FAIR MANAGEMENT AND SUSTAINABLE
PRACTICES: On
Corporate Social Responsibility in the Market Economy
By Pr Philippe Daudi & Dr Charbel Macdissi,
MCF & Elena
Tonetta
Abstract
Corporate Social Responsibility (CSR) is a rewarding intellectual activity as
well as an insight provider in dimensions that matter in man kind activities.
The depth of one’s involvement in the subject is probably proportional
to one’s engagement in the ongoing broad discourse of fair management
and sustainable economies and practices. During the last decade or so, we have
witnessed an increased interest in the subject triggered by many reasons. The
ever increasing “market mania”, its subsequent harsh environment
and unstable labour situation create a strong sense of uncertainty with regard
to how firms are handling their social responsibility. Turbulence on the market
places jeopardises jobs and leads to an increased awareness of the general public
that CRS or lack of it can have tremendous social effects on the everyday lives
of communities. Especially those communities with strong economic dependencies
to locally established firms. Many reports of misdeeds have invaded the front
pages of the newspapers lately. The amplitude of some of these misdeeds are
of such shocking magnitude that the issue of firm’s honesty and responsibility
have become the focus of the general public as well as that of the controlling
and legislating instances. Thus the aim of this article to look at CSR from
a broad perspective, that of business ethics, and fairness and sustainability
of business practices.
Introduction
The governing ideas on CSR have acquired more and more acceptance and their
manifestations are the subject of many studies. Furthermore, CRS seems to have
become an integrated part of many firms everydayness. In many cases, accountable
practices of CRS, are likely to increase the chances of a firm to keep its position
and competitiveness in the view of general public. What the public sees in the
practices of CRS is the overall behavioural pattern of firms in terms of the
businesses choices they make as well as in term of their societal attitude,
or societality. The public, the governments of different countries and firms
are today equally interested in developing and implementing CRS in the market
economy. Despite the fact that interest in this issue varies widely across different
countries due to political traditions and degrees of awareness, it appears important
that a convergence is achieved.
However, this is not always the case. Public institutions of different countries
might interventionist at various degrees. Different groups of consumers around
the world are certainly interested in different issues and looking for different
solutions to their fundamental problem. Businesses might display a social responsibility
for strategic reason. In some cases, although rare, they might also do the same
simply for pure altruistic reasons. In yet other cases, firms might simply exclude
CSR from their reflections and activities.
It is generally agreed that all these groups are becoming more interested in
the development and implementation of CSR in the market economy. Furthermore,
the dissimilarities that can be analysed in different areas have to be accurately
examined and evaluated with particular focus on the consequences of globalisation.
Thus, a visible lack of ethical conduct that translates into actions of misdeed
is a source of a serious damage to the public trust in guilty firms. The scandals
that have exploded in the circles of investment firms, formerly believed to
be solid and reliable institutions, such as Morgan Stanley and Marilyn Lynch
have created a trauma in the public eyes. Similar scandals have appeared in
the world of insurance companies such as Skandia in Sweden as well as in old
and much respected traditional industries such as ABB. Even the state owned
companies appear to have their share of corruption and misdeeds. The case of
the Swedish System Bolaget, a state owned retailing companies providing the
Swedish citizens with wines and other alcohol beverages through an extensive
chain of stores all over the country, reflects the might of the dramaturgy embedded
in the practices of unethical business behaviour. The ongoing investigation
in this company (November-December 2003) have revealed that nearly a hundred
people, mainly at the middle management level, have been bribed by suppliers
in a systematic bargain providing them with substancial incentives for favoring
their respective brands. Further news of misdeed, bribes, unfair treatment of
employee, harassment and suppressions of minimal rights are now a daily routine.
Section 1: Data analysis
In the midst of the torment, PricewaterhouseCooper have conducted an extensive
worldwide survey among 1000 CEOs from 43 countries asking them to share “
their hopes and fears, and their insights” This study is the 6th annual
global Ceo survey and its being done in conjunction with the World Economic
Forum. The study is entitled “Leadership, Responsibility and Growth in
Uncertain times” (2003). The study deals with many problems that are felt
to be significant for the business community such as regaining confidence in
the wake of economic breakdown as well as the latest major terrorists actions.
But the study is also about the prospect of building trust among investors,
customers and employees and reclaiming “responsibility for being good
corporate citizens and good shepherds of the global environment.” About
half of the asked CEOs admit that corporations in their country had suffered
great loss of public trust. They also are positive about the actions taken by
legislators in order to impose standards of accountability to corporations.
As it is stated in the survey, there is a little doubt about the fact that the
latest corporate scandals have been very negative to the international business
community at large. Firms around the world are seriously considering different
options for gaining or regaining the public trust. The case of Skandia in Sweden
is certainly one of the most difficult to repair since the malefaction dealt
with the pension funds of the ordinary men and women. People have seen their
assets diminishing by more than a half while the bonuses of the responsible
CEOs has increased astronomically. One CEO got out of the catastrophic situation
of the company with a golden shake hand worth 25 millions euros. This and many
likely events exploding in the media convey but disdain and despair. Exhibit
one (page 16 in the PricewaterhouseCoopers’ CEO report, 2003) depicts
the question as to what extent has the public trust in firms ethical abilities
declined. The decline seems to impact on three key elements: the spirit of transparency,
the culture of accountability and the integrity of people.
