Corporate Citizenship: Social Responsibility, Responsiveness and Performance

Study Guide

Midterm # 1

CORPORATE CITIZENSHIP: SOCIAL RESPONSIBILITY, RESPONSIVENESS AND PERFORMANCE 

CHAPTER 2

Business ethics- Make things better using the best practices we have for being more ethical

Main driver of business acceptance of corporate social responsibility has been criticism of business.

The Four Components of CSR- corporate social responsibility 

• Economic - Be profitable. Create jobs. Innovate: Provide a product/service that society needs. Do it cheaper, better, faster.
• Legal - Obey laws, adhere to regulations
• Ethical - Avoid questionable practices. Do what is right, fair, and just
• Philanthropic - Be a good corporate citizen. Give back.

Arguments Against CSR

The classical economic view that business’ only goal is to maximize profits for owners.

 • Business is not equipped to handle social activities.

• It dilutes the primary purpose of business.

 • Businesses have too much power already Examples- In US companies pay their employees health care and ppl don’t like that because they think the company has too much control over their personal life.

 • It limits the ability to compete in a global marketplace-In US the company has to pay for part of the employee’s health care versus foreign country the government pays health care

• …and the all-American: “give away your own damn money!”

Arguments For CSR 

• It addresses social issues brought on by business, and allows business to be part of the solution.

 • Enlightened self-interest: businesses must take actions to ensure long-term viability.

• Wards off future government intervention.

• It addresses issues by using business resources and expertise.

• It addresses issues by being proactive.

• The public supports CSR.

BUSINESS AND COMMUNITY STAKEHOLDERS (CHAPTER 16)

Strategic Philanthropy- An approach by which corporate giving and philanthropic endeavors are designed to fit with the firm’s mission, goals, or objectives-           Example- Campbell’s nutrition’s program –testing out kids at school , want to create healthier kids

Charitable Philanthropy – more likely to violate the rights of some shareholders

Cause-Related Marketing / Cause Branding-Directly linking a business’s product or service to a specified charity                         Example- Pampers vaccination program

The Morality of Capitalism

Capitalism- private ownership of the means of production (things we use to produce) 

AYN RAND – You only have a right of free trade and ownership. Her view point it’s called liberalism.

According to her the rights of (wo) men that should be enforced by the government are- the right of free trade, the right not to be harmed by physical violence, the right to own property

Adam Smith, the “father of modern economics”- If you think that someone working in Washington DC for the government knows what’s best for the people of Newark they are crazy. The people of Newark know what’s best for them.

 B-corporation – is for profit , allows its founder to raise capital without fear of losing control of the social or environmental mission if their business.

If you start a company and you are not making profit, the stakeholders can get rid of you. B-corporation protects you from this.

Profit- advantage, benefit, gain, to be of service or benefit

The real meanings of profit- are you creating value or are you destroying value. Government regulations should be our last recourse.

Conditions under which free-markets allocate resources efficiently (most of them are violated all the time)

Perfect information - All consumers and producers are assumed to have perfect knowledge of price, utility, quality and production methods of product

Profit maximization- as you sell more, the cost of the product will go down

 Non-increasing returns to scale -Economy of scales- the more you produce, the cheaper the product becomes  ex. Walmart-can do anything cheaper

Externalities - the person who does the harm it’s not the one who benefits from it

Free Markets are not the best way to allocate resources

Crony Capitalism – you have power because you know someone that has power.

Business, Government, and Regulation (Chapter 11)

“Market Failure”

Markets exist to allocate resources efficiently throughout the economy, and when this does not occur, a market failure exists.

Ex. Obama Care – providing health insurance to the poor, you can make it only with no profit mindset. You won’t make any profit.   Pollution- source of market failure. We can’t put a price on it and include it in the price.    

Not a market failure- General Motors and Chrysler filed for bankruptcy because of business practice. Not the whole car market failed.

Reasons for Regulation Most regulation arises out of a market failure

• Controlling natural monopolies- big 4 accounting firms
• Controlling negative externalities – piracy & pollution
• Achieving social goals – military, diversity-women are more involved in the workforce
• Controlling excess profits- government wants to prevent collusion
• Controlling excessive competition- telecom companies(at&t, Verizon,sprint)

Benefits of Regulation

• Fair treatment of employees
• Safer working conditions
• Safer products
• Cleaner air and water

Costs of Regulation

Direct costs

• Number of new agencies created, expenditures, and growth patterns of the budgets of federal regulatory agencies.

Indirect costs