There are 4 models of Corporate Social Responsibility.

I. Economic Model

a. Profit-Based SocialResponsibility aka Economic Model: Milton Friedman's 1970New York Times article "The Social Responsibility of BusinessIs to Increase Its Profits" is perhaps best known as anargument for this profit-based social responsibility ofbusiness.

i. Economically a business is aninstitution that exists to produce goods and services demanded bysociety and by doing this business creates jobs and wealth thatbenefit society further.

ii. The law created corporationsbecause it was thought that business firms could be more efficientin raising the capital necessary for producing goods services jobsand wealth by legally limiting the liability of those individualsengaged in the creation of corporations.

b. Economic Model ofCSR: holds that business' sole duty is simply tofulfill the economic functions businesses were designed toserve.

i. On this narrow view the socialresponsibility of business managers is simply to pursue profitwithin the law.

ii. Because corporations are createdby society and require a stable political and economicinfrastructure in which to conduct business like all other socialinstitutions they are expected to obey the legal mandatesestablished by the society.

iii. This Economic Model of CSR deniesthat business has any social responsibilities beyond the economicand legal ends for which it was created.

iv. Friedman does not ignore ethicalresponsibility in his analysis; he suggests that decision-makersare fulfilling their responsibility if they follow their firm'sself-interest in pursuing profit.

v. This common view of corporatesocial responsibility has its roots in the utilitarian traditionand neoclassical economics.

c. Which Stakeholders DeservePriority? In the legendary Dodge v. Ford case of 1919stockholders sued Henry Ford for reducing the price of Ford cars sothat they would be affordable to everyone in America.

i. Ford's decision on his prioritiesresulted in a reduction in stock price and a refusal to pay stockdividends.

ii. The Dodge brothers were two of thelargest shareholders in the company and believed Ford's primaryobjective should be to make profit for its shareholders.

iii. Ford stated that his ambition wasto reach out to the larger community by providing jobs andincreasing the benefits of the industrial system to the greatestnumber possible. His goal was to do this by "putting the greatestshare of our profits back in the business."

iv. The court was not persuaded tointerfere with the reasonable business (and humanitarian) judgmentof the Ford Motor Co. and did not find that the alleged motives ofthe directors "menace the interests of the shareholders."

II. Philanthropic Model

a.Philanthropic Model: like individuals,business is free to contribute to social causes as a matter ofphilanthropy.

i. Business has no strict obligationto contribute to social causes but it can be a good thing when theydo so. But just as charity is a good thing and something that weall want to encourage business should be encouraged to contributeto society in ways that go beyond the narrow obligations of law andeconomics.

1. This approach is especially commonin small locally-owned business where the owners also often play aprominent leadership role within their local community.

ii. There are occasions in whichcharity work is done because it brings the firm good publicrelations, provides a helpful tax deduction, and builds good willand a good reputation within a community.

1. Peruse the program at a local artgallery museum theater school event and you will likely see a listof local businesses as donors or sponsors who have contributed tothe event.

2. The social contribution is as muchan investment as it is a contribution.

iii. But there are also cases in whichbusiness contributes to social causes without seeking anyreputational benefits.

1. Many firms contribute to charitiesanonymously.

2. Support for a social cause is donesimply because it is the right thing to do.

iv. From the perspective of the narrowview of CSR only philanthropy done for reputational reasons andfinancial ends is ethically responsible.

1. Because business managers are theagents of owners they have no right to use corporate resourcesexcept to earn owners greater returns on their investment.

2. From the perspective of othersphilanthropy done for financial reasons is not fully ethical andnot truly an act of social responsibility.

III. Social Web Model

a.Social Web Model: views business as acitizen of the society in which it operates and like all members ofa society business must conform to the normal ethical duties andobligations that we all face.

i. Philosopher Norman Bowie hasdefended one version of CSR that would fall within this social webmodel.

1. Bowie argues that beyond theeconomic view's duty to obey the law business has an equallyimportant ethical duty to respect human rights. Respecting humanrights is the "moral minimum" that we expect of every personwhether they are acting as individuals or within corporateinstitutions.

