CSR and Ethics Lecture Notes PDF

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Lecture OneBusiness Ethics, Globalisation and CultureBusiness ethics as an academic subject: the study of business situations, activities and decisions where issues of right and wrong are addressed.Ethics as the study of morality: Ethics can be considered as the study of morality. Ethics is the syst...

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Lecture One Business Ethics, Globalisation and Culture Business ethics as an academic subject: the study of business situations, activities and decisions where issues of right and wrong are addressed. Ethics as the study of morality: Ethics can be considered as the study of morality. Ethics is the systematic study of the generally-held (or conventional) morality of a society aimed at determining the rules which ought to govern human behaviour, the rules that a society ought to enforce and the virtues worth developing in human life. Ethics: A Short History The term originated in the US (1970s) with three intertwined branches: 1. Ethics in Business a. Secular Branch (Aristotle, Adam Smith, David Hulme, John St Mill, Karl Marx). b. Religious Branch (Judeo-Christian, Islamism, Buddhist, Hindu and Confucian). 2. Business Ethics (Academic Field) a. Philosophical business ethics branch (normative and critical). b. Social-scientific branch (descriptive and empirical). 3. Adoption of Ethics in Businesses a. Integration of ethics into business and business practice (corporate ethics). b. Commitment to CSR. Europe and Japan (1980s): different development because of socio-political and economic differences. Globalisation Globalisation is the integration of: economies, industries, markets and cultures and the erosion of regulatory power of the national state. Globalisation is: ● An accelerating process. ● National, regional economies, societies and cultures are more integrated. ● Global network of trade, ICT and transportation. ● Cultural exchange. Ethical challenges of globalisation: ● Race to the bottom. ● Migrant labour and illegal migration. Impacts of globalisation: ● The global middle class was created by and benefitted from globalisation. ● Boosting shared prosperity requires addressing global inequality.

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Incomes are mainly determined by citizenship. Free movement of: capital, goods, services, technology and people. Increased international trade. Power of MNCs. Greater dependence on the global economy. Wealth rising. Inequality is rising

Drivers of Globalisation. The history of humanity is one of globalisation. The factors that have been behind globalisation in the past are likely to continue. Law: Operating outside the national territory, MNCs escape control of their countries of origin jurisdiction. The more this happens, the greater the need for CSR. Accountability: Globalisation leads to a growing demand for corporate accountability as the power of governments to control is reduced. Culture Origins: ● Environmental demands. ● Mortality. ● Socialisation Layers ● National ● Ethnicity/Religion ● Gender Psychological/Social Functions ● Internal compass. ● Social order. ● Social facilitation.

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Generational Social Class Organisational

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Conflict mitigation. Social cohesion.

Culture is learned and not inherited. It involves patterns of language, behaviour, models, norms and styles of communication. It affects our way of: ● Thinking Cultural Relativism ● Acting ● Organising ● Perceiving ● Relating to each other and to the environment.

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Individual - Personal history, family background and personality. Environment - Social and economic factors, competitive issues and social movement. National Values/Beliefs - Education, national values, religious beliefs and attitudes towards authority. Organisational Climate - Corporate culture, industry background, organisational structure and global reach.

Geert Hofstede (Cultural Dimensions) Dimensions of the model: ● Relationship between individual and the group. ● Social inequity and hierarchies. ● Assertiveness and material rewards for success. ● Ways of dealing with uncertainty. ● Links with traditions and norms. ● Free gratification of basic human drives and regulation. Power Distance Index (PDI) Small Power Distance ● Inequality minimised. ● Teachers = experts. ● Hierarchy reflects inequality in roles. ● Decentralisation. ● Ideal boss = resourceful democrat. Large Power Distance ● Inequality expected. ● Teachers = gurus. ● Hierarchy reflects existential inequality. ● Centralisation. ● Ideal boss = benevolent autocrat. Individualism vs Collectivism (IDV) Individualism ● Nuclear family.