One striking finding, as it appears in this exhibit, is that more than 70%
of the asked CEOs report that public trust has essentially declined in other
corporations, in auditor’s actions and in market analysts. However, they
think that their particular firm still have the trust of the public. This is
of course a somehow distorted view of the reality. It is the sort of selective
perception that that bring even more mistrust
Interestingly enough it is also reported in this study that “transparency
and accountability can mean different things to different people”. 53%
of Asia-Pacific CEOs agree that transparency and accountability are “country
specific and culturally sensitive”. They also agree, that “the motivation
of the transparency is more dependent on a company’s visible involvement
than on its visibility in the global marketplace”. The same goes for “company’s
motivation for meeting its CSR”.
Another survey, a small part of which is presented here, done by Ph. Daudi
and Ch. Macdissi in 2003 among firms in Guadeloupe shows that managers in this
region tend to associate CSR with a high awareness of the importance of environment.
The finding shows, for example, a rather positive attitude toward ecology, which
is seen as the expression of national ethic, as a way of life and as the manifestation
of the individual as well as the corporate social responsibility. When asked
to respond to a set of objectives primarily related to their perception of an
ethical behaviour as it might be displayed in their ecological actions, the
ranking of the manager’s responses show a clear positive attitude to CSR.
1- Personal responsibility 91,4 %
2- Common interest 91,3 %
3- National ethic 79,3 %
4- Need for survival 75,8 %
5- Tendencies 39,7 %
6- Restrictions 34,5 %
7- Business Opportunities 25,8 %
The managers have also been asked about their willingness and ability to see
good environmental actions as embedded dimensions in their strategic efforts,
thus viewing these positive environmental positions as competitive strategic
advantages. The majority of the asked managers appear to see positive effects
on their firms. The highest ranking is given to the image of the firm whilst
the lowest to the prospect of increasing the profit.
1- Creating a positive image 98,3 %
2- managing the competitive advantages 75,9 %
3- Attracting customer 74,1%
4- Generating added expenditures 63,8 %
5- Obtaining subsidies 58,6 %
6- Avoiding political sanctions 53,4 %
7- Increasing profits 50,0 %
This been said, a crucial question was asked as to what would constitute the
most important obstacles preventing an CSR and environmental conscious manager
from implementing his/her actions. The ranking hereunder emerging from the answers
indicates a certain ambiguity if one keeps in mind the overwhelming general
positive attitude, which emerges from the ranking above.
1- Financial restrictions 84,5 %
2- The firm concentrates solely on business 81,0 %
3- Lack of ecological awareness 79,3 %
4- Lack of ecological policy in the firm 77,5 %
5- lack of demand from the customer 72,4 %
6- The complexity of the issue 70,7 %
7- Lack of time 62,1 %
8- Personal attitude 56,9 %
The majority quotes the financial restrictions as the primary obstacle to their
projects of implementation, whilst still more than half refers to their own
personal attitude. The lack of ecological policy in the firm and the complexity
of the issue illustrates ambiguous attitude of the managers in relation to what
they stated earlier and given the fact that they are the people responsible
for the introduction of policy in their firms. Even if the managers in this
specific region in Guadeloupe, might have some difficulties in implementing
their ideas, we wanted nevertheless to get at their intentions, perfectly aware
of the risk of their answers being more parade words than personal convictions.
1-Questions concerning environment ought
to be integrated in the managerial decisions 86,1 %
2- Recherche & Development is importante for
limiting the bad impacts on ecology 84,5 %
3- Questions concerning environment ought to be a
major peroccupationfor managers dirigeants
d’entreprise 84,5 %
4- Environmental concern can be perceived as
competitive advantage 79,4 %
5- There is a crisis of the environment 79,3 %
6- Firms ought to disseminate information
about ecology and environment 58,7 %
7- The ecological situation is significant but
not critical 53,5 %
8-The politcs of ecology and environment is merely
an effect of fashion 20,7 %
The intentions and visions of the majority of the asked managers in the Guadeloupe
survey are compatible with those of the managers of the PricewaterhouseCooper
survey indicating the overwhelming global character of the issue of CSR and
related matters, and the will of many to cope with the problems deriving from
it.