2. Bowie identifies his approach as a"Kantian" theory of business ethics. In simple terms he begins withthe distinction between the ethical imperatives to cause no harm,to prevent harm, and to do good.

3. According to Bowie as long asmanagers comply with the moral minimum and cause no harm they havea responsibility to maximize profits.

4. Thus Bowie would argue thatbusiness has a social responsibility to respect the rights of itsemployees even when not specified or required by law. Such rightsmight include the right to safe and healthy workplaces rights toprivacy and rights to due process.

5. But the contractual duty thatmanagers have to stockholder-owners over-rides the responsibilityto prevent harm or to do (philanthropic) good.

ii. Stakeholder Theory is perhaps themost influential version of CSR that would fall within the socialweb model.

1. Stakeholder theory begins with therecognition that every business decision affects a wide variety ofpeople benefiting some and imposing costs on others; in other wordsthat every business decision imposes costs on someone and thatthose costs must be acknowledged.

2. Any theory of corporate socialresponsibility must then explain and defend answers to thequestions: for whose benefit and at whose costs should the businessbe managed?

3. The stakeholder theory argues onfactual legal economic and ethical grounds that the economic modelis an inadequate understanding of business.

a. As a descriptive account ofbusiness the classical model ignores over a century of legalprecedent arising from both case law and legislativeenactments.

b. As a matter of law it is simplyfalse to claim that management can ignore duties to everyone butstockholders.

c. The wide variety of marketsfailures well-established in economics show that even when managerspursue profits there are no guarantees that they will serve theinterests of either stockholders or the public.

d. But perhaps the most importantargument in favor of the stakeholder theory rests in ethicalconsiderations. The economic model appeals to two fundamentalethical norms for its justification: utilitarian considerations ofsocial well-being and individual rights. On each of these normativeaccounts however due consideration must be given to all affectedparties. Sometimes as the classical model would hold that balancingwill require management to maximize stockholder interests. Butsometimes not.

4. The stakeholder theory argues thaton the very same grounds that are used to justify the classicalmodel a wider "stakeholder" theory of corporate socialresponsibility is proven ethically superior.

5. Freeman argues that "thestakeholder theory does not give primacy to one stakeholder groupover another though there will be times when one group will benefitat the expense of others. In general however management must keepthe relationships among stakeholders in balance."

IV.Integrative Model

a.. Integrative Model: firms bring socialgoals into the core of their business model and fully integrateeconomic and social goals. There is a growing recognition that somefor-profit organizations also have social goals as a central partof the strategic mission of the organization.

i. In two areas in particular socialentrepreneurship and sustainability we find for-profit firms thatdo not assume a tension between profit and socialresponsibility.

1. Firms that make environmentalsustainability as central to their mission such as InterfaceCorporation are an example of sustainability.

ii. Even defenders of the narroweconomic model of CSR such as Milton Friedman would agree thatowners of a firm are free to make the pursuit of social goals apart of their business model. They would just disagree that thesesocial goals should be part of every business's mission.

iii. It certainly would be too much toexpect every business to adopt the principles of socialentrepreneurs and devote all their activities to service of socialgoals. At best social entrepreneurs demonstrate that profit is notincompatible with doing good and that one can do good profitably.But there are some who would argue that the ethicalresponsibilities associated with sustainability are relevant toevery business concern.

iv. As a topic within CSRsustainability holds that a firm's financial goals must be balancedagainst and perhaps even over-ridden by environmentalconsiderations.

1. Defenders of this approach pointout that all economic activity exists within a biosphere thatsupports all life. They argue that the present model of economicsand especially the macroeconomic goal of economic growth is alreadyrunning up against the limits of the biosphere's capacity tosustain life.

2. From this perspective the successof a business must be judged not only against the financial bottomline of profitability but also against the ecological and socialbottoms lines of sustainability.

3. Importantly a firm that isenvironmentally unsustainable is also a firm that is in thelong-term financially unsustainable.

Ethics and Social Responsibility

a. The words responsible and responsibility are used in severaldifferent ways

i. When we say that a business isresponsible we might mean that it is reliable or trustworthy.

