Corporate Social Responsibility

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Corporate Social Responsibility

• Mgmt 621
• Contemporary Ethical Issues in Management
• Jeffery D. Smith

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A View of Corporate Social Responsibility (CSR)
Adapted from Archie Carroll (1991). The Pyramid
of Corporate Social Responsibility. Business
Horizons, 42 39-48.
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Pacific Lumber Company

• Corporate Social Responsibility Initiatives
• Environmental Sustainability
• Community Sustainability
• Economic Sustainability
• http//www.palco.com

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Milton Friedmans Stockholder Model
Nobel Prize in Economics (1976) Capitalism and
Freedom (1962) The Social Responsibility of
Business is to Maximize Profits (1971) Free to
Choose (1980)
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Milton Friedmans Stockholder Model

• Some Preliminary Assumptions
• The corporation only has "artificial
  responsibilities", i.e., only individuals
  (proprietors, executives, and managers) have
  moral responsibilities  
• Managers (operation executives and officers) are
  employees of stockholders (owners)   Managers
  and stockholders are in a voluntary
  principal-agent relationship  
• Stockholders own the corporation and this gives
  them a primary ethical entitlement to the
  ownership of profits

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LAW
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Friedmans Stockholder Model, contd

• The only social responsibility of business is to
  maximize shareholder wealth, i.e., maximize
  profits, within the bounds of the law
• Managers have a fiduciary responsibility to carry
  out the directives and protect the interests of
  shareholders.

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Friedmans Stockholder Model, contd

• 1. Stockholders have an ethical entitlement to
  their property (capital)
• and the profits that flow from its
  productive use by the firm.
• 2. Through an act of trust, managers agree to
  maximize the value of
• stockholders property (capital) by
  maximizing the profits of the firm.
• 3. From 1) and 2), managers have an ethical
  responsibility to
• maximize the profits of the firm.
• 4. Corporate social endeavors require managers
  to act in ways that
• do not maximize the profits owned by
  stockholders.
• 5. From 3) and 4), managers have an ethical
  responsibility not to
• pursue corporate social endeavors.

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The Stakeholder Model

• A stakeholder theory of the firm must redefine
  the purpose of the firm. The stockholder theory
  claims that the purpose of the firm is to
  maximize the welfare of the stockholdersThe
  purpose of the firm is quite different for the
  stakeholder approach. The very purpose isto
  serve as a vehicle for coordinating stakeholder
  interests. It is through the firm that each
  stakeholder group makes itself better off through
  voluntary exchanges.
• William Evan and R. Edward Freeman. (1993) The
  Stakeholder Theory of the Modern Corporation
  Kantian Capitalism. In Norman Bowie and Tom
  Beauchamp (Eds.), Ethical Theory and Business
  (pp. 75-84). Upper Saddle River Prentice Hall.

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R. Edward Freeman
Stakeholder an individual or group that is vital
to the survival and success of the corporation
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(No Transcript)
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2. The Stakeholder Model, contd

• Kants Humanity Formula of the Categorical
  Imperative
• Corporate agents must always respect the
  humanity of each
• stakeholder group by never treating
  stakeholders as a means
• to corporate ends.
• Principle of Corporate Rights (PCR)
• The corporation and its managers may not
  violate the legitimate rights of others to
  determine their own future.
• health, safety, association, contractual
  entitlements, fair/equitable treatment
• Principle of Corporate Effects (PCE)
• The corporation and its managers are
  responsible for the
• effects of their actions on others.

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2. The Stakeholder Model, contd

• Principle of Corporate Legitimacy (PCL)
• The corporation should be managed for the
  benefit of its stakeholdersThe rights of these
  groups must be ensured andthe groups must
  participate, in some sense, in decisions that
  substantially effect their welfare (Evan and
  Freeman, p. 82)
• Stakeholder Fiduciary Principle (SFP)
• Management bears a fiduciary relationship to
  stakeholders and to the corporation as an
  abstract entity. It must act in the interests of
  the stakeholders as their agent, and it must act
  in the interests of the corporation to ensure the
  survival of the firm, safeguarding the long-term
  stakes of each group. (p. 82)

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2. The Stakeholder Model, contd

• Some Problems and Concerns
• Institutionalizing/Implementing the PCL and SFP
• Conflicts Between Stakeholder Groups
• Efficiency
• Turns the Regulation of the Market Excessively
  Inward