Business Ethics, Corporate Responsibility, and Citizenship (PDF)

Chapter 2 Framing Business Ethics Corporate Responsibility, Stakeholders, and Citizenship Andrew Crane, Dirk Matten, Sarah Glozer, Laura Spence Seiten: 44-84 In: Crane, Andrew et al. Business Ethics : Managing Corporate Citizenship and Sustainability in the Age of Globalization. Fifth edition. Oxford: Oxford University Press, 2019. Print. Bemerkung: Der Versand von Kopien und deren Weiternutzung unterliegt den Bestimmungen des schweizerischen Urheberrechts bzw. lizenzvertraglichen Bestimmungen (vgl. Homepage des Anbieters) und ist in der Regel für den persönlichen, schulischen oder betriebsinternen Eigengebrauch der Benutzenden erlaubt. Eine Publikation der Kopie, das Onlinestellen und die kommerzielle Weiterverwendung ist nicht gestattet. Die Einhaltung des Urheberrechts bzw. der vertraglichen Bestimmungen ist Sache der Benutzenden. [email protected] www.fhnw.ch/de/die-fhnw/bibliotheken Framing Business Ethics Corporate Responsibility, Stakeholders, and Citizenship iiliii·1¥[email protected] Explain why corporations have social responsibilities. -------------- Explain corporate social responsibi lity in terms of its levels, strategies, and outcomes. Explain the stakeholder theory of the firm. Accurately apply the concepts of corporate citizenship, accountability, shared value, and transparency to the political role of corporation. Critically evaluate the implications of applying these theories and concepts to different inter- national contexts. Key concepts Corporate socia l responsibility (CSR) Stakeholders Corporate citizenship Corporate accountability Corporate transparency CHAPTER 2 Fram ing Business Ethics 45 TOWARDS A FRAMEWORK FOR BUSINESS ETHICS In Chapter I, we defmed the subject of business ethics as 'the study of business situations, activities, and decisions where issues of right and wrong are addressed'. In order to address issues of right and wrong, the crucial starting point for businesses is the question of whether companies are actors that have to make decisions beyond simply producing goods and services on a profitable basis. After all, if companies provide us with great products that we want to buy, employ workers to produce them, and pay taxes to government, are they not already provid- ing a sufficient contribution to society? It is the defmition and justification of these potentially wider responsibilities that is the subject of this chapter. We begin by addressing the fundamental nature of the modern corporation in order to answer the question of whether corporations can have a moral responsibility in the same way as indi- vidual people do. We then proceed to discuss key themes in the literature on the social role of business, namely corporate social responsibility, stakeholder theory, and corporate account- ability. We finish the chapter by exploring the notion of corporate citizenship. We argue that, although this is a more recent concept to have emerged from the literature, and it can be interpreted in a number of different ways, it can be extremely useful for framing some of the problems of business ethics in the global economy that were raised in Chapter I. WHAT IS A CORPORATION? It may seem like an obvious question, but the practical and legal identification of the corpora- tion within any given society has significant implications for how, and indeed whether, certain types of responsibility can be assigned to such an entity. Corporations are clearly not the same as individual people, and before we can decide what responsibilities they might have, we need to defme exactly what they are and why they exist in the first place. The corporation is by far the dominant form of business entity in the modern global econo - my. Although not all businesses (such as sole traders) are corporations, and many corporations (such as charities and universities) are not-for-profit businesses, we shall concentrate primarily on business in the corporate form. KEY FEATURES OF A CORPORATION So what is it that defmes a corporation? A corporation is essentially defmed in terms of legal status and the ownership of assets. Legally, corporations are regarded as independent from those who work in them, manage them, invest in them, or receive products or services from them. Corporations are separate entities in their own right. For this reason, corporations are regarded as having perpetual succession, i.e. as an entity; they can survive the death of any individual investors, employees, or customers-they simply need to find new ones. This legal status leads to the second key defining feature of corporations. Rather than share- holders or managers owning the assets associated with a corporation, the corporation owns its own assets. The factories, offices, computers, machines, and other assets operated by, say, Sam- sung, are the property of Samsung, not of its shareholders. Shareholders simply own a share in the company that entitles them to a dividend and some say in certain decisions affecting the company. They could not, for instance, arrive at Samsung's HQ and try to remove a computer 46 PART A Understanding Business Ethics or a desk and take it home, because it is Samsung that owns that computer or desk, not the shareholder. Similarly, employees, customers, suppliers, etc., deal with and agree contracts with the corporation, not with shareholders. Th e implications of this situation are significant for our und erstanding of the responsibilities of corporations: Corporations are typically regarded as 'artificial persons' in the eyes of the law. Th at is, they have certain rights and responsibilities in society, just as an individual citizen mi ght. Corporations are notionally 'owned' by shareholders, but exist independently of them. The corporation holds its own assets, and shareholders are not responsible for the debts or damages caused by the corporation (they have limited liability). Managers and directors have a 'fiduciary' responsibility to protect the investment of shareholders. This means that senior managemen t is expected to hold shareholders' in - vestment in trust and to act in their best interests. As we shall see in Ch apter 6, the exact nature of the duty this imposes on man agers, and how it is legally structured, actua lly varies across different parts of the wo rld. This esta blishes a legal framework for corporations to be open to questions of responsibili ty, in that a company is legally responsibl e for its actions in the eyes of the law. How ever, th is is not quite the same as assigning a moral responsibility to corporations. After all, it is one th in g to say that a person feels a sense of moral responsibility for their actions, and can feel pride or shame in doing the ri ght or wrong thing, but clearly we cannot claim the same for in anim ate entities such as corporations. Hence, we need to look a little more closely at the specific nature and responsibilities of corporations. CAN A CORPORATION HAVE SOCIAL RESPONSIBILITIES? In 1970, just after the first major wave of the business ethics movement in the US, the Nobel-Prize- winning economist Milton Friedman published an article that has since become a classic text, questioning the alleged social role of corporations. Under the provocative title 'The social respon- sibility of business is to increase its profits', he vigorously protested against the notion of social responsibilities for corporations. His arguments, which have been rehearsed by many corporate responsibility sceptics over the years (see for example Kamani 2010), boil down to three concerns: Only human beings have a moral responsibility for their actions. The first substantial point is that corporations are not human beings and therefore cannot assume true moral responsibility for their actions. Since corporations are set up by individual human beings, it is those human beings who have moral responsibility for the actions of the corporation. It is managers' responsibility to act solely in the interests of shareholders. The second concern is that as long as a corporation abides by the legal framework society has set up for business, the only responsibility of the managers of the corporation is to make profit, because it is for this task that the firm has been set up and the managers have been employed. Acting for any other purpose constitutes a betrayal of their responsibility to shareholders and thus, essentially, represents a 'theft' from shareholders' pockets. Social issues and problems are the proper province of the state rather than corporate managers. The critics' third main point is that managers should not, and cannot, deci de CHAPTER 2 Framing Business Ethics 47 what is in society's best interests. This is the job of government. Corporate managers are neither trained to set and achieve social goals, nor (unlike politicians) are they democrati - cally elected to do so. We will deal with the second and third points shortly. First, however, we will examine the proposition that a company cannot be morally responsible for what it does, since its decisions are essentially those of individual people. CAN A CORPORATION BE MORALLY RESPONSIBLE FOR ITS ACTIONS? ls a corporation just a loose collection of individuals who work together under the same roof, or is it a distinct entity of its own, which can actually assume moral responsibility for the rights and wrongs of its actions? In Table 2.1 we suggest four moral considerations that most scholars, and indeed the wider public, coul d relate to corporate activity and help us to answer this very question. Table 2.1 Four considerations on corporate mor al responsibility Consideration Description Example - Legal Identity Corporations enter into contracts; they are Corporate rights to free speech subject to a host of legal requirements, under the First Amendment to including paying taxes, ensuring the safety of the Constitution of the USA. their products, and meeting environmental including the ability to limitlessly obligations. Corporations can sue other fund political campaigns (see the entities, and vice versa, and can be subject Citizens United v. Federa l Election to legal prosecutions. Corporations can also Commission (No. 08-205) (2010) claim a number of rights. case on pol itical funding). Agency Corporations can decide and act Accenture's Code of Business independent of their members (Moore Ethics aims to provide 'your guide 1999) given their internal decision structure to responsib le behaviour, every manifested in elements such as corporate day' and guide eth ical decision policies and procedures (French 1979). making: https://www.accenture. Acting together, actions are regarded as com!