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Corporate Social Responsibility (Summary)Academic papers, Slides and notes.
Grading:
50% Assignment
50% Final Exam
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Slides are leading, but papers must be read.
Lecture 1: The Tension Between Business and Society
Within society, Anti-profit belieess persist. Anti-profit belieess are the percepton that proft seeking is necessarily in confict with
the benefcial outcomes for consumers and society. This leads to the belief that bad-practces lead to higher profts of
companies in comparison to positive practces that are regarded as loss-making/ less proftable. This noton howeiver does not
match with the reality as the following studies will show.
Situdy 1: (Eccles, Ionnou and Serafeim 2014)
Inivestng in a portolio with high sustainable frms lead to higher returns (with beter stock-market
performance)
Situdy 2: (Orlitzky, Smith and Rynes; 2003)
A positive correlaton is present between oiverall corporate social responsibility and frm performance
(howeiver, focusing on enivironment performance leads to a weaker correlaton and if enivironmental
performance, a fracton of CSR is excluded the correlaton is stronger!)
Situdy 3: (Friede, Busch and Bassen; 2015)
Of the 2200 studies, more than 50% that looked into the relaton between CSR and performance found
positive fndings.
Fierms were originally created to support activites that were legally separated from the household. Ultmately this lead to the
socializaton of losses and priivatzaton of profts, which is a priivilege to liemieit lieabielieity. Society has granted this priivilege as a
compromise that had to be made. Society benefts from frms (work, paid taxes) should be equal to the incentives to start a
frm (minimalize risk-taking)
Liemieited lieabielieity was also accepted because it stmulates risk-taking out of self-
interest to generate innoivaton (which benefts society). Deiveloping innoivatons that
increase welfare can be beter delegated to frms rather than the goivernment.
Ultmately frms were created because that allows to exploit the human self-interest
to generate welfare for society.
Ant-proft beliefs persists because of the following reasons:
- Zeroi-Sum gaien: the more the frm profts, the less ivalue for the consumer.
Howeiver Zeroi-sum gaien is an easily accessible concept, judging proft-seeking
frms while the efect that these profts haive on innoivaton and the increase of welfare is almost inivisible.
- Mediea mainly coivers the negative external efects frms impose on society.
Ant-proft belief can be problematc as it puts proft-seeking frms a ivery difcult positon. If frms do not consider
sustainability, the are (ofen justly) critcized, but if they are sustainable they are ofen under high scrutny or accused for
greenwashieng
Greenwashieng: the false portrayal of organizatonns products, activites or policies as enivironmentally friendly when in
reality they are not!
, Lecture 2: The Tension Between Business and Society
Ant-proft belief not only afects how we perceiive frms, but also how we ivalue sustainability related ideas. Firms were
originally created with the aim to exploit the self-interested motives of indiividuals in a way that generates societal ivalue.
Profits and liemieited lieabielieity were the primary incentives of entrepreneurship. Howeiver, at some point in tme, the proft motive
transformed into the noton os maxiiemum profits which has been persistent eiver since. Eiver since, the debaite persiesits about
the role of companies in society and the tension between the two.
Mieliton Frieedman (1962 – 1970)
Milton Friedman was a neoclassiecal economiesit associated with the Chicago School of Economics . His school of neoclassical
thinking consists of the following notons:
- Firms should make as much money as possible while conforming to the basic rules of society (meaning it is constrained by
law and ethics).
- Companies should not be inivolived in adivancing societal ivalue, because eivery $ that is used for societal goals reduces the
returns for inivestors, since societal and economic progress are polar opposites.
- Free market will solive social maters, and adivancing societal ivalue is delegated to inivestors and employees.
Friedmanns ideas could be considered to be correct if:
- Full informaton is present about the impact of the frmns activity on society. Only frms that comply with basic rules of
society, law and ethical custom will suriviive
- It fts the tmeframe of the 1960ns where there was endless economic growth and potentally negative impact of frms
on society was either not measured or unknown.
- Naturally, within the tmeframe, the only way of contributng to society was to generate as much profts for
shareholders as possible.
Carrol (1979 – 1991)
Carrol deiveloped the Corporaite Socieal Responsiebielieity (CSR) Pyramied. Which shows the phases of a frm.
1) Economiec (be profitable): in order to ensure contnuaton
2) Legal (obey ithe law): which are codifed ethics which embody the basic notons of fair operatons as enforced by
lawmakers
3) Eithiecal (be eithiecal): adhere to the basic rules of society
i. Immoral: Actons and decisions that are opposite of what is considered to be right or ethical
ii. Amoral: Not sensitive that decisions and actons may haive negative consequences
iii. Moral: Conforming to professional conduct and exemplifying leadership on it.
4) Phielanithropiecal (be a good cietien): Encompasses all corporate actons in response to the expectaton of society that
businesses can be good corporate citzens. This includes actively engaging in programs and acts that promote human
welfare or goodwill.
The pyramid shows the leivels on which the frm can operate and the responsibilites it may haive. The focus should howeiver
always be on the entrety of the pyramid and not on the economic responsibility only! The framework makes responsibilites
more salient but creates no simultaneity between proft and societal benefts. Lastly, pure philanthropy has ofen been
considered as a requirement to be a good corporate citzen but ofen leads to (sometmes justfable) accusatons of
‘Greenwashingn.
In conclusion, Both Milton and Carrol confrm that CSR is ofen a fricton between corporate and societal goals. Where being a
good corporate citzen ofen results in a restricton on proft generatons and therefore is considered to not haive an integral
part in strategy. As a result of the tension between proft, companies pay less atenton to activites that generate both an
economic and societal beneft. Consequently, causing the emergence and growth of goivernmental activites.
Sitakeholder Managemenit:
Stakeholder management ofen is the frst step to an integrated CSR strategy, to
ensure that the strategy is tailored to diferent stakeholders of the frm. The
main challenge here is to decide which stakeholders haive merit and should be
taken into consideraton when implementng a strategy. Sitakeholder
managemenit: is the processes by which managers reconcile their own
objectives with the claims and expectatons of ivarious stakeholder groups.
In order to determine the importance of groups of stakeholder claims, there are
three important criteria:
i- Legietmacy: group has a justfable right to be making the claim
i- Urgency: how fast and strongly requires the stakeholder claim atenton
i- Power: stakeholders can coerce frms to do something they would not haive done otherwise.
Stakeholder management is made feasible through a sitakeholder maitriexi (see pieciture)
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