Chapter 3

Corporate Social Responsibility

Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Ch. 3: Key Learning Objectives Understanding the role of big business and its responsible

use of corporate power in a democratic society Knowing when the idea of social responsibility originated

and the phases through which it has developed Investigating how a company’s purpose or mission can

integrate social objectives with economic objectives Examining the key arguments for and against corporate

social responsibility Defining a social enterprise and understanding its role in

solving social problems Evaluating business’s social obligations to help the world’s

poorest members Recognizing socially responsible best practices

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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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The Origins of Corporate Social Responsibility In the United States, the idea of corporate social

responsibility appeared around the start of the 20th century

Faced with social protest, a few farsighted business executives advised corporations to use their power and influence voluntarily for broad social purposes rather than for profits alone

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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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The Corporate Social Responsibility Debate

Figure 3.3

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The Social Enterprise

A business that adopts social benefits as its core mission

An organization that uses business strategies for the purpose of improving human and environmental well-being

Its primary purpose is not to maximize returns to shareholders

It can be large and established or small and new

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Social Entrepreneurship

Individuals who—like traditional entrepreneurs—act boldly to pursue opportunities, attract support, and build new organizations to create and sustain social rather than economic value

When a person or group of people identify a social need and use their entrepreneurial skills to address this need, this process is called social entrepreneurship

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The B Corporation

Also called a “benefit corporation” - a new type of corporation that seeks to blend its social objectives with financial goals

A B Corporation must prove its socially responsible by meeting the B Lab standards B Lab is a non-profit organization that assesses a

corporation’s social and environmental performance standards

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Serving the Bottom of the Pyramid The term bottom of the pyramid refers to the poorest

people in the world—nearly 4 billion who earn less than $2.50 per day

Business can carry out its responsibility to society by bringing products and services to these underserved people

Example: Grameen Bank uses microfinance to serve the bottom of the pyramid microfinance occurs when financial organizations provide

loans to low-income clients or solidarity lending groups who traditionally lack access to banking or related services

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