_acnmedia/PDF-63/Accenture- the result of corporate, not individual, CoBE-Brochure-English.pdf. decisions, although this does not completely deny individua l agency. Organizational Corporations have a set of beliefs and The executive director of Culture values that present what is generally Ethisphere, which produces an regarded as right or w rong in the annual list of the 'world's most corporation, namely the organizational ethical companies', argues that culture (Moore 1999). These values and 'a culture of ethics is crucial to beliefs are widely believed to be a strong sustainable excellence' (Smith influence on the individual's ethical 2013). decision-making and behaviour. Functional Corporations present themselves and Objects of affection (e.g. McDonald's Identity interact with customers and other 'I'm lovin' it' slogan). companionship stakeholders as if they were distinct (e.g. Jack Daniels' 'Become a friend persons. Many corporations build identities of Jack' feature), or personifying as corporate 'citizens' and espouse the the brand (e.g. Colonel Sanders aspiration to act as a good neighbour and of Kentucky Fried Chicken) are partner with other members of society. strategies to help build brand identity. 48 PART A Understanding Business Ethics We can therefore conclude that corporations do indeed have some level of moral responsibil- ity that is more than the responsibility of the individuals constituting the corporation. In the following sections, we take a closer look at the second argument forw arded by Friedman ( 1970). This questions any social responsibilities a corporation might have, beyond those that are based II on the duty to produce profits for shareholders. In order to do so, we shall discuss the two most influenti al concepts to have arisen from th e business ethics literature to date: corporate social responsibility (CSR) and stakeholder theory. CORPORATE SOCIAL RESPONSIBILITY The systematic reasoning about a conceptual framework for CSR started in the US more than half a century ago (Carroll 2008). During this time, many different concepts and principles have been aired and deb ated in relation to CSR. Such debates have focused on two key questions: 1. Why might it be argued that corporations have social as well as fmancial responsibiliti es? 2. What is the nature of these social responsibilities? Let us look at each of these two questions in turn. WHY DO CORPORATIONS HAVE SOCIAL RESPONSIBILITIES? This first question has raised enormous amounts of controversy in the past, but it is by now fairly widely accepted that businesses do indeed have responsibilities beyond simply makin g a profit. This is based on a number of distinct, but related, arguments, many of which tend to be couched in terms of enlightened self-interest, i.e. the corporation takes on social responsibilities insofar as doing so promotes its own self-interest. Such a 'business case for CSR' is commonly advanced using the four main arguments presented in Figure 2.1 (see Davis 1973; Mintzberg 1983; Smith 2003; Kurucz, Colbert, and Wheeler 2008). These are primarily good business reasons why it might be advantageous for the corporati on to act in a socially responsible manner. Yet, as we will see in Case 2, which traces the rise and fall of clothing brand American Apparel, even businesses that are famed for their approach to CSR may have larger ethical questions bubbling under the surface. In recent years, the level of critique around CSR agendas has risen, with many questioning the efficacy of this concept. Building upon Friedman's ( 1970) argument that when CSR activity is carried out for self-interest, it is not CSR at all, but merely profit-maximization 'under the cloak of social responsibili ty', critics have suggested that CSR only helps to legitimize corporate activity and consolidate the power of large corporations (Banerjee 2007). This has led Fleming and Jones (2012) to argue that the idea that corporations can pursue profit-seeking objectives and be socially responsibl e is merely a myth, and the authors pessimistically argue that we are witnessing the 'end' of CSR. The crux of the authors' arguments here is that CSR supports, rather than challenges, the current capitalist system and therefore fails to offer any real transformation in the role of business in society. This argument continues to forward the idea of a darker side to CSR, with more recent critical research examining the macro and political role of CSR in promoting and protecting the global trading regime (Hanlon 2011), as well as the micro contexts within which CSR is used as a mechanism to control employees by tying ethical conscience to organizational activity (Costas and Karreman 2013). CHAPTER 2 Framing Business Ethics 49 Figure 2.1 The business case for CSR THE BUSINESS CASE FOR CSR Manage risk and uncertainty: Maintaining the social licence to operate: Voluntarily committing to social actions and A considerable driver for CSR is the programmes may forestall legislation and necessity to gain and maintain the ensure greater corporate independence consent of local communities, employees, from government (Moon and Vogel 2008). and governments as such actors can For instance, in the aftermath of the provide or revoke a social licence to Rana Plaza factory collapse in 2013 in operate. Mondelez, for instance, aims Bangladesh, many Western retailers were to make a positive contribution to society met with calls to better regulate worker safety. by partnering with local schools to promote health education. Sou rce : Adapted fro m Davis (1973); Mintzberg (1983); Smith (2003); Kurucz et a l. (2008) To a large extent, such critiques relate to the primary motivations of the decision-maker (Bowie 1991). It is not so much a matter of whether profit subsequently arises from social actions, but whether profit or altruism was the main reason for the action in the first place. While corporate motives are difficult, sometimes impossible, to determine, recent research has illuminated the individual-level values that mediate responsible management. Schaefer, Wil- liams, and Blundel (2018), for instance, highlight how values of achievement and benevolence significantly shape environmental engagement. Also, despite numerous academic studies, a direct relationship between social responsibility and profitability has been almost impossible to unambiguously 'prove'. 1 Even though the overall weight of evidence seems to suggest some kind of positive relationship, there is still the issue of causality (Orlitzky 2008). When success- ful companies are seen to be operating CSR programmes, it is just as reasonable to suggest that CSR does not contribute to the success, but rather the fmancial success frees the company to indulge in the 'luxury' of CSR. Hence, in addition to these business arguments for CSR, it is also important to consider further moral arguments for CSR: The externalities argument: Externalities are the positive and social impacts of an eco- nomic transaction that are borne by those other than the parties engaging in the transac- tion. Corporations create a variety of positive, negative, or neutral externalities of one sort or another through the provision of products and services, the employment of work- ers, or advertising techniques. Many regard corporations to have a moral responsibility to deal with, in particular, the negative externalities they cause, such as pollution, resource depletion, or community problems, insofar as these are not dealt with by governments. 50 PART A Understanding Business Ethics The power argument: Another important argument is that as powerful social actors, with recourse to substantial resources, corporations should use their power and resources responsibly in society. Some of the world 's largest corporations-such as Walmart, Appl e, and Shell- now make more money than the gross domestic product (GDP) of many coun- I tries,2 emphasizing the muscle of global corporations. Some refer to this as the Spiderman maxim: 'with great power comes great responsibility'. The dependency argument: Corporations and societies are mutually dependent. Indeed, corporations rely on the contribution of a much wider set of constituencies, or stakehold- ers in society (such as consumers, suppliers, local communities), hence they have a duty to take into account the interests and goals of these parties, alongside those of shareholders. While we have examined a range of moral and business arguments for CSR, the case for CSR is increasingly being challenged, particularly in terms of the accountability of corporations (see the section on Implications of corporate citizenship: corporate accountability and transpar- ency later in this chapter). One response to this critique has been Porter and Kramer's (2006) notion of 'Creating Shared Value' (CSV) which provides a vision for a) re-conceiving products and markets by serving consumers and contributing to the common good; b) redefming produc- tivity in the value chain by enhancing the social, environmental, and economic capabilities of supply chain members; and c) enabling local cluster development so that various developmental goals can be achieved through local collaborations. While CSV has become a motivating id ea within theory and practice in successfully connecting strategy to social goals, the concept has received critique for its somewhat naYve and simplistic approach, which ignores tensions in cor- porate activity. This leads Crane et al. (2014: 145) to contend, 'CSV and its shortcomings are, if anything, a stark reminder that this task of understanding the firm as a multi-purpose venture is still an unresolved issue.' And so to our next question: if corporations have some type of soci al responsibility, what form does that responsibility take? lihWiliM·MW Theories of CSR suggest there are both business and moral reasons fo r engaging in social in itiatives. Go to th e w ebsite of one or t w o compan ies of your choice and find the section dealing wi th social issues (the page may be headed CSR, sustainability, shared value, or perhaps corporate citizensh ip) and see what kinds of reasons the corporations give for their involvement in CSR. Is there a balance of business and moral reasons, or does one type of reason predominate? How do you explain thi s? Visit the online resources for a suggested response. WHAT IS THE NATURE OF CORPORATE SOCIAL RESPONSIBIL ITIES? Probably the most established and accepted model of CSR that addresses our second question is the 'Four-part model of corporate social responsibility', as initially proposed by Archie Car- roll (1979), and subsequently refmed in later publications (e.g. Carroll 1991; Carroll and Buch- holtz 2015). This model, which simplifies the social responsibilities of a business, is depicted in Figure 2.2. CHAPTER 2 Framing Business Ethics 51 Figure 2.2 Carroll's four- part model of corporate social responsibility Philanthropic Desired by society Responsibilities Ethical Expected by society Responsibilities Legal Required by society Responsibilities Economic Requi red by society Responsibilities Source: Adapted from Carroll, A.B. 1991. The pyramid of corporate social responsibility: toward the moral man- ageme nt of organizational stakeholders. Business Horizons (Jui-Aug): 42, Fi g. 3, with permission from Elsevier Carroll regards corporate social responsibility (CSR) as a multilayered concept, which can be differentiated into four interrel