Corporation and Corporate Social

Responsibility (CSR)

Business Ethics (BUS 401)

North South University
Lecture 3
Instructor: Sdu
 The Nature of The Corporation

1. What role should the corporation play in our lives

and society, if any?
2. Should corporations be entitled to the same legal
rights as individuals? Where should the line be
drawn?
3. How can we ensure corporations are held
accountable for their actions?
4. Should individuals (directors, employees,
shareholders) bear any responsibility for the
actions of a corporation? If so, to what degree?
5. What are the benefits of the corporate form?
Could an alternative model offer these as well?
6. Do you think corporations are the root cause of
the problem, or is it consumerism, capitalism, or
all three?
7. If corporations were more reflective of the
world’s population (poor, women, ethnically
diverse, etc) would that help?
Source: http://www.thecorporation.com
8. Can a corporation be termed as a ‘psychopath’ or
anti-social?
 Corporation and it’s key features (I)

 Legally, corporations are typically regarded as

independent from those who work in them, manage
them, invest in them, or receive products or services
from them.

 Corporations are separate legal entities in their own

right.

 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 a new ones.

 Corporations itself usually owns all the assets

associated with it.
 Corporation and it’s key features (II)

 Corporations are typically regarded as ‘artificial

persons’ in the eyes of the law, i.e. 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.

 Managers and directors have a ‘fiduciary’ responsibility

to protect the investment of shareholders, i.e. the senior
management is expected to hold shareholders’ investment
in trust and to act in their best interests.
Can a corporation have any social responsibility?
- Arguments against the notion of social responsibilities of corporations

 Karl Marx (1847) argued that interests of capital and

interests of wage-labour are ‘diametrically’ opposed to
each other, creating structural difficulties of being
generous as a capitalist.

 Levitt (1958) in this regard argued that ‘government’s job

is not business, and business’s job is not government’.

 In 1970, Milton Friedman argued that i) only human beings

have a moral responsibility for their actions, ii) it is a
managers’ responsibility to act solely in the interests of
shareholders, iii) social issues and problems are the proper
province of the state rather than corporate managers.
 CSR – its evolution as a global phenomenon

 CSR is seen as the ‘commitment of business to work with

employees and society at large to improve quality of life ’ (Frynas
& Blowfield, 2005).

 In the 1980s, controversies such as Union Carbide Bhopal

explosion in India and Nestlé’s marketing of infant formula in
Africa caused widespread concern against the questionable
practices of large corporations.

 During the 1990s CSR started to gain immense strategic

importance for corporations of the developed countries.

 During the 1990s World-wide criticisms from anti-corporate and

anti-globalization protestors against activities of MNCs and
globalization projects gained momentum (Hanlon, 2008).

 Since the early 2000s, almost all MNCs started to integrate CSR
as a strategic management and corporate governance tool .
 The Bhopal Disaster – Corporate Irresponsibility??

• The Bhopal disaster was an industrial catastrophe that occurred at a

pesticide plant owned and operated by Union Carbide (UCIL) in
Bhopal, Madhya Pradesh, India (http://en.wikipedia.org/wiki/Bhopal_disaster)
• A methyl isocyanate leak immediately killed 8 000 people and
subsequently more than 20 000 deaths and 500 000 injuries have
been directly attributed to the disaster that has been described as
“The Hiroshima of the chemical industry”
Source:http://instrumentation.co.za/articles/SA%20Instrumentation%20&%20Control%20-%20Published%20by%20Technews/bhopal_collage.gif
 CSR – MNCs vs. Developing Countries

 Jabed (2003) argued that the MNCs has set CSR standards to
“safeguard interests of their own businesses” without paying any
attention to problems it might cause to businesses in the
developing countries.

 Stiglitz (2002) argued that policies such as CSR are forced on the
developing countries to make them ‘open up’ their natural
resources, manufacturing and financial sector to western firms.

 Amaeshi et al. (2006) argued that socio-economic development

challenges make it difficult for developing countries to adopt
popular western CSR expectations.

 The neo-Marxist’s now brand the west as ‘capitalist, imperialist

and colonialist’ exploiters of the developing countries, a
phenomenon they call ‘neo-colonialism’, characterized by
increasing pressure on these countries to accept conditions of
western capitalist system (Arrindell, 1992).
 Royal Dutch Shell controversies - Corporate Social
Exploitation ???

 In the 1990s, Ken Saro-Wiwa led a non-violent campaign

against environmental damage caused by Shell, in the Ogoni
homelands of the Niger Delta, drawing international attention to
his people's plight. Shell had to cease operations in the Ogoni
region.
 In 1995, Saro-Wiwa and 8 others were executed. Saro-Wiwa had
implicated Shell during his “treason” trial by saying “…the ecological war
that [Shell] has waged… will be called to question sooner than later and
the…crime of the Company's dirty wars against the Ogoni people will also
be punished.” Shell was found to be providing money and supplies to the
Nigerian military.

