A Summary Of Corporate Responsibility Commerce Essay
In order to establish the links between corporate responsibility and stakeholder theory we must first look at each of these and identify their main characteristics. To start with, we need to define what, or how, a corporation may have as responsibilities. Carroll and Buchholtz (2005) said that it "encompasses the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point in time". It is important to note that the responsibilities are placed on the organisations by society. So therefore, we need to see where a corporation stands in society and what its roles are. Corporations are seen in the eyes of the law as being separate legal entities from those who work in them, or own, or invest in them. Whilst being notionally owned by shareholders, corporations work independently from them in order to maximise shareholder wealth. Since a corporation cannot have moral feelings, as it is inanimate, it is up to those in the corporation to act with some moral judgement on behalf of the corporation.
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It is becoming apparent that society places expectations on corporations for the way they expect them to behave. A corporation will have an impact on society whether it means to or not. If it is polluting the environment this is a fault of the company so it could be expected for the company to supply a solution. Based on the role of what is perceived the corporation has in society we can split the roles into 3 categories; minimal, intermediate, and maximal.
Corporations can be seen to have a minimal role in society where just by being there and creating jobs is responsibility enough. Friedman (1970) argues that social issues are not the interest of a company and are in fact matters of state, and up to the government to decide. "Managers of firms are not trained to set and achieve goals, nor (unlike politicians) are they democratically elected to do so". This view is of a minimal approach, and implies that the firm is only there to make profits for shareholders, and this intern injects wealth into society. Critics argue that organisations pay taxes to government to guarantee that the environment and society are not negatively affected by any business activities. This view of the corporation's role as just to make money for shareholders is also known as the shareholder theory.
Giving a more responsible role to a firm in society, presents an intermediate role in society as viewed by Carroll (1991). Carroll suggests that a corporation is there to add value to most/all stakeholders and shareholders. Linked to Carroll's 4 part model with different tiers on the pyramid depending on whether or not the idea is deemed to be required (i.e. Economic responsibilities) or desired (ie. Philanthropic responsibilities) http://labspace.open.ac.uk/file.php/4778/pyramid.gif
Carroll's 4 part Pyramid
Finally the maximal view is that the corporation should provide for the needs of society through philanthropy. This idealistic view may not necessarily work outside charities or religious companies, as smaller corporations may not be able to afford this. This level of responsibility could be seen as a "luxury for the successful". Corporate social responsibility can be seen to be going above and beyond what is expected from a company, and maybe done voluntarily. Crane & Matten (2007) extend this view with the idea of corporate citizenship, suggesting that the corporation must be responsible to society on many levels.
Within society today, the pressures placed on any corporation will be for it to benefit society as a whole and not just the shareholders. This gives a maximal approach to the role of corporations in society. The issue which seems to occur between the different theorists is which stakeholder the company should be run in the interests of. This bridges the role of corporate responsibility with stakeholder theory. The traditional model of stakeholder theory has just four stakeholders; shareholders, employees, suppliers and customers. Whilst Crane & Matten defined stakeholders as "a stakeholder of a corporation is an individual or a group which either; is harmed by, or benefits from, the corporation; or whose rights can be violated, or have to be respected, by the corporation". This view gives a huge variety of potential stakeholders from government to locals who live near the corporation. The stakeholder theory states that the business should be run in the best interest of the key stakeholders.
Stake holders seen as having a two way relationship with the firm.
The stakeholders of a firm can be split into two classes of stakeholders; normative (or primary), and derivative (those affected in a secondary matter). Normative stakeholders hold a mutual interest in the corporation as they are able to benefit from its success but will also feel the pinch if the corporation is not doing so well. Normative stakeholders are those to which the firm can be seen as having a moral obligation of fairness towards. The derivative stakeholders are; as Phillips (2003) said, "those groups whose actions and claims must be accounted for by managers due to their potential effects upon the organisation and its normative stakeholders". It is under this light that a firm ideally should be run with the interests of its normative stakeholders in mind, those who it will directly affect. They could be anyone from; suppliers, customers, employees, the community, the environment and not forgetting shareholders. Taking the view of stakeholder theory we can see the central links to Corporate Responsibility, it provides a moral grounding on which decisions can be made with the normative stakeholders in mind. With corporations now expected by society to voluntarily, go above and beyond legislative measures to, provide for the well-being of society it is clear that the maximal approach has been pushed to the forefront. This furthers the links between stakeholder theory and corporate responsibility as " it addresses morals and values explicitly" Phillips Freeman & Wicks (2003).
