© Farhan Mir 2007 IMS Management Thoughts & Practices MBA & BBA Lecture 5 (Corporate Social Responsibility & Business Ethics) By: Farhan Mir

© Farhan Mir© Farhan Mir

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Management Management Thoughts & PracticesThoughts & Practices

MBA & BBAMBA & BBALecture 5Lecture 5(Corporate Social (Corporate Social Responsibility & Business Responsibility & Business Ethics)Ethics)

By: Farhan MirBy: Farhan Mir


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Business and Society Business and Society RelationshipRelationshipBusiness is the collection of private, profit-oriented organizations.

Society is a broad group of people and other organizations, interest groups, a community, a nation. Business and society interrelate in a macroenvironment as stakeholders.

Business

Community

Consumers

Owners

Government

Employees


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“An ABC News/Washington Post survey indicated 63% of the public felt that regulation of corporations is necessary to protect the public.”

“Seventy-five percent of those surveyed by ABC expressed limited confidence in large corporations.”

Gary Langer (2002) “Confidence in Business: Was Low and Still Is,” Gary Langer (2002) “Confidence in Business: Was Low and Still Is,” www.abcnews.com, Sept. 10.www.abcnews.com, Sept. 10.

Corporate Social Corporate Social Responsibility CrisisResponsibility Crisis


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Corporate Responsibility Corporate Responsibility Crisis...Crisis...

“Opinion polls now place business people in lower esteem than politicians.”-Jennifer Merritt (2002) “For MBAs, Soul Searching 101,”

Business Week, Sept. 16, p. 64.

“A W.S.J./NBC poll found that 57% of general public believed that standards & values of corporate leaders & executives had dropped in the last 20 years.”-Eric Hellweg (2002) www.business2.0.com, Sept. 10


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The DebateThe Debate

McDonalds has been criticized for making food unhealthy (e.g., “Supersize Me”), not telling people what’s in it. Should McDonalds become SR by:

Making foods healthier (e.g., smaller Making foods healthier (e.g., smaller portions, leaner beef, canola oil )portions, leaner beef, canola oil )

Advertise what’s in foodAdvertise what’s in food

So What is Social So What is Social Responsibility!!!!Responsibility!!!!


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Overview of Corporate Overview of Corporate Social ResponsibilitySocial Responsibility

Formal Definitions““The obligation of organization The obligation of organization management to make decisions and take management to make decisions and take actions that will enhance the welfare and actions that will enhance the welfare and interests of society as well as the interests of society as well as the organization” (Daft & Marcic)organization” (Daft & Marcic)

““The extent to which companies should and The extent to which companies should and do channel resources toward improving the do channel resources toward improving the quality of life of one or more segments of quality of life of one or more segments of society other than the firm’s own society other than the firm’s own stockholders” (Dessler)stockholders” (Dessler)

““The set of obligations an organization has The set of obligations an organization has to protect and enhance the societal context to protect and enhance the societal context in which it functions” (Griffin)in which it functions” (Griffin)


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Corporate Social Corporate Social Responsibility (CSR)Responsibility (CSR)

Preliminary definitions of CSRPreliminary definitions of CSR

The impact of a company’s actions on society

Requires a manager to consider his acts in terms of a whole social system, and holds him responsible for the effects of his acts anywhere in that system


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Overview of Corporate Overview of Corporate Social ResponsibilitySocial ResponsibilityClassical View

Pure capitalismPure capitalism

Milton FriedmanMilton Friedman

Sole responsibility of Sole responsibility of business is to serve business is to serve interests of owners: interests of owners: maximize profitsmaximize profits

Socioeconomic ViewStakeholder theoryStakeholder theory

Businesses have a Businesses have a responsibility to protect responsibility to protect and improve society’s and improve society’s welfarewelfare

Moral MinimumBusinesses free to Businesses free to strive for profits as long strive for profits as long as they do no harmas they do no harm


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Social Responsibility – Social Responsibility – Classical ViewClassical View

Management’s only social responsibility is to maximize profits (create a financial return) by operating the business in the best interests of the stockholders (owners of the corporation).

Expending the firm’s resources on doing “social good” unjustifiably increases costs that lower profits to the owners and raises prices to consumers.


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Social Responsibility – Social Responsibility – Socioeconomic ViewSocioeconomic View

Management’s social responsibility goes beyond making profits to include protecting and improving society’s welfare.

Corporations are not independent entities responsible only to stockholders.

Firms have a moral responsibility to larger society to become involved in social, legal, and political issues.


