Business ethics decision making for personal integrity and social responsibility 3rd edition hartman by arthur.garcia458

Business Ethics Decision Making for Personal Integrity and Social Responsibility 3rd Edition by

Hartman DesJardins MacDonald ISBN

9780078029455

0078029457

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IM Chapter 5:

Corporate Social Responsibility

Chapter Objectives

After reading this chapter you will be able to:

1. Define corporate social responsibility.

2. Describe and evaluate the economic model of corporate social responsibility (CSR)

3. Distinguish key components of the term responsibility.

4. Describe and evaluate the philanthropic model of corporate social responsibility

5. Describe and evaluate the social web model of corporate social responsibility

6. Describe and evaluate the integrative model of corporate social responsibility

7. Explain the role of reputation management as motivation behind CSR.

8. Evaluate the claims that CSR is “good” for business.

OPENING DECISION POINT

Walmart’s Ethics

On April 21, 2012, The New York Times reported that a six-yer internal investigation by Walmart had uncovered widespread evidence of bribery and corruption within its Mexican operations. The investigation discovered that Walmart employees had paid more than $24 million in bribes to promote the expansion oof its business in Mexico. Furthermore, the Times reported that Walmart executives in Mexico not only were aware of the bibes, but had intentionally hidden them from the Walmart corporate offices in the United States.

More damaging than even the reports of bribery in Mexico, The New York Times report also alleged that when the internal investigation was shared with corporate headquarters, Walmart executives terminated the investigation. Th Times also reported that only upon learning of the newspaper’s own investigation and plans to write a story did Walmart executives notify legal authorities. As a result, the U.S. Justice

Chapter 05 - Corporate Social Responsibility

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Department began an investigation into possible violations of the U.S. Corrupt Foreign Practices Act in 2011.

Few corporations generate as much controversy and have as many vocal critics and defenders as Walmart. Few corporation would generate as much debate as Walmart on the question of corporate social responsibility. Part of this no doubt is due to its sheer size and influence. Walmart is the world’s largest retail business and claims to have more than 200 million customer visits per week at more than 8,100 retail stores in 15 countries. Its total sales for fiscal year 2011 were $418 billion. Worldwide, Walmart employs more than 2.1 million people. It is the largest private employer in both the United States and Mexico, and the single largest employer in 25 separate U.S. states.

In many ways, Walmart is a socially responsible corporation, describing itself as a business that “was built upon a foundation of honesty, respect, fairness and integrity.” What is described as the “Walmart culture” is based on three “basic beliefs” attributed to founder Sam Walton: respect for individuals, service to customers, and striving for excellence. Defenders point out that Walmart is regularly recognized as among the “most admired” companies in Fortune magazine’s annual survey.

By all accounts, Walmart is among the most financially successful companies in the world. Defenders would point out that this economic success itself is social responsibility. Walmart has created immense value for shareholders, consumers, suppliers, and employees. Stockholders – both individual and institutional investors – have received significant financial benefits from Walmart. Consumers also receive financial benefits in the form of low prices, employees benefit from having jobs, many businesses benefit from supplying Walmart with goods and services, and communities benefit from tax-paying corporate citizens.

Beyond these economic benefits, Walmart regularly contributes to community and social causes. The Walmart Foundation,a philanthropic arm of Walmart,is the largest corporate cashcontributor in the United States. For fiscal year 2009, Walmart donated more than $378 million in cash and in-kind gifts to charitable organizations. Walmart contributed more than $45 million to charities outside of the United States, and its in-store contribution programs added another $100 million to local charities. Walmart has focused its charitable giving in areas such as disaster relief, food and hunger programs, and education.

More recently, Walmart began an initiative to promote sustainability both in its own operation and in the products it sells. In 2005, Walmart announced major sustainability goals for its own operations, including becoming more energy efficient, reducing its carbon footprint, reducing wastes and placating, and finding more sustainable sources for its products.

Despite these positive aspects, not everyone agrees that Walmart lives up to high ethical standards. The allegations of widespread bribery in Mexico are only the most recent charges that have been raised against Walmart’s ethical standards. In contrast to Fortune magazine’s claim, critics portray Walmart as among the least admired corporations in the world. Ethical criticisms have been raised against Walmart on behalf of every major constituency – customers, employees, suppliers, competitors, communities – with whom Walmart interacts.

For example, some critics charge that Walmart’s low priced goods, and even their placement within stores, are a ploy to entice customers to purchase more, and higher-priced, goods. Such critics would charge Walmart with deceptive and manipulative pricing and marketing.

But perhaps the greatest ethical criticisms of Walmart have involved treatment of worse. Walmart is well known for its aggressive practices aimed at controlling labor costs. Walmart argues that this is part of its strategy to offer the lowest possible prices to consumers. By controlling labor costs through wages, minimum work hours and high productivity and by keeping unions away, Walmart is able to offer consumers the lowest everyday prices. One of the most infamous cases of employee treatment involved health care benefits.

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In October 2005, The New York Times published a story detailing a Walmart internal memo that outlined various proposals for reducing health care costs paid for Walmart employees. The memo recommended two major areas for action: (1) increase reliance on part-time workers who do not qualify for health care benefits and (2) seek ways to encourage healthier and discourage unhealthy job applicants and employees. The memo also acknowledged long-standing criticism of Walmart’s treatment of its employees and offered suggestions for a public relations strategy that would deflect criticism of these proposed changes.

The memo was written by Susan Chambers, Walmart’s executive vice president for employee benefits, and pointed out that Walmart employees are“gettingsicker thanthenational population, particularlyin obesityrelated diseases,” including diabetes and coronary artery disease. In one passage, Chambers recommended that Walmart arrange for “all jobs to include some physical activity (e.g., all cashiers do some cartgathering)” as a means of deterring unhealthy employees and job applicants. “It will be far easier to attract and retain a healthier work force than it will be to change behavior in an existing one,” the memo said. “these moves would also dissuade unhealthy people from coming to work at Walmart.”

Recognizing that young workers are paid less and require fewer health benefits than older workers, and are equally productive, the memo recommended strategies – including reducing 401(k) contributions and offered education benefits – for attracting younger employees and discouraging older employees. The memo stated “the cost of an associate with seven years of tenure is almost 55 percent more than the cost of an associate with one year of tenure, yet there is no difference in his or her productivity. Moreover, because we pay an associate more in salary and benefits as his or her tenure increases, we are pricing that associate out of the labor market, increasing the likelihood that he or she will stay with Wal-Mart.”

The memo pointed out that 46 percent of the children of Walmart’s 1.33 million U.S. employees were uninsured or on Medicaid. “Wal-Mart’s critics can easily exploit some aspects of our benefits offering to make their case; in other words, our critics are correct in some of their observations. Specifically, our coverage is expensive for low-income families, and Wal-Mart has a significant percentage of associates and their children on public assistance.”

Walmart has also been criticized for paying its workers poverty-level wages. The average annual salary for a Walmart sales associate in 2001 was $13,861, and the average hourly wage was $8.23. For the same year, the U.S. federal poverty level for a family of three was $14,630. Walmart offers health care benefits to fulltime workers but,relativetoother employers,Walmartemployees pay adisproportionately high percentage of the costs. According to critics, these low wages and benefits result in many Walmart employees qualifying for government assistance programs such as food stamps and health care, effectively creating a government subsidy for Walmart’s low wages.

Walmart has also been sued by employees in nine separate U.S. states for illegally requiring employees to work overtime without pay and to work off-the-clock. The U.S. National Labor Relations Board filed suit against Walmart stores inPennsylvaniaand Texas, chargingillegal anti-unionactivities.Maine Department of Labor fined Walmart for violating child labor laws. Walmart has also been sued in Missouri, California, Arkansas, and Arizona for violating the Americans with Disabilities Act.

Walmart employs more women than any other private employer in the United States. Women comprise more than 70 percent of Walmart’s sales associate, but men hold 90 percent of the store manager position. Less than one-third of all managerial positions are held by women, significantly lower than the 56 percent among Walmart competitors Target and K-mart. Only one of the top 20 positions at Walmart is held by a woman. In June 2004, a federal judge in California ruled that a class-action lawsuit could proceed on behalf of all female employees of Walmart, noting that “plaintiffs present largely uncontested descriptive statistics which show that women working at Wal-Mart stores are paid less than men in every region, that pay disparities exist in most job categories, that the salary gap widens over time, that women take longer to enter management positions, and that the higher one looks in the organization, the lower the percentage of women.”

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U.S. federal agents raided 60 Walmart stores in 20 states in October 2003. The raids resulted in arrests of more than 250 illegal aliens who were working as janitors at Walmart stores. All of the workers were employed by third-party subcontractors that Walmart had hired for overnight janitorial services. A lawsuit was filed on behalf of several of these workers, claiming that Walmart knowing employed illegal workers as part of a scheme to pay below minimum wages, deny overtime pay, and otherwise exploit their illegal status.

Many local communities also criticize Walmart as a major factor in the demise of small towns and local businesses. Small retail businesses find it difficult to compete with Walmart’s pricing and marketing strategies, and local communities suffer when Walmart builds giant stores in suburban and rural locations. This not only encourages sprawl and places additional burdens on roads and transportation, it can undermine the local tax base. Further, the loss of local business has a trickle-down effect when local suppliers and professionals such as accountants, lawyers and banks suffer the loss of local business to Walmart’s national and international suppliers. The problem is compounded when Walmart receives tax subsidies and tax breaks offered by local governments hoping to attract a Walmart store.

Walmart’s aggressive strategy to lower costs is also criticized for the harm it can cause suppliers, both nationally and internationally. Walmart has been known to forced suppliers to bid against each other in a type of “reverse auction,” in which suppliers compete to see who can offer their products at the lowest costs. Because Walmart controls such a large market segment, many suppliers cannot survive if Walmart declines to carry their product. This practice has cause some businesses to go out of business, and most others find ways to send production offshore. One result is that Walmart, which promoted a “Buy American” marketing campaign in the 1980’s, is responsible for the loss of uncounted American jobs as American businesses have been forced to outsource their production as the only means available to meet Walmart’s price targets. Finally, Walmart’s suppliers in China, Central America, and Saipan have all been accused of sweatshop conditions in factories manufacturing clothing produced for Walmart.

Students are asked to consider the following questions when reflecting on the issues in this scenario:

• Based on the cases described, how would you describe the managerial philosophy of Walmart? What principles are involved? What are the overriding aims, values, and goals of Walmart?

• How would you decide, in any of the cases mentioned, if Walmart had been acting in a socially responsible way or not? What considerations would help you to decide?

• Does it matter to you, as a potential customer or a potential employee, if Walmart has acted unethically? Why or why not?

• For a corporation as complex as Walmart, with some activities that can be described as unethical and some as ethical, is it ever possible to make a blanket ethical judgment about its operations?

• How might Walmart executives defend their actions after they learned of the bribery in Mexico? Would your judgment change if bribery was a common business practice in Mexico?

I. Introduction

a. This chapter addresses: the nature of Corporate Social Responsibility (CSR) and how firms opt to meet and demonstrate their fulfillment of this perceived responsibility.

i. What Responsibility Does Business Have? At a minimum, it is indisputable that business has a social responsibility to obey the law.

1. Economists might also say that business has a social responsibility to produce the goods and services that society demands.