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In order to understand how stakeholder theory is useful in corporate responsibility it is essential that we identify the ethical principals upon which stakeholder theory is based. Donaldson & Preston (1995) argued that there were in fact 3 forms of stake holder theory; Normative, Descriptive, and Instrumental.
Normative theory is a theory that attempts to give a reason why corporations should take into account the stakeholder interests. This theory is very ideological and in real business people do not always act in the ways they should. Descriptive theory is the theory which attempts to discover if, and how, corporations actually put stakeholder interest into their decision making process. Instrumental stakeholder theory is based on the idea of whether it is beneficial for the corporation to take into account stakeholder interests. As all decision makers are different it is important to see that different people will inevitably have different opinions. These different opinions may also be seen in different moral reasoning, so as to say what some people see as right or wrong may be entirely different depending on situations or cultures. Kaler (1999) professed that morality is a social phenomenon, and that it is primarily about "harm and benefit". Suggesting that right and wrong are mostly about avoiding harm, and providing benefits. De George (1999) suggested that there are two extreme ethical positions that can be thought of; ethical absolutism and ethical relativism. Ethical absolutism has been seen to be traditional in sense of most ethical theories, whereas contemporary ethical theories seem to be towards ethical relativism. The traditional approach (absolutism) suggests that there are universally applicable moral principles that remain constant in any situation (the traditional good vs. evil), and that it is objective. Contemporary theories suggest relativism and that morality is subjective and dependent of the situation or context. Ethical relativism also suggests that there are no universal morals for right and wrong and that it is culturally dependant and the person making the decision. Crane & Matten (2007) suggest a modern compromise on ethical principles with a meeting halfway between the two extremes. They suggest the use of a theory that has a basis of absolutism, "basic principles and rules" but with the contemporary relativism "accepts different moral convictions and backgrounds". By using this approach, a more normative stance can be taken as; a corporation would make decisions with a variety of ethical principles and would relate it to context specific ethical issues.
Traditional absolutism principles can be separated into two distinct groups; consequentialist ethics and non-consequentialist. Both of these groups contain subdivisions with further ethical theories. Egoism is one of the oldest philosophical ideas, and has been around since the ancient Greeks. This theory dictates that an action can be seen as morally right if it is based on either the long term or short term goals of a man ( or corporation in this sense). This would therefore align alongside the minimalist view or the roles of a corporation in society ( or shareholder theory). Egoism is based on the pursuit of interests (Graham 1990). By just pursuing one's own interest, one may be setting oneself up for a fall, if gains at the expense of others occur . egoism , it should be noted, is not a form of selfishness and man will be able to take pity in another's plight. The second normative theory in ethics is that of Utilitarianism, whose basic principle is any action is morally right if it results in the greatest amount of good for the greatest amount of people. This wider view towards who will benefit as opposed to the view of egoism means that utilitarianism could be aligned towards the intermediate role of a corporation within society. Utilitarianism is based on a collective hedonist ideal, where the consequences are the focus that will allow for the greatest amount of joy/happiness/good/or pleasure will be pursued for the greatest amount of people rather than as individuals. One weakness of Utilitarianism is that there is no separation of normative and derivative stakeholders, which can mean that decisions could be made for stakeholders that are not of key importance to the corporation, and minorities can be overlooked irrespective of their importance to the corporation. Finally there are two types of Utilitarianism: act and rule. Act Utilitarianism looks to single actions and bases any moral judgement upon the benefits or pain of that single action. Rule Utilitarianism looks at groups of actions to see whether the fundamental values of these groups of actions provide more pleasure than pain for people in the long run. In contemporary times there has been a shift towards Rule Utilitarianism, away from Act Utilitarianism, as we no longer would have to look at each single action but could establish principles that we could apply to all such situations.