Needless to say that the increasing magnitude of ethical issues and related
events constitute disadvantages rather than advantages for firms, thus exposing
their practices to the scrutiny of the public eye. Johnson & Johnson is
a good illustration for a firm’s capability to display and act in a visible
ethical way. This was during the crisis concerning their product Tylenol in
1982 and 1986. The product was made by a subsidiary of the pharmaceutical company,
whereby mysterious persons altered the product by placing deadly cyanide in
it causing the death of seven people. Johnson & Johnson recalled the product
suffering losses for 100 million USD. This was in 1982. Four years later, the
act of sabotage was repeated. This time, Johnson & Johnson has no other
choices but to stop the production of capsule form altogether was and to replace
it with the more secure form called caplet. The situation, even if tragic in
some respects and very costly in others, became however an opportunity for the
firm to show its good will and ethical predispositions towards the stakeholders
at large.
Examples of opposite behaviour to that of Johnson and Johnson are many, unfortunately.
The largely mediatised Enron fraud is probably the most fastidious financial
scandal of the past years. 12.000 employees were involved and thousands ordinary
Americans lost billions of dollars because of frauds made by managers. Other
spectacular examples of misdeeds are those of WorldCom, Tyco, Qwest, Imclone,
Critical Path Inc etc. As James Surowiecki editor of the book “Best Business
Crimes Writings of the Year”, Anchor Books, 2002, asks:
How did this happen? […] CEOs, fed on a diet of hefty stock-option packages
and hyped-up publicity, who came to drink their own kool-Aid, imagining that
they understood what no one else did, and that there were no obstacles to their
visionary schemes. Instead, they made outrageous promises and then found themselves
playing fast and loose with the rules in a desperate attempt to make those promises
come true. Others, though, were more cynical about the process, using the hype
machine to great effect and milking the system for all it was worth.”
(Surowiecki, 2002:4)
Scandals of such magnitude are spreading fear, suspicion and mistrust in Corporates,
in CEOs, in the financial systems as well as in the entire economy (Greider
in Business Ethics 02/03).
Section 2: Theoretical Analysis
2-1/ The Different facets of CSR
The concept of CSR has since more than a decade known a remarkable evolution
in different ways, such as in the understanding of its relevance in the market
economy, in its definition, in the related concepts as well as in the ways it
is implemented. However, the words have had different meanings to different
parties. The ambition here is to find the “nexus between what is in firm’s
self-interest and what is in the general public’s interest”. Merging
economic, legal, ethical and philanthropic issues in the defining of CSR, Carroll
(ibid) highlights its vast context. Combined with the respect of the law, of
the ethical values and of the company’s principles of social contribution,
a primacy is given to economic performances. The broad context of the concept
can be better grasped by looking at some important theories depicting firm’s
behaviour.
2-2/ Corporate citizenship
In literature as well as in common places, the concept of “corporate citizenship”
is both widely used either as a parade or it is misunderstood altogether. The
general view of corporate citizenship merging the individual behaviour with
that of an organisation, reifies firms actions that are then judged and condemned.
Corporate Citizenship is thus associated to the firms’ achievement that
take social and environmental good measures simultaneously with strategic and
financial actions as well as with the efforts of building a viable social image.
To evaluate if a business is socially responsible, it is therefore necessary
to compare what it does with what it can do against a set of criteria for external
and internal possibilities, threats and pressures (Zadek 2001). The study of
CSR should incorporate corporate citizenship and be central to management, since
it is increasingly becoming at the heart of managerial action, leadership, and
strategic choices. It is also central for building corporate image and gaining
public trust.
2-3/ Stockholder and stakeholder
Stockholder: Based on Adam Smith’s classical economic model, this theory
considers that each business must operate achieving its own interests, thus
maximisation profits, since through the “invisible hand” the numerous
interests of the society are simultaneously promoted in an economic, rational
and spontaneous “natural order” (Poma, 1996).
The stockholder theory was advocated by Friedman in 1962 in ‘Capitalism
and Freedom’. The author’s leading thought is “laissez faire”.
It aims at the creation of an economic system based on the individuals with
a limited involvement by the state. Friedman argues that “the social responsibility
of business is to increase its profits […] and the economic values, not
the social values, […] while acting legally, ethically and honestly (Friedman,
1962: 190). Clearly, even though other goals besides profits are identified,
they cannot have priority in the firm’ decision making process. Stockholders’
interest in firm’s performance and the increase of the value of the company
are the essential aspects that must be taken into account. The privileged position
of the stockholders is directly related to them being owners of the property
right, provider of the capital and the risk taker. In conclusion, CSR is implemented
only when it boosts efficiency.
The exhibit above (page 12 in the PricewaterhouseCoopers’ CEO report,
2003) shows an “apparent disconnect between government and business”.
The asked CEOs do not think that the relationship is getting any better but
they seem to expect this situation to remain in a status quo, i.e. not getting
worst. Almost half of the asked CEOs agree that the governmental actions seem
to be quite far from their own business preoccupations. Furthermore, they think
that the political leaders are less and less responsive the CEOs “business
agenda”. The exhibit shows that there is an “increasing antagonistic
relationship between business and government. (ibid)
Freedman’s theory would seem to be somehow short sighted with respect
to today’s debate. Yet, the reality of business practices as it is widely
illustrated by the latest scandals, depicts a picture rather closed to that
of Freedman’s prescriptions. Not that he encourages people to take bribes
and to misuse company’s assets, but he encourages them indeed, although
indirectly, to espouse a selfish and a profit driven behaviour. It is perhaps
naïve to think that the opposite is possible. The human nature might sometimes
be driven by greed and self-interest, but we must nevertheless pursue the ideal
of fairness and ethically viable practices. A narrow and limited view of the
supremacy of economic performances of the firm as sole mark of legitimacy of
its existence is often archaic and incomplete.
