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Stakeholder Theory
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Lecture 5, with academic readings
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CSR & Stakeholder Theory – Lecture 3*Decision making rules and ethical theories for corporations.
What is a Corporation?
- Corporations are typically regarded as ‘artificial persons’ in the eyes of the law.
- A corporation is essentially defined in terms of legal status and the ownership of assets.
- Corporations are notionally ‘owned’ by shareholders, but exist independently of them.
- Managers and directors have a ‘fiduciary’ responsibility to protect the investment of
shareholders:
o Manager is trusted with responsibility to owners and shareholders.
What is Corporate Social Responsibility?
- Corporate social responsibility includes the economic, legal, ethical, and philanthropic
expectations placed on organizations by society at a given point in time (Carroll & Buchholtz,
2009).
Carroll’s 4-Part Model of CSR:
*Pyramid shape – bottom to top (if it is not a legal or economic issue then it is an ethics issue).
- Economic Responsibilities: Required by society.
- Legal Responsibilities: Required by society.
- Ethical Responsibilities: Expected by society but not required, often voluntary.
- Philanthropic Responsibilities: Desired by society.
Why Might Corporate Social Responsibilities Be Justified?
- Business reasons:
o Extra and/or more satisfied customers.
o Employees may be more attracted/committed.
o Forestall legislation – e.g. being environmentally friendly may mean paying less fines
in the future.
o Long-term investment that benefits corporation – e.g. opening schools in rural areas,
these educated kids will grow up to work for you and be your customer.
- Moral reasons:
o Corporate activity has social and environmental impact.
o Corporations are powerful and should use this power responsibly – corporations can
be more powerful than governments.
o Corporations rely on the contribution of a wide set of stakeholders, not just
shareholders
Do Corporations Have Social Responsibilities?
- Milton Friedman’s classic article “The social responsibility of business is to increase its profits”
(1970) – Shareholder Theory. The “Cloak of Social Responsibility” – ultimately they want to
make money.
- Three-part argument against corporate social responsibility:
o Only human beings (not corporations) have a moral responsibility for their actions.
o Corporate managers’ responsibility is to act solely in the interests of shareholders.
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