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2. If a firm fails to meet society’s interests and demands, it will simply fail and go out of business.

ii. We can say that the primary question of CSR is the extent to which business has social responsibilities that go beyond producing goods and services within the law.

*Chapter Objective 1 Discussed Below*

b. Corporate Social Responsibility: Refers to the responsibilities that a business has to the society in which it operates.

i. From an economic perspective, a business is an institution that exists to produce goods andservicesdemandedbysocietyand,byengaginginthisactivity,thebusinesscreates jobs and wealth that benefit society further.

ii. The law has created a form of business called corporations, which limits the liability of individuals for the risks involved in these activities.

*Chapter Objective 2 Discussed Below*

iii. The economic model of CSR, holds that business’ sole duty is to fulfill the economic functions businesses were designed to serve.

1. On this narrow view, the social responsibility of business managers is simply the pursuit of profit within the law.

2. Because profit is an indication that business is efficiently and successfully producing the goods and services that society demands, profit is a direct measure of how well a business firm is meeting its society’s expectations.

3. Corporations are expected to obey the legal mandates established by the society.

4. This economic model of CSR denies that business has any social responsibilities beyond the economic and legal ends for which it was created.

iv. Profit-Based Social Responsibility: Milton Friedman’s 1970 New York Times article “The Social Responsibilityof Business Isto Increase Its Profits” is perhaps best known as an argument for this economic model, or profit-based, social responsibility of business.

1. Friedmandoesnot ignoreethical responsibilityinhisanalysis; hesuggeststhat decision makers are fulfilling their responsibility if they follow their firm’s self-interest in pursuing profit.

2. Friedman explains that a corporate executive has a responsibility to conduct business in accordance with his/her employer’s desires, which generally will be to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.

v. This view of corporate social responsibility has its roots in the utilitarian tradition and in neoclassical economics.

1. As agents of business owners, the contention is that managers do have social responsibilities – their primary responsibility is to pursue maximum profits for shareholders. By pursuing profits, a business manager will allocate resources to their most efficient uses.

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2. Consumers who most value a resource will be willing to pay the most for it; so, profit will continuously work toward the optimal satisfaction of consumer demand which, in one interpretation of utilitarian, is equivalent to maximizing the overall good.

c. Debates concerning CSR start with alternatives to the narrow view expressed by Friedman and others.

i. As alternatives to the economic model, we describe three models that provide a helpful way to understand debates surrounding corporate social responsibility: the philanthropic model, the social web model, and the integrative model.

II. Ethics and Social Responsibility

*Chapter Objective 3 Discussed Below*

a. The words responsible and responsibility are used in several different ways

i. When we say that a business is responsible we might mean that it is reliable or trustworthy.

ii. Asecondmeaningofresponsibleinvolvesattributingsomethingasacauseforanevent or action.

iii. A third sense involves attributing liability or accountability for some event or action creating a responsibility to make things right again

1. For example, that a business is responsible for a polluted river is not only to say that the business caused the pollution but that the business is at fault for it and should be held accountable.

iv. Laws regarding product safety and liability involve many of these meanings of being responsible.

1. When a consumer is injured, for example, a first question is to ask if the productwasresponsiblefortheinjury,inthesenseofhavingcausedtheinjury.

2. For example, several years ago, a controversy developed over the drug Vioxx – some evidence suggested that Vioxx was responsible for causing heart attacksin someusers.Thedebatesthat followedaddressed twoquestions: Was Vioxx the cause of the heart attacks? Was Merck at fault, i.e., should it be held legally liable for the heart attacks?

3. Both ethics and tort law involved the question of liability or fault for causing harm.

*Reference: Figure 5-1 – Responsible and Responsibility

v. It is the sense of responsibility as accountability that is at the heart of CSR. Corporate social responsibility refers to those actions for which a business can be held accountable.

1. We can think of responsibilities as those things that we ought, or should, do even if we would rather not.

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2. Responsibilities bind, or compel, or constrain, or require us to act in certain ways.

3. We can be expected to act in order to fulfill our responsibilities; and we will be held accountable if we do not.

4. To talk about corporate social responsibility is to be concerned with society’s interests that should restrict or bind business’ behavior.

5. Social responsibility is what a business should or ought to do for the sake of society, even if this comes with an economic cost.

vi. Philosophers often distinguish three different levels of responsibilities in this sense on a scale from more to less demanding or binding:

1. The most demanding responsibility is the responsibility not to cause harm to others: often called duty or obligation, obliges us in the strictest sense. For example, a business ought not to sell a product that causes harm to consumers, even if there would be a profit in doing so.

2. The second, less binding, responsibility is to prevent harm even in those cases where one is not the cause. These are so-called good Samaritan

3. Finally, there might be responsibilities to do good, such as volunteering and charitable work.

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vii. Is there a duty not to cause harm?

1. The strongest sense of responsibility is the duty not to cause harm. Even when not explicitly prohibited by law, ethics would demand that we not cause avoidable harm.

2. If a business causes harm to someone and, if that harm could have been avoidedbyexercisingduecareorproper planning,thenboththelawandethics would say that business should be held liable for violating its responsibilities.

3. In practice, this ethical requirement is the type of responsibility established by the precedents of tort law. When it is discovered that a product causes harm, then business can appropriately be prevented from marketing that product and can be held liable for harms caused by it.

a. For example: Businesses are restricted in marketing products that have been proven to cause cancer and other serious medical harms.

viii. Is there a responsibility to prevent harm?

1. There are other cases in which a business is not causing harm, but could easily prevent harm from occurring.

2. A more inclusive understanding of corporate social responsibility would hold that business has a responsibility to prevent harm.

3. Example: Merck’s drug, Mectizan, prevents river blindness, a disease prevalent in tropical nations – infecting between 40 and 100 million people annually. A single tablet of Mectizan administered once a year can relieve the symptoms and prevent the disease from progressing. Mectizan would not be a very profitable drug to bring to market considering the low demand and the target audience being among the poorest people living in the poorest regions of Africa, Asia, Central America and South America. However, in 1987, Merck started a program to provide Mectizan free of charge, forever. Merck’s actions were explained in part of its corporate identity statement: “We are in the business of preserving and improving human life.”

4. Clearly,Merckwasnotresponsibleforcausingriverblindness,thus,according to the standard of CSR, they had no social responsibility, but their executives saw this issue differently. They felt that they did have a social responsibility to prevent a disease easily controlled by their patented drug.

ix. Is there a responsibility to do good?

1. The third, and perhaps most wide-ranging, standard of CSR would hold that business has a social responsibility to do good things and to make society a better place.

2. Corporate philanthropy would be the most obvious case in which business takes on a responsibility to do good.

3. Corporate giving programs to support community projects in the arts, education,andcultureareclearexamples.Somecorporationshaveacharitable foundation or office that deals with such philanthropic programs.

*Reference: “Reality Check – Corporate Philanthropy: How Much Do Corporations Give?”*

4. Many of the debates surrounding corporate social responsibility involve the question of whether business really has a responsibility to support these valuable causes.

5. Some argue that, like all cases of charity, this is something that deserves praise and admiration; but it is not something that every business ought to do.

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6. Others argue that business does have an obligation to support good causes and to “give back” to the community, as a sense of gratitude and thankfulness

something less binding than a legal or contractual obligation, but more than a simple act of charity.

*Reference: “Figure 5.2 – Models of Corporate Social Responsibility”*

*Chapter Objective 4 Discussed Below*

III. Philanthropic Model of CSR

a. As the name suggests, the philanthropic (or philanthropy) model of CSR holds that, like individuals, business is free to contribute to social causes as a matter of philanthropy.

i. Business hasnostrictobligationtocontributetosocialcausesbut it canbeagoodthing when they do so.

1. Just as individuals have no ethical obligation to contribute to charity or to do volunteerworkintheircommunity,businesshasnoethicalobligationstoserve wider social goods.

2. But, just ascharityisa goodthing and somethingthat we all wantto encourage business should be encouraged to contribute to society in ways that go beyond the narrow obligations of law and economics.

3. This is especially common in small, locally-owned businesses where the owners also often play a prominent leadership role within their local community.

ii. There are occasions in which charity work is done because it brings the firm good public relations provides a helpful tax deduction and builds goodwill and a good reputation within a community.

*Reference: “Reality Check – Putting Your Money Where Your Mouth Is?”*

1. Peruse the program at a local art gallery museum theater school event and you will likely see a list of local businesses as donors or sponsors who have contributed to the event. The social contribution is as much an investment as it is a contribution since the business gets recognition and advertising in the program.

iii. There are also cases in which business contributes to social causes without seeking any reputational benefits.

1. Some firms contribute to charity anonymously.

2. Some support causes that have little or no business or financial payoff as a matter of giving back to their communities.

3. One may contend that corporate support for these social causes is done imply because it is the good and right thing to do.

4. Others would suggest that the business has concluded that the society in which the firm does business is a stronger or better one if this particular activity exists.

iv. Situations where a business supports a social cause for the purpose of receiving a business benefit in return are not much different from the economic view of CSR.

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1. In these cases, a business manager exercises managerial discretion in judging the social contribution will have economic benefits.

2. There is a great deal of overlap between decision makers who engage in the philanthropic model for reputational reasons and those who follow the economic view of business’ social responsibilities.

v. The philanthropic model in which business support for a social cause is done simply because it is the right thing to do differs from the reputational version only in terms of the underlying motivation.

1. In one case, the social good is done as a means to economic ends.

2. In the other case, the social good is done as an end in itself.

3. From the perspective of the economic model, only philanthropy done for reputational reasons and financial ends is ethically responsible.

4. From the perspective of the philanthropic model, philanthropy done for financialreasonsisnotfullyethicalandnottrulyanactofsocialresponsibility.

*Chapter Objective 5 Discussed Below*

IV. Social Web Model of CSR

a. The social model of CSR contains a variety of perspectives which all share in common the view that business exists within a web of social relationships.

i. Views business as a citizen of the society in which it operates and, like all members of a society, business must conform to the normal ethical duties and obligations that we all face.

1. Whileproducinggoodsandservicesandcreatingwealthandprofitsareamong business’ responsibilities, they do not trump other ethical responsibilities that equally bind all members of a society.

ii. Philosopher Norman Bowie has defended one version of CSR that would fall within this social web model.

1. Bowie argues that beyond the economic view’s duty to obey the law business has an equally important ethical duty to respect human rights.

2. Respecting human rights is the “moral minimum” that we expect of every person whether they are acting as individuals or within corporate institutions.

3. Bowie identifies his approach as a “Kantian” theory of business ethics. He begins with the distinction between the ethical imperatives to cause no harm to prevent harm and to do good.

a. People have a strong ethical duty to cause no harm, and only a prima facie duty to prevent harm or to do good.

b. The obligation to cause no harm, in Bowie’s view, overrides other ethical considerations.

4. Bowie accepts the economic view that managers are the agents of stockholderowners and thus they also have a duty to further the interests of stockholders.

5. According to Bowie, as long as managers comply with the “moral minimum” and cause no harm, they have a responsibility to maximize profits.

6. Bowie would argue that business has a social responsibility to respect the rights of its employees, even when not specified or required by law.

7. But the contractual duty that managers have to stockholder-owners over-rides the responsibility to prevent harm or to do (philanthropic) good.

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b. Example of a Social Web Model: Stakeholder Theory

i. Stakeholder Theory is perhaps the most influential version of CSR that would fall within the social web model.

