Essay, 2011, 23 Pages
2. Corporate Social Responsibility as an umbrella Term
2.1 Corporate Social Responsibility
2.3 Theoretical perspectives on CSR
2.3.1 Shareholder Theory
2.3.2 Stakeholder Theory
2.3.3 Carroll’s four-part Model of CSR
3. Business benefits of Corporate Social Responsibility
4. Ben & Jerry’s Homemade Inc.
4.1 Formation of Ben & Jerry’s
4.2 Product Mission
4.3 Economic Mission
4.4 Social Mission
5. Critics about Ben & Jerry’s
Reference List II
Corporate social responsibility (CSR) activities have been used to address consumer’ social concerns, create a favourable corporate image, and develop a positive relationship with customers and other stakeholders (Yoon, Gürhan-Canli and Schwarz, 2006, p.377).
The notion Corporate social responsibility (CSR) has provoked an extensive history of academic debate whether corporations have a social as well as financial responsibility to the community or not. The main conflict in this field has been associated with the evolution of the concept and the definition of CSR. Even though this concept has a long and varied history, which arose centuries ago, the formal writing on social responsibility, however, is mostly a product of the past 50 years. During that time, there have been many papers published by academics and business practitioners. Bowen (1953) marks the beginning of the modern period of literature and argued that centralised power of big corporations had influence on the lives of citizens, by company’s actions and decisions. Davis (1960) became famous because he emphasised the correlation between social responsibility and business power and justified socially responsible business decision in light of a good chance of bringing long-run prosperity to the corporation. In arguing against CSR, Milton Friedman (1970) seems to be widely accredited. In fact, he does not dispute the validity of CSR, but rather argues that when these activities are carried out for reasons of self-interest, then they are merely profit-maximization under the cloak of CSR. He set forth that the social responsibility of business is to increase their profits and its managers’ responsibility to act solely in the interest of its shareholders (maximising shareholders-value). This being said as a short introduction to the academic development of CSR, highlights that CSR is not at all common sense and therefore needs further theoretically examination.
Besides these debates in the academic world, there has been also a development in practise. The business world offers numerous examples of companies not only focusing on short-term profit without considering social and environmental issues. There have been an increasing number of companies containing ethical and moral values in their corporate strategy and considering their society and environment as important factors towards a long-term success. Successful companies such as Body Shop, Stonyfield Farm or Ben & Jerry’s have been establishing strategies which main focus relies on Corporate Social Responsibility and appreciated CSR as a business driver.
The aim of this paper is to critically evaluate social responsibility of business in a global economy. First this paper will put its focus on defining CSR and evaluating whether corporations can even have responsibility. In addition, the author would like to draw attention to CSR theory. Furthermore, this paper should illustrate that the theory of Corporate Social Responsibility helps corporations to differentiate its products and to improve their corporate reputation by acting socially responsible. A company that is actively recognised in that field should prove this argument. The chosen firm is Ben & Jerry's Homemade Inc.
Blowfield and Frynas (2005) betoken CSR as an umbrella term because this theory enfolds a range of concepts and practices. They consider CSR as a heterogeneous and incoherent concept which recognizes
... (a) that companies have a responsibility for their impact on society and the natural environment, sometimes beyond legal compliance and the liability of individuals;
(b) that companies have a responsibility for the behaviour of others with whom they do business (e.g. within supply chains); and
(c) that business needs to manage its relationship with wider society, whether for reasons of commercial viability or to add value to society (2005, p.503).
Some of the theory associated with CSR such as the stakeholder- and shareholder theory will be lighted thereinafter. First it is necessary to define the term CSR and deepen into this notion.
In literature, there are multiple approaches for defining Corporate Social Responsibility. Therefore it is crucial to define the notion of CSR. Joseph W. McGuire was an important contributor to the definition of social responsibility during the 1960s. He sated, “ The idea of social responsibly supposes that the corporation has not only economic and legal obligations but also certain responsibilities to society which extend beyond these obligations ” (1963, p.144). This definition shows its remarkableness, if one compares it to a more recent published definition by McWilliams and Siegel. They define CSR “… as actions that appear to further some social good, beyond the interest of the firm and that which is required by law ” (2001, p.117). These definitions are similar and both encompass that a corporation has far more obligations than just obey to law. Whilst these definitions emphasise the responsibility of corporation, Friedman argues that “ a corporation is an artificial person and in this sense may have artificial responsibilities, but ‘business’ as a whole cannot be said to have responsibilities ” (1970). This leads to the question whether a Corporation could even have certain types of responsibility. Therefore it might be helpful to define the term corporation and to scrutinise whether a corporation can be morally responsible for its actions.
Defining the term Corporation may seem to be obvious, but there have been many discussions about whether a Corporation can be morally responsible for its actions. A corporation identified by Crane and Matten “… is essentially defined in terms of legal status and the ownership of assets” (2010, p.46). In legal terms, a corporation is considered as independent from its people who work for them, invest in them, manage them or receive products or services from them. This implies that a corporation can survive the death of any individual, which were in relationship with the entity, by only recruiting new ones. Therefore, corporations are regarded as having perpetual succession. Besides the legal status, the entity is owned by the public, e.g. by the shareholders. However, this does not encompass that the shareholders possess the assets of the corporations, such as factories, offices, computers and machines. These kinds of assets are owned by the entity. Furthermore, these ramifications are important towards the understanding of responsibilities of corporations. Crane and Matten (2010, p.47) are stating this as follow:
- Corporations are typically regarded as ‘artificial persons’ in the eyes of the law.