1. For example you might recommend acar dealership to a friend by describing them as a responsibletrustworthy business

ii. A second meaning of responsibleinvolves attributing something as a cause for an event oraction.

1. For example bad lending practiceswere responsible for the collapse of many banks; and the locationof the gas tank was responsible for fires in the Ford Pinto

iii. A third sense involvesattributing liability or accountability for some event or actioncreating a responsibility to make things right again

1. For example that a business isresponsible for a polluted river is not only to say that thebusiness caused the pollution but that the business is at fault forit and should be held accountable.

iv. Laws regarding product safety andliability involve many of these meanings of being responsible.

1. When a consumer is injured forexample a first question is to ask if the product was responsiblefor the injury in the sense of having caused the injury.

2. It is this last sense ofresponsibility as accountability that is at the heart of CSR.Corporate social responsibility refers to those actions for which abusiness can be held accountable. We can be expected to act tofulfill our responsibilities and will be held accountable if we donot.

3. Social responsibility is what abusiness should or ought to do for the sake of society even if thiscomes with an economic cost.

v. Philosophers often distinguishthree different types of responsibilities in this sense on a scalefrom more to less demanding or binding.

1. Responsibility not to cause harm toothers: the most demanding responsibility often called duty orobligation to indicate that they oblige us in the strictestsense.

a. Even when not explicitly prohibitedby law ethics would demand that we not cause avoidable harm.

2. Prevent harm even in those caseswhere one is not the cause. Read the Merck CaseStudy regarding river blindness.

a. Pharmaceutical firm, Merck, was notresponsible for causing river blindness and therefore, according tothe previous standard of CSR discussed, Merck had no socialresponsibility in this case. Given the company's core businesspurpose and values its managers concluded that they did have asocial responsibility to prevent a disease easily controlled bytheir patented drug.

3. Responsibilities to do good such asvolunteering and charitable work.

a. Corporate giving programs tosupport community projects in the arts education and culture areclear examples. Small business owners in every town across Americacan tell stories of how often they are approached to give donationsto support local charitable and cultural activities.

Exploring Enlightened Self-Interest: Does "Good Ethics" Mean"Good Business"?

a. CSR not only provides benefits to society but it can alsobenefit an organization by securing its place within a society. Butare there other reasons self-interested and economic for a businessto engage in socially responsible activities? Can we make a"business case" for CSR?

i. Perhaps the most obvious answer tothis question is that CSR can improve a firm's reputation within acommunity which can improve profitability by improving a company'sstanding with both consumers and employees.

ii. Some evidence suggests thatemployees who are well treated in their work environments may provemore loyal and more effective and productive in their work.

1. Liz Bankowshi director of socialmissions at Ben & Jerry's Homemade Ice Cream Company claimsthat 80 to 90 percent of Ben & Jerry's employees work therebecause "they feel they are part of a greater good."

iii. The problem with a focus onreputation however is that social responsibility can then becomemerely social marketing.

1. Paul Hawken cofounder of Smith& Hawken gardening stores and an advocate of business socialresponsibility reminds us that: "[y]ou see tobacco companiessubsidizing the arts then later you find out that there areinternal memos showing that they wanted to specifically target theminorities in the arts because they want to get minorities tosmoke. That's not socially responsible. It's using socialperception as a way to aggrandize or further one's own interestsexclusively."

2. The gap between perception andreality can work in the opposite direction as well. ConsiderProcter & Gamble Co. which was harshly criticized byrespondents to a survey seeking to rank firms on the basis of theircorporate philanthropy. Respondents contended that P&G did"absolutely nothing to help" after the September 11 tragedy.However in truth P&G provided more than $2.5 million in cashand products but simply did not publicize that contribution.

b. Reputation Management: practice of caring for the "image" ofa firm.

i. There is nothing inherently wrongwith managing a firm's reputation but observers might challengefirms for engaging in CSR activities solely for the purpose ofimpacting their reputations. The challenge is based on the factthat reputation management often works!

1. If a firm creates a good image foritself it builds a type of trust bank—consumers or otherstakeholders seem to give it some slack if they then hear somethingnegative about the firm.