ated aspects-economic, legal , ethical, a nd philanthropic responsibilities. He presents these different responsibilities as consecutive layers within a pyra- mid, such that 'true' social responsibility requires the meeting of all four levels consecutively, depending on the expectations present in society at the time. I Corporate social responsibil ity The attempt by companies to meet the economic, lega l, ethical, and phi lanthropic demands of a given society at a particular point in time. Economic responsibility. Companies have shareholders who demand a reasonable return on their investments, they have employees who want good jobs, and they have custom- ers who want their products to satisfy their needs. So the first responsibility of busin ess is to be a well-functioning economic unit and to stay in business. This first layer of the CSR pyramid is the basis for all the subsequent responsibilities, which rest on this (ide- ally) solid basis. According to Carroll ( 1991), the satisfaction of economic responsibili- ties is thus required of all corporations. In the extreme, this leads to the idea that some large banks are 'too big to fail', because their basic economic functions are so vital to society that they should be 'bailed out' by governments and taxpayers when in trouble. Indeed, while banks such as The National Bank of Greece, German Commerzbank, and Dutch ABN Amro have been bailed out by their respective governments, American kids' store Toys 'R' Us, British department store House of Fraser, and the South Korean Hanjin 52 PART A Understanding Business Ethics Shipping company are all businesses that have faced little support from their nation states when faced with fmancial difficulty. Legal responsibility. The legal responsibility of corporations demands that busin esses abide by the law and 'play by the rules of the game'. Laws, as we have seen in Chapter I, are the codification of society's moral views, and therefore abiding by these standards is a necessary prerequisite for any further reasoning about social responsibilities. In some ways this may sound trivial if we ta lk about CSR, but the frequent news about court cases against corporations shows that compliance with the law is by no means self-evid ent. Consider the scandals around mislabelled meat in Europe in 2013, or the massive $289m in damages Monsanto was required to pay, in 2018, to a terminally ill groundskeeper, who had been using one of their weed-killers without due knowledge of the health hazards of exposure. Legal responsibilities appear to be an ongoing challenge in dischargin g CSR. As with economic responsibilities, Carroll ( 1991) suggests that the satisfaction of lega l responsibilities is required of all corporations seeking to be socially responsible. Ethical responsibility. These responsibilities oblige corporations to do what is right, just, and fair even when they are not compelled to do so by the legal framework. Consider the public's scrutiny of the tax policies of companies like Apple, Sta rbucks, Google, and Am- azon. While ex ploitation of loopholes and international differences in legislation allowed these companies to legally avoid substantial tax payments, governments, customers, and the general public reacted with outrage. 3 As we saw in Chapter 1, globalization, if any- thing, has extended this space where companies face ethical expectations in the absence of legal fram ewo rks. Carroll (1991) argues that ethical responsibilities, therefore, consist of what is generally expected by society over and above economic and legal expectation s. Philanthropic responsibility. Lastly, at the tip of the pyramid, the fourth level of CSR looks at the philanthropic responsibilities of corporations. The Greek word 'philanthropy' mea ns, literally, 'the love of the fellow human '. By using this idea in a business context, the model incorporates activities that are within the corporation's discretion to improve the quality of life of employees, local communities, and ultimately society in general. This aspect of CSR addresses a great variety of issues, including charitable donations, the building of recreation facilities for employees and their families, support for local school s, or sponsoring of art and sports events. According to Carroll (1991: 42), philanthropi c responsibilities are therefore merely desired of corporations without being expected or required, making them 'less important than the other three categories', yet still vital op- portunities for differentiation, as we outline in Chapter JO. The benefit of the four-part model of CSR is that it structures the various social responsibiliti es into different levels, yet does not seek to explain social responsibility without acknowledging the very real demands placed on the firm to be profitable and legal. In this sense, it is fairl y pragmatic. However, its main limitation is that it does not adequately address the problem of what should happen when two or more responsibilities are in conflict. For example, the threat of plant closures and/or job losses often raises the problem of balancing economic responsibili- ties (of remaining efficient and profitable) with ethical responsibilities to provide secure jobs to employees. A typical example is a company that relocates its operations from the global North to a developing country. While this satisfies the economic level in terms of boosting profits for shareholders and providing employment for hitherto unemployed workers in the developin g CHAPTER 2 Framing Busi ness Ethics 53 world, it can clash with ethical responsibilities in terms of abandoning long-standing ties to workers and communities in the North and exploiting lower environmental or social stand- ards overseas. Additional limitations relate to the fact that the model largely prioritizes the managerial perspective, as it is built on a corporate reading of key responsibilities and that it presents a perhaps unattainable notion of the perfectly responsible business. Indeed, we must ask if a business can always live up to all of these responsibilities, particularly in complex international contexts. CSR I N AN INTERNATIONAL CONTEXT Much of the literature on CSR has emerged from the US and so it is not surprising that CSR has been particularly prominent in the Western world. In other parts of the globe, however, the concept of CSR has only recently become popular. The main reason for this is that the US tends to leave more discretion to companies over their social responsibilities. This has led to a model of explicit CSR, which means that CSR is a distinct, named activity of private companies. Other countries have operated more of an implicit CSR model that sees social responsibilities of business tightly embedded in the legal and institutional framework of society (Matten and Moon 2008). In Europe this has been achieved mainly through regulation, whereas in Africa or Asia other, softer institutions such as religious, customary, or tribal traditions have shaped expectations on business. Generally, then, while one could argue that all levels of CSR play a role outside the US, they clearly have different significance and, furthermore, are interlinked in a somewhat different manner. We can, for instance, apply Carroll's (1991) pyramid to the in ternational context, drawing out some stark differences across Anglo-American, European, and developing country contexts: Philanthropic responsibility: The US has a tradition of donating to the arts, higher edu- cation, and local community services (Brammer and Pavelin 2005), whereas in Europe, funding of these activities is usually directed towards government. In developing coun- tries, against the backdrop of widespread poverty, companies are increasingly expected to 'share' their wealth with local communities. Ethical responsibility: In Europe there is greater mistrust in corporations than in North America, emphasizing the importance of ethical values (Edelman 2C'14). In de- veloping countries, we fmd greater levels of trust in business, although assuming economic and philanthropic responsibilities takes precedent over ethical expectations (Visser 2008). Legal responsibility: The Anglo-American approach sees governmental rules as inter- fering with private liberty. The European model, by contrast, is focused on the promi- nen t role of the state in regulating corporate practice. In developing countries we fmd that compliance at the legal level is often not a very reliable standard of responsible behaviour, given weak or corrupt governments. Economic responsibility: The Anglo-American model is strongly focused on the profit- ability of companies and responsibility to shareholders. The European and Asian ap- proaches place more emphasis on economic responsibility of corporations towards em- ployees and local communities. 54 PART A Understanding Business Ethics As we can see, whi le the four levels of responsibility are still largely valid in most international contexts, they take on different nuances, and may be accorded different significance. Jamali et al. (2017) have recently argued that mainstream CSR understanding has to be translated for applicability in developing countries, and then adapted and localized for more meanin g- ful, context-specific application, suggesting that CSR as a tool for sustainable development is culturally embedded. Such research helps to provide greater nuance in conceptions of business ethics in areas including China, India, Nigeria, and Lebanon, where expectations of business differ from the prevailing Western logic. Furthermore, the introduction of a new law in Indi a that stipulates that some of the country's biggest companies (those worth more than 5 bi ll ion rupees, or $83 million) must spend at least 20/o of their profits on corporate giving highlights how the philanthropic and legal levels of Carroll's pyramid might be interrelated, rather than distinct, categories. Thus, CSR, even if neatly defmed along the lines of Carroll's model , stil l lacks some precision. It does, however, become more concrete if we break it down into differen t corporate social strategies. liiiiWIIM·htM Think about th e concept of CSR in the context of a multinational with operations in a developing country context. To what extent can a multinational corporation operate a global CSR programme, or is it necessary for such companies to operate CSR on a more national or regiona l basis? Vis it the online resources for a suggested respo nse. STRATEGIES OF CSR The way companies prioritize different levels of CSR depends on their overall strategy. While there is a rich literature discussing CSR strategies under the label of 'corporate social respon- siveness' (Carroll 1979; Wood 1991), and 'strategic CSR' (Burke and Logsdon 1996; Porter and Kramer 2006), we will focus on two basic options, as illustrated in Table 2.2.5 'Traditional CSR' is a rather long-standing approach to social responsibility that, in so me ways, has been practised since the Industrial Revolution. It considers CSR as part of a strategy where a company