Lecture 1 – The Tension Between Business and Society
Anti-profit beliefs: the perception that profit-seeking is necessarily in conflict with beneficial
outcomes for consumers and society. Humans have anti-profit beliefs that don’t match with
reality, because our first experience with market exchanges are zero-sum, meaning the more
the firm profits from an exchange, the less the value for the consumer. Thus, we assume that
a firm also makes profit zero-sum: the more profit a firm makes, the less value for society.
Also, in the past, sustainability was an agency cost, meaning firms investing in sustainability
used to have a lower market evaluation. Anti-profit beliefs are strengthened by media
covering only negative effects of firms on society, and have put many firms in a difficult
position: if they don’t consider sustainability, they are accused of negative effects on society;
if they do consider sustainability, they are accused of greenwashing.
The origin of the firm: A firm is a legal form to which society grants the privilege to limit liability
(or to socialize loses) while privatizing profits. This privilege should stimulate individuals to
take risks by developing innovation. Developing innovations that increase welfare can be
better delegated to firms rather than directly executed by a government. Anti-profit beliefs
do not match with the origin of the firm.
Lecture 2 – The Tension Between Business and Society
Neoclassical economic thinking of Friedman: Firms should make as much money as possible
while conforming to the basic rules of society, both those embodied in the law and those
embodied in ethical custom. Thus, maximization of profit is constrained by law and ethical
norm. Each dollar that is used to advance societal goals reduces investor return. Friedman
considers societal and economic progress as diametrically opposed to each other. Companies
should not be involved in advancing societal value. This task is delegated to investors and
employees. The interaction between companies and society is zero-sum. In favor of
Friedman’s statement, in his time frame, there wasn’t enough information available, so
negative societal impacts of firms was unknown; therefore, the only way through which firms
could contribute to society was by generating more profits for their shareholders.
Carroll and the CSR-pyramid: Economic → Legal → Ethical → Philanthropical. The total CSR of
business is about the simultaneous fulfillment of these 4 responsibilities; the focus should be
on the pyramid as a whole and not only at the bottom. Positive aspect of the pyramid: makes
the societal responsibilities salient; negative aspect: there is no simultaneity between profit
and societal benefits.
3 arguments to make a choice for charitable giving: Greenwashing: the firm can always be
accused of greenwashing. Porter’s argument: donations should be integrated into the firm’s
business model. Economic argument: a firm should donate to a charity that addresses an issue
caused by negative effects on society that can’t be easily resolved by individual shareholders.
The consequence of tension between profit and society: The lack of attention of companies
for activities that generate both an economic and societal benefit has caused the emergence
and the growth of government activities, which neoclassical economists want to avoid, as this
results in a low economic benefit. Furthermore, companies have been too little and too slow
in focusing on CSR, which has resulted in tipping points (points of no return) coming closer
and closer. Although claiming direct causality between the way companies are managed and
the current environmental issues is still up for (some) discussion, companies can influence the
, parameters that determine the environmental issues. Besides, although companies focus on
sustainability, there is still the question whether or not these firms are actually sustainable.
An example of this is Tesla, where even though the cars are sustainable, the production is not
and some parts are toxic for the environment. Example: the type of activity to block terrorism
belongs in the high societal benefit, low economic benefit quadrant, which is regulated by the
government. But the government is already spending too much money on the high societal
benefit, high economic benefit quadrant (e.g., healthcare), so it has less money to spend on
stopping terrorism.
Stakeholder management: is a process by which managers reconcile their own objectives with
the claims and expectations being made on them by various stakeholder groups.
Management’s challenge is to decide which stakeholders merit and receive consideration in
the decision-making process. Stakeholders personalize the company’s social responsibilities,
by presenting the groups or persons that companies should consider in the CSR orientation. 3
criteria of stakeholder management: Legitimacy (justifiable right to make this claim), Power
(influence/access to important resources), Urgency (need for attention asap). In stakeholder
management, it is important to think about our stakeholders, their stakes, opportunities and
challenges presented by them, CSR that we have towards them, strategies, actions and
decisions to best deal with them.
Lecture 3 – Creating Shared Value
The Matthew effect on sustainability: You make something cheaper but by doing it basically
the group that doesn’t need it (rich) benefits the most from it. Sustainable products are
expensive → Richer people are more likely to buy sustainable, poorer people more likely to
rely on unsustainable → Over time, benefits of sustainable products will decrease, poorer
people will have to pay more for both sustainable and unsustainable and will suffer from
unsustainable consumption → Richer people will get richer and poorer will get poorer, doesn’t
make for a good transition towards a sustainable future. → We need more new innovative
business models and existing firms focusing on sustainability.
Why are most companies currently doing CSR: Moral obligation (does not provide enough
guidance for most strategic and daily business decisions), License-to-operate (only doing CSR
to please stakeholders when it’s important to them), Reputation argument (doing CSR only to
improve firm reputation). → All of these practices are considered as immaterial sustainability
= sustainability initiatives that are not material to the performance of the business model nor
do they focus on areas where the business has a greater impact on society (destroying value),
as opposed to material sustainability = sustainability initiatives that focus on selected social
and environmental issues relevant to the company’s business model → Creating Shared Value.
Creating Shared Value: starts from the interdependency between business and society and
builds on the idea that businesses must reconnect company success. It’s not an advanced form
of philanthropy but a new way to achieve economic and societal value. It involves creating
economic value in a way that also creates value for society by addressing its needs and
challenges. CSV can be created by: reconceiving products and markets, e.g., PermaFungi made
an innovative production process that allows to grow mushrooms based on coffee grounds
(the waste of hotels and restaurants), redefining productivity (rethinking logistics, energy use,
employee productivity, etc.) e.g., Johnson & Johnson helping employees stop smoking,
enabling local cluster development (identifying gaps and deficiencies in logistics, suppliers,
distribution, etc., and working together with other partners to address them), e.g., Fair trade