1. Stakeholder theory begins with the recognition that every business decision affects a wide variety of people benefiting some and imposing costs on others.

2. Business decisions produce far-ranging consequences to a wide variety of people. Every decision involves the imposition of costs, in the sense that every decision involves opportunities forgone, choices given up.

3. Stakeholder theory recognizes that every business decision imposes costs on someone and mandates that those costs be acknowledged.

4. Any theory of corporate social responsibility must then explain and defend answers to the questions: for whose benefit and at whose costs should the business be managed?

ii. The economic model argues that the firm should be managed for the sole benefit of stockholders. This view is justified by the appeal to the rights of owners, the fiduciary duty of managers, and the social benefits that follow from this arrangement.

iii. Stakeholder theory argues on factual, legal, economic, and ethical grounds that the economic model is an inadequate understanding of business.

1. R. Edward Freeman has offered a defense of the stakeholder model in his essay, “Managing for Stakeholders.” He describes both a narrow and a wider understanding of the concept of a “stakeholder.”

a. In a narrow sense, a stakeholder includes anyone who is vital to the survival and success of the corporation.

b. More widely, a stakeholder could be “a group or individual who can affect or be affected by the corporation.”

2. As a descriptive account of business the classical stakeholder model ignores over a century of legal precedent arising from both case law and legislative enactments.

3. As a matter of law, it is simply false to claim that management can ignore duties to everyone but stockholders.

4. Corporate management must limit their fiduciary duty to stockholders in the name of the rights and interests of various constituencies affected by corporate decisions.

5. Factual, economic considerations also diminish the plausibility of the economic model. The wide variety of market failures in economics show that evenwhenmanagerspursueprofits,therearenoguaranteesthattheywillserve the interests of either stockholders or the public.

iv. The economic model appeals to two fundamental ethical norms for its justification: 1) utilitarian considerations of social well-being; 2) individual rights.

v. The stakeholder theory requires management to balance the ethical interests of all affected parties, much like utilitarianism requires management to consider the consequences of its decisions for the well-being of all affected groups.

1. According to the rights-based ethical framework, the overriding moral imperative is to treat all as ends and never as means only.

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vi. The stakeholder theory argues that a wider “stakeholder” theory of corporate social responsibility is proven ethically superior.

vii. Freeman argues that the “stakeholder” theory does not give primacy to one stakeholder group over another, although there will be times when one group will benefit at the expense of others.

viii. Firms exist in a web of relationships with many stakeholders and these relationships can create a variety of responsibilities. It may not be possible to satisfy the needs of each and every stakeholder in a situation, therefore social responsibility would require decisions to prioritize competing and conflicting responsibilities.

V. Integrative Model of CSR

a. Much of CSR literature assumes a tension between the pursuit of profit and social responsibility. But, there have always been organizations that turn this tension around and pursue social ends as the very core of their mission.

b. There is growing recognition that some for-profit organizations have social goals as a central part of the strategic mission of the organization.

i. In two areas in particular, social entrepreneurship and sustainability, we find forprofit firms that do not assume a tension between profit and social responsibility.

1. The Grameen Bank is one example of the growing movement of social entrepreneurship.

2. Firms that make environmental sustainability as central to their mission, such as Interface Corporation, are an example of sustainability.

*Reference: “Reality Check –“Browsing for Social Good”*

ii. Because these firms bring social goals into the core of their business model and fully integrate economic and social goals, we refer to this as the integrative model of CSR.

1. Even defenders of the narrow economic model of CSR, such as Milton Friedman, would agree that owners of a firm are free to make the pursuit of social goals a part of their business model. They would just disagree that these social goals should be part of every business’s mission.

2. For a clear articulation of arguments surrounding each of the CSR models, see the article “Rethinking the Social Responsibility of Business,” reprinted at the end of this chapter.

iii. Social entrepreneurs demonstrate that profit is not incompatible with doing good, and therefore that one can do good profitably.

*Reference: “Reality Check – Fairness in a Cup of Coffee: Example of the Integrative Model”*

iv. However, there are some who would argue that the ethical responsibilities associated with sustainability are relevant to every business concern.

1. Sustainability offers a model of CSR that suggests that ethical goals should be at the heart of every corporate mission.

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c. The Implicationsof Sustainabilityinthe IntegrativeModel of CSR: As atopicwithin CSR, sustainability holds that a firm’s financial goals must be balanced against and perhaps even overridden by environmental considerations.

i. Defenders of this approach point out that all economic activity exists within a biosphere that supports all life.

ii. They argue that the present model of economics, and especially the macroeconomic goal of economic growth, is already running up against the limits of the biosphere’s capacity to sustain life.

iii. Fundamental human needs for goods such as clean air, water, nutritious food, and a moderate climate are threatened by the present dominant model of economic activity.

1. Fromthisperspectivethesuccessofabusinessmust bejudgednot onlyagainst the financial bottom line of profitability but also against the ecological and social bottoms lines of sustainability.

2. A firm that is financially profitable, but that uses resources at unsustainable rates and that creates wastes at rates that exceed the Earth’s capacity to absorb them is a business or industry that is failing its fundamental social responsibility.

3. A firm that is environmentally unsustainable is also a firm that is financially unsustainable in the long-term.

iv. A business model that ignores the biophysical and ecological context of its activities is a business model doomed to failure.

*Reference: “Reality Check – Will Sustainability Reports Replace the Annual Financial Reports?”*

*Teaching Note: Engage students in a discussion about whether or not they would use a company’s sustainability report to evaluate a company that they were considering working for. Why or why not? Also ask the students whether or not they would use the sustainability report to evaluate the company if they were thinking of investing in it. Again, discuss why they would or would not consider the sustainability report when making this decision.

*Chapter Objective 7 Discussed Below*

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VI. Exploring Enlightened Self-Interest: Does “Good Ethics” Mean “Good Business?”

a. “If business does not serve society, society will not long tolerate our profits, or even our existence.” CSR not only provides benefits to society but it can also benefit an organization by securing its place within a society.

b. But are there other reasons self-interested and economic for a business to engage in socially responsible activities? Can we make a “business case” for CSR? For more on this topic, see Reading 5-3, “The Link Between Competitive Advantage and Corporate Social Responsibility,” by Michael E. Porter and Mark. Kramer.

i. Perhaps the most obvious answer to this question is that CSR can improve a firm’s reputation within a community, which can improve profitability by improving a company’s standing among its stakeholders, including consumers and employees.

ii. Some evidence suggests that employees who are well treated in their work environments may prove more loyal and more effective and productive in their work.

1. Liz Bankowshi director of social missions at Ben & Jerry’s Homemade Ice Cream Company claims that 80 to 90 percent of Ben & Jerry’s employees work there because “they feel they are part of a greater good.”

2. The positive impact on the bottom line, therefore, stems from customer preference and employee preference.

iii. The problem with a focus on reputation, however, is that social responsibility can then become merely social marketing.

iv. A firm may use the image of social responsibility to garner customer support or employee loyalty while the facts do not evidence a true commitment.

1. Paul Hawken cofounder of Smith & Hawken gardeningstores and an advocate ofbusinesssocial responsibilityremindsusthat:“[y]ouseetobacco companies subsidizing the arts then later you find out that there are internal memos showing that they wanted to specifically target the minorities in the arts because they want to get minorities to smoke. That’s not socially responsible. It’s using social perception as a way to aggrandize or further one’s own interests exclusively.”

2. Procter & Gamble Co. was harshly criticized by respondents to a survey seekingtorankfirmsonthebasis oftheircorporatephilanthropy.Respondents contended that P&G did “absolutely nothing to help” after the September 11 tragedy. However in truth P&G provided more than $2.5 million in cash and products but simply did not publicize that contribution.

c. Reputation Management: practice of caring for the “image” of a firm.

i. There is nothing inherently wrong with managing a firm’s reputation but observers might 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!

*Reference: “Figure 5-3 – The Construction of Corporate Reputation”

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1. If a firm creates a good image for itself it builds a type of trust bank consumers or other stakeholders seem to give it some slack if they then hear something negative about the firm.

2. Similarly if a firm has a negative image that image may stick regardless of what good the corporation may do.

3. Plato explored this issue when he asked whether one would rather be an unethical person with a good reputation or an ethical person with a reputation forinjustice.Youmayfindthatifgiventhechoicebetweenthetwo,companies are far more likely to survive under the first conception than under the second.

*Reference: “Reality Check – “Enron and BP as ‘Most Admired’”*

ii. Check out the perspectives of various consumer and advocacy groups in connection with well-known businesses at any of the following web sites:

• www.ihatestarbucks.com

• www.starbucked.com

iii. In some ways, reputation may often be more forceful than reality.

1. For example: Shell Oil has publicized its efforts toward good citizenship in Nigeria;butithasanunfortunaterecordinterms ofitsresponsivenesstospills, and itscommunity development projects havecreatedcommunityriftsin areas around oilfields.

iv. Is good ethics also good business? The larger question involves the possible correlation between profits and ethics.

1. One important justification offered for CSR, what is often called enlightened self-interest, presumes that it is or at least it can be.

2. Theoristscontinuetodisputewhetherethicaldecisionsleadtomoresignificant profits than unethical decisions.

3. While we are all familiar with examples of unethical decisions leading to high profitsthereisgeneral agreementthat inthelongrunethicspaysoff. However, the measurement of that payoff is a challenge and sometimes the long-term value is not as evident or obvious.

*Chapter Objective 8 Discussed Below*

d. Is there a business case for a return on investment from ethics?

i. There is evidence that good ethics is good business; yet the dominant thinking is that if it cannot be measured, it is not important. As a result, efforts have been made to measure the bottom-line impact of ethical decision making.

ii. Measurement is critical because the business case is not without its detractors. For example, David Vogel, a political science professor at Berkeley, contends that while there is a market for firms with strong CSR missions, it is a niche market and one that therefore caters to only a small group of consumers or investors.

1. Vogel argues that CSR should be perceived as one option for a business strategy that might be appropriate for certain types of firms under certain types of conditions, such as well-known brand names whose reputations are subject to threats by activists.

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2. He warns of the exposure a firm might suffer if it does not live up to its CSR promises.

3. Vogel also cautions against investing in CSR when consumers are not willing to pay higher prices to support that investment.

4. While this argument is persuasive, research suggests the contrary to be true on numerous counts, most predominantly, the overall return on investment to the company.

iii. Evidence of Impact: A recent study entitled “Developing Value: The Business Case for Sustainability in Emerging Markets,” provides evidence that in emerging markets, cost savings, productivity improvement, revenue growth, and access to markets were the most important business benefits of sustainability activities.

1. Environmental process improvements and human resource management were the most significant areas of sustainability activities.

2. The report concludes that it does pay for businesses in emerging markets to pursue a wider role in environmental and social issues, citing cost reductions productivity revenue growth and market access as areas of greatest return for multinational enterprises (MNEs).

e. Outcomes to Ethics Programs: Studies have found a number of expected and measurable outcomes to ethics programs in organizations.

i. Some people look to the end results of the firms that have placed ethics and social responsibility at the forefront of their activities, while others look at the firms that have been successful and try to determine the role that ethics may have played in that success.

