Corporate Social Responsibility in the Marketplace Essay Example

of other constituencies, (e. g. , employees, suppliers, residents of communities) are not important in of themselves” (Cheeseman 156).

“The classical view says that management’s only social responsibility is to maximize profits. Milton Friedman an economist and Nobel laureate, argues that a manager’s primary responsibility is to operate the business in the best interests of the stockholders.Stockholders are interested in a single concern-financial return on investment. He also argues that whenever managers spend organization resources on “social good” they are adding to the cost of doing business. These costs must be passed on to customers through higher prices or absorbed by the stockholders through lower profits. Friedman is not saying that organizations should not be socially responsible; he thinks they should, but only to the extent to maximize profits” (Robbins/Coulter 100).

“The Moral Minimum argues that a corporation’s duty is to make profits while avoiding harm to others. They believe that as long as a business avoids or corrects the social injury it causes, it has met its duty of social responsibility. For instance, a corporation that pollutes the waters and then compensates those who it injures has met its moral minimum duty of social responsibility. The legislative and judicial branches of government have established laws that enforce the moral minimum. For example, occupational safety laws establish minimum safety standards to protect employees from injuries in the workplace”, (Cheeseman 158).

The stakeholder interest theory of social responsibility holds that corporations must consider the effects, its actions, has on other stakeholders (employees, suppliers, customers, and the local community”. For example, in the decision to close a plant, certain stakeholders may benefit (stockholders and creditors) while others would not (current

employees and local community). This theory is criticized because it is difficult to please so many varying interests and concerns” (Cheeseman 158-59). Businesses are owned by their shareholders - any money they spend on so-called social responsibility is effectively theft from those shareholders who can, after all, can decide for themselves if they want to give to charity. This is the voice of the laisser-faire 1980s.

Elaine Sternberg, a classicist advocate, who argues that there is a human rights case against Corporate Social Responsibility (CSR), which is that a stakeholder approach to management deprives shareholders of their property rights. She states that the objectives sought by conventional views of social responsibility are absurd. Not all aspects of CSR are guilty of this, however. Sternberg states that ordinary decency, honesty, and fairness are expected of any corporation” (Baker).

“The corporate citizen theory argues that businesses have an obligation to do good for society (Cheeseman 160). Businesses have a duty to society to help solve problems that they did not cause. This theory aligns best with the socioeconomic view of social responsibility. “The socioeconomic view requires management’s responsibility to surpass making profits to include protecting and improving society’s welfare. This view sees that corporations are not independent entities, responsible only to stockholders.

Corporations also have the responsibility to the larger society that endorses their creation through laws and regulations and supports them by purchasing their products and services. Organizations are expected and encouraged to become involved socially, politically, and legally” (Robbins/Coulter 100-01). From the classic economic or maximizing profits view to the corporate citizen or socioeconomic view, corporations engage in some level of corporate responsibility.Whether in the form of pure

social involvement, a response to market conditions, or as a crisis management response to a bad product campaign- corporations today actively participate in some form of corporate social responsibility activities. “Social obligation refers to a business meeting its economic and legal responsibilities.

Social responsiveness refers to the ability of a business to adapt to changing social conditions. This idea stresses that managers make practical decisions about the social issues in which they engage. Socially responsible organizations view things differently, they go beyond obligation and mere compliance by law and choices that make good economic sense. Social responsibility requires organizations to pursue long-term goals that are good for society”, (Robbins/Coulter 102-03). “It is difficult to talk about a businessperson's social duties without referencing law. Social and legal duties are inter-twined.

A legal duty or obligation is enforceable through a fine, imprisonment, or civil liability. Social duties are not enforceable through legal sanctions.Examining the extent of a businessperson's social duties to cooperate with law, questions present themselves. For example, when the letter of the law is vague or ambiguous or if the law is unjust, should the businessperson follow it, or is he able to disobey and intentionally evade the law (Ostas)? Viewed from today's perspective, the first wave of federal regulation appeared in the 1930s with the creation of agencies like the Food and Drug Administration, the Securities and Exchange Commission, and the Federal Communications Commission” (Ostas). The next wave (1960s and 1970s) the government added the Environmental Protection Agency (EPA), the Consumer Product Safety Commission, the Occupational Safety and Health Administration, and a host of other regulatory agencies designed to protect the public from corporate misconduct. By

the close of the 1970s, government regulation seemed to address every important ethical and social issue faced by business.

Howard Bowen, a seminal thinker in the field of CSR, offered an insightful view of the relationship between a businessperson's legal and social duties.Bowen began examining the legal environment preceding the Great Depression. He emphasized that under this laissez-faire system, businesspeople were expected to accept a self-imposed set of ethical principles. These principles included honoring promises, avoiding deception, and protecting the life and health of workers and the “general public”. Under a laissez-faire legal regime, businesspeople were to embrace these social duties even if they had no direct legal obligation to do so.Bowen’s view showed how business practices in the 1920s failed to live up to these ethical standards and this failure of business ethics was a factor that contributed to the Great Depression.

