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CSR - The Keynesians vs. the Friedmanites
The origins of CSR
To examine the role CSR plays in the supply chain its important to at what point it comes in and the places where it will be the most prominent assess how the two fields converge. Corporate Social Responsibility is the duty of a corporation ‘to create wealth in ways that avoid harm to, protect, or enhance societal assets) (Steiner, 2006 p116). Or as defined by (Jones 1980, pp. 59-60), Corporate social responsibility, is “the notion that corporations have an obligation to constituent groups in society other than stockholders and beyond that prescribed by law or union contract” Generally CSR is considered to go beyond the statutory requirements of the legal system and fulfill deeper moral obligation to society.
Bowen, 1954 was one of the first to therorise the business role in social responsibility, that went beyond ‘profit maximization' and stated :
- Managers have an ethical duty to consider the broad impact of their decisions
- Businesses are reservoirs of skill and energy for improving civic life
- Corporations must use power in keeping with a broad social contract or lose their legitimacy
- It is in the enlightened self interests of business to improve society
- Voluntary action may head off negative public attitudes and unwanted regulations.
According to Steiner, 2006, the basis of Bowen's arguments remain the foundation principles of modern CSR today.
Branco and Rodigues (2007, p1) outline an adapted Spectrum of viewpoints on the role of business in society as described by Lantos (2001, p.602)
View Position on Business' Role in Society
Classical Pure profit-making view: business has
lower standards of ethics than society and no
social responsibility other than obedience to the
Constrained profit-making view: business should
maximize shareholder wealth, obey the law, and
Stakeholder Socially aware view: business should be sensitive
to potential harms of its actions on various stakeholder groups.
Social activism: business must use its vast resources for social good.
In stark contrast to Bowen's ideas, the ‘ends mean ethic' (Steiner, 2006 p.221) of achieving profit was exemplified Carr's (1968) who said that in the pursuit of profit (the organisations primary goal) it is acceptable for managers to have lower standards than those in the rest of society, the only rule of the game is - there aren't any - with concealment, bluffing, hiding of the truth as appropriate strategies.
Perhaps this was influenced by Smith (1776) who's argument was that business ultimately through market forces business would serve the greater needs of society and would be “led by and invisible hand to promote an end that was no part of its intention” (Smith, 1776 p423) Although it could be argued that Smith's principle is based on a very different set of circumstances of the day where business was largely based on sole proprietors and not large multinationals (Steiner,2006), later echoes of Smith were heard in the opposing view Freidman, (1970) who stated “There is one and only one social responsibility of business-to use its resources and engage in activities designed to increase profits so long as it stays within the rules of the game, that is to say , engages in open and free competition, without deception or fraud…Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine” Notably Freidman's caveat of ‘without deception and fraud' distinguishes Freidman from Carr only by level of extremity but not by conviction that the primary responsibility of a mnaneghr os to its shareholders. According to Heath, (206 p.553) Friedman, was “the most influential proponent of the shareholder focused view”,The narrow view of business only being responsible to its stakeholders (the utilitarian view shared with Smith) was of huge influence to governments and developing nations around the world. Alan Greenspan said in an obituary to Friedman “….I would not dismiss the profound impact he has already had on the American public's view.”
Jawahar and McLaughlin (2001, p. 399) consider that a “fundamental assumption is that the ultimate objective of corporate decisions is marketplace success, and stakeholder management is a means to that end.”
To evaluate the social responsibilities of corporations it is important to review the theoretical debate that has ensued following Freidman's statement.
The earliest use of the term “stakeholder” was by the Stanford Research Institute, 1963 to describe categorise “without whose support the organization would cease to exist” (Freeman,1984) came into more popular usage to describe “those groups who can affect, or who are affected by, the activities of the firm” (Freeman, 1984). Post et al. (2002, p. 8) defines the stakeholders in the corporation as “individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and who are therefore its potential beneficiaries and/or risk bearers.”
To assess how far CSR should extend to the stakeholders, Clarkson (1995) describes primary and secondary stakeholders. Primary stakeholders are those “without whose continuing participation the corporation cannot survive as a going concern” (shareholders, communities, employees, customers, stock holders, governments) and secondary stakeholders (The poor, educational institutes, media, co,mpetetors, suppliers, trade associations, politicacl interst groups, creditors, unions, political parties, religious groups, earths bispshere, future generations) are “those who influence or affect, or are influenced or affected by, the corporation, but they are not engaged in transactions with the corporation and are not essential for its survival.” (op. cit., p. 107)
The Clarkson model maybe ‘…the most widely cited and accepted.' (Branco and Rodrigues p7, 2007) it still preposes a prescedenace to the owners (shareholders) and legal system - primary, a variation on a theme from the more hard line approach taken by Freidman.