*Reference: “Reality Check - So They Say”*

ii. Quantifiable measurements can perhaps serve as proxies for success, to some extent, or at least would be unlikely to occur in a company permeated by ethical lapses.

iii. Link to Financial Performance? Professors Stephen Erfle and Michael Frantantuono found that firmsthat were ranked highest interms of their records on a variety of social issues (including: charitable contributions, community outreach programs, environmental performance, advancement of women, and promotion of minorities) had greater financial performance as well.

iv. Another study by Murphy and Verschoor found that the overall financial performance of the 2001 Business Ethics magazine Best Corporate Citizens was significantly better than that of the remaining companies in the S&P 500 index based on the 2001 Business Week ranking of total financial performance.

1. The researchers also found that these same firms had a significantly better reputation among corporate directors, security analysts, and senior executives.

2. The same result was found in a 2001 Fortune survey of Most Admired Companies.

3. The UK-based Institute of Business Ethics did a follow-up study to validate these findings and found that from the perspectives of economic value added, market value added, and the price-earnings ratio, those companies that had a code of conduct outperformed those that did not over a five-year period.

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4. The higher performance translated into significantly more economic value added, a less volatile price/earnings ratio, and 18% higher profit/turnover ratios.

5. This study “gives credence to the assertion that ‘you do business ethically because it pays.’”

f. Does a Social Responsibility of Business Exist?

i. The responsibility may be based in a concept of good corporate citizenship, a social contract, or enlightened self-interest.

ii. It is impossible to engage in business today without addressing CSR.

iii. Despite substantial differences among companies, research demonstrates that almost all companies will confront CSR issues from stakeholders at some point in the near future.

*Reference: Opening Decision Point Revisited – Walmart’s Ethics*

• This Decision Point explains that more damaging than the reports of bribery in Mexico, The New York Times report also alleged that when the internal investigation was shared with corporate headquarters, Walmart executives terminated the investigation. The Times reported that only upon learning of the newspaper’s own investigation and plans to write a story, did Walmart executives notify legal authorities. As a result, the United States Justice Department began an investigation of possible violations of the U.S. Corrupt Foreign Practices Act in 2011.

o How does the fact that Walmart’s corporate executives knew of the bribery in Mexico change any judgments you made in the Opening Decision Point?

o How might those executives defend their actions? Suppose bribery was a common business practice in Mexico?

• In a famous essay on corporate social responsibility, economist Milton Friedman claimed that “[f]ew trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.”

o How would you judge the business practices of Walmart in light of this quote from Friedman?

End of Chapter Questions Projects and Exercises

1. What is your overall perspective on CSR after reviewing this chapter? If market forces do not encourage responsibility for social causes should a firm engage in this behavior? Does social responsibility apply only to firms or do consumers have a responsibility as well to support firms that take socially responsible action and withhold our support from firms that fail to exhibit socially responsible behavior? If we stand by and allow irresponsible actions to take place using profits made on our purchases do we bear any responsibility?

• How did you reach your decision? What key facts do you need to know in order to judge a firm’s actions or your complicity in them by supporting a firm with your purchases or other choices?

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• How do you determine responsibility? Do you pay attention to these issues in your purchases and other choices?

• Would you be more likely to support a company by purchasing its products or services if the company (a) donated a portion of the proceeds to a cause that was important to you; (b) paid its workers a “fair” wage (however you would define that concept); or (c) was a good investment for its stockholders? Which consequence is more influential to you? On the contrary would you refrain from purchasing from a firm that failed in any of those areas?

• How do the alternatives compare? Do you believe different purchasing decisions by consumers could really make a difference?

To stimulate discussion, refer students to the concept of corporate social responsibility.

2. Which of the four models of CSR is most persuasive to you and why? Which do you believe is most prevalent among companies that engage in CSR efforts?

Students should refer to the four models of CSR that are defined in the chapter (Economic, Philanthropic, Social Web, and Integrative).

3. This chapter has asked in several ways whether the social responsibility of the companies you patronize has ever made any difference to your purchasing decisions. Will it make any difference in the future as a result of what you have learned? Consider your last three largest purchases. Go to the websites of the companies that manufacture the products you bought and explore those firms’ social responsibility efforts. Are they more or less than what you expected? Do your findings make a difference to you in terms of how you feel about these firms your purchases and/or the amount of money you spent on these items?

For those students who have not found websites prior to class discussion here are a few examples that can be used:

• McDonald’s “Values in Action” Page: http://www.mcdonalds.com/us/en/our_story/values_in_action.html

• Nike’s “Responsibility” Page: http://www.nikeinc.com/pages/responsibility

• Adidas’s “Sustainability” Page: http://www.adidasgroup.com/en/sustainability/welcome.aspx

• Dell’s “Corporate Responsibility” Page: http://content.dell.com/us/en/corp/cr.aspx?c=us&l=en&s=corp&~ck=mn

4. One of the leading figures in the Enron debacle was company founder Kenneth Lay who died in mid2006 after his conviction for fraud and conspiracy but before he began serving his sentence. Prior to the events that led to the trial and conviction Lay was viewed in Houston as one of its “genuine heroes” andEnronwasa“shining beacon”accordingtoaprofessorat RiceUniversityinHouston. TheHouston Astros’ field was named after Enron when the company gave the Astros a large grant. Enron also gave money to local organizations such as the ballet and national organizations based in Houston such as United Way. The Lays individually supported Houston's opera and ballet its Holocaust Museum the University of Texas MD Anderson Cancer Center and other charitable organizations. If you were on the jury would any of this information be relevant to your decision about Mr. Lay’s guilt or innocence? If your jury had determined that Mr. Lay was guilty would any of this information be relevant to your decision aboutthe sentenceyou would then impose? Defend your decision from anethical perspective.

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Though Lay is often portrayed in the media as a wrongdoer he was more of a do-gooder in Houston society at one time. This question asks whether that should have been at all relevant to his later sentencing. To learn more you may wish to direct students to a few articles that described the history of the “fallen hero”:

• 60 Minutes Interview:

http://www.cbsnews.com/stories/2005/03/11/60minutes/main679706.shtml

• BBC News: http://news.bbc.co.uk/1/hi/business/1779445.stm

• And just for kicks an article that argues that Ken Lay wasn’t such a bad guy after all (at least not when you compare him to some really worse white collar criminals out there): http://www.mises.org/story/2210

5. In 2005 Nestlé S.A. CEO Peter Braeck-Letmathe explained “Companies shouldn’t feel obligated to ‘give back’ to communities because they haven’t taken anything away. Companies should only pursue charitableendeavorswiththeunderlyingintentionofmakingmoney. Itisnotourmoneywe’rehanding out but our investors’. A company’s obligation is simply to create jobs and make products. What the hell have we taken away from society by being a successful company that employs people?” Which model of CSR would the Nestlé CEO advocate and do you agree with his assessment?

Refer students to the pages mentioned in question 2 discussing the three models of CSR.

6. Supermodel Kate Moss appeared in photos in a number of tabloid magazines and elsewhere using illegal drugs. Subsequent to the appearance of the photographs several of her clients including Chanel H&M and Burberry cancelled their contracts (some only temporarily) with her or determined that they would not renew them when they became eligible for renewal. Other clients opted to retain her services preferring to “stand by her” during this ordeal. Ms. Moss issued a statement that she had checked herself into a rehabilitation center for assistance with her drug use. Assume that you are the marketing vice president for a major global fashion label that is a current client of Ms. Moss at the time of these events. Use the ethical decision-making process to evaluate how to respond to the situation. What is your decision on what to do?

An article on Kate Moss attached to this chapter as Appendix A will help in guiding student discussion.

7. What kind of organization would you like to work for? What would be the best? What would be the most realistic? Think about its structure physical environment lines of communication treatment of employees recruitment and promotion practices policies towards the community and so on. Consider also however what you lose because of some of these benefits (for example if the company contributes in the community or offers more benefits for employees there might be less money for raises.)

Discuss trade-offs. Link the costs and benefits (utilitarianism) to the value of what the firm is doing (universalism).

8. Take another look at the quote earlier in this chapter by Paul Hawken. He seems to be saying that it is not acceptable to use social perception as a way to further one's own interests (exclusively). Now find the Smith & Hawken site on the Web and any additional information you can locate regarding Smith & Hawken or Paul Hawken and CSR. Would you identify Smith & Hawken as a firm interested in CSR? Would you identify Mr. Hawken as an individual interested in CSR or personal social responsibility? Which model of CSR would you suggest that Mr. Hawken supports?

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Students canlookat theweb site www.paulhawken.com toread about Paul Hawkenand hiswork starting ecological businesses, writing about the impact of commerce on living systems, and consulting with heads of state and CEOs on economic development, industrial ecology, and environmental policy. In addition, refer students to the models of CSR in this chapter.

9. Given the significant financial power that a retailer and sponsor like Nike can have in the sports world does it have any obligation to use that power to do good in connection with its particular industry? A 2006 New York Times article“CoachesLikeGrahamStillHaveTheirSponsors”suggestedthat “(m)ore than television packages more than attendance at the gate track and field is driven by shoe company dough. Nike could if it chose threaten to pull its financial support from the coaches and trainers of athletes who are barred for doping violations. For years the caretakers of the athletes have also been suspected as the dopingpushers.Curiously Nikehasn'tfalleninline witheveryoneelse callingfor strict liability among coaches trainers and athletes.” The article instead suggests that Nike does not benefit when a star falls from glory so it tends to shy away from this area of oversight. In fact it goes so far as to say that “Nike is the doping society's enabler.” Can you make the argument that Nike has an obligation to intervene? Or if you do not agree with an argument for its responsibility to do good could you instead make an economic argument in favor of intervention?

Lead students in a discussion of the ethical and moral obligations (or lack thereof) of the shoe companies that sponsor athletes who have been accused of or charged with doping violations.

10. Make a list of the five products on which you have spent the most money over the past three years. Using the Internet, find corporate sustainability reports for the companies that produced those products or that had some responsibility in their production. Are you able to find a sustainability report for each company? What can you determine about the company’s sustainability efforts by reviewing these reports? Can you determine anything about their sincerity? Do you perceive that the company is undergoing a fundamental transformation in its efforts to sustainability, or does it seem more a matter of window-dressing (or, in other words, for the sole purpose of reputation)?

Lead students in a discussion of whether consumers should learn more about which companies produce sustainability reports and the contents of those reports before deciding where to spend theirmoney.Discusswhetherornotitmattersifthecompanyissincereinitssustainabilityefforts - why or why not?

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Chapter 5 Readings

Main Points and Summaries

Reading 5-1

“Rethinking the Social Responsibility of Business: A Reason Debate Featuring Milton Friedman Whole Foods’ John Mackey and Cypress Semiconductor’s T.J. Rogers”

Main Points

• This article examines the views of Milton Friedman John Mackey and T.J. Rogers and provides their responses to one another in a debate over the social responsibility of businesses.

• Milton Friedman’s perspective is that the social responsibility of business is to increase its profits.

• John Mackey disagrees with Friedman believing that this view is too narrow a description of his and many others businesses’ socially responsible activities.

• T.J. Rodgers argues that corporations add far more to society by maximizing “long term shareholder value” than they do by donating time and money to charity.

• Mackey starts out the conversation by disagreeing with Friedman’s assertion that the only social responsibility of business is to use its resources and engage in activities designed to increase profits.

• Mackey believes that in the customer-centered business customer happiness is an end in itself and will be pursued with greater interest passion and empathy than that of which the profit-centered business is capable.

