Ethical Theories of CSR

Ethical theories that are focusing on the right thing to achieve good for society. The theory of social responsibility is built on a system of ethics, in which decisions and actions must be ethically validated before proceeding. If the action or decision causes harm to society or the environment, then it would be considered to be socially irresponsible.

Moral values that are inherent in society create a distinction between right and wrong. In this way, social fairness is believed (by most) to be in the “right”, but more frequently than not this “fairness” is absent. Every individual has a responsibility to act in manner that is beneficial to society and not solely to the individual.

Ethics are codes of values and principles that govern the action of a person, or a group of people regarding what is right versus what is wrong (Levine, 2011; Sexty, 2011). Therefore, ethics set standards as to what is good or bad in organizational conduct and decision making (Sexty, 2011). It deals with internal values that are a part of corporate culture and shapes decisions concerning social responsibility with respect to the external environment. The terms ethics and values are notinterchangeable (Mitchell, 2001). Whereas ethics is concerned with how a moral person should behave; values are the inner judgments that determine how a person actually behaves. Values concern ethics when they pertain to beliefs about what is right and wrong.

The business ethics theory is based on wider social obligation and the moral duty that business has towards society (Bigg, 2004). This theory justifies CSR on 3 varied but interrelated ethical grounds:

1. Changing and emerging social responsiveness and social expectations to particular social problems.
2. Eternal or intrinsic ethical values always inspired by Kantian ethics and denoted as some normative and universal principles like social justice, fairness and human rights
3. Corporate citizenship i.e. corporation as a better citizen in a society to contribute to social well being.

The business ethics theory views CSR more as philanthropic and ethical responsibilities rather than legal and economic responsibilities, CSR initiates where legal obligation declines. Under this category of Ethical Theories, there are different versions of business ethics as seen from what is widely practiced: Stakeholder Normative Theory, Universal Rights, Sustainable Development and the Common Good approaches

 

1.      Stakeholder Normative Theory

Theories of management require normative justification; that is, they rely on some conception of what is morally good, right, and just.  Normative CSR theories give us the reason why companies assume and implement specific social responsibilities. One mainstream theory on normative CSR is stakeholder theory that includes the company and the society within a social philosophy framework

The stakeholder view of strategy integrates a resource-based view and a market-based view, and adds a socio-political level. One common version of stakeholder theory seeks to define the specific stakeholders of a company (the normative theory of stakeholder identification) and then examine the conditions under which managers treat these parties as stakeholders (the descriptive theory of stakeholder salience)

Stakeholder theory, which has been described by Edward Freeman (1984) and others, is the mirror image of corporate social responsibility. Instead of starting with a business and looking out into the world to see what ethical obligations are there, stakeholder theory starts in the world. It lists and describes those individuals and groups who will be affected by (or affect) the company’s actions and asks, “What are their legitimate claims on the business?” “What rights do they have with respect to the company’s actions?” and “What kind of responsibilities and obligations can they justifiably impose on a particular business?” In a single sentence, stakeholder theory affirms that those whose lives are touched by a corporation hold a right and obligation to participate in directing it.

Since the 1990s’ the stakeholder theory has become famous as a direct alternative and challenge to the shareholder value theory (Freeman 1984). The stakeholder theory of CSR identifies as a corporation’s obligation to individuals or groups in society other than shareholders that including employees, suppliers, and the local community (Garriga & Mele, 2004). The stakeholder theory identifies as a company’s value generation that needs to be shared by a group of stakeholders, including shareholders, managers, and all other stakeholders. The stakeholder theory is all about the managers’ responsibility for the firm’s stakeholders and its operations. The stakeholder theory emphasis pursuing business to achieve the company’s goals and considering the needs and wants of stakeholders creating value for all stakeholders. Shareholders as a primary stakeholder are essential; however, they should be treated equally among all stakeholders by sharing value (Theodoulidis et al., 2017). The stakeholder theory has three perspectives, including descriptive, instrumental, and normative perspectives

 

In 1984 Freeman explained thestakeholder approach as a part of strategic management. Stakeholder management represents the stakeholder model that is a standard element of today’s management literature. In management literature, stakeholder theory is justified based on its descriptive accuracy, instrumental power, and normative validity. These stakeholder theory aspects have different arguments and implications (Donaldson & Preston, 1995). The descriptive perspective shows how concepts correspond to reality. The instrumental view is about using the theory to demonstrate the connection between stakeholder management and multi-dimensional business performance. The normative perspective examines the behavior of stakeholders and the underlying motivations. Interest in stakeholder theory began in strategic management and then developed into an organizational theory, business ethics, management social issues, and sustainable development (Theodoulidis et al. 2017).