The question of priority has been assessed by Mitchell et al. (1997). They suggest the priority offered to be based on three main stakeholder elements (
- power to influence the company
- legitimacy of the relationship with the company
- Urgency of the claim (on the company) affect to competing stakeholder claims.
The view by Jawahar and McLaughlin (2001, p. 399) that a “fundamental assumption is, the ultimate objective of corporate decisions is marketplace success, and stakeholder management is a means to that end.” Would seem to support Mitchell and Clarckson that some stakeholders are more important than others. This apparent lack of attention perhaps goes some way to explain the catalogue of very public and damaging court cases for example the sweatshop labour issue of Mark Kansky vs Nike Inc who was convinced that ‘Not only were Nike victimizing workers, but lying about it to' (Steiner,2006 p168)
Jensen (2001) argues that what he calls “enlightened value maximization” or “enlightened stakeholder theory” Enlightened value maximization uses stakeholder theory to suppose value cannot be maximized if an important stakeholder is ignored or mistreated.
To differentiate the two Freeman et al. (2004, p. 364) suggests Value Maximisation “begins with the assumption that values are necessarily and explicitly a part of doing business, and rejects the separation thesis (according to which ethics and economics can be separated clearly)”,
Stakeholder theory proponents reject the separation thesis (Branco and Rodigues 2007, p6). They see a moral dimension to business activity, because economics “is clearly infused or embedded with ethical assumptions, implications, and overtones.” (Carroll, 2000, p. 35)
The view taken by Porter and Kramer (2002, p. 28), is to identify two key theories in Friedman's argument 1.social and economic objectives are separate and distinct; 2. Through addressing social objectives companies do not provide greater benefit than is provided by individual donors. Porter and Kramer (2002, p. 30) state “companies do not function in isolation from the society in which they operate” and go onto conclude “in the long run, then, social and economic goals are not inherently conflicting but integrally connected.” (ibid.)
Therefore, in contrast to Friedman's ideas, managers who undertake social responsibility activities do not necessarily “misuse financial resources that legitimately belong to shareholders” this is the argument of multifiduciary stakeholder theory, where all stakeholders all have equal rights
The common sense approach was reflected by Goodpaster (1991, pp. 72) observed that the multifiduciary stakeholder theory ªblurs traditional goals in terms of entrepreneurial risk-taking, pushes decision-making towards paralysis because of the dilemmas posed by divided loyalties and, in the final analysis, represents nothing less than the conversion of the modern private corporation into a public institution and probably calls for a corresponding restructuring of corporate governance (e.g., representatives of each stakeholder group on the board of directors). However the need to adopt the approach as reflected by Porter and Kramer maybe the solution to managing the real world mine field of CSR issues. In Goodpastor's paradox, “Ethics seems to forbid and demand a strategic profit making maximisation mindset” In other words through treating all stakjeholders with the same weight it is imposible to act ethically with either.
Acording to Farington and Lysons (2006 p101) “Supply Chains and Value Chains are synonymous” A value chain is described as “a linear map of the wqay in which value is added by means of a process from raw materials to finished delivered product (including after service delivery)” Linkinmg value chains and stakeholder networks, Phillip and Caldwell (2005, p346) find the value chain and stakeholders to be sysnonomous
However, the stakeholder literature has only recently recognized the importance of the value chain within the context of the firm stakeholder relationship. Post et al. (2002a,b) note Chrysler's use of the extended enterprise, a value chain concept, and relate it to the stakeholder experience. Although supply chains are starting to receive more specific attention in the stakeholder literature, we estimate that the vendors and the supply chain they represent have received the
least attention among those Clarkson (1995) referred to as primary stakeholders: customers, employees, investors, and vendors.
Thus, we see that studies on value chains have paid scant
systematic attention to notions of responsibility, while studies of
stakeholder obligation and responsibility have de-emphasized the
particular challenges of networked value chains. This shortage of
scholarly attention notwithstanding, managers are increasingly being
held responsible for the actions of their customers and their suppliers.
From coffee, cars, computers, cleats, clubs, and carpet to tanzanite,
tuna, and tires, companies in myriad industries are being affected
by fallout related to their wider value chains. There are reasons to
believe—elaborated below—that this trend toward greater responsibility
for actions within stakeholder value chains will accelerate.