What is social responsibility?

1. What is social responsibility? Seminar Unit #1 Prof. Christopher L. Howard

2. Defined • Social responsibility is an ethical ideology or theory that an entity, be it an organization or individual, has an obligation to act to benefit society at large. This responsibility can be passive, by avoiding engaging in socially harmful acts, or active, by performing activities that directly advance social goals. • Businesses can use ethical decision making to secure their businesses by making decisions that allow for government agencies to minimize their involvement with the corporation. (Kaliski, 2001) For instance if a company is proactive and follows the United States Environmental Protection Agency‎ (EPA) guidelines for emissions on dangerous pollutants and even goes an extra step to get involved in the community and address those concerns that the public might have; they would be less likely to have the EPA investigate them for environmental concerns. “A significant element of current thinking about privacy, however, stresses "self-regulation" rather than market or government mechanisms for protecting personal information” (Swire , 1997) Most rules and regulations are formed due to public outcry, if there is not outcry there often will be limited regulation. • Critics argue that Corporate social responsibility (CSR) distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing; others argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations (Carpenter, Bauer, & Erdogan, 2009). • http://en.wikipedia.org/wiki/Social_responsibility

3. Corporate • Corporate social responsibility ("CSR" for short, and also called corporate conscience, citizenship, social performance, or sustainable responsible business[1]) is a form of corporateself-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. Furthermore, CSR-focused businesses would proactively promote the public interest by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. CSR is the deliberate inclusion of public interest into corporate decision-making, and the honouring of a triple bottom line: people, planet, profit. • The term "corporate social responsibility" came in to common use in the early 1970s, after many multinational corporations formed. The term stakeholder, meaning those on whom an organization's activities have an impact, was used to describe corporate owners beyond shareholders as a result of an influential book by R. Edward Freeman, Strategic management: a stakeholder approach in 1984.[2] Proponents argue that corporations make more long term profits by operating with a perspective, while critics argue that CSR distracts from the economic role of businesses. Others argue CSR is merely window-dressing, or an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations. • CSR is titled to aid an organization's mission as well as a guide to what the company stands for and will uphold to its consumers. Development business ethics is one of the forms of applied ethics that examines ethical principles and moral or ethical problems that can arise in a business environment. ISO 26000 is the recognized international standard for CSR (currently a Draft International Standard). Public sector organizations (the United Nations for example) adhere to the triple bottom line (TBL). It is widely accepted that CSR adheres to similar principles but with no formal act of legislation. The UN has developed the Principles for Responsible Investment as guidelines for investing entities. • http://en.wikipedia.org/wiki/Corporate_social_responsibility

4. Work with Communities • Some commentators have identified a difference between the Continental European and the Anglo-Saxon approaches to CSR.[3] And even within Europe the discussion about CSR is very heterogeneous.[4] • An approach for CSR that is becoming more widely accepted is community-based development approach. In this approach, corporations work with local communities to better themselves. For example, the Shell Foundation's involvement in the Flower Valley, South Africa. In Flower Valley they set up an Early Learning Centre to help educate the community's children as well as develop new skills for the adults. Marks and Spencer is also active in this community through the building of a trade network with the community - guaranteeing regular fair trade purchases. Often activities companies participate in are establishing education facilities for adults and HIV/AIDS education programmes. The majority of these CSR projects are established in Africa. JIDF For You, is an attempt to promote these activities in India. • A more common approach of CSR is philanthropy. This includes monetary donations and aid given to local organizations and impoverished communities in developing countries. Some organizations[who?] do not like this approach as it does not help build on the skills of the local people, whereas community-based development generally leads to more sustainable development.[clarification needed Difference between local org& community-dev? Cite] • Another approach to CSR is to incorporate the CSR strategy directly into the business strategy of an organization. For instance, procurement of Fair Trade tea and coffee has been adopted by various businesses including KPMG. Its CSR manager commented, "Fairtrade fits very strongly into our commitment to our communities."[5] • http://en.wikipedia.org/wiki/Corporate_social_responsibility

