Transcript Principles of Management

Principles of Management
MBA & BBA
Lecture 5
(Corporate Social Responsibility &
Business Ethics)
By: Farhan Mir
© Farhan Mir
2007
IMS
Business and Society
Relationship
Business is the collection of private, profit-oriented
organizations.
Society is a broad group of people and other organizations,
interest groups, a community, and a nation. Business and
society interrelate in a macro-environment as stakeholders.
Community
Government
Business
Owners
Employees
Consumers
© Farhan Mir
2007
IMS
Corporate Social
Responsibility Crisis
“An ABC News/Washington Post survey
indicated 63% of the public felt that
regulation of corporations is necessary to
protect the public.”
“Seventy-five percent of those surveyed by
ABC expressed limited confidence in large
corporations.”
Gary Langer (2002) “Confidence in Business: Was Low and Still Is,” www.abcnews.com,
Sept. 10.
© Farhan Mir
2007
IMS
Corporate Responsibility
Crisis...
“Opinion polls now place business
people in lower esteem than politicians.”
-Jennifer Merritt (2002) “For MBAs, Soul Searching 101,”
Business Week, Sept. 16, p. 64.
“A W.S.J./NBC poll found that 57% of
general public believed that standards &
values of corporate leaders &
executives had dropped in the last 20
years.”
-Eric Hellweg (2002) www.business2.0.com, Sept. 10
© Farhan Mir
2007
IMS
© Farhan Mir
2007
IMS
The Debate
McDonalds has been criticized for
making food unhealthy (e.g., “Supersize
Me”), not telling people what’s in it.
Should McDonalds become SR by:
Making foods healthier (e.g., smaller
portions, leaner beef, canola oil )
Advertise what’s in food
So What is Social Responsibility!!!!
© Farhan Mir
2007
IMS
Overview of Corporate
Social Responsibility
Formal Definitions
“The obligation of organization management to
make decisions and take actions that will enhance
the welfare and interests of society as well as the
organization” (Daft & Marcic)
“The extent to which companies should and do
channel resources toward improving the quality of
life of one or more segments of society other than
the firm’s own stockholders” (Dessler)
“The set of obligations an organization has to
protect and enhance the societal context in which
it functions” (Griffin)
© Farhan Mir
2007
IMS
Corporate Social
Responsibility (CSR)
Preliminary definitions of CSR
The impact of a company’s actions on
society
Requires a manager to consider his acts in
terms of a whole social system, and holds
him responsible for the effects of his acts
anywhere in that system
© Farhan Mir
2007
IMS
Overview of Corporate Social
Responsibility
Classical View
Socioeconomic View
Pure capitalism
Milton Friedman
Sole responsibility of
business is to serve
interests of owners:
maximize profits
Stakeholder theory
Businesses have a
responsibility to protect and
improve society’s welfare
Moral Minimum
Businesses free to strive
for profits as long as they
do no harm
© Farhan Mir
2007
IMS
Social Responsibility –
Classical View
Management’s only social responsibility is to
maximize profits (create a financial return) by
operating the business in the best interests of the
stockholders (owners of the corporation).
Expending the firm’s resources on doing “social
good” unjustifiably increases costs that lower
profits to the owners and raises prices to
consumers.
© Farhan Mir
2007
IMS
Social Responsibility –
Socioeconomic View
Management’s social responsibility goes
beyond making profits to include
protecting and improving society’s welfare.
Corporations are not independent entities
responsible only to stockholders.
Firms have a moral responsibility to larger
society to become involved in social, legal,
and political issues.
© Farhan Mir
2007
IMS
The Domain of Corporate
Social Responsibility
© Farhan Mir
2007
IMS
Corporate Social Responsibility
(CSR)
Carroll’s Four Part Definition
Understanding the Four Components
Responsibility
Societal
Expectation
Examples
Economic
Required
Legal
Required
Be profitable. Maximize
sales, minimize costs, etc.
Obey laws and regulations.
Ethical
Expected
Do what is right, fair and just.
Discretionary Desired/
Expected
Business and Society: Ethics and Stakeholder Management, 5E • Carroll & Buchholtz
Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved
Be a good corporate citizen.
2-16
© Farhan Mir
2007
IMS
Pyramid of CSR
© Farhan Mir
2007
IMS
Corporate Social Responsibility
(CSR)
CSR in Equation Form Is the Sum
of:
Economic Responsibilities (Make a profit)
Legal Responsibilities (Obey the law)
Ethical Responsibilities (Be ethical)
Discretional Responsibilities (Good corporate
citizen)
CSR
© Farhan Mir
2007
IMS
Managing Corporate Social
Responsibility
Source: Schermerhorn, 2002
© Farhan Mir
2007
IMS
Social Responsibility
Strategies
Reactive Strategy
Denying responsibility while striving to maintain
the status quo by resisting change.
Defensive Strategy
Resisting additional social responsibilities with
legal and public relations tactics.
© Farhan Mir
2007
IMS
Social Responsibility
Strategies (cont’d)
Accommodation Strategy
Assuming social responsibility only in response
to pressure from interest groups or the
government.
Proactive Strategy
Taking the initiative in formulating and putting
in place new programs that serve as role
models for industry as far as Social
responsibility is concerned.
© Farhan Mir
2007
IMS
But The Debate Goes On!
Managing Corporate Social Responsibility
 Arguments against
social responsibility:
Reduced business
profits for owners
Higher business
costs
Dilution of business
purpose
Too much social
power for business
Lack of public
accountability
Potential conflicts of
interest
Lack of expertise
 Arguments in favor of
social responsibility:
Business creates
problems and should
help solve them
Adds long-run profits
Better public image
Avoids more
government
regulation
Businesses have
resources
Better environment
Public wants it © Farhan Mir
2007
IMS
Views Against CSR
Business is incompetent to handle
social issues
The one responsibility of business is
to maximise the profits of its owners
or shareholders.
