O.T. Chapter 12: MANAGING SOCIAL RESPONSIBILITY ETHICALLY
(STAKEHOLDERS, SUSTAINABILITY, ETHICS)
LEARNING OBJECTIVES
This chapter is designed to enable you to:
• know what is constituted as corporate social responsibility (CSR)
• understand what is practiced as CSR
• understand the roles played by corporate codes of ethics
• appreciate different foundations for ethical behavior
• grasp the delicate balance between principles and profit.
‘Ethics is knowing the difference between what you have a right to do and’ what is right to
do.’ (Potter Stewart, Associate Justices of the Supreme Court of the United States)
Ecologists urge a growing realization that although we have created a hugely successful
business system for generating needs and satisfying them, one of its side-effects has been
a significant growth in environmental degradation, toxic waste and species extinction.
These are one aspect of a lack of ethics being exhibited in a duty of care for the
environment and its species. These species include people like us.
Business organizations are bounded as systems that are open to their environment, both
natural and rationally constructed. As open systems their effects are not contained within
the organization (industries that comprise the petrochemical complex, which supplies so
many modern essentials, from familiar things made of plastics, nylon and other artificial
fibres, to complex compounds we have probably never heard of. Many of these chemicals
are highly toxic).
In a risk society, life-threatening disasters cannot be controlled within a specific territory
(toxic chemicals are one component of what German sociologist Ulrich Beck calls) (e.g.,
disaster at the Japanese nuclear power station Fukushima).
Management scholars have argued that organizations need to adopt discourses and
practices of corporate social responsibility and business ethics.
Corporate social responsibility: fashionable business concept; when an organization
exceeds the minimum legal obligations to stakeholders specified through regulation and
corporate governance. It has been adopted as a formal policy goal by many advanced
society governments and businesses.
It’s a voluntary commitment on the part of an organization to sustainable economic
development that will improve the quality of life of its employees, their families, local
communities and society at large (example of Business for Social Responsibility).
Why organizations should be concerned about CSR? (differentiate ethical concerns from
instrumental concerns).
,Ethically, at one extreme, organizations should be seen to be caring for a variety of
stakeholders and the externalities that their operations create, because to do so serves
ethical interests in the greater good.
At the other extreme, from resource dependency and institutional perspectives,
organizations also need legitimation to operate, with concern for other stakeholders being
an efficient means to acquire legitimation.
There are three different levels of analysis implicit in any discussion of CSR:
- Institutional level (assumptions about the legitimation of organizational actions in
so far as they accord with institutionalized norms and values; legitimacy of a
particular organization in its actions determined by general societal expectations and
framing and implementation of these practices).
- Organizational level (organizations must take responsibility for what they do and do
not do because they can be held legally accountable for their actions and non-
actions)
- Individual level (principle of managerial discretion presumes the morality and ethics
of individual managers in their relationships with stakeholders).
Neo-classical economists have long argued that: business owes abstractions such as
‘society’ nothing: shareholders are the owners of business and business’s obligation is to do
everything (within the law) to advance shareholder value – not to squander it on well-
meaning but irrelevant CSR projects.
➔ Milton Friedman (1982) is one of the most prominent advocates of this view (an
organization is thus a tool to maximize the returns to its owners, the shareholders.)
➔ Example of a small boulangerie and non-biodegradable plastic bags
➔ Businesses should stay within the rules of the game and must not engage in illegal
or criminal activities. That is about the only limitation he imposes on business: as
long as they respect the law, they should, be free to do whatever they want to
increase their profits.
➔ It can be argued that Friedman’s position relies too much on a belief in the self-
regulating forces of capitalism
Not everything that is legally allowed is ethically sound. Just because something is not
illegal does not make it automatically socially acceptable.
Harish Manwani (2013) makes an argument against this view in a TED Talk entitled ‘Profit’s
not always the point’: there are other stakeholders apart from shareholders with interests
in a firm. Shareholders are but one set of stakeholders (ranging from customers, NGOs,
communities and civil society more generally, to activist groups claiming to articulate the
interests of the environment, animals, disadvantaged people(s), or other ‘mute’ or muted
stakeholders).
