SOCIAL RESPONSIBILITY AND

BUSINESS 4TH EDITION

FERRELL • THORNE • FERRELL

CHAPTER 1

Social Responsibility
Framework
95% of Respondents Agree

• U.S. corporations should have more than one

purpose. They also owe something to their
workers and the communities in which they
operate, and they should sometimes sacrifice
some profit for the sake of making things
better for their workers and communities.

Source: "How Business Rates: By the Numbers, Business

Week, Sept. 11, 2000, pp. 148-149.
What do you believe organizations
should be responsible for
accomplishing?
Social Responsibility Defined

• Social responsibility
– The adoption by a business of a strategic focus
for fulfilling the economic, legal, ethical and
philanthropic responsibilities expected of it by
its stakeholders
• Businesses should look beyond their self-
interests and recognize that they belong to
a larger group that expects responsible
participation.
Social Responsibility Defined (cont.)

• Applies to all types of businesses

– Small businesses
– Large businesses
– Sole proprietorships
– Multinational corporations
Social Responsibility Defined (cont.)

• Adopts a strategic focus

– Requires a formal commitment from top management
• Communicated through mission and vision statements,
annual reports, websites, and public relations
– Requires action and results
– Depends on collaboration and coordination across business
and among constituencies
– Large companies often create specific positions and
departments to support social responsibility programs
Social Responsibility Defined (cont.)

• Fulfills societal expectations

– Provides a return on investment for owners
– Obeys the law and regulatory agencies
– Acts in a just, fair, and correct manner
– Promotes human welfare and good will
TOTO Corporate Responsibility Committee
Structure
Pyramid of Social Responsibility
Social Responsibility Defined (cont.)

• Economic
– Maintain profitability
• Legal
– Abide by legal and regulatory influence
• Ethical
– Ensure just and fair behavior in the workplace
• Philanthropic
– Promote human welfare and goodwill
Social Responsibility Continuum

Add Figure 1.5 here

 Who are the key
stakeholders of the organization?
Social Responsibility Defined (cont.)

• Requires a stakeholder orientation

– Customers
– Employees
– Investors
– Stockholders
– Suppliers
– Government
– Communities
Stakeholders

• Those constituents who have a stake in, or

claim on, some aspect of a company’s
products, operations, markets, industry, and
outcomes
• Companies that operate with a stakeholder
orientation recognize that business and society
are interpenetrating systems, in that each
affects and is affected by the other.
Evolution of Social Responsibility:
1940s–1960s
• 1940s
– Economic dominance of corporations
– Total autonomy of top management
• 1950s–60s
– Few formal governance procedures restraining
management actions
– Organizational charitable giving expanded
(charities, arts, culture, and community)
– Laws are passed that require protection of the natural
environment, safer products, promotion of equity,
and supporting workplace diversity.
Evolution of Social Responsibility:
1970s–1980s
• 1970s
– World competition, bankruptcies, mergers and
acquisitions
• 1980s
– Flatter organizations (downsizing)
– More business scandals
– Empowerment of lower-level employees
– Focus on profitability and economies of scale
Evolution of Social Responsibility:
1990s–2000s
• 1990s
– Less employee loyalty and increased “job hopping”
– Growth of temporary employment
– Greater interest in ethics and social responsibility
• 2000s
– Special interest groups, companies, human rights activists,
and government strive to balance economic and social goals.
– Major scandals damage the global economy.
 Lessons Learned from Economic
Crises
• Transparency
• Long-term perspective
• Liquidity
• Limited use of derivatives
• Absence of rating triggers
• Minimal counter-party exposure
• Diversification
Global Nature of Social
Responsibility
• Who determines social responsibility
on a global scale?
– Host country
– Home country
– Outside organizations
Managing Social Responsibility
in Home and Host Markets
Benefits of Social Responsibility

• Greater trust with stakeholders

• Greater customer satisfaction
• Stronger employee commitment
• Stronger investor loyalty
• Greater profitability
• Countries with greater trust-based institutions foster a
productivity-enhancing environment.
– Competitive processes are more efficient and effective.
Social Responsibility Builds Trust

• Trust is the glue that holds organizational

relationships together.
• Stephen Covey contends that low trust
results in organizational decay and
relationship deterioration.
– Political problems and inefficiency
• Most workers feel they can be
trusted more than they can
trust others.
Social Responsibility Builds Trust
(cont.)

• All organizational members should share a

sense of trust.
• Trust should exist between departments
within a firm.
• An Ethics Resource Center study shows that
93% of employees who say trust is
frequently evident in their organization
report satisfaction with their employer.
To Trust or Not to Trust
Social Responsibility
Improves Customer Satisfaction
• Focuses on customer satisfaction and
strengthens trust. This is especially key in
service organizations.
• Seventy percent of consumers in a
Cone/Roper poll indicated they would
switch to brands associated with a good
cause if price and quality were equal.
What happens when consumer–
organizational trust is breached?
• Seventy-five percent of consumers say they
would avoid or refuse to buy from certain
businesses.
• Consumers may avoid products from
companies that treat their employees unfairly.
Social Responsibility
Strengthens Employee Commitment
• The greater a company’s dedication to employees, the greater
the likelihood that employees will take care of the
organization.
• Failure to care for employees results in lower loyalty and
commitment.
• Employees’ perceptions are affected by:
– Safe working conditions, competitive salaries, and
contractual fulfillment
– Social programs, including work-family relationships,
stock ownership, community service
What happens when
employee loyalty is breached?
• Quality is compromised.
• Service is compromised.
• Efficiency decreases.
Strengthening
Employee Commitment
• Employee stock ownership plans (ESOPs)
– Rewards employees for contributing to and gaining from
organizational success and allows them to gain from it
• Employee-centered programs
– Health care benefits
– Health clubs
– Child care and elder care
– Cafeteria benefits plans
Social Responsibility
Contributes to Investor Loyalty
• Investor relationships require dependability,
trust, and commitment.
• Shareholders are concerned about ethics, social
responsibility, and corporate reputation.
• Half of investors sell their stock
within one year.
Social Responsibility
Enhances Economic Performance
• Does business conduct relate to a
nation’s overall economic conduct?
– Economic well-being is promoted by:
• Trust and a sense of community
• Rigor in the legal and ethical systems
• Consistent exercise of authority within society
• Social institutions that foster access,
productivity, and economic growth
• Positive attitudes about work, innovation,
savings, and profits
Are the following companies
considered socially responsible?
Why or why not?
• Procter & Gamble • Avon
• Washington Mutual • AIG
• Starbucks • McDonald’s
• General Motors • Coca Cola
Framework for Studying
Social Responsibility
• Chapter 2
– Strategic Management of Stakeholder Relationships
• Chapter 3
– Corporate Governance
• Chapter 4
– Legal, Regulatory, and Political Issues
• Chapter 5
– Business Ethics and Ethical Decision Making
Framework for Studying
Social Responsibility (cont.)
• Chapter 6
– Strategic Approaches to Improving Ethical Behavior
• Chapter 7
– Employee Relations
• Chapter 8
– Consumer Relations
• Chapter 9
– Community Relations and Strategic Philanthropy
Framework for Studying
Social Responsibility (cont.)

• Chapter 10
– Technology Issues
• Chapter 11
– Sustainability Issues
• Chapter 12
– Social Responsibility in a Global Environment