generates its profits without too much consideration for wider societal expec- tations. However, once the profit is generated, the company then distributes some of the val ue Table 2.2 Basic types of CSR strategies Traditional CSR Contemporary CSR Focus Risk Reward Driver Image, Brand, Public Acceptance Performance, Markets, Products Relation to the bottom No direct contribution: CSR is value Integral goal: CSR is value line distribution creation Responsiveness Reaction, Defence Accommodation, Pro-action Motto 'CSR is bolt-on' 'CSR is built-in' CHAPTER 2 Framing Business Ethics 55 created to projects, activities, and causes that are important to stakeholders and will ultimately enhance the wider image of the company and bolster its brand identity. Thus, CSR is 'bolted on' (additionally added) to the firm, but without any real integration with its core business. In Carroll 's model, CSR for these companies is mostly about philanthropy and has very little to do with the other, lower levels of the pyramid. Typically, companies will adopt a defensive or reactive approach to new societal demands, seeking to protect the company and denying responsibility for the social issues at stake (Carroll 1979). In the 'Contemporary CSR' approach companies see responsible behaviour as an opportunity to generate profits while at the same time living up to expectations of society. Rather than unilaterally giving out money, they work with stakeholders to understand their interests and ex pectations, and attempt to cater to their needs by offering business solutions that drive addi- tional value for the firm and their constituencies. CSR for these companies is integral, or 'built in ', to core business. Companies that are active in green technologies or invest in more humane workplaces, for instance, would attempt to proactively integrate social expectations directly into their core operations and, ultimately, see CSR as a way to drive new business at a profit. Practitioner Spotlight 2 provides useful insight into how strategies for sustainability are being built in an Asian context, courtesy of Richard Welford of CSR Asia. Both strategic approaches ultimately ask for ways of conceptualizing observable outcomes of business commitment to CSR, namely corporate social performance. After all, companies are eager to assess whether philanthropic donations have indeed led to tangible results, or whether new products or new technologies adopted have had the desired societal impact. OUTCOMES OF CSR: CORPORATE SOCIAL PERFORMANCE If we are able to measure, rate, and classify companies on their economic performance, why should it not be possible to do the same with its social performance as well? The concept of cor- porate social performance (CSP) has, again, generated a long and varied debate about adequate constructs and measures (Gond and Crane 2010). Donna Wood (1991) has presented a model that is widely regarded as the state-of-the-art and has been extensively cited in the CSR litera- ture. Following her model, CSP can be observed as the principles of CSR, the processes of social responsiveness (or 'CSR strategy' as we have called it), and the outcomes of corporate behaviour. These outcomes are delineated into three areas as explained in Table 2.3. Clearly then, while the outcome of CSR in the form of CSP is an important consideration, the actual measurement of social performance remains a complex task. We shall be discuss- ing some of the potential tools and techniques for achieving this in more detail in Chapter 5. In the meantime, Ethics in Action 2.1 provides an example of one important implication of the discussion on CSP: we have been witnessing a rise in the number and prominence of rankings and awards that measure and benchmark responsible corporate behaviour. While in some ways this leads to a highly competitive environment for companies who see value in positioning themselves as good CSR performers, it is also important to bear in mind that not all managers are motivated by recognition and competition. Many are adopting activities that align with the UN Sustainable Development Goals (SDGs) behind the scenes purely because this is the right thing to do. A key element in this is to defme not only what the corporation is responsible for, but who it is responsible to. This is the task of stakeholder theory, which we turn to next. 56 PART A Und erstanding Business Ethics ·PRACTITIONER SPOTLIGH_T 2 Strategizing for an ethical future · _ Connecting business strategy to social and environmental goals is not always easy. Over in Hong Kong, Dr Richard Welford, Chainnan of CSR Asia, is working closely with businesses to help them engage stakeholders in sustainabil- ity strategizing. We asked him to tell us more about his journey in establishing a business that acts as a positive force for change in Asia. Please can you tell us a little more about how you work with business to develop sustain- ability strategies? We work with a range of business and NGOs-predominantly Asian cli- ents-on a range of consultancy topics including strategy, reporting and disclosure, supply chai n management and risk assessment. and commu- nity investment. Our·approach is tailored to th e organ izations we work with. Some companies come to us to develop a CSR/sustainability strategy. We wi ll sit down with them and run some industry mapping, benchmarking, materiality assessment. and stakeholder engagement to prioritize key issues. We then work with senior management t o develop a focused strategy that is aligned with their core business. We also work with businesses w ho have sophisticated sustainability strategies already in place. but they approach us with a specific chal lenge. Just the other day I was working with a company w ho wanted us to evaluate their suppl y chain risks in terms of modern slavery, trafficking, and human rights. What has been your career path to date? I am an economist by background. I became interested in environmental economics following a PhD and soon began consulting w ith businesses on environ- mental issues and establishing thought leadershi p in this area through establishing research centre s and writing textbooks. I moved to the University of Hong Kong in 2002 and started working with Asian businesses on these topics. In 2004 we started a business-CSR Asia-to support this consul- tancy work. At the start there were just four of us, but the business soon took on a life of if its own, as we were the only guys in town. It got to 2010 and then I had to choose: academia or consulting. I decided to leave academia and become full time at CSR Asia. Since then we have continued to grow and 18 months ago we were acquired by Elevate, a global company focused on supply chain audit work. I still have adjunct positions in UTS Sydney and Hong Kong University. What are the key skills needed to do your role? Working as an academic and consultant requires different skills. You have to live in two parallel worlds and I haven't worked out which one I prefer ! The biggest task is to communicate to senior management in a way that is sophisticated and simple. Senior management are not susta inability experts. It can be frustrating w hen you can't get busi- nesses to do everything you would like them to do. For instance, it is very difficult to get business to talk about climate change in Asia. European companies do great work in this area, but in Asia, I have to focus on galvanizing attention around key risks-how could climate change impact my business? What are the key future challenges for your profession? I am optimistic that the next generation of managers have had exposure to sustainability thinking. Most business schools now have susta in- ability on the agenda. This is the source of good news. But we know that the biggest risks are 20 years away-sea level rises. water shortages, crop failures-and businesses are still short term in CHAPTER 2 Framing Business Eth ics 57 their thinking. To a business, long term is f ive years. Few businesses can think 10, 20, 30 years from now. This is the huge contradiction between business and sustainability; we are fundamentally talk- ing about different timescales. Are there any CSR issues that are specific to the Asian context? We are beginning to see Asian compa nies that are more sophisticated in the area of CSR, which is very positive. Yet, human rights remain an issue in the Asia Pacific region. We often find that the company itself is clean; but chal- lenges remain in the supply chain. Asia is still, by and large, the world 's supply chain and we need to help identify key issues across a range of sectors. What would your advice be for students who do want to make a difference? I am not sure that it wi ll solve anything for students to move into CSR and sustainability careers. I know that this sounds provocative, but sustainability managers are not the people who are changing the world. It is the CEOs that have t he power to change. They meet Presidents and Prime Ministers at the World Economic Forum. This is w here change happens. I believe people should do jobs that they love and enjoy. Do what you want to do but be conscious about the change you can create. Do you really want to be a CSR/sustainability person or do you want to learn about it so that when you get to the top of the business you can have that debate? SOURCE http://www.csr-asia.com Visit the onl i ne resources fo r more Practitioner Spot light inte rvi ews. Table 2.3 Three outcomes of CSR ;_Social Policies Social Programmes Social Impacts Social policies state the Socia l programmes are Social impacts can be traced company's values, beliefs, activities, measures, and by looking at concrete and goals with regard to instruments implemented to changes that the corporation its socia l environment. For achieve social policies. For has achieved through the example, most major firms example, many firms have programmes implemented. This now include social objectives implemented programmes to is frequent ly th_ e most difficult in their mission statements manage their environmental to achieve, since much data and other corporate policies. impacts, based around on social impacts is 'soft' (i.e. Some corporations also environmenta l management difficu lt to collect and quantify have more explicit goa ls and systems such as ISO 14000 objectively), and the specific targets in relation to social and and EMAS (Environmental impact of the corporation environmental issues, such as Management and Auditing cannot be easi ly isolated from Swedish furniture and home Scheme) that include measures other factors. Neverth eless, appliance retailer IKEA that has and instruments that facilitate some impacts can be we ll committed to sourcing 100% the auditing of environmental estimated, for example policies renewable energy and sourcing performance, or ISO 2600, the aimed at benefiting local all w ood from sustainable international CSR standard. schools can examine literacy sources by 2020 and reports rates and exam grades and on progress through its annual environmental policies