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Framing Business Ethics: Chapter 2. What is a corporation? The corporation is the dominant form of business entity in the modern global economy. A corporation is essentially defined in terms of legal status and the ownership of assets
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Framing Business Ethics: Chapter 2 What is a corporation? The corporation is the dominant form of business entity in the modern global economy. A corporation is essentially defined in terms of legal status and the ownership of assets Legally-Corporations are regarded as independent from those who work in them, manage them, invest in them or receive products or services from them. It’s a separate entity on its own right. Ownership of assets-rather than shareholders owning the assets associated with a corporation, the corporation itself owns those assets. Corporations have three key features: Corporations are typically regarded as ‘artificial persons’ in the eyes of the law Corporations are notionally ‘owned’ by shareholders, but exist independently of them-limited liability-shareholders not responsible for the debts Managers and directors have a ‘fiduciary’ responsibility to protect the investment of shareholders
Can a corporation have social responsibilities? Milton Friedman 1970 classic article “The social responsibility of business is to increase its profits” Vigorously argued against the notion of social responsibilities for corporations based on three main arguments: • Only human beings have a moral responsibility for their actions • It is managers’ responsibility to act solely in the interests of shareholders • Social issues and problems are the proper province of the state rather than corporate managers- Corporate managers are neither trained to set and achieve social goal nor democratically elected to do so.
Can a corporation be morally responsible for its actions? Long and complex debate but generally support from literature for some degree of responsibility accredited to corporations. It is necessary to show legal independence from their members, they also have agency independent of their members Two argument based on: Firstly, apart from individuals taking decisions within companies, every organization has a corporate internal decision structure which directs corporate decisions in line with predetermined goals Secondly, All organizations manifest a set of beliefs and values that lay out what is generally regarded as right or wrong in the corporation – the organizational culture EX: Response to child labour and other human rights problems
Corporate Social Responsibility Why do corporations have social responsibilities? Widely accepted businesses have responsibilities beyond simply making a profit. The corporation takes on SR due to promote its own self-interest. For example- Business reasons: • Socially responsible might be rewarded with extra and / or more satisfied customers whilst irresponsibility may result in boycotts or other undesirable consumer actions. Ex: In 2001 oil giant Exxon Mobil refuse to sign up to the Kyoto global warming protocol. • Employees may be more attracted/committed to work • Voluntarily committing to social actions and programmes may forestall legislation and ensure greater corporate independence from government. • Long-term investment which benefits corporation( better-educated) Friedman argued –when they are carried out for reasons of self-interest, they are not CSR at all, but merely profit maximization ‘under the cloak of social responsibility’ Moral reasons: • Corporations cause social problems-duty to solve those & prevent further problem arising • Corporations should use their power and resources responsibly in society. • All corporate activities have social impacts of one sort or another • Corporations rely on the contribution of a wide set of stakeholders in society rather than just shareholders
What is the nature of corporatesocial responsibilities? The most established and accepted model of CSR which addresses our second question is the ‘Four-Part Model of CSR’ proposed by Archie Carroll. He regards CSR as a multi-layered concept, which can be differentiated into four interrelated aspects- economic, legal, ethical, and philanthropic responsibilities
Carroll’s four-part model ofcorporate social responsibility
Economic: Companies have shareholders who demand a reasonable return on their investments, they have employees who want safe and fairly paid jobs, they have customers who demand good-quality products at a fair price. • Legal : The legal responsibility of corporation demands that business abide by the law and play by the rules of the game. Laws are the codification of society’s moral views. The satisfaction of legal responsibilities is required of all corporations seeking to be socially responsible. • Ethical : these responsibilities oblige corporations to do what is right, just, and fair even when they are not compelled to do so by the legal framework. Carroll argues ethical responsibilities consist of what is generally expected by society over and above economic and legal requirements. d) Philanthropic: it means literally ‘the love of the fellow human’-the model includes all those issues that are within the corporation’s discretion to improve the quality of life of employees, local communities and ultimately society in general.
CSR and strategy: corporate social responsiveness Corporate social responsiveness refers to the capacity of a corporation to respond to social pressures 4 ‘philosophies’ or strategies of social responsiveness • Reaction: C denies any responsibility for social issues, for ex by claiming that they are the responsibility of govt, or by arguing that the C is not to blame. • Defence: C admits responsibility but fights it, doing the very least that seems to be required. C may adopt an approach based mainly on superficial public relations rather than positive action; • Accommodation: C accepts responsibility and does what is demanded of it by relevant groups. • Proaction: C seeks to go beyond industry norms and anticipates future expectations by doing more than is expected
Stakeholder theory of the firm Stakeholder theory developed by Edward Freeman: A stakeholderin an organization is…any group or individual who can affect, or is affected by, the achievement of the organization’s objectives
