Good Governance

1. Corporate Social
Responsibility
This chapter:
 Defines the idea of corporate social
responsibility and explains how it has expanded
in meaning and practice over time.
 Explains more about how corporations carry out
their social responsibilities.
McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

2. Corporate Social
Responsibility
 The duty of a corporation to create
wealth in ways that avoid harm, to
protect, or enhance societal assets.
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3. The Evolving Idea of Social
Responsibility
 The fundamental idea is that corporations have
duties that go beyond carrying out their basic
economic function in a lawful manner.
 Over time the doctrine has evolved to require
more expansive action by companies largely
because:
 Stakeholder groups have gained more power
to impose their agendas
 The ethical and legal philosophies underlying it
have matured
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4. Social Responsibility in
Classical Economic Theory
 Classical capitalism has been the basic
inspiration for business.
 In this view, a business is socially responsible if it
maximizes profits while operating within the law.
 The idea that markets harness low motives and
work them into social progress has always
attracted skeptics.
 Today the classical ideology still commands the
economic landscape, but ethical theories of
broader responsibility have worn down its
prominences.
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5. The Early Charitable
Impulse
 Most colonial era businesses practiced frugality, yet
charity was a coexisting virtue.
 The wealthy endowed social causes as individuals,
not through their companies.
 Steven Girard changed the climate of education in
the United States by bequeathing $6 million for a
school to educate orphaned boys.
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6. Stephen Girard
 was French born naturalized
American Philanthropist and
banker. He personally saved the
US government from financial
collapsed during the War of 1812
and became one of the wealthiest
people in America estimated to
have been the fourth richest
American of all time based on his
ratio of fortune to contemporary
GDP
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7. The Early Charitable
Impulse
 John D. Rockefeller systematically
gave away $550 million over his
lifetime.
 Andrew Carnegie gave $350 million
over his lifetime to causes that would
elevate the culture of a society.
 Carnegie believed fortunes should not
be wasted by paying higher wages or
giving gifts to poor people.
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8. John D. Rockefeller
 Born July 8, 1839, in Richford, New York.
He built his first oil refinery near Cleveland
and in 1870 incorporated the Standard Oil
Company. By 1882, he had a near
monopoly of the oil business in the U.S. but
his business practices led to the passing of
antimonopoly laws. Late in life Rockefeller
devoted himself to philanthropy. He died in
1937(www.biography.com)
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9. Andrew Carnegie
 Born on November 25, 1835, in
Dunfermline, Scotland. After
moving to the US, he worked a
series of railroad jobs. By 1889 he
owned Carnegie Steel Corporation,
the largest of its kind in the world. In
1901, he sold his business and
dedicated his time to expanding his
philanthropic work including the
establishment of Carnegie-Mellon
University in 1904
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10. The Early Charitable Impulse
(continued)
 People such as Andrew Carnegie and Herbert
Spencer believed in the doctrine of social
Darwinism when it came to charity.
 Social Darwinism held that charity interfered with
the natural evolutionary process in which society
shed its less fit to make way for the better adapted.
 Additionally, courts consistently held charitable
gifts to be ultra vires (beyond the law) because
charters granted by states when corporations were
formed did not expressly permit them.
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11. Social Responsibility in the Late
Nineteenth and Early Twentieth
Centuries
 Giving, no matter how generous, was a narrow
kind of social responsibility often unrelated to a
company’s impacts on society.
 During the Progressive era, three interrelated
themes of broader responsibility emerged:
 Managers were trustees
 Managers had an obligation to balance
multiple interests
 Many managers subscribed to the service
principle
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12. Social Responsibility in the Late
Nineteenth and Early Twentieth
Centuries (continued)
 Henry Ford – touted citizenship but was ultimately
unconcerned about the welfare of his employees.
 General Robert E. Wood – believed in
responsibility to customers, the public, employees,
suppliers, and finally stockholders.
 1920s and beyond, organized charities began
forming to which corporations contributed:
 Community Chest
 Red Cross
 Boy Scouts
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13. 1950–The Present
 Contemporary understanding of corporate social
responsibility formed during this period.
 Social Responsibilities of the Businessman
 Dissenters to this theory were conservative
economists who claimed that business is most
responsible when it makes money efficiently, not
when it misapplies its energy to social projects.
 1971 – Bold statement by the Committee for
Economic Development outlining three concentric
circles of responsibilities.
 1981 – Statement on Corporate Responsibility from
the Business Roundtable.
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14. General Principles of Corporate
Social Responsibility
 Corporations are economic institutions run for profit.