,Stakeholder theory, as a way of managing organizations, develops frameworks within which
relevant stakeholders can be identified and (more restrictedly) defined. Also, form of
implicit social contract between distinct and identifiable stakeholders and the organization
in question.
The more restricted approach limits stakeholders to those who are relevant.
Relevance is defined in terms of actual investments in the organization that makes them
susceptible to risk from the organization’s activities.
Many organizations, such as Walmart, do not recognize the legitimacy of trade unions as
stakeholders because they seek to maintain union-free operations.
Stakeholders such as communities would be regarded as involuntary (airport whose planes
fly over their houses or a toll way that divides their community with a multi-highway).
If businesses are alert only to interests in the short term, they may jeopardize other
interests that might claim representation or be represented which, in the long term, can
boomerang back on the business by attacking its legitimacy or reputation.
According to Vogel (2005), the primary responsibility of companies is to create wealth for
their shareholders. In order for companies to do well financially, they must also act
virtuously.
Article published in the Academy of Management Review by Hahn et al. (2014) explores
how managers interpret social issues such as CSR: importance of thinking paradoxically,
launching products because they seem to offer sustainable innovation, even if they are not
immediately profitable, such as hybrid cars, because in this way market share may be built
on more sustainable foundations.
- In some European countries, such as Austria and Germany, the notion that there is a
social responsibility of business is well established.
Organizations should be seen as a ‘social partnership’ built upon a tacit and informal
agreement between the government, the major employers’ associations and various
employee interest groups.
Corporatism: where the state encourages cooperation among these major stakeholders,
who have increasingly adopted the rhetoric of CSR.
Höllerer (2010) has thoroughly examined CSR discourse in Austrian corporate annual
reports since the early 1990s:
- A first focus of CSR is on the sustainability of profits, people and planet – often
referred to as the triple bottom line.
- A second focus is on good corporate governance and enhanced transparency,
- Which, third, situates stakeholder management as a key task of managing divergent
interests.
, - Fourth, corporate values such as philanthropy and the support of societal groups in
need that do not have power or voice in corporate decision-making are often
deployed to demonstrate corporate responsibility for less privileged members of
society.
This is achieved by organization members doing voluntary service – charity work – for
underprivileged communities.
In order to do well, a company has to do good, and that means it has to take its
stakeholders’ needs and interests into account.
In many CSR accounts, an assumption is that it is only humans that can be stakeholders.
More radical views, as we shall see, suggest that the natural environment, including animals
and plants, are also stakeholders.
The uniqueness of the human condition in its capacity for symbolic reasoning and socially
organized violence to all species is the reason to deny that animals deserve ethical concern.
Singer asserts that the anthropocentrism of our vision and our ethical system prevents us
from considering the possibility of moral feelings in animals.
Animal ethics increasingly concern members of organizations linked to the food and
pharmaceutical industries.
For example, the case of animal rights being cruelly ignored in abattoirs raises the urgent
and complex issue of an unconditional ethic, applicable to humans and all other mammals,
or even extended to include invertebrates.
Tryggestad, Justesen and Mouristen (2013) provide one instance of where animals became
enlisted as stakeholders in an ethical discourse.
- How frogs were translated from being ‘non-existent’ stakeholders into strategic
stakeholders in a construction project.
- Spokespersons claimed to know what was in the frogs’ best interests and spoke for
them
- Happy ending
Steve Howard, chief sustainability officer at IKEA: ‘Why would we not want to have a
positive impact on the world as a business?’.
IKEA has a sustainability strategy called ‘people and planet positive’ whose aim is to help
guide the business to have a positive impact on the world.
BUT, much of the controversy over climate science, for instance, occurs because of the
inability of certain sections of business, government and the community to accept that they
have responsibilities to abstract conceptions such as global warming.