can be Sustainability report. evaluated with pollution data. So urce: Wood (1991) 58 PART A Understanding Business Ethics... Ethics in Action 2.1 Exploiting the competitive gene: the world of CSR Awards Ever since the rise of CSR practices in business, we have seen a growing number of CSR-related awards and rankings. In such rankings, the 'most responsible', 'most sustainable' company, or th e 'best corporate citizen', gets recognized for their performance and progress in the area of CSR. Most appear online on an annual basis, and provide an overview of the most active companies in the field of responsible business. Unsurprisingly, fi rm s take these awards seriously, not least because they are widely promoted and discussed online, giving firms a great opportunity to boast about their CSR credentia ls. Th ere is considerable diversity in what actually gets assessed as responsible behaviour across th e different awards and rankings. Most look at a host of issues, including environmental performance, treatment of employees, commun ity relations; how well the company avoids irresponsible behaviour (e.g. corruption), as well as particular products and services on offer. But it is also interesting to see the differences between ra nkings. While the European CSR Award Scheme mostly focuses on part- nerships between business and other actors in society, the Asian CSR Awards focus on more specif- ic goa ls of how well a company con tributes to loca l 'education improvement', 'poverty al leviation', or 'health enhancement'. The awards thu s reflect regional differences in what stakeholders expect from a company. In a similar vein, two of the North America-based rankings, the Global 100 and the 100 Best Corporate Citizens lists, explicitly include responsible financial management, good corporate governance, and the pay gap between CEO and the average worker-which clearly reflects some of the key concerns of the North American public in the wake of the financial cris is. The initiative to conduct these rankings is equally telling. First , we see rankin gs being conducted by media organizations, such as Corporate Knights, Ethical Corporation, or Corporate Responsibility Magazine. The awards help to boost readership as well as providing a way of encouraging companies to enhance their CSR performance. Second, many rankings are published by business-led organiza- tions that were set up with the goal of furthering the implementation of CSR in a particular country or region. CR Magazine is the voice of the US-based Corporate Responsibility Officers Association , which, like Business in the Community (BITC) in the UK or CSR Europe at the EU level, aims to pro- mote responsible business practices among its members. Third, we also see consulting firms and think-tanks increasingly occupying this space, such as Corporate Register or Sustainia, wh ich both use the internet to solicit en t ries and publicize winners. Finally, the European CSR Award Scheme is heavily backed by the EU Commission, a pan-European representation of government. Next to these differences in criteria and the sponsoring organization, we can also observe an increasing diversity in the data used to rank companies. Corporate Register, for instance, focuses exclusively on ranking CSR/non-financial reports of companies and selects winners based on voting by its members. Another influential ranking, the CSR RepTrak 100 Study by the Reputation Institute in New York, instead focuses on the reputation of companies as responsible organi zations among a broad panel of stakeholder groups. Others, such as Ethical Corporation's Responsibl e Business Awards, re ly on entrants to enter reports of specific initiatives that are th en judged by a panel of experts. Th e meaning and releva nce of these ra nkings is not uncontested, though. Th ere is no shortage of social media criticism each time a ranking or award gets announced. This is because nearly all of the rankings include companies that in some of their operations raise serious concerns. For exam- ple, most rankings focus almost exclusively on large, publ icly listed companies whose footprint is inevitably larger than that of their smaller counterpa rts. This, at least, is startin g to change, w ith the emergence of two new rankings for sma ll and medium companies-the B Corporation 'Best for the World' ranking of the top 10% of its certified member companies, and Corporate Knights' 'Future 40 ' ranking of Canadian companies with revenues under $2 bil lion. CHAPTER 2 Framing Busin ess Ethics 59 Probably the most important effect of the rankings is that corporations are benchmarked against their competitors and t hus feel the need to maintain t heir standing and, if at all possible, outcompete other companies on the list. Since they are so easily accessible on the internet, most rankings are also increasingly important tools fo r decision-making by st akeholders includ ing consumers, potentia l employees, governments, and even investors. Th e demands of the latter stakeholder group have taken the idea of ran kings to another level, in that many stock market indices, such as the Dow Jones Sustainability Index or the FTSE4Good, effectively rank companies according to their performance as responsible businesses. In this sense, being responsible clearly pays. SOURCES 100 Best Corporate Citizens List, Corporate Re sponsibility Magazine (USA): http://www.3blassociation. com/i nsights/corporate-responsibi Iity-magazi ne-a nnou nces-2018-100-best-corpo rate-citizens Asian CSR Awards (Philippines): http://www.asianforum csr.com/awa rd s/backgroundBest for the World, B Corporation (US): http://bestfortheworld.bcorporation. net Corporate Reporting Awards (UK): https://www.corporateregister.com/crra CSR RepTrak 100 Study, Reputation Institute (US): http://www.reputationinstitute.com/thought-lead- ership/csr-reptra k-1 00 Ethical Corporation Responsible Business Awards (UK): http://events.ethicalcorp.com/awards European CSR Award Scheme (EU): http://www.europeancsrawards.eu Future 40, Corporate Knights Magazine (Canada): http://www.corporateknights.com/magazines/2015- yo uth-f utu re-40-issue/f utu re-40-re sponsible-corporate-l eade rs-ca nada-ra n king-turns-two-14278716 Global 100 Most Sustainable Companies, Corporate Knights Magazine (Canada): http://g lobal100.org Sustainia Awards (Denmark): https://thesustainian.com The Re sponsible Business Awards (UK) : http://www.bitc.org.uk/services/awa rds-recogn ition/respon- sible-business-awards QUESTION Ta ke a look at some of the recent winners of the aw ards listed above. For w hat are they being rec- ognized? Refer to Wood's (199 1) three outcomes of CSR-policies, programmes, and impacts- in res ponding to this question (see Table 2.3). How effective do you see these awards to be in driving sustainable change? Visit the online resources for web links to useful sources of information related to this issue. STAKEHOLDER THEORY OF THE FIRM The stakeholder theory of the firm is probably the most popular and influential theory to emerge from business ethics (Stark 1994). While the use of the term 'stakeholder' in relation to business was first noted in the 1960s, the theoretical approach was popularized by Edward Freeman in the 1980s to promote a broader reading of business responsibility. Unlike the CSR approach, which strongly focuses on the corporation and its responsibilities, the stakeholder approach starts by looking at various groups to which the corporation has a responsibility. The main starting point is the claim that corporations are not simply managed in the interests 60 PART A Understanding Business Ethics of their shareholders alone, but that there is a whole range of groups, or stakeholders, th at have a legitimate interest in the corporation as well. Although its basic premise is simple and readily understood, there are numerous different defmitions as to who or what constitutes a stakeholder. This range of defmitions makes it di f- ficult to get a generally agreed upon idea of what a stakeholder actually is. To determine who, in a specific situation, can be considered as a stakeholder, Evan and Freeman ( 1993) suggest we can apply two simple principles. The first is the principle of corporate rights, which demands that the corporation has the obligation not to violate the rights of others. The second, the prin- ciple of corporate effect, says that companies are responsible for the effects of their actions on others. Table 2.4 traces some of the early defmitions of stakeholders, demonstrating greater specificity in our understanding of broader constituent actors in business relations with society. IStakeholder An individual or a group that, in the context of a specific situation, is either harmed by, or benefits from, the corporation, or whose rights the corporation should respect. This clarification makes clear that the range of stakeholders differs from company to com- pany, and even for the same company in different situations, tasks, or projects. However, a typical representation is given in Figure 2.3. Figure 2.3(a) shows the traditional model of managerial capitalism, where the company is seen as only related to four groups. Suppliers, employees, and shareholders provide the basic resources for the corporation, which then uses these to provide products for consumers. Th e shareholders are the 'owners' of the firm and consequently they are the dominant group whose interests should take precedence. In Figure 2.3(b), we find the stakeholder view of the firm (Freeman 1984), where the share- holders are one group among several others. The company has obligations not only to on e group, but also to a whole variety of other constituencies that are affected by its activities. The corporation is thus situated at the centre of a series of interdependent two-way relationships. This model forms the basis of our understanding of CSR. Table 2.4 Some early defmitions of stakeholders Author Definition of stakeholders ,-:· Stanford memo 1963 'those groups without whose support the organization would cease to exist' (cited in Freeman 1984) Rhenman (1964, English 'are depending on the firm in order to achieve their personal goals and trans 1968) on whom the firm is depending for its existence' Freeman 1984 'can affect or is affected by the achievement of the organization's objectives' Evan and Freeman 1993 'benefit from or are harmed by, and whose rights are violated or respected by, corporate actions' Hill and Jones 1992 'constituents who have a legitimate claim on the firm... established through the existence of an exchange relationship' who supply 'the firm with critical resources (contributions) and in exchange each expects its interests to be satisfied' Clarkson 1995 'have, or claim, ownership, rights, or interests in a corporation and its activities' CHAPTER 2 Framing Business Ethics 61 Fig ure 2.3 Stakeholder theories of the firm (a} Traditional management model (b} Stakeholder model - ~- /- - -... -\\ - !I - - / ' ~-~ - · it ~ (c} Network model - *By civi l society, we mean pressure groups, local commu n ities, non-government o rgan izations, etc. It is important to remember, though, that stakeholder groups also might have duties and obligations to their own set of stakeholders, and to the other stakeholders of the corporation. This gives rise to a network model of stakeholder theory (Rowley 1997), which is shown in Figure 2.3(c). 