• Friedman believes that he and Mackey are essentially in agreement and that Whole Foods behaves in accordance with his own principles of social responsibility outlined in his notable 1970 New York Times article.

• Rodgers disagrees completely with Mackey’s arguments and believes that Mackey tries to negate the empirically demonstrated social benefit of “self-interest” by defining it very narrowly. Rodgers defends the behavior of his own firm as that of true market capitalism.

• Mackey’s response to Friedman is that he does not agree with his perspective and that his company was not created solely to maximize profits for its investors but to create value for all of its stakeholders.

• Mackey defends himself in the face of Rodgers’ attack and argues that Whole Foods’ way of doing business will eventually trump Rodgers’ profit-maximizing ways

Summary

This article examines the views of Friedman Mackey and Rogers and provides their responses to one another in a debate over the social responsibility of businesses. Friedman’s perspective is that the social responsibility of business isto increaseits profits. He has no patienceforcapitalistswho claim that business has a social conscience and takes seriously its responsibilities for providing employment eliminating discrimination avoiding pollution and any other socially responsible actions. John Mackey disagrees with Friedman believing that this view is too narrow a description of his and many others businesses’ activities. He arguesthat Friedman’s take woefully undersellsthehumanitarian dimension ofcapitalism. T.J. Rodgers argues that corporations add far more to society by maximizing “long term shareholder value” than they do by donating time and money to charity.

Mackey starts out the conversation by disagreeing with Friedman’s assertion that the only social responsibility of business is to use its resources and engage in activities designed to increase profits. He argues that maximizing profits is the purpose of business from an investor’s perspective but for other stakeholders the purpose will be defined differently according to that individual’s own needs and desires. Hebelievesthatinthecustomer-centeredbusinesscustomerhappinessisanendinitselfandwillbepursued

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with greater interest passion and empathy than the profit-centered business is capable of. Mackey notes that a certain amount of corporate philanthropy is simply good business and works for the long-term benefit of the investors but he believes in finding an appropriate balance between doing what is best for society and doing what is best for the company (financially speaking).

Friedman believes that he and Mackey are essentially in agreement and that Whole Foods behaves in accordance with his principles of social responsibility. He explains that his statement that “the social responsibility of business is to increase its profits” and Mackey’s statement that “the enlightened corporation should try to create value for all of its constituencies” are equivalent. Rodgers disagrees completely with Mackey stating that his article “attacking corporate profit maximization could not have been written by a ‘free market libertarian’ as claimed.” Rodgers attacks Mackey’s arguments and defends the behavior of his own firm as that of true market capitalism. Rodgers resents the suggestion that he is an egocentric child because he refused on moral grounds to embrace the philosophies of collectivism and altruism that he believes have caused much human misery.

Mackey responds to Friedman stating that he does not agree with Friedman’s perspective and that his company was not created solely to maximize profits for its investors but to create value for all of its stakeholders. He responds to Rodgers’ statements by disagreeing completely with Rodgers’ view of him and Whole Foods. Mackey defends himself and his company and argues that his way of doing business will eventually trump Rodgers’ profit-maximizing ways.

Reading 5-2

“BP and Corporate Social Responsibility,” by

Main Points

Chris McDonald

• In this article, Chris MacDonald argues that the term “CSR” or “Corporate Social Responsibility” is misleading, at least if the term CSR is thought of, as it often is, as referring to the full range of ethical issues in business.

• Too many people use the term “CSR” when they actually want to talk about basic business ethics issues like honesty or product safety or workplace health and safety – things that are not, in any clear way at least, matters of a company’s social responsibilities.

• Many businesses, including some very large and important ones, are not corporations, so the word “corporate” does not fit. Also, many important ethical issues are not “social” issues, since things like employee rights are about an individual, not all of society. In addition, the word “responsibility” does not come close to summing up all of the ethical questions that apply to individuals and organizations in the world of business.

• MacDonald provides the example of the 2010 BP Deepwater Horizon explosion and oil spill, which raises genuine CSR questions related to BP’s corporate, social, responsibility and demonstrates how to keep the term “CSR” narrow enough to retain some real meaning.

• There are a wide range of basic ethical obligations that a company like BP has to identifiable individuals, such as individual customers, employees and shareholders – none of which are “social” obligations in the strict sense of the word.

• However, BP did violate its social responsibilities when its deep-water drilling operations and resulting oil spill imposed risks, and eventually costs, on American society as a whole.

• All businesses emit some pollution (either directly, or indirectly via the things they consume) and all businesses impose at least some risks on non-consenting third parties. So, the question of CSR really has to do with the magnitude of those risks and the extent to which a company is morally responsible for those effects. And possibly, the extent to which companies have an obligation not

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to just avoid social harms, but also an obligation to contribute socially, beyond just making a product that people value.

• In BP’s case, the risks implied by the basic oil exploration and extraction practices are ones that society implicitly consents to, and so those risks can’t plausibly be seen as violating BP’s basic social responsibilities. The risks implied by the specific behaviors of BP and its employees, however, are what pushed the level of risk beyond what is socially acceptable.

Reading 5-3

“The Link Between Competitive Advantage and Corporate Social Responsibility,” by Michael E. Porter and Mark. Kramer

Main Points

• In this article, Michael Porter and Mark Kramer explain how CSR can be more than a cost, a constraint or a charitable deed – it can be a source of opportunity, innovation and competitive advantage.

• Many companies have awoken to the need for CSR only after being surprised by public responses to issues they had not previously thought were part of their business responsibilities.

• Proponents of CSR have used four main arguments to make their case about business’ responsibilities: (1) moral obligation, (2) sustainability, (3) license to operate, and (4) reputation

• The moral appeal is that companies have a duty to be good citizens and “do the right thing;” sustainability emphasizes environmental and community stewardship; the notion of license to operate derives from the fact that every company needs tacit or explicit permission from governments, communities, and numerous other stakeholders to do business; reputation is used by many companies to justify CSR initiatives on the grounds that they will improve a company’s image, strengthen its brand, enliven morale, and raise the value of its stock.

• These arguments focus on the tension between business and society, rather than emphasizing their interdependence.

• To advance CSR, it must be rooted in a broad understanding of the interrelationship between a corporation and society, while at the same time anchored in the strategies and activities of specific companies.

• Often CSR practices and initiatives are disconnected from the company’s strategy and don’t make any meaningful social impact or strengthen the firm’s long-term competitiveness.

• Business and society are interdependent - successful companies need a healthy society and a healthy society needs successful companies. Both business decisions and social policies must follow the principle of shared value; choices must benefit both sides.

• Competitive context can be divided into four broad areas: 1) quantity and quality of available business inputs, 2) rules and incentives that govern competition, 3) the size and sophistication of local demand, and 4) the local availability of supporting industries. Any and all of these aspects of context can be opportunities for CSR initiatives.

• Each company must select issues that intersect with its particular business – the essential test that should guide CSR is not whether a cause is worthy, but whether it presents an opportunity to create shared value.

• PorterandKramersuggestthatthesocialissuesaffectingacompanyfallintothreecategorieswhich distinguish between the many worthy causes with the narrower set of social issues that are both important and strategic for business: 1) generic social issues, 2) value chain social impacts, and 3) social dimensions of competitive context

• Example: the AIDS pandemic in Africa may be a general social issue for a U.S. retailer like Home Depot, a value chain impact for a pharmaceutical company like GlaxoSmithKline, and a competitive context issue foraminingcompanylikeAngloAmerican,whichdependsonlocal labor in Africa for its operations.

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• Porter and Kramer assert that it is through strategic CSR that a company will make the most significant social impact and reap the greatest business benefits.

• Responsive CSR is comprised of acting as a good corporate citizen, attuned to the evolving social concerns of stakeholders and mitigating existing or anticipated adverse effects from business activities, usually through reporting.

• Strategic CSR moves beyond good corporate citizenship and mitigating harmful value chain impacts to mount a small number of initiatives whose social and business benefits are large and distinctive. It is here that opportunities for shared value truly lie.

• The most strategic CSR occurs when a company adds a social dimension to its value proposition, making social impact integral to the overall strategy. Whole Foodsis a great example ofthis: nearly everyaspect of the company’s value chain reinforces the social dimensions of its value proposition, distinguishing Whole Foods from its competitors.

• Porter and Kramer assert that companies must shift from a fragmented, defensive posture to an integrated affirmative approach to CSR, viewing the creation of shared value as a long-term investment in their future competitiveness.

Reading 5-4

“The Case Against Corporate Social Responsibility,” by Aneel Karnani

Main Points

• In this article, Aneel Karnani argues that the idea that companies have a responsibility to act in the public interest and will profit from doing so is fundamentally flawed.

• In cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: companies that simply do everything they can to boost profits will end up increasing social welfare.

• In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective because executives are unlikely to act voluntarily in the public interest and against shareholder interests.

• When profits and social welfare are in synch, it is the relentless maximization of profits, not a commitment to social responsibility, which has proven to be a boon to the public.

• In most cases, doing what’s best for society means sacrificing profits – if this were not true, most of society’s pervasive and persistent problems (like pollution and poverty) would have been solved long ago by companies seeking to maximize their profits.

• Business executives are hired to maximize profits and that is their responsibility to the company’s shareholders, so you should not necessarily expect that companies will engage in CSR.

• The movement for CSR is in direct opposition to the movement for better corporate governance, which is one of the reasons that many companies talk a lot about social responsibility but don’t actually do anything about it – a tactic known as “greenwashing.”

• For private companies, the situation is completely different becausethe decision todiminish profits to enhance social welfare is not being imposed on shareholders.

• While companies should not be left free to pursue the greatest possible profits without regard for social consequences, appeals to CSR are not the most effective way to strike a balance between profits and the public good.

• According to Karnani, government regulation is the ultimate solution, since governments are a more effective protector of the public good than any campaign for CSR. However, government regulation is not without its faults,including high costs, inefficiency, negativeinfluence of industry groups, or outright government corruption.

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• Civil society also plays a role in constraining corporate behavior that reduces social welfare, acting as a watchdog and advocate. Various non-profits can provide a voice for a wide variety of social, political, environmental, ethnic, cultural and community interests.

• Self-regulation is another alternative, but companies are unlikely to voluntarily act in the public interest at the expense of shareholder interests.

• In the end, social responsibility is a financial calculation for executives and the only sure way to influence corporate decision making is to impose an unacceptable cost – such as regulatory mandates, taxes, punitive fines, and public embarrassment – on social unacceptable behavior.

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APPENDIX A

October 2005

KATE MOSS - A MODEL FOR Corporate Social Responsibility (CSR)?

By Ivor Hopkins Director MHC International Ltd.

1. Background:

Kate Moss a Super Model isfilmed recently ona mobile'phone apparentlysnortingcocainein the company of her singer boyfriend (and others): a picture of this makes its way to the front page of The Daily Mirror a British tabloid. Her clients major fashion houses like Chanel H&M and Burberry either cancel their contracts with her or state that they will not be renewing them. Her reputation is badly tarnished and she makes a public apology. With the authorities now interested in her possession of illegal substances and questions being raised about her suitability as the single mother of a two year old she states that she takes complete responsibility for her actions and checks into a rehabilitation clinic in the US.