CSR is not definable and just another
marketing trick
© Farhan Mir
2007
IMS
Business Ethics 100 Best Corporate Citizens, 2003 Rankings
(scores are standard deviations above or below the mean)
C
O
M
P
A
N
y
R
A
N
K
1
General
Mills
2001
Net Inc
($mil)
Total
Return
to Stockholders
Community
Minorities &
Women
Emplo
y-ees
Environment
Non-U.S.
Stakeholders
0.293
5
3.803
1.063
0.193
0.192
0.301
0.006
5
0.371
2.301
-1.03
3.513
0.301
0.007
1.563
1.229
3.539
2.64
0.192
0.301
-0.029
1.563
2.945
1.063
1.416
3.513
-1.06
0.742
3.312
4.662
-0.174
-1.03
0.192
1.663
-0.742
1.563
2.945
1.063
2.64
0.192
1.663
-0.111
1.563
3.803
-0.174
0.193
3.513
0.301
0.097
3.312
0.371
1.063
0.193
3.513
0.301
0.735
5
1.229
1.063
0.193
0.192
0.301
-0.415
5
2.087
1.063
0.193
0.192
Custo
m-ers
665
-102
2
Cummins Inc.
1,291
3
Intel
4
Procter &
Gamble
5
IBM
408
6
HewlettPackard
430
7
Avon
Products
6
8
Green
Mountain
Coffee
Roasters
9
John Nuveen
2,801
7,713
115
© Farhan Mir
-1,088
10
St. Paul
0.301
2007
IMS
Corporate Social Responsibility and
Organizational Performance
Corporate Social Responsibility Issues
Business for Social Responsibility Website
(http://www.bsr.org/CSRResources/IssueBriefsList.cfm
?area=all)
Examples of Corporate Social Responsibility
Cummins (#2) built school for 800 Brazilian children
Intel’s (#3) CEO gets an email within 24 hours of injury
to any of company’s 80,000 employees
© Farhan Mir
2007
IMS
Corporate Social Responsibility
and Organizational Performance
Studies provide mixed results
A positive relationship between CSR and
performance more common
Bottom line: CSR does not appear to hurt
organizational performance, and in many
cases may enhance performance
© Farhan Mir
2007
IMS
How Does CSR affect
Reputation?
An image for being socially responsible
adds to an image of being honest and
trustworthy
Such a reputation is a major driver of
customer and employee satisfaction
It is often correlated with sales growth
© Farhan Mir
2007
IMS
CSR in Pakistan
ENGRO’S SOCIAL CITIZENSHIP
(Some examples)
 Education
- TCF School – Engro Campus
- Teacher Training Centre (TARC)
- Sahara School (Employee / Company JV)
 Health
- Free snake bite treatment
- Eye Clinic & Eye Camp
- Maternity Home
- Hospital support – JPMC, Sukkur hospital
 Others
- Natural calamities
- National Debt Relief
- Jinnah Film Project
© Farhan Mir
2007
IMS
The Greening of
Management
The recognition of the close link between
an organization’s decision and activities
and its impact on the natural environment.
Global environmental problems facing
managers:
Air, water, and soil pollution from toxic
wastes
Global warming from greenhouse gas
emissions
Natural resource depletion
© Farhan Mir
2007
IMS
Social Responsibility, Social Responsiveness or a modified
Solution Judge Yourself!!!!!!!!!
Do people care enough about wildlife to give evolution a helping hand?
It's tough to be a salmon in California waters today. Water intakes threaten you, power boats bring
anglers to try to catch you, and when you finally reach your home river, there may be a dam
blocking your way. The last thing you need is for some predator to eat your fry after you spawn.
At Chevron, we care about California's salmon. That's why we're releasing mutation-causing
chemicals into San Francisco Bay from our refinery at Point Richmond. As salmon swim through
the Bay on their way to their spawning grounds our patented GenenTechroline(TM) alters their
chromosomes, giving their offspring a chance to evolve new defenses against predation. The extra
eyes on Oncorhynchus guernica, pictured above, are just one example.
And if we save money through this innovative waste disposal technique, and are able to pass it on
to our shareholders, so much the better. As the chairman of our Board of Directors said when we
started this program, "the 'eyes' have it."
© Farhan Mir
People Do.
IMS
2007
The Ethical Dimension
of Management
Ethics
The study of moral obligation involving the
distinction between right and wrong.
Business Ethics
The study of the complex business practices
and behaviors that give rise to ethical issues in
organizations.
© Farhan Mir
2007
IMS
Practical Lessons from Business
Ethics Research: Ethical Hot Spots
Balancing work and
family
Poor internal
communications
Poor leadership
Work hours, work load
Lack of management
support
Need to meet sales,
budget, or profit goals
Little or no recognition
of achievements
Company politics
Personal financial
worries
Insufficient resources
© Farhan Mir
2007
IMS
Encouraging Ethical Conduct
Ethics Training
Amoral managers: managers who are neither
moral or immoral, but ethically lazy.
Key features of effective ethics training programs
Top management support.
Open discussion.
A clear focus on ethical issues.
Integration of ethics into the organization.
A mechanism for anonymously reporting ethical
violations.
Reward ethical conduct.
© Farhan Mir
2007
IMS
Encouraging Ethical Conduct
(cont’d)
Code of Ethics
Published statement of moral expectations for
employee conduct
Requirements for an effective ethics code
Must describe specific practices as unethical
(e.g., kickbacks, payoffs, gifts, falsification of
records, and misleading product claims).
Must be firmly supported and fairly enforced
by
top management.
© Farhan Mir
2007
IMS