62 PART A Understanding Business Ethics iihWIWMilM The network model of stake holde r theory s uggests that firm s have indirect relationships wi th a w hole range of constituencies via the ir immed iate stakeholders. To what extent should corporations also have to respect the rights of these indi rect sta keho lders? Think, for example, about the case of a company's s up ply chain and all the different tiers of supplier stakeholders that are involved. Does a company have responsibilities to suppliers at all tie rs? Visit the on line resources for a suggested response. WHY STAKEHOLDERS MATTER If we go back to our discussion ea rlier in the chapter rega rding arguments against soci al responsibility (Friedman 1970 ; Karnani 2010), a key objection of CSR has been that busi- nesses should only be run in the interests of their owners. This co rrelates with the traditional stockholder model of the corporation , where managers ' only obligation is to sh a re ho lders. Ind eed, in lega l terms, we have already seen that in most developed nations, man age rs have a special fiduciary relationship with shareholders to act in their interests. Stakehold e r th eo ry there fore has to provide a compelling reason why other groups also have a legitim ate claim on th e corporat ion. Free ma n ( 1984) himself gives two main arguments. First, on a merely descriptiv e leve l, if one exa mines the relationship between the firm and the various groups to which it is re lated by a ll sorts of contracts, it is simply not tru e to say that the only group with a leg it im ate interest in t he corporation is shareholders. From a legal perspective, there are far more gro ups a part from shareholders that appear to hold a legitimate 'stake' in the corporation , such as consumers, employees, or suppliers, since their interests are already protected in some way. There are not only legally binding contracts to such stakehold ers, but also an increas in gly dense netwo rk of laws and regulations enforced by society, which make it simply a m atte r of fact that a large spectrum of different stakeholders have certain rights and claims o n the corporation. For exa mple, EU social contract legislation protects certain employee rights in rela t ion to working conditions and pay, suggesting that, from an ethical point of view, it has already been agreed that corporations have certain obligations towards employees. Of course, among this broader set of obligations a nd rights, there are also obligations towards investors, but from a legal perspective this does not remove the obligation that the corporation ha s to other stakeholders. A second group of arguments comes from an economic perspective. An important aspect here is the agency problem: one of the key arguments for the traditional model is that sharehold ers are seen as the owners of the corporation, and consequently managers have their domin ant obligation to them. This view, however, only reflects the reality of shareholders' interests in a very limited number of cases (Stout 2012). The majority of shareholders do not invest in shares predominantly to 'own' a company (or parts of it), nor do they necessarily seek for the firm to maximize its long-term profitability. In the first place, shareholders often buy sh ares for speculative reasons, and it is the development of the share price that is their predomin ant interest-and not 'ownership' in a physical corporation. In his trenchant critique of shareholder CHAPTER 2 Framing Business Ethics 63 dominance, the late management guru Sumantra Ghoshal (2005: 80) therefore argued that ' most shareholders can sell their stocks far more easily than most employees can fmd another job'. Hence, it is not evident why the highly speculative and mostly short-term interests of shareowners should preside over the often long-term interests of other groups such as custom- ers, employees, or suppliers. The controversy around stakeholder versus shareholder dominance is ongoing and flared up publicly again in the fmancial crisis of the late 2000s. Among the most noted voices was that of former General Electric CEO Jack Welch-a long-standing poster child of shareholder value advocates-telling the Financial Times that shareholder value maximiza- t ion as a strategy 'is a dumb idea' and that 'your main constituencies are your employees, your customers, and your products' (Guerrera 2009). A NEW ROLE FOR MANAGEMENT Accordi ng to Freeman ( 1984), this broader view of responsibility towards multiple stakeholders assigns a new role to management. Rather than being simply agents of shareholders, manage- ment has to take into account the rights and interests of all legitimate stakeholders, including those who do not have a 'voice' to speak for themselves, such as the environment. Whil e they still have a fiduciary responsibility to look after shareholders' interests, managers must inte- grate th is with the interests of other stakeholders for the long-term survival of the corporation, rather than maximizing the interests of just one group at a time. We shall look at some of the ways in which managers can achieve this in Chapter 5, but clearly the task of balancing dif- ferent stakeholder expectations is a major challenge. A company that continually wins awards for its inspiring approach to sustainability management is Unilever, one of the world 's largest consumer goods companies, producing brands such as Dove and Lipton. Under a decade of leadership from CEO Paul Polman, the award-winning Unilever Sustainable Living Plan (USLP) has set stretching targets around the UN Sustainable Development Goals (SDGs), particularly focusing on improving health and well-being, reducing environmental impact, and enhancing livelihoods. Furthermore, since companies are obliged to respect the rights of all stakeholders, this could suggest a further obligation to allow stakeholders to take part in managerial deci- sion s that substantially affect their welfare and their rights. In this sense, there is a case for suggesting some model of stakeholder democracy that gives stakeholders an opportunity to influence and control corporate decisions (see Matten and Crane 2005). This also includes the idea of a model or a legally binding code of corporate governance, which codifies and regulates the various rights of the stakeholder groups. This, as we shall now see, appea rs to be more developed in other parts of the world than it is in the US, where stakeholder theory was popularized. liiiidiii@n;◄ Expl ain how Uni lever's vision fo r susta inability involves a 'contemporary' approach to CSR. W hy does social responsibility make good business sense for this company? Visit the on line resources for a suggested response. 64 PART A Understanding Business Ethics STAKEH OLO ER TH IN Kl NG IN AN INTERNATIONAL CONTEXT Sta keholder t heo ry is a relatively simple a nd prag matic a pp roach to ma n agem ent. Therefore, in t he seco nd part of the bo ok we w ill h ave a deta il ed look at maj or sta keholde rs of t he co m pa ny a nd provide an in-depth a n alysis of the co mp a ny's obli gations an d ma nage ri al app roach es towa rds these different sta keh olders. Nevertheless, it is imp orta nt at thi s stage t o con sider th e intern ational va ri atio ns in st a keholder thi nkin g, as these h ave a signi fica nt impact on the wa y t hat sta keho lder theory is engaged wit h in di ffere nt co ntexts. As we ind icated above, the shareholder-domin ated model of ma nage ri al ca pita lism has never been as stro ngly developed in contin enta l Eu ro pe o r As ia as it has in the An glo- American t radi tio n. Th erefore, a gen eral 'shi ft' towa rds other sta keho lde rs has not been seen as so mu ch of a necessity in these other parts of the wo rld. Fu rthe rmo re, w ith state influence on corpo ra- tio ns-o r eve n direct ow nership-still pl ay ing a co ns ide rabl e rol e in coun tri es such as Fran ce, Germany, o r China, one of t he maj o r 'sha reholde rs', govern ment, auto matically rep resents a large variety of 'stakeholders'- at least in principle. Th e impli catio ns of this a re th at the rights of gro ups oth er th an the di rect co n tractual pa rt- ners of the firm have traditio nally been fa irly well respected a nyway in these coun t ri es. Thi s typically app lies to Euro pean cou ntries such as Fra nce, Germ a ny, or Sweden, but also to m a ny Asia n eco nom ies, in particul a r J apan. It also appli es to m any econ omi es in tra nsition fro m com munism, where la rge state-owned industri al en tities ty pi ca lly had a stron g commitmen t to all so1is of gro ups other t ha n t heir owners- a patte rn t h at still survives to some exten t despite the rece nt ph ase of privatizatio n (Edwa rds a nd Law rence 2000 ; Crotty 201 6). In a certa in sense then, on e could argue that although the terminology of stakeholder th eo ry may often be relatively new outsid e th e US, the gen eral principl es have actu ally b een pra ctised Table 2.5 Sta keholder t hinking in inte rnational contex ts Germany Japan Scandinavia ~~ Th e vision of stakeholder We see a specific form of Scandinavia has significantly democracy reads as something of conglomerate business influenced the em ergen ce a blueprint for the German model organization (Carney 2008) in of stakeholder thin king, and of industrial re lations: at least Japan, China, India, Korea , and in contrast to other regi ons, one-third of the members on th e Taiwan to a great er or lesser the language of sta ke holder supe rvisory board of large publ ic extent. Th ese conglomerates managem ent has long been shareholder-owned corporations are networks of ban ks, incorporated into m anagemen t have to be representatives of manufacturing compan ies, teaching and practice. This the employees- and in some suppliers, and service providers is reflected in the strong er industries they even have up to (e.g. keiretsu in Japan, chaebol attention to co-operation in 50 % of th e votes. Furthermore, in Korea), w hich reflects a view Scandinavian business, throug h th ere is a very dense 'corporate of the firm w here suppliers, participative management, law' of governance that creditors, and cu stomers employee involvement, and codifies far-reach ing rights of represent the m ost important con sensus building. Thi s has co-dete rmination w ithin the stakeholders. In Japan and been labelled a 'Scandinavian company. Although one might Korea, this w ider focus on w ho cooperative advantage', w hereby argue that this is only focusing cou ld be important stakeholders companies such as H&M, on one stakeholder group, has also included employees, IKEA, and Novo Nordisk engage namely employees, this example since many companies stakeholders