PHIL 200
Business Ethics
Lecture Week 5:
Corporate
Social
Responsibility
Fall 2023
Narayan
Learning Goals
• Define corporate social responsibility.
• Analyze four popular but problematic arguments that businesses need
to be concerned only with profitability and the law.
• Describe and compare the triple bottom line, pyramid of corporate
responsibility, and three-domain models of corporate social
responsibility.
• Provide an argument in favour of corporate social responsibility.
Defining Corporate
Social Responsibility
•Definition of Corporate Social
Responsibility:
The accountability of business to
society, and the way businesses seek
to promote the well-being of
legitimate stakeholder groups
including, but also extending beyond,
their shareholders.
Defining Corporate Social Responsibility
• General recognition that businesses have some responsibilities to
society
• Must follow the laws and regulations of the society that they are in
• General sentiment that businesses should be mindful of the way that they
interact with society
• Going above and beyond following laws and regulations has been the
realm of corporate social responsibility
Profitability and Legality
• Many propose that the only legitimate purpose for business is to make
profit
• There are four arguments for this line of thinking:
1. Business as ‘war’
2. Strong fiduciary responsibility
3. Weak fiduciary responsibility
4. Invisible hand
Business As
War
• Some believe that Sun Tzu’s The Art of War
is essential reading for any business leader
• Connects business leadership with military
wisdom
• Whether business leaders actually read
this book and follow it is not the point
• The analogy between war and
business is close enough that
we think “business as war” is
plausible
Business As War,
cont’d
• Obviously, business and war are quite different
• Important differences between business and war:
• You are not allowed to kill people in business
• War gives way to peace, but businesses gives
way to more business
• Soldiers face strict directives and
punishment to follow orders, whereas in
business you are free to quit if you do not
like what your boss is asking you to do
Strong Fiduciary Responsibility
• Corporations are bound by law to have a fiduciary responsibility
to their shareholders
• Must take care of shareholders’ money
• Doing anything else might be denying shareholders
what they are owed
• ‘Stealing’
• Legal precedent for profits being the primary
responsibility of business
Strong Fiduciary Responsibility, cont’d
• With the strong fiduciary relationship, businesses have no legitimate
activity other than maximizing profits
• Spending on corporate social responsibility seen as an illegitimate use of
money
• Businesses can be sued if they spend on anything other than maximizing
profits
• However: businesses do not act this way!
• Businesses perform activities that do not strictly maximize profits
Weak Fiduciary Responsibility
• Rejects the premise that pursuing profits is the only legitimate activity
for businesses to engage in
• Profits held as one goal among many
• We don’t know for sure what will maximize profits
• Could be argued that donating to charity or improving the
environment is better for profits in the long run
• Here we are predicting the future and could be wrong
The Invisible Hand
• Belief that free and competitive markets will
spontaneously coordinate buyers and sellers in
the most efficient way possible
• No reason for government or other
interference with the market
• If consumers prefer companies that are
socially responsible, then firms will do just that
to compete
• There’s no need for any additional
intervention
The Invisible Hand, cont’d
• Example: Two companies sell similar products but one of them engages in praiseworthy
initiatives
• Consumers reward the second business
• Sends a message that businesses need to be pro-social or otherwise be driven
out of business
• The invisible hand works here to increase pro-social behaviour from businesses
• Pro-social behaviour evolves from competition, no need for government regulation or
other interference
• The invisible hand works to naturally balance the market so buyers and sellers both agree
to the exchange of a good or service
Theories of Corporate Social Responsibility
• Corporate social responsibility is the view that the responsibility of
business extends beyond the interests of shareholders
• Need to consider stakeholders, broadly speaking
• Three theories of corporate social responsibility have gained traction
1. The Triple Bottom Line
2. The Pyramid of Corporate Social Responsibility
3. The Three-Domain Model
Applying Stakeholder Theory:
The Triple Bottom Line
• Triple-bottom-line reporting asks businesses to keep track of three
accounts: the people account, the planet account, and the profit and
loss account
• Measure success based on social, ethical, environmental performance
as well as profits
• Sustainability Reports growing in popularity among many
businesses
• Difficulty with quantifying social and environmental costs
• Still, the triple bottom line theory is widely used and lauded as creating
real movement toward transparency and sustainable practice
The Pyramid of Corporate Social Responsibility
• Four responsibilities of business: economic, legal, ethical, discretionary
• Economic responsibilities are the foundation of a business, so they are
at the bottom of the pyramid followed by legal, ethical, and
philanthropic demands
• In reality, all the parts of the pyramid are all intertwined and operate
dynamically
The Three-
Domain Model
• Builds on the pyramid of corporate social
responsibility
• Addresses shortcomings that were
lodged against the pyramid of
corporate social responsibility
• Shows interconnectedness of the economic,
legal, and ethical responsibilities of business
• Many dimensions of each of these
responsibilities
• Provides different ways to
describe business behaviour
• The argument focuses on a normative argument
for why businesses should adopt corporate social
responsibility policies
An Argument • There are internal norms in the market
for Corporate (e.g., Heath’s ten commandments)
• Relationship between business and society
Social is mutually dependent
Responsibility • Nobody is self-sufficient – the self-made
person is a myth
• “It takes a village”
An Argument for Corporate Social
Responsibility, cont’d
• Heath’s ten commandments call for fairness in competition, so
everybody must play by the same rules of the business game
• The government sets the rules, but the government is the agent of
society
• Therefore, society, people like you and me, are the ones that set the rules
for business
• As a result, businesses need to benefit society in their operations
unless they make up for it some other way
• Ex. Low prices or exceptionally amazing products
An Argument for Corporate Social
Responsibility, cont’d
• Relationship between business and society is mutually dependent
• It is in the interest of the business to contribute toward the society that
maintains it, lest society fail and take the business with it
• No one is smart, energetic, or industrious enough to be self-sufficient –
the self-made man is a myth
• We need to trade in order to survive and thrive
• We trade in a market that is constrained by social norms
Summing Up
• We have argued against the view that maximizing profits and following
the law is the only legitimate activity of business
• Economic and legal obligations are important, but so are ethical and
discretionary responsibilities
• Business exists to benefit society and cannot exist without the social
license to operate
• Anti-social behaviour violates this license and can harm business in the
long run