 

This theory recognizes the fact that most, if not all firms have a large and integrated set of stakeholders (Cochran, 1994) to which they have an obligation andresponsibility (Spence et al., 2001). According to Goodpaster (1991) the term stakeholder has been invented as a deliberate play on the word shareholder to signify that there are other parties having a stake in the decision making of the modern corporation in addition to those holding equity positions (Carson, 2003). The resources provided by groups of stakeholders to an organization can include social acceptance as well as more obvious contributions such as capital, labor and revenue. Stakeholder theory essentially challenges the notion that shareholders have a privilege over other stakeholders, such as, customers, employees, creditors, vendors and the community at large . So, in essence stakeholder theory is a rhetorical response to the dominant shareholder theory that asserts that organizational managers should only focus on maximizing the economic interests of shareholders.

The outer limits of stakeholding are blurry. In an abstract sense, it’s probably true that everyone in the world counts as a stakeholder of any serious factory insofar as we all breathe the same air and because the global economy is so tightly linked that decisions taken in a boardroom in a small town on the East Coast can end up costing someone in India her job and the effects keep rippling out from there.

In practical terms, however, a strict stakeholder theory—one insistently bestowing the power to make ethical claims on anyone affected by a company’s action—would be inoperable. There’d be no end to simply figuring out whose rights needed to be accounted for. Realistically, the stakeholders surrounding a business should be defined as those tangibly affected by the company’s action. There ought to be an unbroken line that you can follow from a corporate decision to an individual’s life.

Once a discrete set of stakeholders surrounding an enterprise has been located, stakeholder ethics may begin. The purpose of the firm, underneath this theory, is to maximize profit on a collective bottom line, with profit defined not as money but as human welfare. The collective bottom line is the summed effect of a company’s actions on all stakeholders. Company managers, that means, are primarily charged not with representing the interests of shareholders (the owners of the company) but with the more social task of coordinating the interests of all stakeholders, balancing them in the case of conflict and maximizing the sum of benefits over the medium and long term. Corporate directors, in other words, spend part of the day just as directors always have: explaining to board members and shareholders how it is that the current plans will boost profits. They spend other parts of the day, however, talking with other stakeholders about their interests: they ask for input from local environmentalists about how pollution could be limited, they seek advice from consumers about how product safety could be improved and so on. At every turn, stakeholders are treated (to some extent) like shareholders, as people whose interests need to be served and whose voices carry real force.

What’s certain is that stakeholder theory obligates corporate directors to appeal to all sides and balance everyone’s interests and welfare in the name of maximizing benefits across the spectrum of those whose lives are touched by the business.

 

2.      Universal Rights

This form of CSR theory is based on declaration of Human Rights adopted by the UN General assembly 1948, other international declaration of Human rights, Labour rights and Environmental protection

Some prominent examples of international standards and initiatives regarding corporations and human rights include:

• The ILO Tripartite Declaration on Fundamental Principles and Rights at Work
• The ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy
• The OECD Guidelines for Multinational Enterprises
• The United Nations Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises
• The Equator Principles
• The Voluntary Principles on Security and Human Rights
• The United Nations Global Compact
• The Business Leaders Initiative on Human Rights
• The Global Reporting Initiative

The United Nations is further developing the expertise on corporations and human rights. In 2005, the UN Secretary-General appointed Professor John Ruggie as his Special Representative on business and human rights. One of the SpecialRepresentative’s main tasks is to “identify and clarify standards of corporate responsibility and accountability for transnational corporations and other business enterprises with regard to human rights.”

CSR refers to a company's responsibility for its impact on society. This includes social, environmental and economic aspects, as for example outlined in the internationally recognised reference documents on CSR, chief among them the fundamental ILO declaration on multinationalenterprises and social policy, the OECD Guidelines for Multinational enterprises, the UN Guiding Principles on Business and Human Rights, the UN Global Compact and ISO 26000. More specifically, CSR for example involves fair business practices, staff-oriented human resource management, economical use of natural resources, protection of the climate and environment, sincere commitment to the local community and also responsibility along the global supply chain

3.      Sustainable Development

Sustainability describes the ability to maintain various systems and processes — environmentally, socially, and economically — over time. Sustainability originated in natural resource economics, but has since gained broader currency in terms of sustainable development and social equality.

In 1987, the World Commission on Environment and Development published “Our Common Future,” which defined sustainable development as development that “meets the needs of the present without compromising the ability of future generations to meet their own needs.” This ethic is almost indisputable.

Expressed in this way, sustainability balances resource usage and supplies over time. In other words, sustainability assures intergenerational equity. When the resources we actually use match the earth’s capacity to regenerate adequate future supply, then our systems remain balanced indefinitely. However, if resources used exceed this capacity, then current demand is being met by borrowing from the future, which will eventually lead to an inability to meet society’s needs.

Corporate Social Responsibility, or CSR, usually refers to a company’s commitment to practice environmental and social sustainability and to be good stewards of the environment and the social landscapes in which they operate.