through a 'jointness is representative of a broader traditionally offered lifetime of interests, cooperative strategic orientation of corporations employment so that 'salary men' posture, and rejection of a tow ards stakeholders in many worked for just one company narrow ly economic view of th e European countries. throughout their entire life. firm ' (Strand and Freeman 2015). CHAPTER 2 Framing Business Ethics 65 in many countries for some time. Let us consider the three examples in Table 2.5. While some of the entrenched patterns of stakeholder orientation presented here have waned in the process of globalization, this absence of shareholder dominance is still notable. We will look at further aspects of stakeholder management, inclusion, and participation in the second part of the book, when we move on to focusing on each stakeholder group individually. However, at this stage, it is important to recognize that there are not only different ways in which a stakeholder approach can be implemented, but there are actually quite different forms of the theory itself. DIFFERENT FORMS OF STAKEHOLDER THEORY The popularity of stakeholder theory in the business ethics literature has meant that quite dif- ferent forms of the theory have emerged in relation to the more complex, networked nature of stakeholder relationships presented in Figure 2.3, earlier in the chapter. It is thus important to be able to distinguish between them.6 Donaldson and Lee Presto n (1995) provide a convincing argument that there are, in fact, three forms of stakeholder theory: Normative stakeholder theory-this is theory that attempts to provide a reason why cor- porations should take into account stakeholder interests. Descriptive stakeholder theory-this is theory that attempts to ascertain whether (and how) corporations actually do take into account stakeholder interests. Instrumental stakeholder theory-this is theory that attempts to answer the question of whether it is beneficial for the corporation to take into account stakeholder interests. In the preceding discussion, we have mainly used the first two types of argument to present the case for a stakeholder approach-that managers should and indeed do (at least to some extent) take into consideration interests beyond narrow shareholder concerns. However, we will develop a deeper normative basis for our arguments regarding specific stakeholder groups in Part B of the book. The instrumental argument-that considering the interests of stakehold- ers is in the best interests of the corporation-is largely akin to the argument for enlightened self-interest that we presented earlier in this chapter (see Why do corporations have social responsibilities?), and will be explored in more detail in Chapter 5. By now it should be fairly evident that Friedman's (1970) first and second arguments against the social role and responsibilities of the corporation face considerable dissent from those advo- cating a CSR and/or a stakeholder position. However, there is still one fmal aspect of his argu- ment that we have not yet addressed, namely whether corporate managers should be involved in decisions about public welfare. CORPORATE CITIZENSHIP-THE FIRM AS A POLITICAL ACTOR In Friedman's (1984) view, corporations should not undertake social policies and programmes because this is the task of government. Governments are elected by the public to pursue social go als whereas corporate managers are acting on behalf of shareholders, so their accountability is primarily to shareholders, not to the public. Friedman therefore proposes a strict political divi- sion of labour in society-corporations to pursue economic goals, governments to pursue social goals. Although it could potentially be argued that Friedman's argument was defensible when his article was published, more recently the question of the wider responsibilities of business has become far more vexed. The main challenge to Friedman 's view comes from the fact that 66 PART A Understanding Business Ethics corporations today have taken on a role in society that overlaps and interferes quite substan- tially with that of governments. Let us consider three main areas where this has happened: Governments retreating from catering to social needs. Throughout the 20th century, many societies saw the provision of water, electricity, education, healthcare, basic trans- portation , public safety, or telecommunication as part of what governments provided to their citizens. In many countries, however, these services have been privatized and are now in the hands of companies. It is very clear that companies that take responsibil- ity for people 's health, for heating their homes, or keeping them safe have a som ewh at more complex social responsibility. Jn fact, companies in these new areas face many of the social expectations hitherto directed at governments and the political sphere in general. Governments unable or unwilling to address social needs. In some contexts, especially in less-developed countries, business often faces governments that lack the resources to cater effectively for basic social needs. Mining companies that build roads, housin g, schools, and hospitals for the communities where they operate often do this for the 'busi- ness case' reasons for CSR, discussed earlier in the chapter. As a result, corporations often 'play government' in these contexts and face social expectations that in Western democ- racies would be placed on the government. Governments can only address social problems within their reach. When we discussed globalization in Chapter J, we encountered some of the limits of governments. Areas such as the global fmancial markets, the climate of the planet, and the internet are somewh at unwieldy and no single government is able to influence and govern them. Resultantly, these are areas that are run by businesses; hence the expectation towards business to address volatile fmancial markets, advancing climate change, and concerns surrounding internet privacy as a natural consequence of their global reach. All three basic developments have led to a situation where businesses now face many social expectations that are similar to those usually reserved for political authorities, raising a host of ethical problems for the entities themselves and those who work in or with them. Ethical Dilemma 2, for example, describes a situation where business has become involved in the funding of universities (previously a purely governmental function in most countries), and the ethical challenges this can raise for university employees such as professors. It is from this perspective that the business ethics literature has increasingly started to reconsider the politi- cal division of labour between business and government (Makinen and Kourula 2012). A key concept addressing this shift is corporate citizenship. Think about the concept of globalization that was discussed in Chapter 1, and our characterization of globalization as 'the ongoing integration of political, social, and economic interactions at the trans- national level'_ How might this influence the failing of government and increasing pow er of corpora- tions? Visit the on line resources for a suggested response. CHAPTER 2 Framing Business Ethics 67 ETHICAL DILEMMA 2 When good results are bad results Professor Ballistico is scratching his head. Looking at the results of last month's series of experi- ments has brought on a distinct feeling of unease. He has been sitting in his office for hours now trying to analyse the spreadsheets from every possible angle-but without success. He even had an argument with his research assistant, accusing her of having prepared the results incorrectly-but she had been right all along. Not that Ballistico is unhappy about the project itself. It is actually quite a successful piece of re- search looking at the various side effects of food additives in frozen food. The two-year project has already produced some very good publications; he has even been invited several times to give inter- views on television about the results. However, the latest round of results has got him wondering. The reason for Ballistico's unease is that, according to the results of the latest tests, two sub- stances involved in the study, called 'Longlife' and 'Rotnever', appear to significantly increase the risk of human allergies for long-time consumers of the additives. And however he interprets the results, his assistant really seems to have delivered solid work on the data analysis. Normally, such surprising results would be good news. Solid results of this kind would make for sensationa l presentations at the next conference of the World Food Scientist Federation. On top of that, 'Longlife' and 'Rotnever' are very common additives in the products of the large food multi- national Foodcorp, which is the market leader in frozen food in his country. His results could really make big headlines. There is one problem, though: Professor Ballistico is director of the Foodcorp Centre for Food Science at BigCity University. Three years ago, Foodcorp donated €2.3 million to BigCity University in order to set up the research centre and to fund its activities. The company felt that as 'a good corpo- rate citizen we should give something back to society by fund ing academic research for the benefit of future generations'. It also signalled that it saw this as a continuous engagement over time... and Ball istico is only too aware that the decision about the next €2 million funding will be imminent three months from now. Professor Ballistico has a major dilemma: if he publishes his resu lts, Foodcorp might get into seri- ous trouble. He also knows that this will be quite embarrassing at the next meeting with his sponsor, and it w il l most certainly influence the company's decision to fund the centre further. And he hardly dares to think of his next meeting with the president of the university, who is always so proud of BigCity having such excellent ties to companies and scoring highest in the country in terms of its abil ity to secure external funding. Should he therefore just tell Foodcorp privately about his results so that it can take appropriate action to deal with Rotnever and Longlife, or should he go public with his findings? QUESTIONS 1. What are the main ethical issues for Professor Ballistico here? 2. What options are open to him? How would you assess these options? 3. How should Ballistico proceed, and w hat can he realistically do to prevent similar problems arising in the future? 4. What are the wider ethical concerns regarding corporate involvement in funding universities and other public institutions? 5. In lig ht of this example, give a critical assessment of the benefits and drawbacks of cor- porations stepping into roles often played by governments, such as the funding of higher education. Visit the on line resources for a suggested response. 