5. Shared Value • Another approach is garnering increasing corporate responsibility interest. This is called Creating Shared Value, or CSV. The shared value model is based on the idea that corporate success and social welfare are interdependent. A business needs a healthy, educated workforce, sustainable resources and adept government to compete effectively. For society to thrive, profitable and competitive businesses must be developed and supported to create income, wealth, tax revenues, and opportunities for philanthropy. CSV received global attention in the Harvard Business Review article Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility [1] by Michael E. Porter, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School; and Mark R. Kramer, Senior Fellow at the Kennedy School at Harvard University and co-founder of FSG Social Impact Advisors. The article provides insights and relevant examples of companies that have developed deep linkages between their business strategies and corporate social responsibility. Many approaches to CSR pit businesses against society, emphasizing the costs and limitations of compliance with externally imposed social and environmental standards. CSV acknowledges trade-offs between short-term profitability and social or environmental goals, but focuses more on the opportunities for competitive advantage from building a social value proposition into corporate strategy. • Many companies use the strategy of benchmarking to compete within their respective industries in CSR policy, implementation, and effectiveness. Benchmarking involves reviewing competitor CSR initiatives, as well as measuring and evaluating the impact that those policies have on society and the environment, and how customers perceive competitor CSR strategy. After a comprehensive study of competitor strategy and an internal policy review performed, a comparison can be drawn and a strategy developed for competition with CSR initiatives. • http://en.wikipedia.org/wiki/Corporate_social_responsibility

6. Corporate Accounting • Taking responsibility for its impact on society means first and foremost that a company must account for its actions. Social accounting, a concept describing the communication of social and environmental effects of a company's economic actions to particular interest groups within society and to society at large, is thus an important element of CSR.[6] • Social accounting emphasizes the notion of corporate accountability. D. Crowther defines social accounting in this sense as "an approach to reporting a firm’s activities which stresses the need for the identification of socially relevant behavior, the determination of those to whom the company is accountable for its social performance and the development of appropriate measures and reporting techniques."[7] An example of social accounting, to a limited extent, is found in an annual Director's Report, under the requirements of UK company law.[8] • http://en.wikipedia.org/wiki/Corporate_social_responsibility

7. Nature of Business • Nature of business • Milton Friedman and others have argued that a corporation's purpose is to maximize returns to its shareholders, and that since only people can have social responsibilities, corporations are only responsible to their shareholders and not to society as a whole. Although they accept that corporations should obey the laws of the countries within which they work, they assert that corporations have no other obligation to society. Some people perceive CSR as in-congruent with the very nature and purpose of business, and indeed a hindrance to free trade. Those who assert that CSR is contrasting with capitalism and are in favor of neoliberalism argue that improvements in health, longevity and/or infant mortality have been created by economic growth attributed to free enterprise.[16] • Critics of this argument perceive neoliberalism as opposed to the well-being of society and a hindrance to human freedom. They claim that the type of capitalism practiced in many developing countries is a form of economic and cultural imperialism, noting that these countries usually have fewer labour protections, and thus their citizens are at a higher risk of exploitation by multinational corporations.[17] • A wide variety of individuals and organizations operate in between these poles. For example, the REALeadership Alliance asserts that the business of leadership (be it corporate or otherwise) is to change the world for the better.[18] Many religious and cultural traditions hold that the economy exists to serve human beings, so all economic entities have an obligation to society (see for example Economic Justice for All). Moreover, as discussed above, many CSR proponents point out that CSR can significantly improve long-term corporate profitability because it reduces risks and inefficiencies while offering a host of potential benefits such as enhanced brand reputation and employee engagement. • [edit] • http://en.wikipedia.org/wiki/Corporate_social_responsibility

8. Motives • Motives • Some critics believe that CSR programs are undertaken by companies such as British American Tobacco (BAT),[19] the petroleum giant BP (well-known for its high-profile advertising campaigns on environmental aspects of its operations), and McDonald's (see below) to distract the public from ethical questions posed by their core operations. They argue that some corporations start CSR programs for the commercial benefit they enjoy through raising their reputation with the public or with government. They suggest that corporations which exist solely to maximize profits are unable to advance the interests of society as a whole.[20] • Another concern is that sometimes companies claim to promote CSR and be committed to sustainable development but simultaneously engaging in harmful business practices. For example, since the 1970s, the McDonald's Corporation's association with Ronald McDonald House has been viewed as CSR and relationship marketing. More recently, as CSR has become mainstream, the company has beefed up its CSR programs related to its labor, environmental and other practices[21] All the same, in McDonald's Restaurants v Morris & Steel, Lord Justices Pill, May and Keane ruled that it was fair comment to say that McDonald's employees worldwide 'do badly in terms of pay and conditions'[22] and true that 'if one eats enough McDonald's food, one's diet may well become high in fat etc., with the very real risk of heart disease.'[23] • Royal Dutch Shell has a much-publicized CSR policy and was a pioneer in triple bottom line reporting, but this did not prevent the 2004 scandal concerning its misreporting of oil reserves, which seriously damaged its reputation and led to charges of hypocrisy. Since then, the Shell Foundation has become involved in many projects across the world, including a partnership with Marks and Spencer (UK) in three flower and fruit growing communities across Africa. • Critics concerned with corporate hypocrisy and insincerity generally suggest that better governmental and international regulation and enforcement, rather than voluntary measures, are necessary to ensure that companies behave in a socially responsible manner. Others, such as Patricia Werhane, argue that CSR should be considered more as a corporate moral responsibility, and limit the reach of CSR by focusing more on direct impacts of the organization as viewed through a systems perspective to identify stakeholders. • http://en.wikipedia.org/wiki/Corporate_social_responsibility