This ushered in the New Deal and the birth of widespread government regulation. Bowen then identified a new social responsibility of business necessary to supplement the business ethics of the previous decades. He wrote, “Since government has become, and will necessarily continue to be a partner in all economic affairs, the businessman is expected to cooperate with government in the formulation and execution of public policy”.For Bowen, a firm's social responsibilities were not limited to legal compliance, but included an affirmative duty to cooperate with the formation and implementation of government regulations and business laws in general” (Ostas). “In 1960, Keith Davis wrote the "Iron Law of Responsibility".

Davis emphasized that if businesspeople refused to accept the responsibility made possible by great wealth, then the government would fill the void. In essence, Davis admonished business

leaders to use their great power responsibly or lose that power to a growing array of government regulations. The idea was that society had certain expectations of business. Those expectations can be addressed through direct regulation, or they can be entrusted to the goodwill and ethics of the business community. If businesspeople proved unable to self-regulate, the law would step in. In 1975, Lee Preston and James Post offered a view of CSR particularly for the modern regulatory state.

They proposed that a businessperson's social obligations are confined to his business activities.For example, a trucking company has legitimate responsibilities concerning transportation safety, fuel economy, and labor union issues. General concern with providing shelters for the homeless should be of no concern. Preston and Post offer a single defining criterion for assessing socially responsible business behavior-cooperation with the creation and execution of "public policy". Preston and Post emphasize that public policy goes beyond the letter of the law- it refers not only to regulations spelled out in federal codes and state statutes, but also to the spirit underlined in regulations.

Collectively, the works of Bowen, Davis, Preston, and Post offer a progressive view of a corporate executive's social duty with regard to regulatory law. This view, consistent with the so-called "Public Interest Theory" of regulation, casts both law and government in positive lights. Businesspeople are expected to cooperate, not just comply, with regulatory law” (Ostas). “This distinction between complying and cooperating with law and the notion that a businessperson has a social responsibility to go beyond the letter of the law; cooperates with the law's spirit.

The distinction between compliance and cooperation also reflects a political orientation. Webster's Dictionary

defines “compliance” as a "tendency to give in readily to others, “Compliant” is defined as yielding, submissive, and obedient i. e. , the subordinate (businessperson) complies with the demands of his or her superiors (government regulators). The word “cooperation”, suggests a relationship between equals. To cooperate means to work together with another or others for a common purpose.

The progressive view of CSR, tracing back fifty years to the works of Howard Bowen, associated with the Public Interest Theory of regulation, embraces a social duty to cooperate with government to achieve social ends (common purpose). Sometimes the duty to comply and the duty to cooperate conflate. This conflation is likely to occur when both the letter and the spirit of the law are clear and the connection between the two is unambiguous. For example, consider the social duty with regard to a twenty-miles-per-hour speed limit in a school zone. A driver sees children playing in the schoolyard, sees lights flashing on the posted sign, and recognizes the inherent reasonableness of the rule requiring him or her to slow down. Here, cooperation and compliance amount to the same thing and the driver reduces his or her speed (Ostas).

“In some circumstances the distinction between compliance and cooperation becomes critical. The first the social duty with legal loopholes, a colloquial term, refers to an imperfection in the law that enables one to comply with the legal letter while simultaneously violating the law's social purpose. For example, a mining regulation prohibits the release of compounds X or Y into the water system. The intent of the regulation is to strike a compromise balancing the social need for mining efficiency with

the social need for pure water. A mining executive discovers a way to combine X and Y into a single compound XY, which is just as damaging to the water system as X or Y standing alone, but it is not legally forbidden.

An executive’s agenda to "comply" with the letter of the law would seem more likely to exploit the loophole rather than an executive who embraced cooperation by informing regulators of the oversight, to change the law. Compliance would permit exploitation of legal loopholes; cooperation forbids it (Ostas). Second, the distinction between compliance and cooperation becomes important when the law is ambiguous. The Americans with Disabilities Act (ADA) requires that an employer make a reasonable accommodation for a qualified individual with an impairment that limits major life activities. Suppose an executive receives a request for an accommodation and discovers that regulatory guidelines and precedents addressing similar cases; the law remains somewhat gray. Given ambiguity, competing interpretations of the law requires or does not require the accommodation.