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Ethics of duties is a non-consequentialist theory , its theory is that moral decisions should be made on the motives of a person rather than any consequence following from actions taken upon that decision. Kantanism, as professed by Immanuel Kant , suggested there are 3 maxims which could be used as tests in any situation regarding questioning morality. Kant suggests that an action is morally right if it passes all three maxims. His maxims are based on : consistency, human dignity , and universality. This theory is quite optimistic as humans tend to behave in an egoistic manner, and the theory also undervalues any outcomes as decisions are not based on their consequences. Traditional theories have been criticised for being too abstract (Stark 1994), too reductionist (Kaler 1999), too objective and elitist (Parker 1998), too rational and codified ( Bauman 1993) , and too impersonal (Gilligan 1982).
Contemporary ethical theories are relevant in decision making processes today but may not have had as much exposure as their traditional cousins. Some of the more contermporary ethical theories are Virtue ethics, and feminist ethics. Virtue ethics seem to have moved further from the decisions being made and more towards the decision maker. Virtue ethics suggest that morally correct actions are those actions taken by virtuous people. Virtues of character are easily separated into intellectual virtues and moral virtues. Wisdom, honesty , mercy , loyalty, patience are all examples of the virtues that the person making decisions ideally would have. The view of this theory is that the "goodlife" is more than just turning a healthy profit but by also by having satisfied stakeholders in all areas of business. Virtue ethics shows that although cultures may have difference the underlying pillars of virtues that are gained through experience and participation will help decision makers. Feminist ethics sees priorities as empathy , care for one another, harmonious social relationships and avoidance of harm as its main values. The feminist ethics instills a feminine attitude towards business with more caring and loving approach rather than cut and thrust views of many male counterparts. Feminist ethics seeks to establish and maintain healthy relationships between stakeholders.
Looking at whether businesses act strategically or ethically in their approach to corporate responsibility entirely depends on what they have to gain or lose from employing corporate responsibility or not. The size and nature of any benefits from corporate responsibility are partly dependent on the industry and the publicity. And the case for corporate responsibility may be strategically aligned towards several motives. Within a company HRM plays a key role of attracting the next bright talents to a company , they may be attracted to companies who operate with corporate responsibility, and are likely to be retained. Reputation is another key aspect which needs to be considered when deciding whether or not a company acted ethically or strategically when employing a corporate responsibility program. "Reputations are vital guard it with your life" Machiavelli , The Art of War. As reputation is everything, a ruined reputation may cost a firm billions. An example of this was when Exxon spilt oil in Alaska, their reputation was tarnished and they were boycotted for over a decade for being irresponsible. Benjamin Franklin said " Glass, china ,reputation all are easily cracked and never well mended". So any responsible actions taken by a firm may be trying to boost their reputation. Husted & Salazar (2006) said " it is wiser for the firm to act strategically than to be coerced into making investments in corporate social responsibility".
Corporations may also benefit from being proactive with their corporate responsibility. By taking substantial voluntary steps towards helping the environment, or promoting health and safety, above and beyond the rules set out by governments companies may be trying to avoid interference from taxation or regulations. Concerns are also raised about hypocrisy and insincerity. For example Royal Dutch Shell is promoting young people to create their own business through the Shell LiveWIRE program ( can be seen to be acting with Utilitarinalist views). It is criticised on the other hand for its business in Africa notably the protests of the Ogoni peoples in Nigeria(shareholder theory is apparent when not looking out for the stakeholders).Rochte (2009) says that by using CSR "they essentially "green-wash" their company." Corporate responsibility can be linked within marketing strategy for instance Nestle and their fair-trade status can provide a competitive advantage. Irresponsible corporations can still benefit even by pretending to be responsible due to public support for saving the environment and health and welfare issues. Frankental (2001) argues that CSR is a paradox and is merely an invention of PR.
It is hard to decide if a corporation, that isn't religious in background or a charity ( who can act philanthropically), can truly be acting ethically whilst employing some form of CR. An arguement in case is that; as there will no doubt be some financial rewards, or benefits quantifiable in other areas, due to the perceived increased morals being used viewed by the public. As CR is linked with stakeholder theory and stakeholder theory is based on ethics there may be some case for an ethical case.
With all these benefits from acting or at least pretending to be responsible it is quite clear that the majority of corporations will be acting strategically by employing corporate responsibility. I think that businesses generally operate with CR for strategic purposes instead of ethical ones, the ethics are taken into view but this is in order to generate higher profits for the shareholder rather than for creating value for stakeholders. But we do need to realise the benefits of having CR as many disasters, such as the recent oil spill from BP, would just be left for nature to deal with if corporations felt no responsibility at all.
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