● Individual identity. ● ‘I’ is important. ● Employment is a contractual relationship. ● Universalism. ● Task prevails. Collectivism ● Extended family. ● Social identity. ● ‘We’ is important. ● Employment is a ‘family’ relationship. ● Particularism. ● Relationships prevail. Masculinity vs Femininity (MAS) Masculinity ● Money and things are important. ● Men are assertive. ● Live in order to work. ● Decisiveness. ● Equity. ● Resolution by competition. Femininity ● People and relationships are important. ● Everyone is modest. ● Work in order to live. ● Consensus. ● Equality. ● Resolution through compromise. Uncertainty Avoidance Index (UAI) Strong ● Uncertainty feared. ● Emotions may be expressed appropriately. ● Differences are dangerous. ● Need rules. ● Punctuality is natural. ● Motivated by security. Weak ● Uncertainty accepted. ● Emotions should not be shown. ● Differences are curious. ● No unnecessary rules. ● Punctuality is learned. ● Motivated by achievement.

Long Term vs Short Term Orientation (LTO) Long Term Normative Orientation ● Maintain traditions. ● Societal changes are viewed with suspicion. ● Normative. ● Monumentalism. Short Term Normative Orientation ● Future oriented. ● Societal changes are encouraged. ● Pragmatic ● Flex-humility. Indulgence Vs Restraint (IVR) Indulgence ● A society that allows relatively free gratification of basic and natural human drives related to enjoying life and having fun. Restraint ● A society that suppresses gratification of needs and regulates it by means of strict social norms.

Lecture Two CSR and Stakeholder Theory Stakeholder Theory on the Firm: The Traditional Management Model

Stakeholder Theory on the Firm: The Refined Model

Milton Friedman vs Edward Freeman Shareholder-Centered View (Friedman) - The only group that has a moral claim on the corporation is the people who own shares of the stock (that is the shareholders). ○ The social responsibility of business is to make as much money as possible for the shareholders within the law and the rules of the game. ● Friedman says to maximise profit within the law and without violating social standards. ● So, in looking at a business decision (or analysing a case), identify relevant laws and regulation and also identify relevant laws and regulations - and also identify current social standards and opinions. ● Maximise profit without breaking laws/regulation and without disturbing society so much that it decreases profits. Stakeholder-Centered View (Freeman) - Many groups have a moral claim on the corporation because the corporation has the potential to harm or benefit them (call these groups

stakeholders. ○ Any group or person who is affected by or can effect the achievement of the firm’s objectives. ● Freeman says to identify stakeholder groups and make a decision that takes them into account. ● So, in looking at a business decision (or analysing a case), identify all stakeholder groups. ● Identify available options and determine the effect they will have on the stakeholders. ● Select and apply an ethical theory to these options to determine the best one. What is CSR? ● CSR encompasses the economic, legal, ethical and discretionary (philanthropic) expectations that society has of organisations at a given point in time (Carroll, 1979). ● The way in which business consistently creates shared value in society through economic development, good governance, stakeholder responsiveness and environmental improvement (Visser, 2011). ● A concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis and the responsibility of enterprises for their impacts on society (European Commission, 2011) ● The idea that business has: ○ Social obligations above and beyond making a profit. ○ Social obligations to constituent groups in society other than shareholders and beyond that prescribed law. The Evolution of CSR

Models of CSR: CSR Pyramid (Carroll, 1979)

Models of CSR: CSR 2.0 (Visser, 2012)

Traditional VS Contemporary CSR Strategy Traditional CSR

Contemporary CSR

Focus

Risk

Reward

Driver

Image, brand, public acceptance.

Performance, market, products.

Relation to Bottom Line

No direct contribution: CSR is value distribution.

Integral goal: CSR is value creation.

Responsiveness

Reaction, defence.

Accommodation, proactive.

Motto

CSR is bolt on.

CSR is built in.

Continuum of Social Responsibility Strategies

What is a brand? ● A name, term, sign, symbol (or a combination of these) that identifies the maker or seller of the market (Philip Kotler). ● Brand purpose: what job is the brand promising to accomplish for the buyer? ● Brand positioning: established sector, category. ● Brand differentiation: Communicates the brand’s purpose and ultimately enriches the brand’s identity. ● Brand identity: Logo, name and visual identity. ● Brand trust: Customer believe that the brand will deliver what it claims. ● Brand beneficence: does that brand serve the person and the society?