Stakeholder: Stakeholders can be satisfactorily defined as “everyone
who directly or indirectly receives the benefits or sustains the costs that
results from a firm’s actions” (Hax in De Wit and Meyer 199: 32).
The stakeholder theory considers that besides stockholders a company must take
other internal and external actors into account, since they can have great impact
on the position of the firm in the market economy. Moreover, as stated by Hardjono
and Van Marrewijk (2001: 225), although “ Adam Smith’s concept of
self-interest is still the driving force in post-modern society, sustainable
progress will only occur when this self-interest is enriched with sufficient
ethical, social and environmental elements”. In order to be competitive
firms must achieve the sustainability of their business practices.
The Exxon Valdez (today renamed as Sea River Mediterranean) oil spill occurred
on the 24th of March 1989. The accident was the consequence of incorrect rigging,
which caused the crash of the ship against an iceberg. Eleven million gallons
of oil were spilled. At that time, the catastrophe had great proportions. The
company spent four years and about 2.1 billion USD on the cleanup efforts, employing
10,000 workers and hundreds of aircrafts, helicopters and boats (Exxon Valdez
Oil Spill Trustee Council). Needless to say that this seemingly commitment was
driven by two main necessities: the necessity to response to a strong governmental
pressures and the necessity to restore some of the firm’s image. In this
case the “ firm must make trade-offs between its goals and the ones of
stakeholders” (Key 1999, p. 320) hoping to accommodate the broad context
of CSR and ethics.
2-4/ Moral hazard and CSR
Arrow in 1963 has raised the question of the moral hazard or risk by analysing
it under its two aspects ex-ante and ex-post. Taking the example of insurances
sector, he showed why all the risks are not ensured. The concept of moral hazard
thus found its origins in an applied case. Its meaning, simply put is that when
an agent is assured he, perhaps, adopts behaviour different from that which
he follows when he is not ensured, which can lead to an increase in the risk.
He/she acts on a situation concretised by a post contractual opportunism where
the policyholder adopts a behaviour knowing that he/she is covered by insurance.
For example, a person might be taking more risks or less precautions (ex-ante)
or she might be acting in a purposeful way, causing an accident with the view
of claiming the insurance funds (ex-post).
The moral hazard is thus revealed by a post contractual opportunism where each
contracting part (or one of them) seeks to draw a unilateral benefit knowing
that the other part does not have the means of completely checking all the clauses
of the contract. Even when such an action is made possible, it would lead to
such discouraging high cost of control and monitoring. Moreover, the opportunist
behaviour would pass better if the other part does not realise its existence
at once, but rather become aware of it only after that the action is carried
out. It is clearly a case of asymmetry of information.
There are a great number of examples of moral hazard. Indeed, each time that
there is a contract, a co-operation, a strategic alliance, etc., which associates
at least two persons or entities, there is a risk of moral hazard.
In their book on industrial economy, Médan and Warin(2000, p.292-304),
refer to a number of interesting examples. According to them, "certain
stockbrokers do not hesitate to encourage their customers to multiply the operations,
even if that is not always in the interest of the customer, but because they
perceive a commission with each operation. More often than not, the customer
is quite unable to accurately check if the transaction serves his/her interests
or those of the agent. However the moral hazard could also be at the source
of an efficient behaviour. Knowing that one is ensured, a person will take more
risks. The actions thus undertaken will obviously have consequences that might
seem efficient. For example, a countryside doctor who does five medical calls
per day, might increase her daily calls to seven because her new car, equipped
with airbag and ABS, gives her the impression to be in security and even encourages
her to drive a little faster than usual. Indeed, even if her behaviour as a
driver is more risky, the fine characteristics of the new car decrease the prospect
of risk, thus that of having an accident ".
Two another examples deserve to be quoted. The first one is presented by Paul
Krugman and concerns the Asian crisis: It is suggested that the Asian crisis
of 1997 seems to find its origins in a concept close to that of the moral hazard.
The investments made by firms in these countries were guaranteed by the different
governments concerned. The mere fact of being guaranteed made these investments
risky. Furthermore, the decreasing surplus gained from the investment was diminishing
the hope for profits. However, as long as the guarantee existed, the play continued
until the concerned governments had could not anymore cover the bank losses,
contributing therefore to the well nkown successive bankruptcies.
The second example is that of crude oil cartel OPEC. At the time of its constitution,
all the states members agreed to respect the terms of the agreement. However,
knowing the positions of the other members as it is inscribed in the agreement,
one of the countries can choose to take a different course of action. For example,
Iraq, acting on an individual basis, decided individually to increase its output
and subsequently its profits. It is indeed a case of moral hazard.