9. Leadership Defined • The new CEO of GlaxoSmithKline Andrew Witty has startled commentators, campaigners, and probably a few shareholders, with his announcement that the company would slash the cost of many of its drugs to people that need them in developing countries. It was a perfect example of the difference that leadership can make. It raises the question - what counts as great leadership in socially responsible business? • There is a wider list to be produced on that topic, but I wanted to highlight here five key thoughts in the light of the GlaxoSmithKline example and a few other things that have appeared in the last few weeks. And we always have the sharp contract of poor leadership we have seen in the last few months of the financial crisis.Things that count as great leadership in socially responsible businesses.1. Being prepared to challenge the logic of your industry.2. Doing something because it is the right thing to do, and then working out how to make it pay3. Understanding that the leaders sets incentives - and sometimes the bottom line is the wrong incentive4. Understanding when to follow the rules, and when to use common sense in the face of unintended outcomes5. Knowing that just because people around you see you as a leader, it doesn't mean you're a good one. • http://www.mallenbaker.net/csr/page.php?Story_ID=2395

10. Prepared • 1. Great leaders are prepared to challenge the logic of their industry.For years, the pharmaceutical industry has said that no more could be done about the issues of drug pricing in developing countries. Having made the catastrophic mistake of banding together to sue Nelson Mandela's government some years ago, they had taken a number of steps to try to meet expectations. But there were a number of obstacles, particularly around the sacrosanct status accorded to intellectual property. Witty has now thrown down the gauntlet on all of these by committing GSK, one of the biggest players in the industry, to a completely new approach. He would have known as he did so that it would be an action that would provoke considerable resistance from his peers. But ultimately it would force them to respond.We rarely see this sort of leadership. We need to see the tobacco company that will step outside the defensive position of its sector. We need to see the airlines that think radical about the carbon constrained future. What's your version?We did see it some time ago in oil, when BP left the climate change coalition set up to deny the existence of climate change. It hasn't been so much in evidence there recently. • http://www.mallenbaker.net/csr/page.php?Story_ID=2395

11. Right Thing to Do • 2. Leaders are prepared to do something because it is the right thing to do, and then work out how to make it payThose of us that are used to promoting the business case for corporate social responsibility will struggle with this. After all, the people that argued that unless companies did things for "the right reasons" it doesn't count were always looked down upon as being unrealistic and idealistic. Often they were, because they were arguing courses of action that would be unsustainable, and often would probably not be good for society anyway.Because that doesn't mean to say that the opposite is true - only initiatives that deliver short term cash to the bottom line can be considered. This isn't licence for companies to rush out with whacky well-meaning schemes that lose money. But it is recognition that sometimes there is a moral bottom line - there are some things you should just do, or not do, because there are human consequences that can be avoided, albeit at some cost.When the UK company Marshalls uncovered endemic child labour in the production of Indian sandstone, they had a bunch of options about how they ensured their supply was free from it. But the key thing was that, even though it would increase costs, they knew that the idea of young children caught in the most dirty, dangerous, hard manual labour was not a cost / benefit equation - it was just not acceptable. Sometimes you have to recognise that the business case has been trumped by something starker and more human.And you take that judgement in the face of possibly sceptical shareholders. • http://www.mallenbaker.net/csr/page.php?Story_ID=2395

12. Set Incentives • 3. Understanding that the leaders sets incentives - and sometimes the bottom line is the wrong incentiveThe whole deal about CEOs and others getting stock options in their companies was meant to be about aligning their interests with those of the shareholders. It is an approach that has not been a success. The interests of the shareholders is often used as an argument against executives exercising their judgement about the right thing to do, because the interests of shareholders are assumed always to be in maximising financial returns.Barry Schwartz tells the story of two social scientists, Bruno Frey and Felix Oberholzer-Gee, who polled Swiss citizens about nuclear waste dumps around 15 years ago. Each person was asked one of two questions. The first group was asked whether they would be prepared to accept a nuclear waste dump in their neighbourhood. An astonishingly high 50 percent said 'yes', showing the high degree of citizenship that was a cultural fact in Switzerland. People knew that there would be a cost to them if such a dump was close by, but they understood that the dumps had to go somewhere and they had a duty of citizenship to be prepared for it to be close to them.A second group was asked the same question, but offered six weeks' salary every year in return for saying yes. You would expect the percentage of people agreeing to this to be higher, with such a powerful incentive. Yes?Actually, the opposite happened. Only 25 percent of people said yes to the offer with the money. By offering money, the question was moved from the zone of "what is right" to the one of "what serves my interest". In that zone, the equation was very different. Whenever the incentives go wrong, Schwartz argues, people always say that the incentives weren't smart enough, and need to be rethought. Sometimes, however, no incentives are going to be smart enough. And people become addicted to incentives, and stop asking themselves the question "is it right?".That is a perfect description of what went wrong in the banking community over the last few years. • http://www.mallenbaker.net/csr/page.php?Story_ID=2395