 Christian Aid condemned Shell in a report by saying that despite Shell

claims of "honesty integrity and respect for people" it had "failed to use
its considerable interest in Nigeria to bring about change in the Niger
delta". The report found evidence of failures to clean up oil spills,
pollution of rivers and water courses, and non-completion of promised
projects for community improvement.
Sources: http://en.wikipedia.org/wiki/Controversies_surrounding_Royal_Dutch_Shell
Christian Aid, Behind the Maskhttp://www.christian-aid.org.uk/indepth/0401csr/csr_casestudy1nigeria.pdf
Maskhttp://www.christian-aid.org.uk/indepth/0401csr/csr_casestudy1nigeria.pdf
Royal Dutch Shell controversies - Corporate Social
Exploitation ???..............contd.

 Brent Spar: Shell’s plan to dispose of its Brent

Spar platform in the North Sea was challenged by
Greenpeace. Shell eventually agreed to
disassemble it onshore in Norway, although it has
always maintained that its original plan to sink
the platform was safer and better for the
environment.

 The Shell Foundation: UK’s The Guardian newspaper (2006) alleged that
"An attempt by Shell to portray itself as a model of corporate social
responsibility was undermined last night after Whitehall documents
showed its charitable arm discussing a key commercial project with a
British government minister.“

 Price fixing cartels: In Sept 2006, the EC fined Shell $137m for their
role in a cartel that fixed the price of bitumen. Houston Chronicle
reported that, "the EU Commission said the company was an instigator,
took the leadership in the cartel and was a repeat offender".

Sources: http://en.wikipedia.org/wiki/Controversies_surrounding_Royal_Dutch_Shell
www.greenpeace.org
 Why Corporations should have Social Responsibilities?

Business Arguments (source: Carne & Matten, 2007) :

 Corporation takes on social responsibilities to promote its
own self-interest (Enlightened Self-interest).
 Corporations perceived as being socially responsible might be
rewarded with extra and/or more satisfied customers.
 Employees might be attracted to work for, and even be more
committed to, corporations perceived as being socially
responsible (Greening and Turban, 2000)
 Voluntary committing to social actions and programmes may
forestall legislation and ensure greater corporate
independence from government.
 Long-term investment in society might result in a safer,
better-educated and more equitable community, which
subsequently benefits the corporation by creating an
improved and stable context in which to do business .
 Why Corporations should have Social Responsibilities?

Moral Arguments (source: Carne & Matten, 2007) :

 Corporations cause social problems (such as pollution) and
hence have a responsibility to solve those they have caused
and to prevent further social problems arising.

 Being a powerful social actor, should ensure responsible

balance between power and resources.

 All corporate activities have social impacts, hence

corporations cannot escape responsibility for those impacts,
whether they are positive, negative or neutral.

 Corporations rely on the contribution of a much wider set of

stakeholders in society, and hence have a duty to take into
account the interests and goals of these stakeholders as well
as those shareholders (stakeholder theory)
 Theories/Models of CSR
Caroll’s 4 part model of CSR

 According to
Archie Carroll
(1979), CSR
encompasses the
Economic, Legal,
Ethical and
Philanthropic
expectations
placed on
organizations by
society at a given
point in time
 The theory is
considered fairly
Source: Business Ethics (2 nd edition), Crane & Matten, 2007 Pragmatic (Crane &
Matten, 2008)
 Theories of CSR…cont.

Stakeholder Theory (Edward Friedman, 1984)

Custome
rs

Custom Employ
ers ees Employe
Suppliers es

Firm
Firm Civil
Society
Sharehol
Shareh Supplie der
olders rs
Competit
Govt. ors

Figure: Stockholder Vs Stakeholder model ( Crane & Matten, 2007)

 So, who are the stakeholders??

 A Stakeholder in an organization is ….any group or

individual who can affect, or is affected by, the
achievement of the organization’s objectives (Freeman,
1984:46)

 A stakeholder of a corporation is an individual or a group

which either is harmed by, or benefits from, the
corporation; or whose rights can be violated, or have to be
respected, by the corporation (Crane & Matten, 2007)

 A Corporation has obligation to all groups who are

affected by its activities
 Why Stakeholders matter??

Legal perspective:

 There are far more groups apart from shareholders

that appear to hold a legitimate ‘stake’ in the
corporation.
 There are legally binding contracts to suppliers,
employees and customers.
 An increasingly dense network of laws and regulations
are being enforced by society to protect the rights and
claims of various stakeholder groups
 Why Stakeholders matter??
Economic perspective:

 The majority of shareholders do not invest in shares

predominantly to ‘own’ a company, nor 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.
 Long-term interests of groups such as customers, employees
or suppliers should preside over the short-term highly
speculative interests of shareowners.