Moral Risk and Theory of the Agency
In his book of industrial economy (1992, p.32-33), Michel Glais analyses the
contractual relations as being “Marked normally by the seal of co-operation,
the contractual relations are not safe from conflict situations imposing procedures
of monitoring and control on the organization by decision makers, i.e. the principal
in agency theory. The procedures are also imposed by the agents who have a limited
authority to carry certain duties.”
Within the frame of this theory, it is assumed that the possibility of divergent
interests of both the principal and the agent increases the probability of moral
hazard on both sides. The same situation might occur between different parties
representing the stakeholders of the firm. Working on the agency theory, Jensen
and Meckling (1976) and Fama and Jensen (1983) showed the existence of these
divergences of interests where different parties would attempt to behave somehow
rationally more often than not lead to an irrational collective behaviour.
Concerning the shareholders and the managers and according to Médan
and Warin (2000) "These divergences of interests but also the asymmetry
of information involve a double phenomenon of moral hazard and an adverse selection.
The moral risk is interpreted as the impossibility for the shareholder (the
principal) of evaluating the work provided by the manager (the agent). The adverse
selection emerges from the impossibility for the shareholder to define with
any precision the conditions of contracts which link her with the agent ".
Incentives
According to the theory of the incentives, within an organization, the incentives
could lead to the reduction or the elimination of the moral hazard. The inciting
mechanisms permit the firms to circumvent the difficulties of the moral hazard.
Among these mechanisms, one can mention the wage incentives, the premiums, the
profit-sharing, the contracts of objectives, etc. A form of incentive was born
initially in the USA and then in Europe: stock options. As we have seen earlier,
the consequences of this system, in some cases, have had quite negative effects
on the morality of leaders. The problematic related to incentive has to do with
several aspects such as the raison d’être of stock options, the
“roof” for incentives if these are related to stock market performances,
the number of people concerned with incentives in the firm, and the role of
the leadership versus that of the board
In the case of the Swedish Scandia, for example, the authors (2003) of the
scrutinising report examining the “Scandia Scandal” are very critical
to Scandia’s incentive system where no roof for how large a bonus could
be is a central issue. Other issues are those of incentives related to the so
called “embedded value”, “sharetracker” and “
wealthbuilder”. In all cases, clear and well defined criteria are missing.
Decisions to ”compensate” managers for their deeds became a rather
fanny play-like piece of bad theatre where good old boys are rewarding each
other the best they could. When the scandal became a fact for every one to behold,
the guilty pleaded that they are merely misunderstood by all and that, somewhere,
it must have been somebody else’s fault that things went wrong. In my
childhood, when did something wrong, we had to pay tree times: one time for
the bad thing that we did; one time for being caught and one time for not taking
responsibility. The grownup children who manage Scandia obviously did not have
the same principle.
Moral Risk and game theory
With two or more players, the game theory, could be of a great help to formalize
the moral hazard. Indeed in the case of two players, an employer and an employee,
two signatories of a contract, a shareholder and a manager, etc., the following
table represents the situation of existence and absence of moral hazard, and,
in case of its existence, the probability of a player to use it.
X and Y respectively represent the utility, which each player will draw from
his situation of contractor with or without moral hazard. The ideal situation
would be the absence of moral hazard or the fact that the moral hazard is not
used by the two players. This theoretical situation often leaves its place to
the three other possibilities described in the table.
Médan and Warin (2000) present a very interesting approach founded on
remuneration and on the produced effort. They summarize as follows: "If
the utility of the employee depends on his remuneration w and the level of effort
authorized e, by simplification, one considers that there is an acceptable level
of minimum utility. The constraint of the participation of the employee is thus:
U(w, e) > = Umin
The employee can produce various levels of efforts: a weak level (e=0) or a
high level (e=1). However, in the majority of the cases, this level of efforts
is not observable. This impossibility of observing the effort level is at the
origin of the incentives existence”.
Probabilities of emergence of results as a function of the level of effort
P(R1 /e=0) < P(R0 /e=0) and P(R0 /e=1) < P(R1 /e=1)
The probability of having an important result thus depends on the effort provided.
The latter could lead to weak results, i.e., if the result does not depend solely
on the work carried out by the employee but on a great number of other variables.
Thus, there are limits to the application of incentive as a neutral tool of
management.
2-5/ Social contracts
Based on the discourses of important philosophers like Hobbes and Rousseau,
this theory is based on the concept of society as “a series of social
contracts between members of the society and the society itself” (Gray
et al. 1996 in Moir 2001). This notion of contract, virtual or real, reflects
the expectations and requirements of the society at large and of the subsequent
necessity for firms to comply with them. Naturally, it is essential to consider
the temporal and contextual changes of the idea of the contracts and their contents
in order to meet their criteria successfully. Society and all the actors that
operate in it are indeed stakeholders and as such, their influences on the activities
of firms are related to the terms of contracts binding the different parties
to each other and regulating their contributions. Thus, the social contacts
theory, in it support of the stakeholder theory, may bee seen as the broad field
within which CSR can be explained and understood. Donaldson and Dunfee (2002),
argue that about 50 years ago companies were simply expected to charge fair
prices for their products and services, while nowadays they are asked to be
involved in a large variety of social issues such as racial and environmental
problems.
