Ethics and Social Responsibility

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Ethics and Social Responsibility

• Mgmt 491
• Management Ethics in a Global Environment
• Jeffery D. Smith

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New York TimesApril 9, 2006.
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A View of Corporate Social Responsibility
Most
Managerial Discretion
Least
Adapted from Archie Carroll (1991). The Pyramid
of Corporate Social Responsibility. Business
Horizons, 42 39-48.
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A Revised View of Corporate Social Responsibility
LEGAL
ECONOMIC
PHILANTRHOPIC
ETHICALTrust, Honesty, Fairness, Freedom,
Beneficence, Authority
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Pacific Lumber Company

• Corporate Social Responsibility Initiatives
• Environmental Sustainability
• Community Sustainability
• Economic Sustainability
• http//www.palco.com
• The so-called triple bottom line

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Milton Friedmans Stockholder Model
Nobel Prize in Economics (1976) Capitalism and
Freedom (1962) The Social Responsibility of
Business is to Maximize Profits (1971) Free to
Choose (1980)
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Milton Friedmans Stockholder Model

• Some Preliminary Assumptions
• The corporation only has "artificial
  responsibilities", i.e., only individuals
  (directors, executives, and managers) have moral
  responsibilities  
• Managers (operation executives and officers) are
  employees of stockholders (equity investors)
  established by a voluntary principal-agent
  relationship    
• Stockholders property rights in their equity
  extends to a property right in what flows from
  the productive use of their equity

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LAW and SOCIAL NORMS
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Friedmans Stockholder Model, contd

• The only social responsibility of business is to
  maximize the wealth of equity investors, i.e.,
  maximize profits, within the bounds of the law
• Managers have a fiduciary responsibility to carry
  out the directives and protect the interests of
  equity investors, i.e., a responsibility based
  upon a special trust arising from an agency
  relationship

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Friedmans Stockholder Model, contd

• 1. Equity investors have an ethical entitlement
  to their property (capital)
• and the profits that flow from its
  productive use by the firm.
• 2. Through an act of trust, managers agree to
  maximize the value of
• equity investors property by maximizing the
  profits of the firm.
• 3. From 1) and 2), managers have an ethical
  responsibility to
• maximize the profits of the firm.
• 4. Corporate social responsibility (CSR)
  requires managers to act in ways that do not
  maximize profits, i.e., it requires managers to
  divert what would otherwise be profit toward
  social endeavors.
• 5. From 3) and 4), managers have an ethical
  responsibility not to pursue corporate
  social endeavors and thereby maximize profit for
  stockholders.

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The Stakeholder Model, contd

• A stakeholder theory of the firm must redefine
  the purpose of the firm. The stockholder theory
  claims that the purpose of the firm is to
  maximize the welfare of the stockholdersThe
  purpose of the firm is quite different for the
  stakeholder approach. The very purpose isto
  serve as a vehicle for coordinating stakeholder
  interests. It is through the firm that each
  stakeholder group makes itself better off through
  voluntary exchanges.
• William Evan and R. Edward Freeman. (2005) The
  Stakeholder Theory of the Modern Corporation
  Kantian Capitalism. In J. DesJardins and J.
  McCall (Eds.), (pp. 76-84). Belmont Thomson.

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R. Edward Freeman
Stakeholder an individual or group that is vital
to the survival and success of the corporation
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2. The Stakeholder Model, contd

• Kants Humanity Formula of the Categorical
  Imperative
• Corporate agents must always respect the
  humanity of each
• stakeholder group by never treating
  stakeholders as a means
• to corporate ends.
• Principle of Corporate Rights (PCR)
• The corporation and its managers may not
  violate the legitimate rights of others to
  determine their own future.
• health, safety, association, contractual
  entitlements, fair/equitable treatment
• Principle of Corporate Effects (PCE)
• The corporation and its managers are
  responsible for the
• effects of their actions on others.

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2. The Stakeholder Model, contd

• Principle of Corporate Legitimacy (PCL)
• The corporation should be managed for the
  benefit of its stakeholdersThe rights of these
  groups must be ensured andthe groups must
  participate, in some sense, in decisions that
  substantially effect their welfare (Evan and
  Freeman, p. 82)
• Stakeholder Fiduciary Principle (SFP)
• Management bears a fiduciary relationship to
  stakeholders and to the corporation as an
  abstract entity. It must act in the interests of
  the stakeholders as their agent, and it must act
  in the interests of the corporation to ensure the
  survival of the firm, safeguarding the long-term
  stakes of each group. (p. 82)

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2 Concepts of Corporate Social Responsibility

CSR
Philanthropic
Strategic