2. Similarly if a firm has a negativeimage that image may stick regardless of what good the corporationmay do.

3. Plato explored this issue when heasked whether one would rather be an unethical person with a goodreputation or an ethical person with a reputation for injustice.You may find that if given the choice between the two companies arefar more likely to survive under the first conception than underthe second.

iii. Is good ethics also goodbusiness? The larger question involves the possible correlationbetween profits and ethics.

1. One important justification offeredfor CSR what is often called enlightened self-interest presumesthat it is or at least it can be.

2. Theorists continue to disputewhether ethical decisions lead to more significant profits thanunethical decisions.

3. While we are all familiar withexamples of unethical decisions leading to high profits there isgeneral agreement that in the long run ethics pays off.

4. The long-term value is not asevident.

c. Measuring the Bottom Line Impact: There are manyjustifications for ethics in business and there is evidence thatgood ethics is good business but the dominant thinking is that ifyou cannot measure it it is not important.

i. Measurement is critical since thebusiness case is not without its detractors. For example DavidVogel a political science professor at Berkeley contends that whilethere is a market for firms with strong CSR missions it is a nichemarket and only caters to a small group of consumers orinvestors.

1. Vogel argues that CSR should beperceived as one option for a business strategy that might beappropriate for certain types of firms under certain types ofconditions such as well-known brand names whose reputations aresubject to threats by activists.

2. He warns of the exposure a firmmight suffer if it does not live up to its CSR promises andcautions against investing in CSR when consumers are not willing topay higher prices to support that investment.

d. Evidence of Impact: A recent study entitled "DevelopingValue: The Business Case for Sustainability in Emerging Markets"provides evidence that in emerging markets cost savings,productivity improvement, revenue growth, and access to marketswere the most important business benefits of sustainabilityactivities.

i. Environmental process improvementsand human resource management were the most significant areas ofsustainability activities.

ii. The report concludes that it doespay for businesses in emerging markets to pursue a wider role inenvironmental and social issues citing cost reductions productivityrevenue growth and market access as areas of greatest return formultinational enterprises (MNEs).

e. Outcomes to Ethics Programs: Studies have found a number ofexpected and measurable outcomes to ethics programs inorganizations.

i. Some analysts look to the endresults of the firms that have placed ethics and socialresponsibility at the forefront of their activities while otherslook at the firms that have been successful and try to determinethe role that ethics may have played in that success.

ii. Looking at quantifiable measuresof a company's success the conclusion can be drawn that similarresults are unlikely to occur in a company permeated by ethicallapses.

f. Link to Financial Performance? Professors Stephen Erfle andMichael Frantantuono found that firms that were ranked highest interms of their records on a variety of social issues had greaterfinancial performance as well.

g. Further Research: Murphy and Verschoor found that the overallfinancial performance of the 2001 Business Ethics Magazine BestCorporate Citizens was significantly better than that of theremaining companies in the S&P 500 index based on the 2001Business Week ranking of total financial performance.

i. The researchers also found thatthese same firms had a significantly better reputation amongcorporate directors, security analysts, and senior executives.

ii. The same result was found in a2001 Fortune survey of most admired companies. Enron named asthe "Most Admired" that year would certainly be the exception.

iii. The UK-based Institute ofBusiness Ethics did a follow-up study to validate these findingsand found that from the perspectives of economic value added marketvalue added and the price-earnings ratio those companies that had acode of conduct outperformed those that did not over a five-yearperiod.

1. This study "gives credence to theassertion that 'you do business ethically because it pays.'"

h. Does a Social Responsibility of Business Exist? This Modulesought to answer this question and several sources of thatresponsibility were proposed.

i. The responsibility may be based ina concept of good corporate citizenship, a social contract orenlightened self-interest.

ii. It is impossible to engage inbusiness today without addressing CSR. Almost all companies willconfront CSR issues from stakeholders at some point in the nearfuture.

Finally let's take a look at twocompanies with whom every American is familiar -- McDonalds andStarbucks.

Looking at the differentmodels and theories of Corporate Social Responsibility discussed inthe Module, discuss which one you feel is best for U.S. companies.Would your answer be different if a company operates or usessuppliers outside the US? Explain your reasoning.