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Corporate Social Responsibility


4. Corporate social endeavors require managers to act ... Corporate agents must always respect the humanity of each ... Principle of Corporate Legitimacy (PCL) ... – PowerPoint PPT presentation

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Title: Corporate Social Responsibility

Corporate Social Responsibility
  • Mgmt 621
  • Contemporary Ethical Issues in Management
  • Jeffery D. Smith

A View of Corporate Social Responsibility (CSR)
Adapted from Archie Carroll (1991). The Pyramid
of Corporate Social Responsibility. Business
Horizons, 42 39-48.
Pacific Lumber Company
  • Corporate Social Responsibility Initiatives
  • Environmental Sustainability
  • Community Sustainability
  • Economic Sustainability
  • http//

Milton Friedmans Stockholder Model
Nobel Prize in Economics (1976) Capitalism and
Freedom (1962) The Social Responsibility of
Business is to Maximize Profits (1971) Free to
Choose (1980)
Milton Friedmans Stockholder Model
  • Some Preliminary Assumptions
  • The corporation only has "artificial
    responsibilities", i.e., only individuals
    (proprietors, executives, and managers) have
    moral responsibilities  
  • Managers (operation executives and officers) are
    employees of stockholders (owners)   Managers
    and stockholders are in a voluntary
    principal-agent relationship  
  • Stockholders own the corporation and this gives
    them a primary ethical entitlement to the
    ownership of profits

Friedmans Stockholder Model, contd
  • The only social responsibility of business is to
    maximize shareholder wealth, i.e., maximize
    profits, within the bounds of the law
  • Managers have a fiduciary responsibility to carry
    out the directives and protect the interests of

Friedmans Stockholder Model, contd
  • 1. Stockholders have an ethical entitlement to
    their property (capital)
  • and the profits that flow from its
    productive use by the firm.
  • 2. Through an act of trust, managers agree to
    maximize the value of
  • stockholders property (capital) by
    maximizing the profits of the firm.
  • 3. From 1) and 2), managers have an ethical
    responsibility to
  • maximize the profits of the firm.
  • 4. Corporate social endeavors require managers
    to act in ways that
  • do not maximize the profits owned by
  • 5. From 3) and 4), managers have an ethical
    responsibility not to
  • pursue corporate social endeavors.

The Stakeholder Model
  • A stakeholder theory of the firm must redefine
    the purpose of the firm. The stockholder theory
    claims that the purpose of the firm is to
    maximize the welfare of the stockholdersThe
    purpose of the firm is quite different for the
    stakeholder approach. The very purpose isto
    serve as a vehicle for coordinating stakeholder
    interests. It is through the firm that each
    stakeholder group makes itself better off through
    voluntary exchanges.
  • William Evan and R. Edward Freeman. (1993) The
    Stakeholder Theory of the Modern Corporation
    Kantian Capitalism. In Norman Bowie and Tom
    Beauchamp (Eds.), Ethical Theory and Business
    (pp. 75-84). Upper Saddle River Prentice Hall.

R. Edward Freeman
Stakeholder an individual or group that is vital
to the survival and success of the corporation
(No Transcript)
2. The Stakeholder Model, contd
  • Kants Humanity Formula of the Categorical
  • Corporate agents must always respect the
    humanity of each
  • stakeholder group by never treating
    stakeholders as a means
  • to corporate ends.
  • Principle of Corporate Rights (PCR)
  • The corporation and its managers may not
    violate the legitimate rights of others to
    determine their own future.
  • health, safety, association, contractual
    entitlements, fair/equitable treatment
  • Principle of Corporate Effects (PCE)
  • The corporation and its managers are
    responsible for the
  • effects of their actions on others.

2. The Stakeholder Model, contd
  • Principle of Corporate Legitimacy (PCL)
  • The corporation should be managed for the
    benefit of its stakeholdersThe rights of these
    groups must be ensured andthe groups must
    participate, in some sense, in decisions that
    substantially effect their welfare (Evan and
    Freeman, p. 82)
  • Stakeholder Fiduciary Principle (SFP)
  • Management bears a fiduciary relationship to
    stakeholders and to the corporation as an
    abstract entity. It must act in the interests of
    the stakeholders as their agent, and it must act
    in the interests of the corporation to ensure the
    survival of the firm, safeguarding the long-term
    stakes of each group. (p. 82)

2. The Stakeholder Model, contd
  • Some Problems and Concerns
  • Institutionalizing/Implementing the PCL and SFP
  • Conflicts Between Stakeholder Groups
  • Efficiency
  • Turns the Regulation of the Market Excessively
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