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The Domain of Corporate The Domain of Corporate Social ResponsibilitySocial Responsibility


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Carroll’s Four Part DefinitionUnderstanding the Four ComponentsResponsibi

litySocietal

Expectation

Examples

Economic Required Be profitable. Maximize sales, minimize costs, etc.

Legal Required Obey laws and regulations.

Ethical Expected Do what is right, fair and just.

Discretionary

Desired/

Expected

Be a good corporate citizen.Business and Society: Ethics and Stakeholder Management, 5E • Carroll & Buchholtz

Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved2-16


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Pyramid of CSRPyramid of CSR

Discretional ResponsibilitiesDiscretional ResponsibilitiesBe a good corporate citizen.

Ethical ResponsibilitiesEthical ResponsibilitiesBe ethical.

Legal ResponsibilitiesLegal ResponsibilitiesObey the law.

Economic ResponsibilitiesEconomic ResponsibilitiesBe profitable.


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CSR in Equation Form Is the Sum of:

Economic Responsibilities (Make a profit)Legal Responsibilities (Obey the law)Ethical Responsibilities (Be ethical)Discretional Responsibilities (Good

corporate citizen)

CSR


20200707 IMSIMSSource: Schermerhorn, 2002

Managing Corporate Managing Corporate Social ResponsibilitySocial Responsibility


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Social Responsibility Social Responsibility StrategiesStrategies

Reactive StrategyDenying responsibility while striving to Denying responsibility while striving to maintain the status quo by resisting maintain the status quo by resisting change.change.

Defensive StrategyResisting additional social responsibilities Resisting additional social responsibilities with legal and public relations tactics.with legal and public relations tactics.


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Social Responsibility Social Responsibility Strategies Strategies (cont’d)(cont’d)

Accommodation StrategyAssuming social responsibility only in Assuming social responsibility only in response to pressure from interest response to pressure from interest groups or the government.groups or the government.

Proactive StrategyTaking the initiative in formulating and Taking the initiative in formulating and putting in place new programs that serve putting in place new programs that serve as role models for industry as far as as role models for industry as far as Social responsibility is concerned.Social responsibility is concerned.


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But The Debate Goes On! But The Debate Goes On! Managing Corporate Social Managing Corporate Social ResponsibilityResponsibility Arguments against

social responsibility:Reduced business Reduced business profits for ownersprofits for ownersHigher business Higher business costscostsDilution of Dilution of business purposebusiness purposeToo much social Too much social power for businesspower for businessLack of public Lack of public accountabilityaccountabilityPotential conflicts Potential conflicts of interestof interestLack of expertiseLack of expertise

Arguments in favor of social responsibility:

Business creates Business creates problems and problems and should help solve should help solve themthemAdds long-run Adds long-run profitsprofitsBetter public Better public imageimageAvoids more Avoids more government government regulationregulationBusinesses have Businesses have resources resources Better Better environmentenvironmentPublic wants itPublic wants it


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Views Against CSRViews Against CSR

Business is incompetent to handle social issues

The one responsibility of business is to maximise the profits of its owners or shareholders.CSR is not definable and just another marketing trick


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RANK

COMPANy

2001 Net Inc

($mil)

Total Return

to Stock-holders

Com-munit

y

Minor-

ities &

Wo-men

Employ-ees

Environ-ment

Non-U.S.

Stake-holders

Custom-ers

1General Mills

6650.293 5 3.803 1.063 0.193 0.192 0.301

2 Cummins Inc.-102

0.006 5 0.371 2.301 -1.03 3.513 0.301

3 Intel 1,291

0.007 1.563 1.229 3.539 2.64 0.192 0.301

4Procter & Gamble

2,801-0.029 1.563 2.945 1.063 1.416 3.513 -1.06

5 IBM7,713

0.742 3.312 4.662 -0.174 -1.03 0.192 1.663

6Hewlett-Packard

408-0.742 1.563 2.945 1.063 2.64 0.192 1.663

7 Avon Products

430-0.111 1.563 3.803 -0.174 0.193 3.513 0.301

8

Green Mountain Coffee Roasters

6

0.097 3.312 0.371 1.063 0.193 3.513 0.301

9 John Nuveen115

0.735 5 1.229 1.063 0.193 0.192 0.301

10 St. Paul-1,088

-0.415 5 2.087 1.063 0.193 0.192 0.301

Business Ethics 100 Best Corporate Citizens, 2003 Rankings(scores are standard deviations above or below the mean)


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Corporate Social Responsibility Corporate Social Responsibility and Organizational and Organizational PerformancePerformanceCorporate Social Responsibility Issues

