in society, not just shareholders
Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
What is the nature of corporate social
responsibilities?

Corporate social responsibility The attempt by

companies to meet the economic, legal,
ethical, and philanthropic demands of a given
society at a particular point in time. (p. 50)

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Carroll’s four-part model of corporate social
responsibility

Desired by society
Philanthropic
Responsibilities
Expected by society
Ethical
Responsibilities

Required by society
Legal
Responsibilities
Required by society
Economic
Responsibilities
Source: Carroll (1991)

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 CSR in an international context
• CSR strong in US. Influence elsewhere is more recent. This is
partly explained by explicit vs. implicit CSR

• Regional differences exist with respect to all CSR levels:

• Economic responsibility
• Focus in USA on shareholders; France has extensive responsibility for employees;
India has tradition of investment in the local community
• Legal responsibility
• State seen in Europe as key enforcer of rules; elsewhere government seen with
more scepticism (e.g. corrupt, interfering with liberty)
• Ethical responsibility
• Wide range of local ethical values & preferences: expectations vary
• Philanthropic responsibility
• Europe tends to compel giving via legal framework; elsewhere (e.g., USA, India,
China), companies are expected to share their wealth.

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 CSR and strategy: corporate social
responsiveness

• Strategies of CSR
• Traditional CSR
• Focus on risk. Response: Reactive/Defence
• Driver: Image/Brand/Public Appearance
• Bottom Line: no direct contribution: CSR is value
distribution “CSR is bolted on”

• Contemporary CSR
• Focus on reward. Response: Proactive/Accommodation
• Driver: Performance, Markets/Products
• Bottom Line: integral goal, CSR is value creation
“CSR is built-in”
Outcomes of CSR: corporate social performance

• Outcomes of delineated in three concrete

areas:
• Social policies
• Social programmes
• Social impacts

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Stakeholder theory of the firm

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 Stakeholder theory of the firm
• Theory developed by Edward Freeman (1984)
• A stakeholder of an organization is:
• …any group or individual who can affect, or is affected by,
the achievement of the organization’s objectives
(Freeman 1984:46)

• More precise definition of ‘affects’ and ‘affected by’

(Evan and Freeman 1993)
• Principle of corporate rights - the corporation has the
obligation not to violate the rights of others
• Principle of corporate effect – companies are
responsible for the effects of their actions on others

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Stakeholder theory of the firm:
Traditional management model

Shareholders Customers

Firm

Suppliers Employees

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Stakeholder theory of the firm

Government Competitors

Shareholders
Customers

Firm

Suppliers Employees
Civil
society

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 Stakeholder theory of the firm:
A network model

Customer
stakeholder
1
Governmen Competitor
t s
Customer
stakeholder
Shareholde Customers
3
rs Firm
Employee
Suppliers stakeholder
Employees 1
Civil society
Supplier Employee
stakeholder stakeholder
Civil society 2
1 Civil society stakeholder
stakeholder 1
2
Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 Why stakeholders matter
• Milton Friedman – businesses should only be run in
the interests of their owners

• Freeman - others have a legitimate claim on the

corporation
• Legal perspective
• ‘Stake’ in corporation already protected legally in some way
(e.g. legally binding contracts)
• Economic perspective
• Externalities – outside contractual relationships
• Agency problem – short term interests of ‘owners’ vs. long term
interests of managers, employees, customers etc.

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 A new role for management
• According to Freeman, this broader view of
responsibility towards multiple stakeholders assigns
a new role to management.

• Rather than simply being agents of shareholders,

management has to take into account the rights and
interests of all legitimate stakeholders:
• Stakeholder democracy
• Corporate governance

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 Stakeholder thinking in an international context

• One could argue that although the terminology of

stakeholder theory is relatively new in places like
Europe or Asia, the general principles have actually
been practised for some time:

• German supervisory board includes employee

representatives
• “Scandinavian Cooperative Advantage” at IKEA, Novo
Nordisk, H&M, etc.
• ‘Keiretsu’ system in Japan (Chaebol in Korea), a network
of banks, manufacturers, suppliers and service providers

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Different forms of stakeholder theory

• Donaldson & Preston (1995):

• Normative stakeholder theory: attempts to
provide a reason why corporations should take into
account stakeholder interests
• Descriptive stakeholder theory: attempts to
ascertain whether (and how) corporations actually
do take into account stakeholder interests
• Instrumental stakeholder theory: attempts to
answer the question of whether it is beneficial for
the corporation to take into account stakeholder
interests

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Evidence of Stakeholder thinking?
Explore the corporate website of any
Multinational Corporation,
to find evidenced of their “stakeholder thinking”.
 Corporate accountability

The firm as a ‘political’ actor

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Corporate accountability

• Corporate accountability refers to whether a

corporation is answerable in some way for the
consequences of its actions
• Firms have begun to take on the role of
‘political’ actors – taken up many of the
functions previously undertaken by government
because:
• Governmental failure
• Increasing power and influence of corporations

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Reasons for the political role of the firm

• Government failure
• Governments incapable? Unwilling?
• Rise of ‘subpolitics’

• Corporate power on the rise

• Liberalization and deregulation results in more power
and choice for private actors
• Privatization of ‘public’ services
• Responsible for employment decisions
• Globalization
• Governments increasingly encourage self-regulation
Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
The problem of democratic accountability

• Who controls corporations?