Benefits of Brand Trust ● Brand loyalty means repeat purchases which increases sales. ● Competitive advantage increases market share. ● Financial performance (good financial performance) increases share price. ● Credit in a ‘trust bank’. How is brand trust measured? ● Inexact science - relies on customer/public feedback. ● Polling organisations. For example: YouGov, FastTrack. For example; purchase consideration scores. ● Consultancies focused on reputation. For example; reputation institute. ● Analysing social media content. ● Advanced techniques. For example: AI sentiment analysis. ● Tracking consumer habits/measuring customer behaviour. ● Customer surveys. ● Impact of trust/CSR disasters. For example: falling sales, share price. Challenges ● Quantifying impact of ‘good CSR’ as well as impact of ‘CSR disasters.’ ● Differentiating role of CSR/brand beneficence from brand trust in general. ● Grey area - hard to reach a conclusion. ● Does CSR have an impact on consumer behaviour? Do consumers care? For example; Primark sales rising after Bangladesh factory exposure or Starbucks sales falling after tax row. Context: Trust Deficit To put it simply, we face enormous challenges that can’t be solved by any country on its own: climate change - the defining challenge of our times; migration and refugees - people on the move, everywhere; the multiplication of conflicts that are increasingly interlinked, and which itself is linked to newer threats of global terrorism and international criminality; and the impacts of new technologies that are difficult to manage in all their dimensions. The list goes on. Two things are clear. First, more than ever, we need global responses to global challenges. Second, more than ever, multilateralism and international cooperation are under fire. This the ultimate paradox in today’s world. I believe that, behind this paradox, there is a huge deficit of trust. As I said at the United Nations General Assembly, our world is suffering from a bad case of Trust Deficit Disorder. It’s a deficit on many levels. Trust between people and political institutions. Trust among countries. Trust in international organisations, namely the United Nations itself. And many are profiting from that alienation and distrust. The best selling brand in our world today in fear. It gets ratings. It wins votes. It generates clicks (Antonio Guterres, UN Secretary General in 2016). Context: Reputation Macro-Trends 2019 1. Higher Purpose - Companies need to deliver on a corporate brand purpose and

embrace cultural values, at an emotional level that transcends the products and services they sell. 2. Cyber attacks/data security - Cyber and data breaches are everyday reality and growing threat for all major companies. 3. Market Influencers - Influencing the influencers, who are ordinary people with extraordinary market impact on reputation. 4. Employer of Choice - Increased importance of company culture and its impact on employee engagement/recruitment. 5. CEO Activism - CEOs of major companies are increasingly taking a public stand on political, social and values-based issues, not just concerned about their companies bottom lines. 6. Fake news - The proliferation of fake content and opinionated news reporting fuelled by social media has resulted in a decline of trust in the media, government and corporations. 7. Nationalism vs Globalism - Corporate strategy decision making is torn between the need to think globally and act locally in a time of growing national identities and push-back on globalisation, in an intensely competitive multi-national marketplace. 8. Political Polarisation - There is a growing political divide in stakeholder opinions affecting company culture, government relations, sales growth, business partnerships and stakeholder support. 9. Female Empowerment - There is a movement towards emerging female empowerment that necessitates a new cultural narrative that doesn’t accept inequality or gender bias. 10. Tension of Trade Tariffs - There is a direct and indirect reputational impact on a company’s perceived national sovereignty, due to growing global trade tariffs. Key Points ● Brand trust and brand beneficence (driven by CSR) are interlinked. ● Quantifying either of these is an inexact science. ● Evidence of some impact as well as no impact of good CSR: trust in brand and a black box effect. ● Increasingly important yet increasingly hard to achieve. For example due to trust deficit. ● Economic, societal and political phenomena are interlinked. Corporations do not operate in a vacuum, need to take into account a multiplicity of factors. Criticism: No Logo No Logo was published on the cusp not just of a new millennium, but a new phase of globalisation, in which household names such as McDonald’s, Nike, Shell, Starbucks, Disney, Coca-Cola, Pepsi and Microso local laws and civic opposition in pursuit of ever bigger profits, as western outsourcing crashed against the sho behind human misery and environmental ruin as the tide rolled out (The Guardian, 11/08/19).

