Framing Business Ethics: Corporate Responsibility, Stakeholders, and Citizenship

1. Framing Business Ethics:Corporate Responsibility, Stakeholders, and Citizenship

2. Towards a framework for business ethics What is a corporation?

3. 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

4. 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

5. Can a corporation be morally responsible for its actions? • Evidence to suggest that legal designation of a corporation makes it unable to be anything but self-interested (Bakan 2004) • Long, complex debate but generally support from literature for some degree of responsibility accredited to corporations. Argument based on: • Every organisation has a corporate internal decision structure which directs decisions in line with predetermined goals (French 1979) • 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)

6. Corporate Social Responsibility

7. Why do corporations have social responsibilities? • Business reasons (‘enlightened self-interest’) • Extra and/or more satisfied customers • Employees may be more attracted/committed • Forestall legislation • Long-term investment which benefits corporation • 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

8. What is the nature of corporate social responsibilities? Corporate social responsibility includes the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point in time (Carroll and Buchholtz 2009:44)

9. 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)

10. 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.

11. CSR and strategy: corporate social responsiveness • Corporate social responsiveness refers to the capacity of a corporation to respond to social pressures (Frederick 1994) • 4 ‘philosophies’ or strategies of social responsiveness (Carroll 1979) • Reaction • Defence • Accommodation • Proaction

12. Outcomes of CSR: corporate social performance • Outcomes delineated in three concrete areas: • Social policies • Social programmes • Social impacts

13. Stakeholder theory of the firm

14. 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

15. Shareholders Customers Firm Suppliers Employees Stakeholder theory of the firm:Traditional management model

16. Competitors Government Customers Shareholders Firm Suppliers Employees Civil society Stakeholder theory of the firm

17. Customer stakeholder 1 Competitors Government Customer stakeholder 3 Customers Shareholders Firm Employee stakeholder 1 Suppliers Employees Civil society Employee stakeholder 2 Supplier stakeholder 1 Civil society stakeholder 1 Civil society stakeholder 2 Stakeholder theory of the firm:A network model

18. 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.

19. 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

20. Stakeholder thinking in an international context • One could argue that although the terminologyof 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 • ‘Keiretsu’ system in Japan (Chaebol in Korea), a network of banks, manufacturers, suppliers and service providers

21. 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

22. Corporate accountability The firm as a ‘political’ actor

23. 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

24. Reasons for the political role of the firm • Government failure • Risk society thesis • Rise of ‘subpolitics’ • ‘Organized irresponsibility’ • 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

25. 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

26. Corporate citizenship

27. 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

28. Commitments to corporate citizenship Industry & origin CC statement (emphasis added) Company Source BHP Billiton Mining, Australia … The Company’s community investment programs should create sustainable, long-term value for our host communities and demonstrate the Company’s citizenship. The critical question in regard to our success is whether we have managed to leave a lasting positive legacy in the communities where we operate. Sustainability Report, 2008 Citibank Banking & financial services, USA We define citizenship as the positive impact that Citi has on society and the environment through its core business activities, philanthropy, diversity efforts, volunteerism and public policy engagement, as well as the philanthropic initiatives undertaken by the Citi Foundation. 2007 Citizenship Report Microsoft Software, USA Microsoft’s endorsement of the UN Global Compact signifies that we are committed to aligning our business operations and strategies with 10 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 practices. Citizenship Report 2009 Total Oil & gas, France Total is committed to contributing to the sustainable development of host communities around the world. In addition to being a normal part of good corporate citizenship, this policy fosters good relationships with neighbors and greater acceptance of our operations. CSR Report, 2007 Toyota Automobiles, Japan The Corporate Citizenship Division was organized in January 2006 as a specialized division to reinforce corporate social contribution activities and integrate corporate social contribution functions that had been performed by multiple divisions. Sustainability Report, 2008

29. Limited view Equivalent view Extended view Focus Philanthropy, focused on projects, limited scope All areas of CSR Citizenship: social, political and civil rights Main stakeholder group Local communities, employees Broad range of stakeholders Broad range of citizens; society in general Motivation Primarily philanthropic; also economic where citizenship is ‘strategic’ Mixed – economic, legal, ethical, philanthropic Political Moral grounding Reciprocity, i.e. ‘putting something back’ Duty to be responsible and avoid harms to society Grounding is not moral, but comes from changes in the political arena Three views of corporate citizenship

30. 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 An extended view of CC

31. 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 politicalroleof 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