"DRUGGIE KATE'S A MODEL IDIOT" screams Carole Malone in The Sunday Mirror:

She doesn't think she's sick - she thinks she's the coolest chick on the planet. She believes that even though she's off her head most nights she's still totally in control. She even believes that after threeday benders where she passes out in her own vomit she can still juggle her multi- million contracts with A-list companies like Chanel Burberry and Dior. Which just shows what a deluded little fool she has become. Does Moss actually believe pictures of her snorting big fat lines of coke and stumbling out of hotel rooms looking wrecked is the kind of image Chanel wants to promote its products? When they signed her up they bought an icon not the out-of- control idiot she is now.[1]

Myinitialreactiontothebreakingstorywassimilar: shehasgonetoofarbrokenthelawandthesubsequent loss of her contracts really does serve her right. The Observer though gave me a different angle:

In the ongoing tabloid-led witch-hunt it is worth remembering that the Myth of Moss was created and sustained by us – the media and the public – and that she is an icon because we made her one. No matter how much we might have willed it though she was never a role model in the accepted sense. Burberry knew that. Chanel knew that. Rimmel knew that. They hired her for her edge and her outlaw cool as much as for her good looks and her sex kitten allure. In short they too bought into the Myth of Moss in all its chemical potency.[2]

Further when you then know that her biography is entitled Kate Moss: Model of Imperfection[3] then you can see that double standards are at work here which puts the response of the main companies she worked for as well as the response from the media in a different light.

Would things have turned out differently for Kate Moss if Corporate Social Responsibility had been at play? And if CSR principles are brought to bear on the main players in this sorry drama is there anything that we can learn from it? Using Michael Hopkins' definition of CSR that "CSR is the integration of business operations and values whereby the interests of all stakeholders including customers employees investors the community and the environment are reflected in the company's policies and actions[4]" let's have a look at the key players in turn:

o the companies who pay to support and use Kate Moss' beauty and celebrity status;

o the print media who report and comment on stories like this;

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o Government legislation which makes cocaine illegal;

o consumers like us of both fashion and the news;

o Kate Moss the Fashion Icon with feet of clay.

2. The Fashion Companies

H&M cancelled its contract with Kate Moss. The company has a code of conduct which supports the fight against drugs through Mentor and has a CSR Report 2005 that states in the communication and marketing section:

The models portrayed in our advertisements should be healthy and wholesome. H&M actively chooses not to work with models who are too young or too thin or models suffering from eating disorders or drug or alcohol abuse.

This is a clear statement and they made a clear decision. The only niggle that I have is that given Kate Moss' history and wild child image why did they hire her as a face in the first place?

Burberry Group PLC is one of a group of companies owned by GUS who have a CR Report for 2005 although it is not specific to Burberry and not mentioned on the Burberry website. In the GUS CR Report 2005 they mentionthe importance of "sharing aset of valuesthat mean something to us" but I could not find a list or further exploration of these values. They are obviously following a CSR strategy so their decision on Kate Moss would seem to make sense.

Chanel: is a privately owned company and I could find no reference to any CSR activity codes of ethics or codes of values. An image that is highlighted on their website is the camelia which is underlined as havingradianceandpuritysothisissomethingofaclue. Inthemediatheystatedthattheyarenotextending their contract with Kate Moss but were careful to point out that this was unrelated to drugs. In an interview with the German weekly magazine Focus Karl Lagerfeld Chanel's chief designer is in a very gentlemanly way protective of Kate Moss:

Personally I am very sorry about this affair. Kate is a victim of her success her style and of her timelessly modern uniqueness. She never said she would be a paragon of virtue….Kate simply has more courage is freer more open and more spontaneous than the others[5]

Rimmel (Coty Beauty): Kate Moss is very much their cosmetic face as their website shows and the information states:

The instinctive understanding between Kate Moss & Rimmel has evolved into one of beauty's most potent partnerships

This means that they have a much more difficult business decision: In light of this statement and Kate's determination to address these issues Coty Beauty is currently reviewing its relationship with her and will continue to do so read the company's statement. "We would like to express our support for all those who undertake the often difficult process of overcoming their problems" it added.[6]

That they are supportive of someone in a difficult personal situation speaks well for the company. In the absence though of any obvious guidance or sets of values they might be well advised to address this. A start would be to use the Texas Instruments Ethics Quick Test[7]:

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Is the action legal?

Does it comply with our values

If you do it will you feel bad?

How will it look in the newspapers?

If you know it is wrong don't do it!

If you are not sure ask

Keep asking until you get an answer

And any CEO that embraces CSR as a whole will have a healthy conscience and a good reputation.

3. The media

The Sunday Mirror was especially virulent about Kate Moss: is this what their shareholders wanted given failed legal action against Moss in the 90s or is it a standard reaction that they know will appeal to their readers? Carole Malone (also quoted above) does flag up the need for responsibility but prefers to deal with drug abuse in an "out of sight out of mind" way rather than pronounce upon it because her real target is Kate Moss:

Someone asked me this week whether I expected our icons to be perfect. The answer of course is no. However I do believe people who are icons - either by choice or because it's been thrust upon them (together with a multi-million-pound pay- packet) have a duty to the legions of young people who look up to them. Yes Kate Moss should be allowed to blow her head off with crack cocainebut not as long as she's making money out of her image. Because there's a responsibility that goes with that and you pee over it at your peril.

In contrast the other print media I consulted - Der Spiegel and Focus (German quality weeklies) and The Observer (UK Sunday broadsheet) were much more measured in their approaches. This is partly to be explained by the fact that there is not so much national interest in Kate Moss in the German mags and because they are all more highbrow.

She was the face of the Nineties in which she threw the rules of the fashion world on its head. What she lacked in legs and bosom was forgotten in her look. This was cool but vulnerable headstrong but concerned empty with boredom but still on the case. Earlier rockstars sang "Walk on the wild side:" Kate Moss strode for Versace and Dolce & Gabbana along the precipice where far below dangers lurked - amongst them cocaine. Only the drug was not seen in the glossy adverts[8] .

Certainly these last three titles showed more responsibility in their balanced articles but having said that it wastheMirror Group'sin-your-facereportingthat put thisstory -aboutanillegal act -inthepublicdomain in the first place. Maybe they could turn their crusading methods onto other more worthwhile targets: that will be an area for discussion at MHC International Ltd's Masterclass on CSR and the Media in London on the 26th October 2005!

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One area the Mirror Group as well as the other titles could turn their attention to is the knotty subject of hard drugs. Cocaine is 150 years old and has been illegal around the world since the beginning of the last century except for legitimate medical or governmental use. Yet in the UK 475000 people regularly use the drug recreationally. Colombian Nobel Prize winning writer and thinker Gabriel Garcia Marquez has amongst others stated[9] that the legalisation of cocaine would stop the misery both in his home country and in poor housing estates in the UK.. And further he cannot see an end to the civil war in Colombia as long as the illegal drug trade exists.

The UK Government would be able to tax revenues that otherwise line the pockets of drug traffickers and we as responsible adult citizens would be free to choose cocaine alongside other recreational addictive and legal drugs like tobacco and alcohol[10] without fear of censure or poisoning! But all that is another story.

can vote with our feet and with our wallets by making conscious decisions not to purchase unethical products or purchase from companies we feel are not responsible. This also cuts both ways and means that we haveto beresponsible and ethical in ourpurchasingtoo. It is unlikelythat many readersofthis Monthly Feature get turned on by a counterfeit timepiece or handbag but just consider who is benefiting from the too-good-to-be-true software deal you might be considering!

A Super Model is at the top of her profession and all the world's her stage. She is more than the brands and companies who employ her good looks. Indeed it is her own unique brand of celebrity that they want to use in selling their clothes shoes accessories and cosmetics. She is completely in the limelight: confident on the front pages of glossy magazines; wonderful at galas and premieres; supreme on the cat walk. It' s a great business: as one Super Model infamously said "I don't get out of bed for less than $1000 a day!"

Yet that same Super Model is the one who recommended Kate Moss go into rehab as she had herself been treated for serious depression some years back.

The fashion world is fast changing and fickle and like a top footballer the time at the top for a Super Model whilst lucrative for the very best can often be very short. Indeed it will be interesting to see whether the importance of Super Models will now gradually decline as brands see that their reputation is best kept carefully in-house by using beautiful but anonymous faces rather than in the external care of wayward celebrities. Either that or the fashion world will have to set up codes of behaviour and clear sets of values that keep their catwalk goddesses literally on the straight and narrow.

I originally started this Monthly Feature on the premise that Kate Moss was a woman with too much time and too much money on her hands and that her recent disgrace really served her right. In the end though she has unintentionally done us all a service by pointing up the importance of responsible behaviour both on a personal and on a corporate level.

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7. Concluding Remarks

So Kate Moss has two main choices: either to kick into touch the excesses of her current lifestyle before they kill her and put her talents to some positive use or be true to herself and live fast and die young(ish) but by doing that keep turning the fashion world on its head. To do either one properly requires vision and courage. And either way Kate Moss could become an example to us all a model for CSR!

[Contributed Ivor Hopkins MHC International Ltd September 2005 with comments from Michael Hopkins]

[1] Carole Malone in The Sunday Mirror 18 September 2005

[2] Sean O'Hagan The Observer digital edition | News | Sunday September 25 2005 | page 26: The breaking of Kate

[3] Katherine Kendall 2005

[4] www.mhcinternational.com

[5] Kate ist ein Opfer ihres Erfolgs ihres Stils ihrer zeitlos modernen Einmaligkeit. Sie hat nie darauf bestanden ein Tugendpinsel zu sein…Kate hat nur mehr Mut ist freier offener und spontaner als andere." Puder Zucker - oder Kokain? Focus 39/2005 p. 13 Translated by Ivor Hopkins

[6] www.forbes.com/business

[7] Fisher and Lovell Business Ethica and Values (Prentice Hall 2003) p.103

[8] "Sie wurde das Gesicht der neunziger Jahre in denen sie die Gesetze der Branche auf den Kopf stellte. Was ihr an Beinen und Oberweite fehlte ließ sie vergessen durch ihren Blick: Kühl war er aber verletzlich; störrisch aber anteilnehmend; leer vor Langeweile aber es entging ihm trotzdem nichts. Vorher hatten Rockstarsvon"WalkontheWildSide"gesungenKateMossmarschiertefürVersaceundDolce&Gabbana am Abgrund entlang und natürlich lagen dort unten gefährliche Dinge - auch Kokain. Nur zu sehen war die Droge auf den Hochglanzanzeigen nicht." Supermodel Kate Moss: Popstar mit Probleme Der Spiegel 27.09.05

[9] http://en.wikinews.org/wiki/Main_Page

[10] For the record before there is a late night knock on the door this author is a non-smoking non-substance abusing person who enjoys a glass or two of Merlot

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APPENDIX B

Overview on Measurement and Corporate Social Reporting

Measurement Assessment and Reporting Social Responsibility

There is an old adage in management: “You can’t manage what you can’t measure.” If we ask business managers to pursue social responsibilities in addition to profit then managers will seek instruments to measure their success in doing this in much the same way that profits are measured. Managers will need ways to know what works and what doesn’t and whether on approach is more successful in attaining social responsibility than others. In recent years a wide array of instruments for measuring corporate social responsibility have been developed and adopted by both business and NGOs.