• To whom are corporations accountable?
• Key to corporate accountability is transparency
• Transparency is the degree to which
corporate decisions, policies, activities and
impacts are acknowledged and made visible to
relevant stakeholders

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 Corporate citizenship

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Defining corporate citizenship: three perspectives

• A limited view of CC
• this essentially equates CC with corporate
philanthropy
• An equivalent view of CC
• this essentially equates CC with CSR
• An extended view of CC
• this acknowledges the extended political role of the
corporation in society

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 Commitments to corporate citizenship

Company Industry & CC statement (emphasis added) Source

origin
BHP Mining, … The Company’s community investment programs should create Sustainabilit
Billiton Australia sustainable, long-term value for our host communities and demonstrate the y Report,
Company’s citizenship. The critical question in regard to our success is
2008
whether we have managed to leave a lasting positive legacy in the
communities where we operate.
Citiban Banking & We define citizenship as the positive impact that Citi has on society and 2007
k financial the environment through its core business activities, philanthropy, diversity Citizenship
services, USA efforts, volunteerism and public policy engagement, as well as the Report
philanthropic initiatives undertaken by the Citi Foundation.
Microsoft Software, Microsoft’s endorsement of the UN Global Compact signifies that we are Citizenship
USA committed to aligning our business operations and strategies with 10 Report 2009
established principles […] Principles – which correspond with Microsoft’s
global corporate citizenship values – help guide our efforts to achieve
greater accountability and drive continuous improvement of our business
Total Oil & gas, practices.
Total is committed to contributing to the sustainable development of host CSR Report,
France communities around the world. In addition to being a normal part of good 2007
corporate citizenship, this policy fosters good relationships with
neighbors and greater acceptance of our operations.
Toyota Automobiles, The Corporate Citizenship Division was organized in January 2006 as a Sustainability
Japan specialized division to reinforce corporate social contribution activities and Report, 2008
integrate corporate social contribution functions that had been performed
by multiple divisions.
Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Three views of corporate citizenship

Limited view Equivalent view Extended view

Focus Philanthropy, focused All areas of CSR Citizenship: social, political and
on projects, limited civil rights
scope
Main Local communities, Broad range of stakeholders Broad range of citizens;
stakehold employees society in general
er group

Motivation Primarily philanthropic; Mixed – economic, legal, Political

also economic where ethical, philanthropic
citizenship is ‘strategic’

Moral Reciprocity, i.e. Duty to be responsible and Grounding is not moral, but
grounding ‘putting something avoid harms to society comes from changes in the
back’ political arena

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
An extended view of CC

Corporate citizenship

Social role of the corporation in governing citizenship

Social rights corporation as provider/ignorer

Civil rights corporation as dis-/enabler

Political rights corporation as channel/blockage

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 Assessing corporate citizenship as a framework
for business ethics

Extended view of CC adds something significant that

helps us frame business ethics in new ways:

• Helps us better see the political role of the corporation

• Clarifies the demand for corporate accountability
• Helps to understand business in relation to common
citizenship rights within different cultures and some of the
challenges posed by globalization
• The rights of citizenship have strong links to the goal of
sustainability
• Provides a critical perspective on corporations’ social role
that is more in keeping with non-US ways of thinking about
business ethics
Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
 Summary
• Business ethics is related to the social role of the
corporation
• Confining corporations to commercial activities too
limited
• Different perspectives and their relevance in
European context
• CSR
• Stakeholder theory
• Corporate accountability
• Effects of globalization on role of corporation
• Corporate citizenship is latest concept in the field

Crane, A. & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of
globalization (4th ed.). Oxford: UK, Oxford University
Skill Check
Applying the CSR Pyramid – pg. 51

• Analyzing the expectations society has of a

corporation.
• Corporations apply this to have a more complete
analysis of relevant social responsibilities.
• Students can use this to analyze how well
corporations are meeting the expectations of
society.
Skill Check
Designing a CSR Strategy – pg. 54

• Strategy sets the direction of the company –

directly affects the policies, programs and
impacts.
• Companies need to develop these skills – relevant
direction to meet Mission and Vision.
• Students develop these skills – use to compare and
analyze companies direction (policies, programs
and impacts) Link to trends and effectiveness.
Skill Check
Stakeholder Analysis – pg. 61

• Who does the company have a social

responsibility to in a specific situation.

• Company uses this to develop CSR program

• Students use this to understand and evaluate CSR
programs and current ethical issues.
Skill Check
Corporate Citizenship analysis– pg. 66

• Expectations of society are similar to those

normally directed towards government.
• Companies use this to identify the extra
expectations society has on corporate activities.
• Students as above and also to recognize the power
corporations have which can be used to positively
(+) or negatively (-) affect citizens rights.
• Students can also identify how these expectations
could + or – affect the corporations rights.
THANK
YOU
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