13. Follow Rules • 4. Good leaders understand when to follow the rules, and when to use common sense in the face of unintended outcomesThis is a tricky one for those of us that promote corporate social responsibility, because half of the CSR community lives and dies by companies setting rules, assigning responsibility for those rules, and monitoring them.After all, how can you say you have a corporate culture of behaving in a certain way unless you train your people to behave in that way? Consistently. Across the organisation. And that means that you take away people's discretion, because taking bribes should not be a matter of discretion, and neither should allowing pollution.That is right, but it is also potentially disempowering for people who can see in front of them a problem that needs to be solved. How many customer service people have failed to help solve a customer's problem because the rules said they couldn't. It wasn't their department. They didn't have discretion. And so on.Barry Schwartz again told the story of the father and son at a ball game. The father accidentally bought a lemonade drink for his son that contained alcohol. He didn't realise. Before you knew it, a security guard had called the police, who whisked the child off to hospital, who then put got the child placed with a foster home for three days, and then a judge said the child could go home, but only if the father checked into a hotel, and it took about two weeks to reunite the family. At every stage, the officials concerned said that they hated doing what they were about to do, but they had no choice. The rules made them do it.It's important to note that rules like that come about because of a past failing when something went badly wrong - a child was allowed to fall into the hands of an abusive parent.And many of the CSR rules within companies come about because somebody polluted, or bribed, or discriminated. And suddenly you get a culture of zero discretion. That is safe. But it is often also stupid.Train your people on the spirit of the outcomes, get them to understand why, and empower them to make the best judgement. Then it will be part of the culture, even if it goes wrong occasionally. • http://www.mallenbaker.net/csr/page.php?Story_ID=2395

14. Good Leadership • 5. Just because people around you see you as a leader, it doesn't mean you're a good one. The governments of the world have been berating the broken shells of great leaders of finance over the last few months. "Masters of the Universe" they were called - largely because that was how they used to behave. They were admired and feared as great leaders. It was assumed that their commanding presence was an indicator of their great judgement - their personal styles were that they did not want to waste time with people that argued or disagreed with them.Two social scientists, Cameron Anderson and Gavin Kilduff carried out a study to understand whether people that were naturally accepted by groups as leaders were actually more competent or otherwise deserving of that status. They set up groups of strangers, and gave them a task with the incentive of a $400 prize if they won. After they worked for a while, group members rated each other for their level of competence and influence.The people that spoke the most were rated as competent and influential. People that spoke the least, the opposite. Even on tasks that were maths based, and therefore the competence of each person's contributions could be objectively assessed, it showed that there was no link to the view of the group and actual competence.To be regarded as a leader, in other words, only requires that you behave like one, without apparent lack of confidence or doubt. Mostly in the study, that meant talking a lot. Putting forward ideas, even if wrong.As the 'masters of the universe' found, this is seductive and destructive. If you conspire with your co-workers to believe in the myth of your own infallibility, you are more likely to make crucial errors of judgement. And it is in the quality of your decisions and your actions that your leadership is ultimately judged.Going back to GlaxoSmithKline, one of Andrew Witty's first actions as the new CEO of the company was to rearrange the furniture. More specifically, he pulled the top executive team off their 12th floor ivory tower, and put them on the ground floor next to the staff cafe. It was an early statement that they, as leaders, needed to be closer to the heart and soul of the organisation, and hearing the news about what was really happening. It's a good sign that he will be a good leader. • http://www.mallenbaker.net/csr/page.php?Story_ID=2395

15. Course Overview • Seminars and attendance. Make-up Assignment (3 page summary paper) • Discussion Boards-substantive postings on all boards for the week over the course of three days • Assignments- turned in a timely manner, meeting all instructions and expectations • Open forum questions, ask the professor and office hours

16. Wrapping It Up • Social responsibility defined • Corporate responsibility, shared values and working with communities • Corporate accounting, nature of business and motives • Leadership defined • Prepared, right thing to do, exhibit good leadership skills and traits, follow established rules • Course overview