Chapter 2 - framing business ethics

Corporate Responsibility, Stakeholders, and Citizenship

What defines a corporation legally?

Legal status and ownership of assets; considered 'artificial persons' under the law.

Who holds fiduciary responsibility in a corporation?

Managers and directors, acting in the best interests of the corporation.

What is Milton Friedman’s view on Corporate Social Responsibility?

Businesses should focus solely on increasing profits; only humans have moral responsibility.

Friedman vigorously argued against the notion of social responsibilities for corporations based on three main arguments:

1.  Only human beings have a moral responsibility for their actions

2. It is managers’ responsibility to act solely in the interests of shareholders

3. Social issues and problems are the proper province of the state rather than corporate managers

why do corporations have social responsibilities?

1. business reasons

2. moral reasons

what are business reasons for CSR?

1. Extra and/or more satisfied customers

2. Employees may be more attracted/committed

3. Forestall legislation

4. Long-term investment which benefits corporation

What are moral reasons for CSR?

Corporations cause social problems, should use power responsibly, and impact society broadly.

What is Carroll’s four-part model of CSR? (Bottom to Top)

Economic, Legal, Ethical, and Philanthropic responsibilities.

what responsibilities are required by society?

economic and legal responsibilities

what responsibilities are expected by society?

Ethical responsibilities

what responsibilities are desired by society?

philanthropic responsibilities

What is the nature of corporate social responsibilities?

The attempt by companies to meet the economic, legal, ethical, and philanthropic demands of a given society at a particular point in time.

What are the three concrete areas used to measure a company’s social performance?

1. social policies

2. social programmes

3. social impacts

Who developed stakeholder theory?

Edward Freeman (1984).

What is a stakeholder?

Any group or individual who can affect or is affected by the organization’s objectives.

What are the principles of stakeholder theory?

1. Corporate rights (don’t violate others’ rights)

2. Corporate effect (responsibility for impacts).

what is the principle of corporate rights?

the corporation has the obligation not to violate the rights of others

what is the principle of corporate effect

companies are responsible for the effects of their actions on others

What did Milton Friedman argue about business responsibilities?

Businesses should only be run in the interests of shareholders.

What did Freeman argue about business responsibilities?

That “others” (stakeholders beyond shareholders) have a legitimate claim on the corporation.

From a legal perspective, how are stakeholder interests considered?

Stakeholders’ “stakes” in the corporation are often protected through legally binding contracts, such as those with employees or suppliers.

From an economic perspective, why do stakeholders matter?

Because of externalities (impacts outside contracts) and the agency problem

What is stakeholder democracy?

Suggests that stakeholders may be able to influence corporate decisions

What role does corporate governance play in stakeholder rights?

It regulates the rights of stakeholder groups

What is corporate citizenship?

A framework for understanding the social role of corporations in governing civil, social, and political rights.

• It’s about how corporations govern the rights of individuals

How do corporations support social rights?

By providing social services, such as feeding homeless individuals

What role do corporations play in civil rights?

They can influence governments to uphold their responsibilities

How do individuals use corporations to effect political change?

Through campaigns that leverage corporate influence to push for political reform or accountability.

What is corporate accountability?

Being answerable for the consequences of corporate actions.

what is corporate transparency?

the degree to which decisions, policies, activities and impacts are acknowledged and made visible to the stakeholders

Why is transparency important?

It allows stakeholders to hold corporations accountable.

The quality of corporate transparency depends on 3 elements:

Disclosure, Clarity, Accuracy.