Lecture 4: Part 1: Corporate Social Responsibility

Question 1

What happened in the Malden Mills case? I’m

Answer 1

• Tragic fire struck Malden Mills company, and its owned Aaron Feurestian, announced he would continue to pay the wages and benefits for the affected workers, and would rebuild on the site, even though moving operations overseas would be cheaper
• Rebuilding cost an extra $100m on top of insurance payout, which lead to company into bankruptcy.
• The new owners (former creditors) planned to keep control of the company and cut jobs by sending operations to Asia
• Aaron believed the CEOs had a responsibility to both white and blue collar employee, and a responsibility to his community and city

Question 2

What happened in the hooters case study?

Answer 2

• Discrimination: employee was told to loose weight and join a gym so she could fit into the very small uniforms

Question 3

What is social responsibility?

What is the relationship between social responsibility and legal and economic responsibility

Answer 3

Selection and evaluation of corporate goals based not only on profitability and organisational well-being, but also on ethical standards that are socially desirable.
- Goes beyond economic and legal responsibility, and extends to ethical conduct that is expected, but not required

Question 4

What are the three concentric circles in relation to social responsibilities?

Answer 4

The three concentric circles outline the RESPONSIBILITIES OF CORPORATIONS:

• Inner circle: includes the clear-cut, basic responsibilities for efficient execution of a corporation’s economic function (product, jobs, economic growth)
• Intermediate circle: achievement of these economic functions with an awareness of changing social values and priorities through environmental awareness, employee relations, information availability
• Outer circle: Responsibilities of organisations to assist in addressing major social problems (such as poverty), large firms have critical resources that can help alleviate these problems

Question 5

What is corporate citizenship?

Answer 5

• The process of identifying, analysing and responding the to the company’s social, political and economic responsibilities as defined through law, public policy, stakeholder expectations
• Voluntary acts flowing from corporate values and business strategies

Question 6

What does the normative case for CSR explore? What are the two viewpoints in relation to this?

Answer 6

Normative question: Do companies have a moral obligation, or are they permitted to exhibit CSR?
Two viewpoints:
- NO: The classical view (dominant in the US)
- No: Milton Friedman’s argument

Question 7

What are the three basic propositions under the classical view?

Answer 7

1) Economic behaviour is separate and distinct from other forms of behaviour - businesses do not have the same goals as other organisations in society
2) The primary criteria for evaluating business performance is in economic efficiency, growing production and technological development
3) The primary goals and motivation in business is profit

Question 8

What is the rationale behind the classical view? What are the justifications for this view?

Answer 8

• Judging firms purely and solely on economic activities, social concerns should be left to other institutions in society (government)
• Justification: secures the well-being of society as a whole (Adam Smith’s invisible hand argument)

Question 9

What are the 3 problems with the classical view?

Specifically, what are the four steps to address before helping the government?

Answer 9

1) The moral minimum of the market:
- Social responsibility of some kind is required by free markets, and therefore by embracing CSR
- By embracing CSR expectations of society, corporations can retain control over decision making and avoid government regulation costs
2) Power and responsibility
- Organisations need self- imposed restraint given corporations have become so large and are not effectively governed by government regulation
3) Giving a helping hand to the government - classic argument assumes business is best suited for economic means, however can address issues related in some way to corporations activities.
Four criteria for business offering a helping hand (whether the organisation has an obligation to offer helping hand)
- Urgency of need
- proximity of corporation to need
- Capability of a corporation to respond effectively
- Likelihood the need will not be met unless corporation acts

Question 10

What is the main argument of Milton Friedman’s argument against CSR?

Answer 10

• Corporate executives and officials only have the responsibility to serve the interests of shareholders
• Corporate execs cannot spend stockholders money for a general social interest

Question 11

What are Milton Friedman’s two ‘rules of the game’

Answer 11

1) does not mean that corporations can act irresponsibly

2) Some government intervention is necessary to enforce these rules

Question 12

What are the three categorical problems of Milton Friedman’s argument?

Answer 12

1) Question of means: Although managers are requested to earn a profit for shareholders - not morally permitted to do so by any means - management have a greater responsibility than the minimal rules of the game
2) Taking a long term view: To maximise shareholder return in the future, management need to be socially responsible and satisfy exectations of society
3) Shareholder perspective: managers may be more profit orientated than the shareholders themselves - shareholders are people!
- however: Friedman’s response; shareholders can use their own dividends for this purpose

Question 13

What is the business case for CSR and that are the two aspects?

Answer 13

Business case = argues that the adoption of a CSR strategy is for the company’s advantage:

1) CSR contributes to profitability: market rewards responsible behaviour and punishes company lapses
2) CSR can be a source of competitive advantage: if company can find ways to gain a corporate benefit along with a public good

Question 14

What are the five elements of CSR activities?

Answer 14

1) Account for the management of reputation risk
2) Be linked to employment needs
3) Be aligned to the company mission and/ or core activities
4) Fit the company’s strategy
5) Incorporate shareholder engagement/ dialogue

Question 15

How has CSR developed over time?

Answer 15

• originated in 1950s when American organisations increase in size and power, some questioned their legitimacy in a democracy
• over last two decades, increasing Swansea of CSR however pressures from the market to achieve profitability have limited potential CSR activities
• increased in globalisation and protests emerging: firms began to realise improtance of CSR for brand image
• by 2004, CSR Was driving, virtually an industry within itself