2-6/ Ethical, altruistic and strategic social responsibility
Geoffrey Lantos (2001) has correctly underlined that companies can be responsible
in different ways. Responsible behaviour might be the consequence of external
impositions such as governmental obligations or it might be the result of a
voluntary decision. In other words, the reasons can be the prospect of gaining
some economical advantages or satisfying the stakeholders’ expectations.
Accordingly, it is interesting to discern ethical, altruistic and strategic
CSR.
Ethical CSR refers to all obligations, which have an ethical nature and that
a firm should accomplish by being morally responsible for the effects that its
actions can have on individuals or groups of stakeholders in the society. Since
responsible behaviour is usually expensive and in this view it is the result
of a free choice of the company, ethical CSR reveals that the firm might choose
to put moral values over self-interests and stakeholders’ protection over
profits. “Sometimes actions need to be taken because they are right, not
because they are profitable” (Chewing et al. 1990, Goodpaster 1996, Miller
and Ahrens 1993 in Lantos 2001).
In other cases, however, an organisation might act responsibly also in relation
to harms and situations it has not caused, for example for solving public welfare
deficiencies. Since it embraces a broader set of tasks than ethical CSR, this
behaviour is an altruistic CSR. It is seen as charitable or patriotic contributions
that will remain unaccountable in terms of loss and profits. LensCrafters donates
eye exams and glasses to needy people and of Ben & Jerry’s uses five
percent of their profits to sustain causes in which its founders believe e.g.
antinuclear campaigns, gay rights groups (Lantos 2001). In some sense, these
activities are intended as contributions into the great endeavour of enhancing
the general quality of life and making the world “a better place”.
However, sceptics claim that a corporation is primarily created for economic
ends and it can never act as a welfare agency.
However, socially responsible behaviour can be embedded within the frame of
calculated actions in order to achieve strategic goal and, in the same token,
display fair and sustainable dimensions. This strategic CSR behaviour is intimately
related to the stockholder theory and to pure economics. The costs of these
strategies are looked at with a strict accountability in terms of hard return
in mind.
Section 3: The broad context of CSR within business ethics, Fairness
and Sustainability
Looking at the available literature about CSR and ethics in business, it is
easy to be convinced that the subject do have gained scholars favour and is
being now researched and discussed extensively. Many and different arguments
are put forward all of which contribute to convey the importance of CSR and
business ethics. Some of the most obvious arguments are that representing the
stakeholder and shareholder perspectives. When supported by proper motivations
and explanations, different points of view can coexist. Dissimilarities can
also be found in the definition of CSR, which has evolved and expanded during
the time. For this study the most complete and meaningful definition appears
to be Carroll’s, since it is based on both economic and non-economic criteria
embracing a full range of responsibilities of the business to the society. For
this author “CSR involves the conduct of a business so that it is economically
profitable, law abiding, ethical and socially supportive” (Carroll 1999,
p. 279). From this definition four main types of CSR can be singled out: economic,
legal, ethical and philanthropic. It means that a company is simultaneously
required to produce goods and services offered in the market, to operate within
the legal framework, to respect the ethical principles of the society and to
define and follow its own values. As can be easily understood the respect of
the legal requirements is not sufficient; conversely, “CSR begins [only]
where the law ends” (Davis 1973 in Carroll 1999, p. 274) and it means
that it is broader than the minimum standards.
CSR, from the view of stakeholder theory (Dawkins and Lewis, 2003) shows the
increasing importance of corporate responsibility in relation to stakeholders
from a wide spectrum; from consumers and employees to legislators and investors.
Other writers as Maignan and Ferrell, 2003, argue that even though businesses
adopt social responsibility based on the assumption that consumers support CSR,
there is still little knowledge of the meaning and importance of CSR for consumers
in different countries. Use of stakeholder analysis through HR practices (Simmons,
2003) examines issues of performance, accountability and equity in organizations.
In order to make a good use of a stakeholder analysis (Vos, 2003) it is vital
for managers to identify these stakeholders. Attempts to legitimize actions
and decisions with CSR connotations, (Woodward, Edwards and Birkin, 2001) are
also discussed. It is suggested that the public economy of accounting and agency
theory, in combination with stakeholder analysis is used to analyze the attitudes
towards the executives’ perceived social responsibility. Some scholars
focus on CSR’s role in development (Bryane, 2003) and give an overview
of different “schools of practices”. While others (Burke and Logsdon,
1996) examines social responsibility programmes which create strategic benefits
for the firms by identifying value created such as centrality, specificity,
pro-activity, voluntarism and visibility. Within a competitive business environment
(Husted, 2003) managers should measure return on corporate social activity as
well as return on investment. Corporate strategies can make the difference between
environmental damage disaster and pollution prevention, and responsible business
practices (Warhurst and Michelle, 2000). In the 21st century (Zwetsloot, 2003)
there is a shift from management system to corporate social responsibility in
enhancing a greater potential for innovating business practices with a positive
impact on people, planet and profit. In other words, it is a matter of good
business conduct (Beu, Buckley and Harvey, 2003) through ethical decision-making.