Measurement and reporting are all the more important these days as we move from a unique occurrence where a firm shares information with regard to social and environmental issues to a quasi-regulatory environment that arose in the mid-1990s where firms began to produce reports pursuant to generally accepted principles. In fact the French Parliament enacted a new law in France inMarch 2002 that required all French corporations listed on the Paris Stock Exchange to report on the sustainability of their social and environmental performance. In Fall 2002 PricewaterhouseCoopers reported the results of a survey evidencing that two-thirds of multinationals in Europe and 41% in the United States provide information on their “triple bottom line” performance – economic social and environmental performance.

Even in focusing solely on social reporting there is no one structure of topics to be included in a corporate social report. Though some elements may be mandatory pursuant to other regulations and depending on the country in which they are reported such as corporate charitable contributions pension fund adequacy employee share ownership schemes and employment data other information is not otherwise required to be disclosedintheUnitedStates. Thisadditionalinformationmayincludeenergysavingsconsumerprotection efforts product safety health and safety efforts beyond OSHA employee training vendor agreements or codes of conduct mission statements and/or statements of social responsibility.

Firms are engaging inthis voluntaryreporting processfor a variety of reasons. Thebenefits toa transparent organization include a positive impact on reputation enhanced shareholder relations clearer and more transparent corporategovernancegreatertrust withintheinvestment community. Infact researchevidences a positive correlation between reporting and lower price volatility higher operating profits and revenue growth.1

Formal efforts at standardized corporate responsibility reporting began in the early 1990s. In 1991 seven companies had published sustainability reports; at that time however much of the reports’ focus was on the environment. The reporting trend has since transformed itself addressing not only environmental issues but also economic and social performance now also referred to as the “triple bottom-line.” Since that time the number ofcorporations documentingtheirsocial behaviorhas exploded intoa global legionandthenumber of standards and initiatives against which these reports can be judged has topped 200. As of October 2005 714 firms report in accordance with or with reference to the Global Reporting Initiative; and more than 2500 firms worldwide publish some type of stand-alone report on citizenship sustainability environmental and/or social concerns. One scholar draws two critical conclusions from his research on non-financial reporting: “markets are using reporting practices as a proxy for quality of

1 Linstock Consultants and Imagination Added Values? Measuring the “value relevance” of sustainability reporting (London February 2004) at Section 1: Case studies & discussion.

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management;andsecondmarketsarebeginningtorewarddisclosurepracticesthatreachbeyondthenarrow confines of conventional financial reporting.” As a result reporting practices have evolved from forced transparency where firms report only as a reaction to pressure or crises to active transparency where firms report based on strategic objectives.

Social reporting or as it is also referred to Triple bottom-line reporting or sustainability reporting has only recently started to appear on the agenda of academic business ethics conferences. Yet it does not seem to be a concept that many management theorists are well acquainted with nor has it been fully integrated into business ethics as academic discipline. There seems to be a need for a rigorous interrogation of the notion of the triple bottom-line as well as a detailed analysis of the performance indicators that are proposed by triple bottom-line reporting models.

As the number of companies adopting corporate social reports have grown so too have the number of initiatives aimed at standardization dealing with the topic of international corporate behavior. Business leaders even after acknowledging the importance of corporate social reporting are being pinned into a situation where simply having a governance committee and a corporate social report is no longer good enough - after all Enron received accolades in corporate governance and corporate citizenship. Accountability credibility and transparency are now all a necessity in the company’s social reporting procedure.

These voluntary initiatives are considered credible and authentic because of their association with reputable international organizations and agencies despite the absence of formal regulatory schemes. Each of the initiatives shares a common mission: to promote an economic environment where smart sustainable development and good corporate citizenship coexist. Collectively the global initiatives discussed below are at the forefront in addressing corporate responsibility and developing practices and codes of conduct that will promote sustainable development and corporate citizenship. However a number of issues do exist or have yet to be addressed.

A broad compendium of global initiatives has emerged including principles and standards designed to stimulate change and to promote good corporate citizenship and encourage innovative solutions and partnerships. There arenow over 300sources of corporateresponsibilitytoolsworldwide.2 These standards may be promulgated by international inter-governmental organizations (such as the ILO or OECD) by a particular government by a private certification agency by financial organizations (such as the FTSE4Good Index) or by other voluntary associations. Several organizations have created processes standardized reporting structures management systems or normative frameworks in order to assist organizations in quantifying their social reporting as well as in creating benchmark data against which they can gauge their activities and decisions. Though many of these are industry specific (such as the Clean Clothes Campaign) others apply cross-industry. The organizations include the following and are discussed in greater detail below:

• Global Reporting Initiative

• Global Sullivan Principles

• Social Accountability 8000

• UN Global Compact

• OECD Guidelines for Multinational Enterprises.

• ILO Conventions

• AA1000

• ISO 14000

2 Goel R.: 2005 ‘Guide to Instruments of Corporate Responsibility’ (York University Toronto) p. 3.

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These voluntary initiatives are considered credible and authentic because of their association with reputable international organizations and agencies3 despite the absence of formal regulatory schemes.4 Eachofthefollowinginitiativessharesacommonmission: topromoteaneconomicenvironment where smart sustainable development and good corporate citizenship coexist.5

Global Reporting Initiative

Established in 1997 the Global Reporting Initiative (GRI) is a foundation-funded program that established a generally accepted sustainability-reporting framework to which corporations adhere. The reporting criterion covers all aspects of a company’s performance - economic environmental and social. The GRI recognizes the limits of an international “one-size-fits-all” approach towards corporate reporting and therefore developed sector specific guidelines or “sector supplements” for companies to follow.6 The GRI distinguishes itself from the list of voluntary initiatives due to its performance indicator system: the GRI encourages companies to establish watermarks for performance and then to report on their successes and failures in reaching those targets.7 In addition it is based on a stakeholder analysis that assesses the impact of the organization on the variety of its stakeholders rather than simply its stockholders. The GRI is a means for companies to communicate with their multiple stakeholders across regions and nations as well asawayforcompaniestomonitortheirprogressinsustainabledevelopment.Otherattributesincludestrong governance accessibility and transparency as well as the ability to create strong partnerships throughout the globe. Todate618companiesinover50countrieshaveusedandreportedaccordingtotheGRIguidelines.8

Global Sullivan Principles

As opposed to the auditableframework of the GRIthe Global Sullivan Principles comprises aset ofinternal ethical business operating principles.9 Conceived in 1977 The Sullivan Principles were the brainchild of late Reverend Leon Sullivan. The Global Sullivan Principles have a tripartite structure that includes corporations higher education and civic involvement. This tripartite initiative exemplifies Rev. Sullivan’s commitment to ethical conduct which he believed is not limited to businesses alone - instead it is the responsibility of the entire community. However because the Global Sullivan Principles omit the right to freedom of association as a core labor standard the Principles lack support from the labor organization community.10 Currently more than 170 companies including public sector and religious organizations subscribe to the Global Sullivan Principles the vast majority of signatories are within the United States.11

Social Accountability 8000

Created in 1997 by the Social Accountability Institute (SAI) a not-for-profit nongovernmental organization and the Council on Economic Priorities (CEP) Social Accountability 8000 (SA8000) is a

3 McIntosh Malcolm Thomas Ruth et al. “International Standards for Corporate Responsibility” Ethical Corporation Magazine (Jan. 2003) pp 22-29.

4 McIntosh Malcolm Thomas Ruth et al. “International Standards for Corporate Responsibility.”

5 McIntosh Malcolm Thomas Ruth et al. “International Standards for Corporate Responsibility.”

6 Global Reporting Initiative “Dialogue on Current and Future Directions: Some Key Issues and Perspectives for and from Our Stakeholders” http://www.globalreporting.com (accessed Jan. 20 2003).

7 McIntosh Malcolm Thomas Ruth et al. “International Standards for Corporate Responsibility.”

8 Global Reporting Initiative “Organisations using the GRI” http://www.globalreporting.com (accessed 2/2/05).

9 Global Reporting Initiative “Global Reporting Initiative & Global Sullivan Principles” http://www.globalreporting.com

10 McIntosh Malcolm Thomas Ruth et al. “International Standards for Corporate Responsibility.”

11 McIntosh Malcolm Thomas Ruth et al. “International Standards for Corporate Responsibility.”

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standard based on a commitment to establishing a cross-industry standard for workplace conditions and independent verification.12 Unique to SA8000 is this independent verification which allows the standard to be implanted in any nation and within any industry of any size and its monitoring arm the Council on Economic Priorities Accreditation Agency (CEPAA). The SA8000 focuses on the core labor rights of the ILO Conventions the International Declaration of Human Rights and the UN Convention on the Rights of the Child addressing key issues such as child labor compulsory labor health and safety freedom of association increased educational attainment for employees discrimination and working hours and wages.13 It applies to manufacturers and suppliers but retailers can also adhere to it. The auditing process is required everythree years andincludes minimum performance requirements employeeinterviews as well as an open complaints and appeals system. Presently there are more than 190 companies in 31 countries that have SA8000 certifications.14

United Nations Global Compact

On January 31 1999 United Nations Secretary General Kofi Annan presented to The World Economic Forum at Davos his proposal for a Global Compact.15 On July 26 2000 Kofi Annan’s vision was set into action.16 The Secretary General’s Global Compact made the issue of corporate social responsibility paramount challenging business leaders around the world to take part in the global initiative. The Global Compact is comprised of nine principles surrounding the issues of human rights labor standards and environment.17 Participating companies must publish annual reports and display on their websites specific examples of how they put the Global Compact principles into practice. Like the other initiatives the Global Compact is voluntary and has no enforcement arm. The initiative’s openness is designed “to stimulate and to promote goodcorporatecitizenship andencourageinnovativesolutionsandpartnerships.”18 Itsopenness was also designed to carry out the Global Compact’s two objectives: (1) incorporate the Global Compact and its nine principles into a business’s strategy and operations; (2) facilitate a partnership among key stakeholders and promote partnerships in support of U.N. goals.19 The United Nations’ reputation and moral authority is one the reasons why more than 649 companies and cities have adopted the Global Compact.20

OECD Guidelines for Multinational Enterprises

The Organization for Economic Cooperation and Development is a forum of 30 member countries and active relationships with 70 additionally whose mission is to encourage sustainable business practices and “toimprovethefit betweenbusinessandsocietybyclarifyingtherightsandresponsibilitiesofgovernments and enterprises in the area of international business.”21 The structure allows these governmental to make recommendationstomultinational corporations operating in orfrom anyoneof themember countries. First established in 1976 and then revised in 2000 the OECD Guidelines for Multinational Enterprises “is the only comprehensive code of conduct agreed to by multiple nations” addressing issues like disclosure of material information employment relations consumer interests

12 Global Reporting Initiative “Global Reporting Initiative & SA8000” http://www.globalreporting.com

13 Global Reporting Initiative “Global Reporting Initiative & Global Sullivan Principles” http://www.globalreporting.com.