- Corporations are notionally ‘owned’ by shareholders, but exist independently of them.
- Managers and directors have a ‘fiduciary’ responsibility to protect the investment.
This creates a framework for corporations in which a company is legally responsible for its action in respect to law. Thus, there persists a difference between the legally responsibility and a moral responsibility. This being said, it can be agreed, that there is a distinction between how a person sense moral responsibility for its actions and that this differentiates from an inanimate entity such as corporations. Furthermore, Crane and Matten conclude, that corporations have some level of moral obligation and this “ … is more than the responsibility of the individuals constituting the corporation (2010, p.49). Nonetheless, the corporation also appears to have moral agency sorts that forms the decisions made by those in the company.
After this paper has clarified the terms of a corporation and the theory of CSR, it now can proceed to further inaugurate to the theory of CSR
Several theoretical frameworks have been established to examine CSR. This paper will capture only some of it such as Carroll’s Pyramid of Social Responsibility and the theory of stakeholder and shareholder. The theory of both stakeholder and shareholder, are normative theories, describing what a corporation's role ought to be.
Traditional economic theory suggests that profit maximisation should be the only goal of a firm. According to Friedman (1970), the main aspiration of a company is to maximise profit and correspondingly, to maximise shareholder value. Shareholders invest in to a company in order to receive interest in return to their initial investment. Their concern of maximising their investment is also ingrained by law. Therefore, managers are supposed to spend this capital only in ways that have been authorized by the shareholders. Deviation into other non-profit-generating interests would conflict with the concept of a free market and would be antinomian (Smith, 2003, p.85). Friedman (1970) further argues that managers devote resources to CSR as a means to further their own social, political or career agendas, at the expense of shareholders. In addition, Barnett (2007) is of the opinion that even if a corporation has slack resources but no prosperous investment opportunities, the firm should still refrain from devoting corporate resources to social welfare. Moreover, Friedman (1970) affirms that spending, in respect to social good, would be more wisely disburse on increasing firm efficiency.
Wright and Ferris (1997) have proven this theory empirically. They investigated how stock prices reacted negatively to announcements of divestment of assets.
However, shareholder theory has often received many misrepresentations. In fact, Smith (2003, p.86) highlights three misunderstandings. First, it is sometimes misunderstood that managers should feel free to do anything as long as they meet the requirements of profit maximisation, although, the shareholder theory prescribes that managers should only increase profits in accordance with legal obligations and in a no-deceptive manner. Secondly, some criticize the shareholder theory as geared toward short-term profit maximization at the expense of the long run. Moreover, some theorists often refer to a need for “enlightened self-interest”, which would request a company’s managers to take a long-term orientation (Bowie and Freeman, 1992, p.3-21). Lastly, it has been insisted upon shareholder theory, that it would prohibit investing in charitable projects or in improving staff. Actually, this theory endorses these activities as this, in the end, will signify the best possible investment.
The theory of stakeholder is acknowledged to be the most popular and influential theory emerged from business ethics (Stark, 1993; Crane and Matten, 2010). The theoretical approach has been worked out by Edward Freedman. Unlike, the CSR approach which is strongly looking at the corporation and its responsibilities, Freedman (1984) started by focusing at various groups, which are in relationship with the corporation and to whom they have responsibilities to. Freedman ascertained that corporations are not only managed in the interest of their shareholders, but to a greater extend in the interest of stakeholder. There are numerous definitions as to whom or what constitutes a stakeholder. Blowfield and Murray (2011, p.206) define the notion of stakeholder as a “ … person or organization affected by or with the power to influence a company’s decisions and actions. Because of the company’s impact or their influence, stakeholders are deemed to have a stake in the company ”. In practical terms, stakeholder can differ from company to company and also within a company, however, in general stakeholders might be: investors, employees, business customers, consumers, the government and local communities that are affected by and have an influence on the corporation (Blowfield and Murray, 2011, p.205). Figure 1 illustrates the interdependences of different stakeholders with the firm.
Figure 1: Stakeholder theory of the firm
illustration not visible in this excerpt
Source: Crane and Matten, 2010, p. 63
The stakeholder theory is aiming for a strength relationship between its stakeholders which declines transaction costs and so leads to financial gain. This can be achieved by either in a decreasing employee turnover, a bigger eager talent pool, union avoidance or logistics collaborative strategies with its suppliers (Barnett, 2007, p.796). In summarizing, the stakeholder theory suggests that managers should take into consideration interest beyond narrow shareholders concern and should also focus on its various stakeholders on which the corporation relies on. However, one must still not forget that even within this theory the corporation’s ultimate objection is the continued existence. That can be accomplished by balancing the interests of all stakeholders (Smith, 2003, p.86).
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