Thus, as recent events show, self-interest have set aside business ethics (Carson,
2003). Others writers show (Cullen, Parboteeah and Victor, 2003) that the effect
of the ethical climate depends on the organizational commitment. This can be
achieved (Dando and Swift, 2003) through transparency and assurance to close
the credibility gap. Another way to assure good business conduct (Driscoll and
Hoffman,1999) is gaining an ethical edge by delivering values-driven management.
.
Bud Reid, director of the Corporate Help Line of Lockheed Martin, in an interview
says: “we do have the external-relations office, which is responsible
for problems like supporting the community in fields like the education system.
However, we do not refer to this kind of issues as social responsibilities but
we use the term ethics”. In this case activities that are clearly part
of socially responsible programmes are still simply considered in the broad
term of ethics. CSR is the whole of the private and voluntary actions undertaken
by a company in order to support and solve problems that affect the society.
3-1/ Business Ethics, or lack thereof, have lately been discussed
as ethical distance in terms of moral responsibility (Mellema, 2003). The concept
of ethical distance helps to shed some light on situations in which several
people are involved in bringing about a state of affairs where, in order to
diminish the ethical distance, organizations need to introduce modes of “managing
morality” (Rossouw and van Vuuren, 2003). This means that organizations
will improve their sophistication in managing ethical performance. The level
of sophistication in managing ethical performance means the application of moral
principles in making choices between right and wrong courses of action (Rushton,
2002). If ethics comes from the top management who set the codes of conduct
regarding the proper business behaviour, they are also bound to achieve a good
degree of sophistication in managing the subsequent ethical performances (Schroeder,
2002), the importance of which is underlined by Schwartz, 2002. Sustainability
of economic practices is certainly achieved by play by the rules (Skrabec, 2003)
In the best of words, profit can be generated, technology breakthrough encouraged
and corporate suffocation prevented. In this sense, Webley, 2001 even suggests
to conduct a SWOT analysis regarding business ethics in order to improve sophisti
cation in ethical performance measurements. Although, it may appear a far-reaching
endeavour, this model might help to uncover potential discrepancies (VanSandt
and Neck, 2003) or gaps between organizational and individual ethical standards.
3-2/ Corporate Governance varies from country to country.
In Italy, for instance the model of corporate governance (Bianco and Casavola,
1999) is characterized by a high degree of ownership concentration both for
unlisted and listed companies. In Germany (Gugler and Yurtoglu, 2003) the dividend
pay-out policy signal the severity of conflict between the large controlling
owner and small outside shareholder. Other writers such as Lehmann and Weigard,
(2000) argue that ownership concentration is actually significantly affecting
profitability in a negative way. In a survey of corporate performance and board
structure in Belgian companies Dehaene, De Vuyst and Ooghe, (2001) found evidence
that board size and percentage of outside directors are positively related to
company size in relation to return on equity and return on assets. On the other
hand, a very British solution (Goldenberg, 2003) in reforming corporate governance
is to use combined code on corporate governance. All in all, the view on corporate
governance varies depending on the chosen perspective (Husted, 2003) but, in
all cases, it may be referred to as a choice for a particular form of corporate
social responsibility (Lai and Sudarsanam, 1997).
3-3/ Fair Management is among many things build on the discourse
of organizational justice and equity (Cropanzano, Byrne, Bobocel and Rupp, 2001).
These authors argue that it requires a formulation of an appraisal of justice
whilst the quest of Gilliland and Schepers, (2003) goes through the analysis
of that which seems to determine the just treatment in specific decisions. It
is argued elsewhere that the perception of organizational fairness (Greenberg,
2003) might be enhanced by the introduction of a formal system. Given the fact
that such system can jeopardize the perception of fairness and reduce its impact,
formally mandating fair procedures is an effective way of creating unfairness
by.
3-4/ Sustainability, would seem to be achieved, according
to Lovins et al, (2001) by natural capitalism, whereby four principles enable
business to behave responsibly toward both nature and people while increasing
profit, inspiring their workforce and gaining competitive advantages. As it
where, this is easier said than done. Putting these principles into practice
(Sweet, Roome and Sweet, 2003), taking into account the harsh environment where
corporate are operating while sustaining the good business practices demands
a special bread of managers. These must show the ability to focus on and integrate
all the different facets of their business environment. They must also show
the ability to engage in far-reaching collaborative efforts involving a multiplicity
of partners. For example the implications in the shift of power relationships
between states, firms and households (Cramer, 2002) is emphasising the trend
toward a more viable attitude to sustainable business where firms consciously
need to focus on creating socially responsible values in the same time as financial
values. Partnerships between corporations and other spheres of interest are
wished for. Juniper and Moore, (2002) report that such partnership with local
and regional stakeholders provide a whole system of solutions and lead to unexpected
benefits, including within the frame of an international context (Epstein and
Roy, 2001).
