Corporate social responsibility

Question 1

T or F According to Milton Friedman It is the social responsibility of corporations to hire workers who have been struggling for a
long time to find jobs?

Answer 1

False

Question 2

What does Milton Friedman Believe?

Answer 2

Profit maximizing! There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.

Question 3

What are the arguments for profit maximization?

Answer 3

1. A manager’s duty as an employee and an agent of the principal overrides his or her alleged social responsibilities.
2. Pursuing social responsibilities other than profit maximization is a form of “taxation without representation”
3. Pursuing profit leads to pareto efficiency

Question 4

What are some corporate activity that aims to help the community but reduce profit according to Milton Friedman?

Answer 4

1. Undemocratic because these decisions should be made through a democratic process
2. Unwise because a businessperson has no expertise to identify and fix social problems
3. Ineffective because a manager who acts contrary to profit maximization might be fired or have customers desert to a less scrupulous firm.

Question 5

What are the two market failures that lead profit maximization to not be an effective strategy according to Kenneth Arrow?

Answer 5

Negative Externalities: Arrow focuses on pollution caused by the firm.
Asymmetric information: the firm knows more than the customer about the quality of the product. The firm also knows more than the workers about workplace safety. (mining)

Question 6

What is the issue with Friedman’s argument?

Answer 6

He ignores market failure issues

Question 7

What are potential solutions to market failure

Answer 7

1. Regulations: production standards, maximum emission levels, safety inspections, competition policy
2. Taxes & Subsidies: tax pollution, subsidize abatement
3. Legal responsibility: damage suits or “torts”; Legislation for labour and consumer protection
4. Government produced goods when there are public goods or externalities (defense, healthcare, education)
5. Industry led solutions such as gaurentees, warrantees
6. Social responsibility: moral obligations to obey ethical codes

Question 8

Corporate social responsibility

Answer 8

The responsibility of business to the environment, its stakeholders and to the broader society.

Question 9

Shared Value

Answer 9

Firms have benefits to their (financial) bottom line from CSR initiatives. Some firms (like consumer brands) find it easier to create shared value than others.

Question 10

ESG investing

Answer 10

where investors invest in equities of firms that score highly on an ESG index. It is an important means of incentivizing firms to engage in CSR.

Question 11

Greenwashing

Answer 11

Firms appear socially responsible but do not have much impact.

Question 12

Triple Bottom line

Answer 12

firms expand their objectives beyond just making money to include having a positive impact on the environment and the community. (People/Planet/Profit)

Question 13

Can you list the four justifications for CSR by Michael Porter?

Answer 13

1. Moral Obligation- Companies have a moral duty to do the right thing
2. Sustainability- Companies Should operate in ways to secure long-term economic performance by avoiding detrimental short-term behaviour.
3. Freedom to operate - Pragmatic approach where companies look to satisfy stakeholders. Common in mining, chemicals
4. Reputations-Companies do CSR to improve image, strengthen brands and enliven morale.

Question 14

T or F Friedman questioned what he saw as a form of ‘mindless’ social responsibility.

Answer 14

True

Question 15

What is Michael Porter’s approach to CSR?

Answer 15

strategic approach integrating inside-out and outside-in practices.