BUSINESS ETHICS

(BUSS 215)

Corporate Social Responsibility

DR. ALEJANDRO CENTENO

ar96@aub.edu.lb
 What is CSR?
What is Corporate Social Responsibility (CSR)?

• Extent to which businesses and their managers have ethical

responsibilities that go beyond normal requirements, and beyond the
law,
• The voluntary activities undertaken by a company to operate in an
economic, social and environmentally sustainable manner.
• The responsibilities that a business has to the society in which it
operates.

From an economic perspective: A business is an institution that exists

to produce goods and services demanded by society and, by engaging in
this activity, the business creates jobs and wealth that benefit society
further.

Videos:
https://www.youtube.com/watch?v=iYf8WwGT51I (Singapore Airlines)
https://www.youtube.com/watch?v=eUiwR0z9dCM Patagonia)
CSR General Agreements

-Operating on a beyond-business, ethical level

-This ethical level should be superior/above the requirements of the law

Includes:

✓ Contributions to civic and charitable organizations

✓ Advanced employee benefits e.g. improving the quality of life in the workplace
beyond economic and legal requirements

✓ Taking advantage of economic opportunities which are more socially desirable

✓ Using resources to address major social problems

✓ Voluntary contribution to community

✓ Selection of corporate goals and evaluation of outcomes by ethical standard.

 Test Your Knowledge

Question 1: CSR refers to:

I. Dedication that businesses show in expanding their market share.

II. Accountability that a manager has to his subordinates.
III. Actions that maximize the profit of an organization
IV. Ethical expectation that society has for business.

Question 2: Which of the following statements is true of the common view of CSR?
I. It has its roots in the deontological tradition and Keynesian economics
II. It holds that profit is independent of optimal allocation of resources
III. It holds that the primary responsibility of managers is to serve stakeholders.
IV. It states that business has a strict obligation to contribute to social causes
Partially true
 The Business Case For CSR

✓ CSR contributes to profitability because the market rewards responsible

behavior and punishes a company’s lapses (Market of virtue)

✓ CSR can be a source of competitive advantage in certain industries (e.g.

green technologies, filling social needs)

Market of Virtue
Factors that induce managers to take on CSR activities: Market demand, Social
forces -permits companies to make a positive contribution to solving social
problems.

Power of virtue
✓ Activists are powerful in influencing corporate decisions / Industry’s competitors.
✓ Constrained managers engage in some socially responsive behavior.

Competitive Advantage
Strategic about CSR and to find ways to gain a corporate benefit along with a
public good.
 Ethics and Social Responsibility

Different meanings of the word responsible:

• Reliable or trustworthy.
• Attributing something as a cause for an event or action.
• Attributing liability or accountability for some event or
action, creating an obligation to make things right again.

Responsibility as accountability is at the heart of CSR

CSR:
✓ Actions for which a business can be held accountable.
✓ To be concerned with society’s interests that should
restrict or bind business’s behavior.
✓ What a business should or ought to do for the sake of
society, even if this comes with an economic cost.
 The Ethical Case for CSR

Three different types of responsibilities, on a scale from more - less demanding or binding…

To do good (volunteer and charitable work)

To prevent harm even in those cases where one is not the cause.

To not cause harm to others (duty or obligation)

 The Ethical Case for CSR

Don’t cause harm to Prevent harm Do good

others
A duty or obligation Good Samaritan Volunteering
Enforced by legal Use renewable energy Sponsoring a charity
punishment event
 Enlightened Self Interest (ESI) and Reputation
Management
Holds that including CSR in the business strategy can lead to:

✓ Differentiation and a competitive market advantage for the

business
✓ Positive branding for the present and future
✓ Some companies have implemented a strong CSR policy and
have been successful in the establishment of a positive brand

Reputation management: The practice of attending to the “image” of a firm.

• There is nothing inherently wrong with managing a firm’s reputation; the failure
to do so might be a poor business decision.

• But observers could challenge firms for engaging in CSR activities solely for the
purpose of impacting their reputations.

• The challenge is based on the fact that reputation management often works.
 Enlightened Self Interest (ESI) and Reputation
Management
How do local and international approaches to CSR vary?

LOCAL INTERNATIONAL

• https://www.blombank.com/english/sustainability
• https://www.starbucks.com/responsibility/reporting-hub/

Is good ethics also good business?

✓ One important justification offered for CSR — enlightened self-interest — presumes that it is, or at least it can be.
✓ Unethical decisions do lead to high profits, but in the long run ethics pays off, measurement of that payoff is the challenge.
Models of CSR
 Models of CSR

The Economic Model

✓ It holds that the sole duty of business is to fulfill economic functions

✓ The social responsibility of business managers is simply to pursue profit

within the law.

✓ Profit is a direct measure of how well a business is meeting society’s

expectations.

✓ Profit is an indication that business is efficiently and successfully

producing the goods and services that society demands.

✓ This model denies that business has any social responsibilities

beyond the economic and legal ends for which it was created
 Models of CSR

The Economic Model

✓ It has its roots in the utilitarian tradition and in neoclassical economics.

Shareholder is most
✓ Primary social responsibility of business managers: to pursue maximum important. The business of
profits for shareholders.
business is to do business.
✓ The pursuit of profit will continuously work towards the optimal Pursue profit within the law.
satisfaction of consumer demand: Optimal social good (Utilitarianism
interpretation).