There is no doubt about the fact that the corporate social responsibility is
gaining more ground worldwide. Corporate and their leaders are moved by a strong
desire to do the right thing but they are also seeking for ways of understanding,
defining and disseminating solutions what might constitute sustainable business
practices. Sustainability is not merely a parade word; it stands for a set of
practice that constitutes responsible corporate behaviour. It is a guideline
by which one can define the intersection between the general public interest
and the interest of the firms. It is true, though, that corporate cannot act
in place of governments. Their primary goal is to make profit and ensure a good
value for their shareholders. However, there is no contradiction in the fact
that the ability of corporations to organise actions implement them efficiently
can and should be used to make the world a better place and to ensure the sustainability
of business practices. One of the CEOs from the global survey by PricewaterhouseCooper
(ibid) says:
People in the world are better educated now. Corporations should be more socially
responsible toward their employees and the public. Many companies in the US
and EU have already adopted high levels of social standards. Companies in developing
countries should follow this lead and voluntarily provide better care toward
society and their employees. Responsible companies should not only ensure that
their social standards be high; they should also enforce such high social standards
onto their suppliers” (ibid, page 25)
The Coalition for Environmentally Responsible Economies in partnership with
the United Nations Environment Programme has provided a mean for moving forward
toward sustainability. The Global Reporting Initiative (GRI) was initiated in
1977 with the aim of helping corporations with viable guidelines for their voluntary
use in order to report the economic, environmental, and social aspects of their
business activities. It is encouraging to observe that companies are paying
attention to this issue. As per January 2003, more that 180 companies have published
sustainability reports using the GRI guideline.
Exhibit 3 (page 26 in the PricewaterhouseCoopers’ CEO report, 2003) highlights
interesting aspects about corporations perception of sustainability. More that
67 percent of the asked CEOs think that sustainability is not merely a public
relation issue nor a parade word. On the contrary, 79 percent of them agree
that sustainability is vital for the profitability of firms. Moreover, 71 percent
state that they are willing to sacrifice the short-term profitability in exchange
for long-term shareholders value through sustainable business practices
Concluding remarks:
It is argued by many authors that a code, constituting a "a set of rules
about how people should behave or about how something should be done" (Collins
Cobuild 1997, p. 302) can be used to formally include CSR in the organisational
environment with the purpose of creating an ethical environment and positively
influencing attitudes toward issues of ethics and CSR. Other, mean that this
code is a set of "moral standards used to guide employees or corporate
behaviour" (Schwartz 2001, p. 256); (O'Donovan, 2002; Nijhof, 2002)). In
the lights of the latest corporate scandals worldwide, it appears that the majority
of these corporate, if not all, did have a code of conduct, which did not prevent
managers and employees from pursuing their personal interest and, in many cases,
leading their company into catastrophe. The code is usually the result of the
interaction among different actors such as managers, employees and other stakeholders.
When it exists as document, it is usually introduced to gain recognition and
legitimacy from the external environment. Generally, the existence of such a
document has positive effect on the stakeholders, who sees it as a sign of commitment
on the relevant nexus between business and society. The question is whether
people’s sense of integrity and perception of ethical behaviour can be
changed by codes. Codes and laws may have a controlling power to refrain the
most deviant behaviour, but, on the main, they would seem to be without effects
on the choices people make, especially those subjected to one’s own interpretations.
We have earlier in this text evocated numerous cases where crossed many borderlines
in the belief that they where doing no harms. Whether it is their interpretation
or the public expectation that are exaggerated is still open to debates. The
fact remains that we are being made aware that unethical behaviour is more in
the eye of the beholder than in the insight of the perpetrator. The public has
been shocked by news of misdeeds times after times wondering each time how could
such thing happens. However, we slowly but surely realise that it is perhaps
not a recrudescence of bad behaviour that we are witnessing, but rather our
increased awareness and intensified scrutiny of businesses and their captains.
The notion of fairness needs also to be addressed from a wider perspective,
that of the dominant school of modern moral and legal philosophy. A deconstruction
of this discourse may reveal that CSR as well as personal decisions are not
always based on the moral philosophy covering fairness, right and justice. The
argument of human welfare is perhaps better criteria for reinterpreting fairness
against the background of social and psychological theory and practices. However,
fairness, as a locus for the democratic tradition, offers an alternative to
utilitarianism, which had dominated the Anglo-Saxon tradition of political thought
since the nineteenth century. The ideal of the social contract (Rousseau; Kant;
Emerson) is a more satisfactory account of the basic regulatory processes directing
and governing people’s behaviour and actions in the complicated web of
communities.
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