Business for Social Responsibility Website Business for Social Responsibility Website (http://www.bsr.org/CSRResources/IssueBriefsLis(http://www.bsr.org/CSRResources/IssueBriefsList.cfm?area=all)t.cfm?area=all)

Examples of Corporate Social ResponsibilityCummins (#2) built school for 800 Brazilian Cummins (#2) built school for 800 Brazilian childrenchildren

Intel’s (#3) CEO gets an email within 24 hours Intel’s (#3) CEO gets an email within 24 hours of injury to any of company’s 80,000 employeesof injury to any of company’s 80,000 employees


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Corporate Social Corporate Social Responsibility and Responsibility and Organizational PerformanceOrganizational PerformanceStudies provide mixed results

A positive relationship between CSR and performance more common

Bottom line: CSR does not appear to hurt organizational performance, and in many cases may enhance performance


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How Does CSR affect How Does CSR affect Reputation?Reputation?

An image for being socially responsible adds to an image of being honest and trustworthy

Such a reputation is a major driver of customer and employee satisfaction

It is often correlated with sales growth


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CSR in PakistanCSR in PakistanENGRO’S SOCIAL CITIZENSHIPENGRO’S SOCIAL CITIZENSHIP(Some examples)(Some examples)

Education- TCF School – Engro Campus- Teacher Training Centre (TARC)- Sahara School (Employee / Company JV)

Health- Free snake bite treatment- Eye Clinic & Eye Camp- Maternity Home- Hospital support – JPMC, Sukkur hospital

Others- Natural calamities- National Debt Relief- Jinnah Film Project


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The Greening of The Greening of ManagementManagement

The recognition of the close link between an organization’s decision and activities and its impact on the natural environment.

Global environmental problems facing Global environmental problems facing managers:managers:

Air, water, and soil pollution from toxic wastesGlobal warming from greenhouse gas emissionsNatural resource depletion


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Do people care enough about wildlife to give evolution a helping hand?It's tough to be a salmon in California waters today. Water intakes threaten you, power boats bring

anglers to try to catch you, and when you finally reach your home river, there may be a dam blocking your way. The last thing you need is for some predator to eat your fry after you spawn.At Chevron, we care about California's salmon. That's why we're releasing mutation-causing chemicals into San Francisco Bay from our refinery at Point Richmond. As salmon swim through the Bay on their way to their spawning grounds our patented GenenTechroline(TM) alters their

chromosomes, giving their offspring a chance to evolve new defenses against predation. The extra eyes on Oncorhynchus guernica, pictured above, are just one example.

And if we save money through this innovative waste disposal technique, and are able to pass it on to our shareholders, so much the better. As the chairman of our Board of Directors said when we

started this program, "the 'eyes' have it."People Do.

Social Responsibility, Social Responsiveness or a modified Solution Judge Yourself!!!!!!!!!


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The Ethical Dimension The Ethical Dimension of Managementof ManagementEthics

The study of moral obligation involving The study of moral obligation involving the distinction between right and wrong.the distinction between right and wrong.

Business EthicsThe study of the complex business The study of the complex business practices and behaviors that give rise to practices and behaviors that give rise to ethical issues in organizations.ethical issues in organizations.


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Practical Lessons from Business Practical Lessons from Business Ethics Research: Ethical Hot Ethics Research: Ethical Hot SpotsSpotsBalancing work and familyPoor internal communicationsPoor leadershipWork hours, work loadLack of management support

Need to meet sales, budget, or profit goalsLittle or no recognition of achievementsCompany politicsPersonal financial worriesInsufficient resources


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Encouraging Ethical Encouraging Ethical ConductConduct

Ethics TrainingAmoral managers:Amoral managers: managers who are managers who are neither moral or immoral, but ethically lazy.neither moral or immoral, but ethically lazy.

Key features of effective ethics training Key features of effective ethics training programsprograms

Top management support.

Open discussion.

A clear focus on ethical issues.

Integration of ethics into the organization.

A mechanism for anonymously reporting ethical violations.

Reward ethical conduct.


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Encouraging Ethical Encouraging Ethical Conduct Conduct (cont’d)(cont’d)

Code of EthicsPublished statement of moral Published statement of moral expectations for employee conductexpectations for employee conduct

Requirements for an effective ethics codeRequirements for an effective ethics codeMust describe specific practices as unethical (e.g., kickbacks, payoffs, gifts, falsification of records, and misleading product claims).Must be firmly supported and fairly enforced by top management.

Documents

© Farhan Mir 2007 IMS Management Thoughts & Practices MBA & BBA Lecture 5 (Corporate Social Responsibility & Business Ethics) By: Farhan Mir