Responsible business practices create economic and societal value by re-aligning their corporate objectives with stakeholdermanagement and environmental responsibility.

As a follow-up from the world summit on sustainable development in Johannesburg in 2000, the United Nations developed Millennium Development Goals (MDGs) with the implications for corporate responsibility, environmental, and health issues. One hundred ninety-one UN member states endorsed the Millennium Declaration. There are 18 MDGs grouped around eight goals, most of them having 15–20 objectives.

The main notion of MDGs is that it is not just governments, but also other interest groups in society that are expected now to carry out the commitments

 

CSR is the management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. CSR is generally understood as being the way through which a company achieves a balance   economic, environmental and social imperatives (“Triple-Bottom-Line-  Approach”), while at the same time addressing the expectations of  shareholders and stakeholders.

In this sense it is important to draw a distinction between CSR, which can be a strategic business management concept, and charity, sponsorships or philanthropy. Even though the latter can also make a valuable contribution to poverty reduction, will  directly enhance the reputation of a company and strengthen its brand,  the concept of CSR clearly goes beyond that.

Sustainability and corporate social responsibility cover the same three major areas of environment, society and economy, with sustainability focused on actions, like sustainable practice driving efficiency gains. For instance, turning off the lights when leaving work will reduce energy costs and reduce energy consumed. Who doesn’t want a better bottom line and reduced environmental impact?

Another CSR incentive called the World Summit on Sustainable Development focuses on implementation and execution that is synchronous with the finance and trade negotiations of Monterey and Doha. According to the WTO, the November 2001 declaration of the Fourth Ministerial Conference in Doha, Qatar, provides the mandate for negotiations on a range of subjects, and other work including issues concerning the implementation of the present agreements (WTO, 2004). At the Summit on Financing for Development in Monterey, Mexico, delegates from participating nations pledged new resources for development and to adopt the policies needed to ensure that these resources are well used. 

The World Summit on SustainableDevelopment work program refers to corporate responsibility in the following four places:

• Sustainable patterns of consumption and production that enhance corporate environmental and social responsibility and accountability through actions such as voluntary initiatives, standards, reporting, dialogue, financial institutions engagement, cleaner production initiatives
• Sustainable development in a globalizing world that actively promotes full development and effective implementation of intergovernmental agreements, initiatives, partnerships, regulations, and continuous improvement in corporate practices in all countries
• Health and sustainable development, a linkage between health and environmental protection, reduction of environmental health threats, access to health care services, safer technologies for drinking water and waste management, reduction of occupational injuries and illnesses, a link between public health promotion and reduction and elimination of HIV/AIDS, tuberculosis, and malaria, phasing-out of lead in gasoline and paint
• Strengthening of institutional frameworks that promote corporate responsibility and accountability and exchanging of best practices

 In the past, CSR initiatives improved bottom lines with increased sales through building brand trust. This is still a fact, although now the expectation is that the actions and actual long-term benefits are reported.

Consider Carlsberg, the beermanufacturer, who installed a water recycling plant on site. This action reduced water usage per hectare/L of beer from 2.9 to 1.4, becoming one of the first beer producers to almost eliminate their water wastage. This improved efficiencies, increased profits, delivered a healthier environment and happier society.

Carlsberg did not need to change  production processes, nor were they pressed for water supply. They recognised the multiple benefits of sustainability, with CSR embedded in their decision making.

The corporate social responsibility (CSR) camp focuses on balancing current stakeholder interests. A socially responsible oil company would build local schools and hospitals to compensate communities for their resource extraction. But such measures do not always acknowledge the long-term impact on the communities. Keep in mind that schools and hospitals require staff and ongoing servicing. So CSR measures can actually impose long-term liabilities on affected communities, making well-intentioned actions unsustainable.

Therefore creating business ecosystems that sustain itself while balancing the interests of stakeholders is essential in a firm’s CSR agenda.

4.      The Common Good Approach

Business as with any other social group, or individual in society, has to contribute to the common good, because it is a part of society. Business should be neither harmful nor a parasite on a society, but purely a positive contributor to the well-being of the society.

Strictly speaking, the common good is “the overall conditions of life in society that allow the different groups and their members to achieve their own perfection more fully and more easily”. Firms select their CSR agenda for increasing the Common Good of the local society.

 

The Common Good Approach regards all individuals as part of a larger community. As such, we share certain common conditions and institutions upon which our welfare depends. For society to thrive, we need to safeguard the sustainability of our community for the good of all, including our weakest and most vulnerable members. Some things that nurture a healthy, functioning community are: stable family life; good schools; affordable nourishment and health care; effective public safety; a just legal system; fair trade and commerce; a safe, well-managed ecosystem; an accessible technological environment; a well-maintained infrastructure; and a peaceful society.