Lecture Three

Ethical and Socially Responsible Stakeholders Defining Stakeholders of Organisations ● Any group or person who is affected by or can affect the achievement of the organisation’s objectives (Freeman, 1984). ● Groups on which the organisation is dependent for its continued survival (Freeman and Reed, 1983), ● Assert to have one or more of the kinds of stakes in business may be affected of affect (Carroll, 1993). ● Any group or individual that has, or claims, ownership, rights, or interests in a corporation and its activities (Clarkson, 1995). ● Are or which could impact or be impacted by the organisation (Brenner, 1995). Stakeholder Salience Different forms of Stakeholder Theory: ● Normative Theory: Attempts to provide a reason why corporations should take into account stakeholder interests. ● Descriptive Stakeholder Theory: Attempts to ascertain whether (and how) corporations actually do take into account stakeholder interests. ● Instrumental Stakeholder Theory: Attempts to answer the question of whether it is beneficial for the corporation to take into account stakeholder interests (enlightened selfinterest). A new role for management: According to Freeman, this broader view of responsibility towards multiple stakeholders assigns a new role to management. Rather than simply being agents of shareholders, management has to take into account the rights and interests of all legitimate stakeholders: ● Stakeholder Democracy. ● Corporate Governance. Stakeholder Management Approaches Although the terminology of stakeholder theory is relatively new in places like Europe or Asia, the general principles have actually been practiced for some time: ● European corporations are generally smaller than US.

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European more likely to have multiple stakeholder approaches. European, African and Asia models of capitalism are not so dominated by shareholder value maximisation as a US/UK model. European companies are often managed by large executive and supervisory bodies, interlocking ownership and bank financing. German supervisory board includes employee representatives. Asian Companies - feature structural market integration, especially with suppliers and cultural norms or of trust and rights/duties shape protection of employees rather than formal legal/governance systems. Japan (keiretsu) and Korea (chaebol) and also China, India and Taiwan - conglomerate business organisation which reflects the view that suppliers, creditors and customers are the most important stakeholders. Scandinavia - language of stakeholder management part of management part of management teaching and practice, with stronger attention to cooperation, participative management, employee involvement and consensus building, Scandinavian Cooperative Advantage at IKEA, Novo Nordisk, H&M, etc. Traditional Model of Managerial Capitalism ● The company is seen as only related to four groups. ● Suppliers, employees and shareholders provide the basic resources for the corporation. ● Corporation uses these to provide products for consumers. ● Shareholders ‘own’ the firm and are dominant: The firm should be run on their interests.

Stakeholder Model ● Shareholders are one group among several other. ● Company has obligations not only to one group, but also to a whole variety of other constituencies affected by its activities. ● Corporation is at the centre of a series of interdependent two-way relationships.

Network Model ● Stakeholder groups may have duties and obligations to their own set of stakeholders and to other stakeholders of the same corporation. ● Firms have indirect relationships with a whole range of constituencies via their immediate stakeholders.

1. Shareholders as Stakeholders Represent the separation of ownership and management in large corporations: ● Fragmented ownership: no personal relationship (in US and UK largely institutional). ● Locus of control: No longer personal connection with the business; no knowledge or input into management decisions for future. ● Dividend functions and interest: interests not necessarily the same as those who control the company (eg: profits vs growth); motivations differ but largely financial. Shareholder-Manager Relationship Two common features of relationship: 1. Conflict of Interest - For example shareholder return vs manager salaries (mergers tend to increase the latter but rarely the former). 2. Informational Asymmetry - Shareholders not party to plans and will not have knowledge to participate; goals and actions of managers. Principal-Agent Relation

Global Shareholders Global equity and finance markets have the most globalised business activity, which means shareholders may be involved globally: ● Directly involved abroad by buying shares of companies in other countries. ● Indirectly involved by buying shares in domestic companies that operate globally selling goods and services worldwide, or have an international supply chain. ● By buying MNCs, making them participants in global markets, ● Directly participate by investing in funds that explicitly direct money to global capital markets. Shareholder Democracy Idea that a shareholder of a company is entitled to have a say in corporate decisions. ● Supported by legal claims based on property rights. ● Can shareholders be a force for wider social accountability and performance. Three issues to consider (socially responsible investors): ● Scope of activities. ● Adequate information. ● Mecha...