An executive content with merely complying with the ADA arguably could choose any legally defensible interpretation, including the interpretation that maximized the firm's profits. In contrast, cooperation would require a good faith interpretation attuned to balancing the legitimate goal of firm profitability with the social purposes underlying the ADA; eradicating prejudice against and promoting work opportunities for people with disabilities. In this example, compliance permits pursuit of private interests while cooperation requires a greater attention to social consensus and the democratic aspirations underlying business regulations (Ostas). Finally, the duty to cooperate becomes critical whenever a regulation is not effectively enforced. Sometimes the lack of enforcement is due to an

inadequate commitment of resources. Mexican environmental regulations largely mirror those found in the United States, but the Mexican government does not provide sufficient resources to enforce their own regulations.

Alternatively, under-enforcement occurs from concealment actions by regulated firms. For example, a company may discover that if certain precautions such as entangling the firm's organizational structure in a maze of holding companies and shredding compromising documents; that the chances of detection and conviction of certain regulatory offenses, such as price fixing or insider trading, become negligible. Additionally, under enforcement results from fines being set too low, given the relatively low price paid upon conviction and the relatively large sums earned by violating the law, it is simply cost effective to break the law and pay the fine. In each of these examples, the law is under enforced and cooperating with the law would demand legal obedience even when violating the law is unambiguously cost effective (Ostas). The distinction between compliance and cooperation can be important (Ostas).

Increasingly, corporate stakeholders-including shareholders, employees, analysts, regulators, activists, and labor unions are expressing concern about the extent to which global enterprises practice their social responsibilities. Over the last decade, the field of CSR has grown significantly. Numerous governmental, non-governmental, and advocacy groups have entered the arena and issued standards and reports to address CSR concerns” (Nieuwlands). “For example, in July 2002 the European Commission issued a white paper that calls for a new social and environmental role for businesses in the global economy. On March 25, 2003, the Institute of Social and Ethical Accountability, an international, non-profit, professional institute, launched the AA1000 Assurance Standard to address the credibility and quality of reporting

on social, environmental, and economic performance.

The Business for Social Responsibility, a global non-profit organization provides businesses with information and training on CSR, defines CSR “as achieving commercial success in ways that honor ethical values and respect people, communities, and the natural environment”. Failure to acknowledge the importance of CSR can create high reputation risk. In the past, several multinational corporations were accused of being socially irresponsible. For example, Shell International Ltd for polluting the environment, the Coca-Cola Company for food contamination, and Nike Incorporated for unacceptable working conditions; all have paid the price and have since established CSR plans for their organizations. Social Accountability International (SAI) is another human rights organization dedicated to improving workplaces and communities by developing and implementing socially responsible standards.

Its first fully operational standard, Social Accountability 8000, is a workplace standard that covers all key labor rights and certifies compliance through independent, auditors” (Nieuwlands). “In September 2002, the United Nations (U. N. ) held a World Summit on Sustainable Development in Johannesburg, South Africa. Governments, businesses, and civil society from all over the world agreed on an action plan that, according to U.N. Secretary General Kofi Annan, "will put us on a path that reduces poverty while protecting the environment, a path that works for all peoples- rich, and poor, today and tomorrow” (Nieuwlands).Some targets set at the summit included:

1. By 2015, reduce the proportion of people without access to basic sanitation in half.
2. By 2020 use and produce chemicals, in ways that do not lead to significant adverse effects on human health and the environment.
3. By 2010, achieve a significant reduction in the rate of loss of biological diversity. On
   

May 9 2003, leaders reconvened for a two-week meeting in New York where they established a program and work plan for the next 15 years.For the first two-year cycle (2004-2005), the U. N. 's Commission on Sustainable Development will focus on water, sanitation, and human settlements, followed by energy, climate change, atmosphere, and industrial development issues in the 2006-2007 cycle” (Nieuwlands).

Different views, theories, definitions, and examples of how much and what kind of responsibility corporations owe society were discussed. These cases and examples support the need for corporate responsibility in business.Whether an organization’s decision is purely philanthropic or just good business sense, corporations know that good or bad corporate citizenship can help or hurt their bottom line or very existence as a corporation. Society no longer allows corporations to only seek profits and get away with it.

Even now, the U. S. Congress is investigating the oil companies for price gouging and Enron executives are on trial for all types of corporate fraud. The people in society expect and demand responsibility of organizations. In fact, the law expects it as well.

Corporations are challenged- they must figure out how to best serve stakeholders, society, the environment, and still make profits through their products and services. Society now demands it.

References

1. Cheeseman, Henry R. , Business Law, Legal, E-Commerce, Ethical, and International Environments, Upper Saddle River, New Jersey; Pearson 2006, 155-160. Robbins, Stephen P, and Mary Coulter, Management, Upper Saddle River, New Jersey; Pearson 2005, 100-106. Baker, Mallen, “Arguments against Corporate Social Responsibility” Mallen Baker .
2. net 22 April 2006 <http://www. mallenbaker. et/csr/CSRfiles/against. html> Nieuwlands, Hans, “Heeding the call: more and more, stakeholders are demanding that corporations live up
   

to their social responsibilities and institute practices that value people, communities, and the environment.