Pro’s:
Focused on wealth creation, value, employment, innovation more efficiently
Con’s:
Negative externalities (short and long term), Environmental degradation, Social
inequality.
 Models of CSR

Economic View and Milton Friedman

Milton Friedman’s 1970 New York Times article:
“The Social Responsibility of Business is to Increase Its Profits”

“I believe most of the claims of social responsibility are pure public relations.”

“The idea that the resources of a company should be distributed by people on some
basis other than ownership and by people who are not elected for that purpose -surely,
that is a socialist concept and fundamentally subversive.”
http://www.businessweek.com/magazine/content/05_33/b3947115_mz017.htm

An executive’s responsibility is to conduct business in accordance with his/her

shareholder desires:
✓ which generally will be to make as much money as possible
✓ while conforming to the basic rules of society (embodied in law or ethical custom)

Friedman suggests that decision-makers are acting ethically if they follow their firm’s self-interest.
 Models of CSR

Philanthropic Model
It holds that, like individuals, business is free to contribute to social causes as
a matter of philanthropy. But that business has no strict obligation to
contribute to social causes -it can be a good thing…. And sometimes a moral
sense of personal duty of those within.

Within the philanthropy model, there are occasions in which charity work is
done because:
✓ It brings the firm good public relations.
✓ It provides a helpful tax deduction.
✓ It builds good-will and/or a good reputation within the community.

There is overlap between decision makers who:

➢ engage in the Philanthropic Model because it is the right thing
to do
➢ engage in the Philanthropic Model in alignment with the
economic view of SR (i.e., reputational reason)
 Models of CSR

Philanthropic Model

Economic Model Philanthropic Model

Economic CSR, only philanthropy done for reputational reasons and financial ends is
ethically responsible. Business managers are the agents of owners, they have no right to use
corporate resources except to earn owners greater returns on their investment.

From the perspective of the philanthropic model, philanthropy done for financial reasons is
not fully ethical and not truly an act of social responsibility

Pro’s:
Can be advantageous of benefactors of philanthropy
Con’s:
The level of philanthropy required is unclear, particularly when it comes to compensating for the social and environmental harm
caused by business operations.
Philanthropy can mask irresponsible business practices, enabling more harm.
 Models of CSR

The Social Web Model

•View of Business: Business is a citizen of society, with ethical obligations like any individual.

•Norman Bowie’s View: Beyond economic and legal duties, businesses must respect human rights.

Respecting Human Rights: This is the “moral minimum” expected of all, whether as individuals or within
corporations.

•Kantian Approach: Bowie’s theory is based on Kantian ethics, emphasizing respect for human dignity in
business
 Models of CSR

The Social Web Model

Economic Model Social Web Model

Economic Model:
• Businesses should be managed solely for the benefit of shareeholders.
• Justified by two ethical norms:
• Utilitarianism: Promotes social well-being.
• Individual Rights: Protects the rights of shareholders.

Social Web Model:

• Focuses on the impact of business decisions on a wide range of people, not just stakeholders.
• Requires balancing the ethical interests of all stakeholders
 Models of CSR

The Social Web Model

Stakeholder Theory in the Social Web Model

Stakeholder Theory: Challenges the narrow economic model by considering legal,

factual, economic, and ethical grounds.
• Business decisions affect both benefits and costs for various groups.

Kantian Ethics: Stakeholder theory argues that businesses have a moral obligation to
treat all people as ends in themselves, not as means to an end.

Pro’s:
Creates net benefit for a wider group, holistic / balanced growth, avoids harm.
Con’s:
Timely and costly to manage, inefficient (could be), have to deal with multiple, competing interests, doesn’t necessarily
focus on the environment (as it’s primarily a social concept).
 Models of CSR

The Integrative Model

Core Idea: Firms integrate social goals into their core business model.
Economic and Social Goals: Both are fully integrated into the business strategy.

Non-Profit Organizations: Social ends are central to their mission (e.g., NGOs, foundations, government agencies).

For-Profit Organizations: Some pursue social goals as part of their strategic mission.
Example: Grameen Bank (Microfinancing).
 Models of CSR

The Integrative Model

•Social Entrepreneurship: Shows that doing good and making profit can coexist.
Profitability can align with social goals.

•Sustainability: Financial goals must be balanced with environmental concerns.

Example: Interface Corporation integrates sustainability into business strategy.
Businesses must consider the ecological impact alongside profits.

Sustainability emphasizes that economic activity depends on the biosphere.

-Current Economic Model: Reaching the limits of the biosphere’s capacity.

Business success must be judged by:

Financial profitability.

Ecological and social sustainability.

-Long-term View: Environmentally unsustainable firms will eventually be financially unsustainable.

 Models of CSR

The Integrative Model

Social/environmental concerns part of the business purpose, as, this is part of life on earth (e.g business exists
within a biosphere, social sphere). Environmental / social AS IMPORTANT as economic.

Pro’s:
Guaranteed social and environmental value generation from business activity, Eliminates social harm, and environmental damage,
No negative externalities
Con’s:
May drive up costs and drive up product price. Depending on the market, this could spell failure for the business.