Chapter 3

Corporate Social
Responsibility
McGraw-Hill/Irwin

Copyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

Ch. 3: Key Learning Objectives

Understanding the role of big business and its responsible
use of corporate power in a democratic society
Knowing when the idea of social responsibility originated
and the phases through which it has developed
Investigating how a companys purpose or mission can
integrate social objectives with economic objectives
Examining the key arguments for and against corporate
social responsibility
Defining a social enterprise and understanding its role in
solving social problems
Evaluating businesss social obligations to help the worlds
poorest members
Recognizing socially responsible best practices
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Corporate Power and Responsibility

Corporate power refers to the capability of corporations
to influence government, the economy, and society,
based on their organizational resources
The tremendous power of the world's leading
corporations has both positive and negative effects

Positives include commanding more resources, producing at

lower costs, planning further into the future, and bring new
products, technologies, and economic opportunities to
developing societies
Negatives include disproportionate influence on politics, shape
tastes, dominate public discourse, divide markets, and squash
competition
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Corporate Power and Responsibility

Iron law of responsibility says that in the long run,
those who do not use power in ways that society
considers responsible will tend to lose it
Given the virtually immeasurable power in the hands of
the leaders of large, global corporations, stakeholders
throughout the social system expect business to take
great care in wielding its power responsibly for the
betterment of society

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The Meaning of
Corporate Social Responsibility

A corporation should act in a way that enhances society

and its inhabitants and be held accountable for any of
its actions that affect people, their communities, and
their environment
It implies that harm to people and society should be
acknowledged and corrected if at all possible
It may require a company to forge some profits if its
social impacts seriously hurt some of its stakeholders or
if its funds can be used to have a positive social impact
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The Origins of
Corporate Social Responsibility
In the United States, the idea of corporate social
responsibility appeared around the start of the 20th
century
Faced with social protest, a few farsighted business
executives advised corporations to use their power and
influence voluntarily for broad social purposes rather
than for profits alone

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Phases of Corporate Social

Responsibility
Frederick provides expanded framework for
understanding the evolution of CSR concept
Divided into 4 phases:
Corporate social stewardship, 1950s 1960s
Corporate social responsiveness, 1960s 1970s
Corporate/business ethics, 1980s 1990s
Corporate/global citizenship, 1990s 2000s

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Balancing Multiple Responsibilities

Multiple responsibilities of business include

Economic responsibilities
Social responsibilities
Legal responsibilities

Challenge is to balance all three

Successful firm is one which finds ways to meet each of
its critical responsibilities and develops strategies to
enable the obligations to help each other

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Enlightened Self-Interest
Economic and social goals come together in
companies that practice enlightened self-interest

Means firm leadership can see it is in the companys selfinterest in the long term to provide true value to its
customers, to help its employees grow and behave
responsibility

Scholars have debated the related question: Do

socially responsible companies sacrifice profits by
promoting the social good?

Studies comparing CSR with firm performance shows there

is a moderately positive association between the two factors
Corporate social and environmental responsibility is likely to
pay off
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Figure 3.3 The Corporate Social

Responsibility Debate

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The Social Enterprise

A business that adopts social benefits as its core
mission
An organization that uses business strategies for the
purpose of improving human and environmental
well-being
Its primary purpose is not to maximize returns to
shareholders
It can be large and established or small and new

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Social Entrepreneurship
Individuals wholike traditional entrepreneursact
boldly to pursue opportunities, attract support, and
build new organizations to create and sustain social
rather than economic value
When a person or group of people identify a social
need and use their entrepreneurial skills to address
this need, this process is called social
entrepreneurship

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The B Corporation
Also called a benefit corporation - a new type of
corporation that seeks to blend its social objectives
with financial goals
A B Corporation must prove its socially responsible
by meeting the B Lab standards

B Lab is a non-profit organization that assesses a

corporations social and environmental performance
standards

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Serving the Bottom of the Pyramid

The term bottom of the pyramid refers to the poorest
people in the worldnearly 4 billion who earn less
than $2.50 per day
Business can carry out its responsibility to society by
bringing products and services to these underserved
people
Example: Grameen Bank uses microfinance to
serve the bottom of the pyramid

microfinance occurs when financial organizations provide

loans to low-income clients or solidarity lending groups who
traditionally lack access to banking or related services

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2014 The McGraw-Hill Companies, Inc. All rights reserved.

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