Corporate Social Responsibility

1. Corporate Social Responsibility • Obligation corporations have to constituencies and the nature and extent of those obligations • Focus on the “oughts” of conducting business • Constituencies include: • shareholders, customers, employees, specific communities, society at large, governments • Issue: constituencies may not share same expectations • Two Fundamental Perspectives • Efficiency vs. Social Responsibility

2. Efficiency Perspective • Maximize profits for the owners of the business • MANAGERS AS OWNERS • Self-interests of the • manager-owner are best • achieved by serving the • needs of society • MANAGERS AS AGENTS • Managers have no • obligation to act • on behalf of society • if it does not • maximize value for • the shareholders

3. Firms have responsibilities and obligations to society as a whole, not just shareholders Social Responsibility Perspective Key Stakeholders

4. Corporate Responses Defenders Accommodators Belief We must fight against efforts to restrict or regulate our activities and profit- making potential. We will change when legally compelled to do so. Focus Maximize profits. Find legal loopholes. Fight new restrictions and regulations. Maximize profits. Abide by the letter of the law. Change when legally compelled to do so. Adapted from Exhibit 2.2

5. Corporate Responses (cont.) Reactors Anticipators Belief We should respond to significant pressure even if we are not legally required to. We owe it to society to anticipate and avoid actions with harmful consequences, even if we are not pressured or legally required to do so. Focus Protect profits. Abide by the law. React to pressure that could affect business results. Obtain profits, Abide by the law. Anticipate harmful consequences independent of pressures and laws. Adapted from Exhibit 2.2

6. Strategic Corporate Social Responsibility Perspective • Three fundamental criteria guide managers: Outside-In Approach Outside-Out Approach Inside-Out Approach Look outside company at issues that company has an impact upon Look at social issues in general in terms of the extent to which they are problematic Look inside company at issues that are important to the company

7. Ethics • What are ethics? • A set of principles governing right and wrong behavior by individuals and groups • What is managerial ethics? • Concerned with morality and standards of business behavior • Why is it important to consider business ethics? • Good ethical behavior can result in positive consequences for the organization • Unethical behavior results in negative consequences

8. The Development of Individual Ethics

9. Basic Approaches to Ethics Ethical Dilemmas • The choice between two competing but arguably valid options Ethical Lapses • Decisions that are contrary to an individual’s stated beliefs and policies of the company Frameworks for ethical decision making: • Utilitarian approach • Moral rights approach • Universalism approach • Justice approach

10. Utilitarian Approach • Which will result in the “greatest good?” • Focused on the consequences of an action • Cost/benefit analysis – choose decision in which benefits most outweigh costs • Different people may see the outcome differently in terms of good or bad

11. Moral Rights Approach • Focused on moral standing of actions, independent of their consequences • Some things are simply “right” or “wrong” • When two actions have moral standing, then the positive or negative consequences of each will determine the more ethical one

12. Universal Approach • “Do unto others as you would have them do unto everyone, including yourself.” • The “Golden Rule” • Choose a course of action you believe can apply to all people under all situations • Decisions or actions that limit rights like freedom and autonomy generally lack moral justification and are unethical

13. Justice Approach Focuses on the how equitable the process and outcomes are • Distributive justice • Costs and benefits should be equitably distributed • Equitable distribution is based on performance • Procedural justice • Rules should be impartially applied • Ensure that people consent to the decision-making process • Ensure that the process is administered impartially • Compensatory justice • Those damaged should be compensated • If distributive and procedural justice fail, those hurt by inequitable distribution of rewards are compensated

14. Probability of Effect Temporal Immediacy Social Consequences Magnitude of the Consequences Concentration of Effect Proximity Moral Intensity Moral Intensity in Ethical Decision Making Moral intensity • The degree to which people see an issue as an ethical one • 6 components

15. How Managers Make Better Ethical Decisions • By improving the ethical climate through improving their own facility with ethical reasoning. • By becoming more aware of the factors of moral intensity and the basic ethical reasoning systems • By developing their skill at ethical decision making and making more ethically consistent decisions.

16. How Firms Make Better Ethical Decisions Code of ethics: a formal one-to-three page statement outlining the types of behavior that are and are not acceptable Codes generally stress: • Being a good “organization citizen” • Guiding employee behavior away from unlawful or improper acts that could harm the organization

17. Successfully Implementing Codes of Ethics

18. The Government: Foreign Corrupt Practices Act • Cannot corrupt actions of foreign officials, politicians, or candidates • Cannot make payments to any person when they have "reason to know" that the payments might be used to corrupt the behavior of officials • Must take steps to provide "reasonable assurance" that transactions are in compliance with the law and to keep detailed records of them