68 PART A Understanding Business Ethics THE CONCEPT OF CORPORATE CITIZENSHIP Towards the middle of the 1990s, the term 'corporate citizenship' (CC) emerged as a new way of addressing the social role of the corporation. Initially favoured primarily by practitioners (Altman and Vidaver-Cohen 2000), CC has also increasingly been introduced into the academic literature. II Although, again, the shift in terminology largely started in the US, numerous companies in Europe, Asia, and elsewhere have since committed themselves to CC (see Table 2.6), and various consul- tancies and research centres based around the concept of CC have been founded across the globe. Table 2.6 Commitments to corporate citizenship -~ Company Industry and Corporate citizenship statement Source Country of Origin (emphasis"acfcled)tit?0~'fit']i1\: ~ 1 ~""'"" \~') 1... >ii.,, , ~,' ~,, BMW Automobiles, Corporate citizenship forms an integral https ://www. Germany part of how the BMW Group defines bmwgroup.com/ itself as a company. With this in mind, we en/responsibility/ address current chal lenges in society and corporate-citizenship. focus on those areas in which we can apply html, 2017 our core expertise to achieve specific and measureable improvements. We believe that our corporate citizenship activities contribute towards mastering challenges in society, while at the same time bringing economic benefit to the company. Citibank Financial Services, At Citi, we intentionally use the word http://www.citigroup. us 'Citizenship'to describe these efforts com/citi/about/ because the word reflects a sense of citizenship, 2017 belonging to communities that extend well beyond our firm. It also reflects a longstanding recognition that our success is inextricably linked to the positive outcomes and progress we can help enable for others. And it's an acknowledgement that we take our responsibility to use our many strengths and resources to contribute to the greater public good very seriously. Distell Brewing and We are committed to being a caring, https://www.distell. beverage, South socially and environmenta lly responsible co.za/corporate- Africa corporate citizen that conducts business responsibility, 2017 with fairness and integrity. This includes contributing to safe and responsible alcohol consumption, driving socio-economic transformation and championing ethical conduct. Panasonic Electronics, Japan Panasonic is promoting corporate https ://www. citizenship activities (social contribution panasonic.com/ activities) and working to solve social global/corporate/ issues around the world. Panasonic, as sustainability.html , a global corporate citizen, aims to be a 2017 benefit to the environment by creating more energy than it uses. CHAPTER 2 Framing Business Ethics 69 However, as the literature on CC is relatively new, there seems to be quite a variety of usages of the terminology (Matten and Crane 2005; Crane, Matten, and Moon 2008). In a 'limited view' of CC, many refer to philanthropy as the main activity of a virtuous CC that shares its wealth with its 'fellow citizens'. Others refer to CC in a way that mainly is synonymous to CSR, equat- ing good neighbourly behaviour with a responsible role of business in society. In the context of the political nature of the corporations as outlined so far in this section, however, we prefer to use the 'extended view' of CC proposed by Matten and Crane (2005), which deliberately embraces the political elements of business ethics (also sometimes referred to as 'political CSR', see Scherer and Palazzo 2011 ). The extended view of CC takes as its starting point the notion of 'citizenship', and the dominant idea in most industrialized societies that citizenship is defmed as a set of individual rights (Faulks 2000: 55-82). Following the still widely accepted categoriza- tion by T.H. Marshall (1965), liberal citizenship comprises three different rights: Social rights-these provide the individual with the freedom to participate in society, such as the right to education, healthcare, or various aspects of welfare. These are sometimes called 'positive' rights since they are entitlements towards third parties. Civil rights-these provide freedom from abuses and interference by third parties (most notably the government); among the most important are the rights to own property, to en- gage in 'free' markets, or to exercise freedom of speech. These are sometimes called 'nega- tive' rights since they protect the individual against the interference of stronger powers. Political rights-these include the right to vote or the right to hold office and, generally speaking, enable the individual to participate in the process of governance beyond the sphere of his or her own privacy. The key actor for governing these rights for citizens is the government. Thus, at first glance, it is somewhat hard to make any sense of something like 'corporate citizenship' since citizenship is about relations between individuals and governments; although, as we saw earlier, corpora- tions are regarded as 'artificial persons' and so do enjoy some of the rights and obligations of other citizens (rights to own property, for example). However, corporations enter the picture not because they have an entitlement to certain rights as a 'real ' citizen would, but as powerful public actors that-for better or for worse-can have a significant impact on those 'real ' citizens' rights. That is, the failure of governments to fulfil some of their traditional functions, coupled with the rise in corporate power, has meant that corporations have increasingly taken on a role in society that is similar to that of traditional political actors. Hence, corporations enter the arena of citizenship at the point where traditional governmental actors fail to be the only 'counterpart' of citizenship. Quite simply, corporations can be said to partly take over those functions with regard to the protection, facilitation, and enabling of citizens' rights. Let us consider some examples: Social rights. Many companies have pursued initiatives formerly within the province of the welfare state: feeding homeless people, helping head teachers in managing school budgets, enhancing the employability of the unemployed, or improving deprived neigh- bourhoods. For example, the British retailer Marks and Spencer has for more than a dec- ade operated its 'Marks and Start' programme to help people facing barriers to employ- ability (such as single parents, people with disabilities, and the homeless) to gain work experience and skills that improve their employment prospects. 7 Similarly, in developing 70 PART A Understanding Business Ethics countries where governments simply cannot (or do not want to) afford a welfare state, the task of improving working conditions in sweatshops, ensuring employees earn a living wage, providing schools, medical centres, and roads, or even providing fmancial support for the schooling of child labourers are all activities in which corporations such as Shell, Nike, Levi Strauss, and others have engaged under the label of CC. Civil rights. Governm ental failure aga in becomes particularly visible in developing or transforming countries in the arena of civil ri ghts. Corporations can sometimes play a crucial role, either in discouraging or encouraging governments to live up to their responsibility in this arena of citizenship, or directly protecti ng or infringing people's civil rights. Consider Facebook, which fac ed several court cases in the 2010s because of all eged infringements of the rights to privacy of its users,8 and who became the subject of suspicion following its role in promoting political messages during the 2016 US presi- dential ca mpaign. 9 On the other hand, companies such as Google have sometimes held themselves up as guardians of people's rights to free speech in the face of governmen t restrictions. As a global space not monitored by any single government, the internet is therefore a good exampl e of on e of those areas where corporations are exposed to dealing with core civil rights of individuals. Political rights. Voter apathy in national elections has been widely identified in many industrialized countries, yet there appears to be a grow ing willingness on the part of individuals to participate in political action aimed at corporations rather than at govern- ments (Hertz 2001a). Whether through single-issue campaigns, anti-corporate pro tests, consumer boycotts, or other forms of sub-political action, individual citizens have in- creasingly sought to effect poli tical change by leveraging the power, and to some extent vulnerability, of corporations (see Chapter 8). Returning to Case 1 on McEthics in Chapter I, when anti-obesity campaigners have sought to draw attention to the social probl ems of poor hea lth and nutrition among young people, they have achieved international cover- age for their efforts not by tackling national governments, but by attacking the McDon - ald's corporation. Hence, given this emerging role for corporations in the administration of civil, soci al, and political rights, the extended view suggests that corporate citizenship is essentially about how corporations govern the rights of individual citizens. I Corporate citizenship The corporate role in governing citizenship rights for individuals. These rights are governed by the corporation in different ways. With regard to social rights, the corporation basically either supplies or does not supply individuals with social services and hence largely takes on either a providing or an ignoring role. In the case of civil rights, corpo- rations either capacitate or constrain citizens' civil rights, and thus can be viewed as assuming more of an enabling or a disabling role. Fin ally, in the realm of political rights, the corporation is essentially an additional conduit for the exercise of individuals' political rights-hence, the corporation primarily assumes a channelling or a blocking role. This extended conceptualiza- tion of CC is shown in Figure 2.4. It is evident that CC may be the result either of a voluntary, self-interest-driven corporate initiative, or of a compulsory, public pressure-driven corporate reaction- either way it places CHAPTER 2 Framing Business Ethics 71 Figure 2.4 An extended view of corporate citizenship CORPORATE CITIZENSHIP Social role of the corporation in governing citizenship Social rights corporation as provider/ignorer Civil rights corporation as dis-/enabler Political rights corporation as channel/blockage corporations squarely in a political role rather than just an economic one. Most firms actu- ally claim to not want to take on such a political role in society, yet it seems that increas- ingly they do, either because of pressure from activists or sometimes simply out of necessity. If an apparel company needs to make sure the children of its staff working in a poor African community get an education , it may need to build its own schooling centre because the local authorities may not have the resources to do so. The point is that we do not need to know the motiva

Business Ethics, Corporate Responsibility, and Citizenship (PDF)

Document Details

Tags

Related

Summary

Full Transcript

Upgrade to continue