14 McIntosh Malcolm Thomas Ruth et al. “International Standards for Corporate Responsibility.”

15 United Nations Global Compact “The Global Compact: About the GC” http://www.unglobalcompact.com

16 United Nations Global Compact “The Global Compact: About the GC” http://www.unglobalcompact.com

17 UN Global Compact “The Global Compact: Nine Principles” http://www.unglobalcompact.com.

18 UN Global Compact “The Global Compact: FAQ” http://www.unglobalcompact.com

19 UN Global Compact “The Global Compact: Overview” http://www.unglobalcompact.com.

20 McIntosh Malcolm Thomas Ruth et al. “International Standards for Corporate Responsibility.”

21 Global Reporting Initiative “Global Reporting Initiative & OECD Guidelines for MNEs” http://www.globalreporting.com

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competition scienceand technology diffusionand environmental management.22 The Guidelines are unique in that they adopt local practices instead of international-agreed standards and that each OECD country has a contact point serving as aform of customer service. Similar tothe ILO conventions the OECD Guidelines for MNEs are intended for governmental commitment making it all the more difficult to hold companies directly accountable. At the moment 34 governments have signed on to these operating principles.23

International Labor Organization Conventions

The International Labor Organization (ILO) is the oldest of the UN agencies. Like the Global Sullivan Principlesthe ILO is a tripartite structurecomposed ofgovernment labor and employers’ organization. The ILO’s tripartite structure coupled with its early establishment enhances the credibility of the organization as well as its conventions. The three-tiered system does however create a quite lengthy and arduous decision-making process. And like the other global initiatives the ILO conventions have a weakness when it comes to enforcement and implementation. The International Labor Organization has enacted more than 180 Conventions throughout its history addressing a wide range of labor issues including the freedom of association prohibition of compulsory labor prohibition of child labor employment of disabled persons equal remuneration/equal work and health and safety.24 The Conventions’ positive elements - international reach history and tripartite structure - give it credibility in addressing the topic of social reporting.25

AA1000 and AA1000 Series

The AccountAbility 1000 Series developed in 1999 concentrates on improving the accountability and overall performance of organizations by way of increasing the quality of social and ethical accounting auditing reporting.26 This global initiative is overseen by the Institute of Social and Ethical AccountAbility an international not-for-profit professional institute dedicated to the promotion of social ethical and overall organizational accountability as well as members from business (profit and nonprofit) academic and consultantgroups.27 DevelopedbyitsInternational Council theAA1000isthefirstsystematicstakeholderbased approach to address institutional accountability and performance enhancement.28 The AA1000 has evolved into the AA1000 Series (AA1000s) which is an extension to the AA1000 Framework a standard engineered to improve accountability and performance by “learning through stakeholder engagement.”29 The AA1000s provides comprehensive outlines and guidelines for stakeholder engagement supporting social ethical and environmental accountability systems. Unveiled in 2002 the Assurance Standard (which has as its focus strengthening the credibility of social and sustainability reporting) was the first addition to the AA1000 Framework. The AA1000 Assurance Standard compliments the GRI in that it provides an outline for independent third parties to assure and audit sustainability reporting. At press time AccountAbility was developing two other modules; one with

22 Global Reporting Initiative “Global Reporting Initiative & OECD Guidelines for MNEs”

http://www.globalreporting.com.

23 McIntosh Malcolm Thomas Ruth et al. “International Standards for Corporate Responsibility.”

24 International Labor Organization (ILO) “What are International Labour Standards?” http://www.ilo.org

25 McIntosh Malcolm Thomas Ruth et al. “International Standards for Corporate Responsibility.”

26 Global Reporting Initiative “Global Reporting Initiative & AA1000 and AA1000 Series”

http://www.globalreporting.com (accessed March 27 2003).

27 Global Reporting Initiative “Global Reporting Initiative & AA1000 and AA1000 Series.”

28 Global Reporting Initiative “Global Reporting Initiative & AA1000 and AA1000 Series.”

29 AccountAbility “AA1000 Series: Introducing AA1000” http://www.accountability.org/ (accessed March 28 2003).

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an emphasis on risk and the other with a focus on measuring and communicating the quality of stakeholder engagement.30

While the scope of the GRI includes economic environmental and social performance and public reporting the scope of the AA1000 is social and ethical accounting auditing and reporting stakeholder dialogue and accountability and quality assurance. Though both emphasize satisfying the information and decisionmaking needs of a full range of stakeholder groups the AA1000 is based on accountability principles and the process of social accounting and stakeholder engagement while GRI is a disclosure framework based on reporting principles characteristics and indicators.

ISO 14000

Developed in 1996 by the International Organization for Standardization in Geneva Switzerland the ISO 14000 series is a voluntary initiative that places an emphasis on environmental management standards and operations (i.e. management systems auditing labeling performance evaluation life cycle assessment).31 Its core mission is to provide voluntary environmental management standards to enhance companies’ ability to manage environmental impacts and risks and to improve environmental performance. The Series' commitment to the improvement of the corporate environmental atmosphere - management systems auditing performance evaluation life cycle etc. - is what distinguishes this initiative from others mentioned above. The standards promote continual improvement without specifying actual standards of performance. UnliketheSA8000the14000serieswasfirst developedatanationallevel beforeexpandinginternationally. The key stakeholders for the ISO 14000 series are the standard-creating organizations within the ISO member community but also include environmental NGOs professional research governmental and other nonprofit institutions. The ISO series includes a number of standards; those that deal directly with external reporting include the ISO 14001 (which is the model adopted by organizations for their environmental management system) the ISO 14004 (which extends the definition of environmental management systems to include a general framework for external auditing); and the ISO 14031 (a process by which companies can assess and report on their environmental behavior).32 The ISO’s greatest attribute is its development of management systems which is why several hundred thousand facilities subscribe to the standards;33 however due to the Series’ substantial implementation cost ($25000 to $128000) it is difficult for small and mid-size companies to adopt and implement.34

In an effort to explore the process and substance of reporting according to these various standards from the perspective of multiple stakeholders researchers Axel Klein and Martin Le Jeune conducted a global stakeholder survey on non-financial reporting. Relevant to our exploration Klein and Le Jeune found that humanrights was thesinglemost important issue onstakeholders’ minds. “Corporatecitizenship” however was not of keen interest to stakeholders since firms were hard pressed to explain the business case for these activities. The research also revealed the following:

• Stakeholders prefer regional reports to one report from a parent company

• Stakeholders primary process concerns are accountability and transparency rather than detailed descriptions

30 AccountAbility “AA1000 Series: Introducing AA1000.”

31 Global Reporting Initiatives "GRI and other initiatives ISO 14000" http://www.globalreporting.com (accessed March 27 2003).

32 Global Reporting Initiatives "GRI and other initiatives ISO 14000.”

33 McIntosh Malcolm Thomas Ruth et al. “International Standards for Corporate Responsibility.”

34 McIntosh Malcolm Thomas Ruth et al. “International Standards for Corporate Responsibility.”

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• Eighty percent of respondents believed that all companies should be required to report on nonfinancial indicators.35

Collectively the global initiatives discussed above are at the forefront in addressing corporate responsibility and developing practices and codes of conduct that will promote sustainable development and corporate citizenship. However a number of issues do exist or have yet to be addressed. Among them: conflict resolution between initiatives; level of enforcement if any - local national or international; discrimination against smaller firms because of the high costs associated with initiatives. Beyond those problems associated with the actual initiatives skepticism exists amongst the general public with respect to social reports themselves. Among the questions critics pose: Are the social reports credible relevant and effective especially now when every corporation seems to have one? Are social reports a fad trying to lure shareholders back into the market? Are the organizations themselves even credible? In a time where corporations are held suspect corporate social reporting is leading the charge in freeing businesses’ tainted image. The recent vim in corporate responsibility has emerged in part to sustain those market economies andregaincorporatevaluebut ultimatelythegoalistohelpcompaniesacrossthemapchangetheirbehavior so as to realize that everyone is a stakeholder in their company.

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35 ECC Kohtes KlewesGmbH “Global Stakeholder Report 2003: Shared Values?” (11/03).

APPENDIX C: Group Project Description: The Social Change Project

Planning your project:

You will be placed into groups before class begins. You should meet with your group and discuss your plans then implement them before our final class session at which time you will be expected to offer a group presentation pursuant to details below.

The purpose of this exercise:

We are conducting this project for several reasons. The first reason is because corporations often feel that it is in their best interest to engage in some form of socially responsible activity. They are not always acting, of course, from their own personal motivation but instead are engaging in these activities because one or more stakeholders believe that they should or will treat them more favorably if they do so. You will perhaps experience these same circumstances as you are being asked to do something as an “organization” (your group) that you might not otherwise engage in but that is valued by a stakeholder (hence the critical importance of your ability to evidence the impact you have – think about this requirement when designing your project!).

The second purpose of this exercise is to evidence the extraordinary impact affected by small changes. Of course given the time period involved and other demands on your time your choice of activity will necessarily be limited and somewhat smaller than one possible by a large organization. However by focusing on the possibility of impact you will have and evidencing that impact you will learn by experience of the power you possess both individually and as a team. Imagine the impact you will then be able to have when you are in a leadership role in an organization.

The project:

Small groups will implement a social change program within an organization or environment of their choosing. This could include a wide range of options and can impact any social area including recycling homelessness workplace AIDS education and so on. While the group is to strongly strive for effective implementation of their plan the grade for this assignment is based on evidencing some impact at all.

The requirements:

At the beginning of the class session on________ each group shall submit a Statement of Intent with regard to their Social Change Project. This statement shall be simply a statement of their plan of action with regard to their Social Change Project. It will describe their project anticipated challenges (if any) how they plan to overcome these challenges and any other details necessary.

During one of the final class sessions each group will give an oral presentation of their project to the class of 10-15 minutes. Be creative in your project and in your presentation. Prepare the oral analysis as

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“Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it’s the only thing that ever has.”

- Margaret Mead

if you were presenting the information to both the top management team of your company and to community representatives. This oral presentation will include:

(1) an overview of your social change program;

(2) Social reasons for its importance and an ethical analysis of your choice of project; and

(3) an assessment of the degree of success of the project including evidence of some impact on the world and the reasons for the program's success or failure. Please anticipate this part of the presentation by building into your program some form of assessment.

Due from group at time of presentation:

➢ Three- to five-page executive summary of the project. BE SURE to include references where necessary and must adhere to appropriate bibliographic citation style as included at the end of this syllabus in connection with any of the research you might have done for the project. This summary shall include:

o A narration of your oral presentation (an overview discussion of the ethical and social reasons for the project’s importance assessment of successes and failures with specific reference to evidence of impact)

o A statement of how the project can be linked to the theories or concepts presented in the course and texts

o A discussion of how the project has modified or transformed your thinking around social and ethical issues in business.

➢ Group statement explaining the particular contributions of each group member (i.e. what were each member’s responsibilities with regard to the project?)

➢ Each group member’s peer evaluation form (to be handed in individually i.e. not as part of the group materials)

Chapter 05 - Corporate Social Responsibility

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Peer Evaluation Form for use with Group Social Change Project Score 1 – 5 points with 5 being the highest possible evaluation. Please add comments below form where appropriate.

Preparation: Met commitments to others; was prepared for all meetings and on all dimensions of individual assignments

Written contributions: Written ideas were well developed and presented; contributed to the group written product; written work in final rather than draft form

Oral contributions: Ideas for the oral presentation were well developed and presented; contributed to the group oral product; work on oral product in final rather than draft form

Team Dynamics: listened to others openminded helped all of the members to contribute to the discussion shared leadership for some of the team meetings.

Overall evaluation

Chapter 05 - Corporate Social Responsibility

Name: Grp. Member Name: Grp. Member Name: Grp. Member Name: Grp. Member Name:

Your