 All firms must follow multiple bodies of law.
 Managers must act ethically
 Corporations have a duty to correct the adverse social
impacts they cause.
 Social responsibility varies with company characteristics.
 Managers should try to meet legitimate needs of
stakeholders.
 Corporate behavior must comply with norms in an underlying
social contract.
 Corporations should also accept a measure of accountability
toward society.
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15. Are Social and Financial
Performance Related?
 A recent review of 95 studies over 30 years found
that a majority (53 percent) of businesses showed a
positive relationship between profits and
responsibility, while only 5 percent showed a
negative one.
 Results inconsistent and ultimately inconclusive due
to methodological questions.
 Safe to say corporations rated high in social
responsibility are no less profitable than lower rated
firms.
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16. Corporate Social Responsibility
in a Global Context
 By the end of the twentieth century the doctrine of
corporate social responsibility had been widely
accepted in industrialized nations.
 Recent debates over the duties of corporations in
their international operations.
 International law is weak in addressing social impacts of
business.
 Giant corporations may not be subject to strong laws and
regulations in foreign countries.
 In adapting to global economic growth corporations have
used business strategies that distance them from direct
accountability or social harms.
 More national regulation of multinational corporations is
unlikely.
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17. Corporate Social Responsibility
in a Global Context (continued)
 Extraterritoriality – enforcement is problematic.
 Nongovernmental organizations (NGOs) –
voluntary organizations becoming powerful
advocates of restricting corporate power outside
the borders of industrialized nations.
 Pushed for UN-sponsored conferences on the
environment, population, human rights, social
development, and gender.
 Soft law – statements of philosophy, policy, and
principle found in nonbinding international
conventions
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18. Global CSR: Development of
Norms and Principles
 Norm – a standard that arises over time
and is enforced b social sanction or law
 Principle – a rule, natural law, or truth used
as a standard to guide conduct
 Milestones in the development of norms
 U.N. Universal Declaration of Human Rights
 Tripartite Declaration of Principles concerning
Multinational Enterprises and Social Policy
 Norms on the Responsibilities of Transnational
Corporations
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19. Global CSR:
Codes of Conduct
 Codes of conduct set forth aspirations, principles,
guidelines, and rules for corporate behavior.
 Created by companies, trade associations, NGOs,
governments, and international organizations.
 The target is the corporation
 The code’s effectiveness depends on how the
corporation carries it out.
 Many codes are weak because they lack the force
of law
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20. Global CSR: Reporting and
Verification Standards
 Sustainability reporting – the practice
of a corporation publishing information
about its economic, social, and
environmental performance
 Two problems of sustainability
reporting:
 Defining and measuring social performance is
difficult
 Reports are not comparable from company to
company
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21. Global CSR: Labeling and
Certification Schemes
 Influence the market on the demand
side.
 Criteria for labels set by industry,
NGOs, unions, and sometimes
governments.
 Certifications promote many ideals
including human rights, fair trade, and
campaigns against child labor.
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22. Global CSR:
Management Standards
 Eco-Management and Audit Scheme
(EMAS)
 International Standards Organization
(ISO)
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23. Global CSR:
Social Investment and Lending
 U.N. Principles for Responsible Investment require
signatories to consider a company’s environmental,
social, and governance performance when they
invest.
 FTSE4Good Global Index is intended to set the
world standard for investors seeking “companies
that meet globally recognized corporate
responsibility standards.”
 International Finance Corporation (IFC) seeks to
promote development and reduce poverty by
funding projects for corporations.
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24. Global CSR: Government Actions
and Civil Society Vigilance
 Governments advance corporate
responsibility through binding
regulation and by actively promoting
voluntary actions.
 NGOs watch multinational
corporations and police actions they
see as departing from emerging
norms.
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25. Assessing the Evolving Global
CSR System
 As multinational corporations grew in power with
the expansion of global trade, a perceived
deficiency in regulation was countered by action
within civil society.
 No company can remain aloof from the emerging
global CSR system that promotes and enforces
corporate adherence to international CSR
standards
 An important issue is whether or not the emerging
system is the most appropriate way to regulate
large corporations.
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26. Concluding Observations
 Historically, corporations have been motivated
primarily by the central focus on profits.
 Corporations are now being pressured to alter this
focus.
 The idea of corporate social responsibility has
continuously expanded in meaning.
 The power of stakeholders to define corporate
duty has increased.
 The explosive growth of global trade and global
corporations has created new standards and
practices of social responsibility tied to global norms.
McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved