Chapter 3

Corporate Social
Responsibility

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
 Ch. 3: Key Learning Objectives
 Understanding the role of big business and its
responsible use of corporate power in a democratic
society
 Knowing where and when the idea of social
responsibility originated
 Assessing how business meets its economic and legal
obligations while being socially responsible
 Evaluating the limits of corporate social responsibility
while maximizing social benefits
 Examining the critical arguments for and against
corporate social responsibility
 Recognizing socially responsible best practices

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Corporate Social Responsibility

 The idea that businesses interact with the

organization’s stakeholders for social good while they
pursue economic goals.

 Both market and nonmarket stakeholders expect

businesses to be socially responsible. Many
companies have responded by making social goals a
part of their overall business operations.

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Corporate Power and Responsibility
 Corporate power refers to the capability of corporations
to influence government, the economy, and society,
based on their organizational resources

 The tremendous power of the world's leading

corporations has both positive and negative effects
 Positives include commanding more resources, producing at
lower costs, planning further into the future, and bring new
products, technologies, and economic opportunities to developing
societies
 Negatives include disproportionate influence on politics, shape
tastes, dominate public discourse, divide markets, and squash
competition

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Corporate Power and Responsibility
 Iron law of responsibility says that in the long run,
those who do not use power in ways that society
considers responsible will tend to lose it

 Given the virtually immeasurable power in the hands of

the leaders of large, global corporations, stakeholders
throughout the social system expect business to take
great care in wielding its power responsibly for the
betterment of society

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The Meaning of Corporate Social Responsibility
 A corporation should act in a way that enhances society
and its inhabitants and be held accountable for any of
its actions that affect people, their communities, and
their environment

 It implies that harm to people and society should be

acknowledged and corrected if at all possible

 It may require a company to forge some profits if its

social impacts seriously hurt some of its stakeholders or
if its funds can be used to have a positive social impact

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Corporate Social Responsibility Principles

 The charity principle is the idea that the wealthiest

members of society should be charitable toward those
less fortunate

 The stewardship principle is the idea that business

leaders have an obligation to see that everyone,
particularly those in need or at risk, benefits from their
firms’ actions
 According to this view, corporate managers have been placed
in a position of public trust

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Phases of Corporate Social Responsibility
 Frederick provides expanded framework for
understanding the evolution of CSR concept
 Divided into 4 phases:
 Corporate social stewardship, 1950s – 1960s
 Corporate social responsiveness, 1960s – 1970s
 Corporate/business ethics, 1980s – 1990s
 Corporate/global citizenship, 1990s – 2000s

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 Balancing Multiple Responsibilities
 Multiple responsibilities of business include

 Economic responsibilities
 Social responsibilities
 Legal responsibilities

 Challenge is to balance all three

 Successful firm is one which finds ways to meet each of

its critical responsibilities and develops strategies to
enable the obligations to help each other

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Enlightened Self-Interest
 Economic and social goals come together in
companies that practice enlightened self-interest
 Means firm leadership can see it is in the company’s self-
interest in the long term to provide true value to its
customers, to help its employees grow and behave
responsibility
 Scholars have debated the related question: Do
socially responsible companies sacrifice profits by
promoting the social good?
 Studies comparing CSR with firm performance shows there
is a moderately positive association between the two factors
 Corporate social and environmental responsibility is likely to
pay off

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Legal Requirements Versus
Corporate Social Responsibility
 A firm must abide by laws and regulations
governing society
 Legal rules set the minimum standard for
business
 Current legal standards for corporate social
responsibility are minimum public expectations
 Companies can choose to go beyond the legal
standard and strive for higher levels of social
responsibility

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Stockholder Interests Versus other
Stakeholder Interests
 Corporate executives and board members are constantly
under pressure to produce value for owners/investors
 Management’s central goal is to promote the interests of
the entire company, not any single stakeholder group
 Challenge is to put emphasis on long-run profits rather
than focus on immediate returns
 An enlightened self-interest approach helps reconcile these
challenges
 Is acceptable to incur short term costs for socially
responsible activities that benefit both the company and the
public in the long term

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