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Chapter 04 - Corporate Social Responsibility
4-1
CHAPTER 4
Corporate Social Responsibility
Table of Contents
Chapter Summary 4-2
Learning Outcomes 4-2
Frontline Focus: “A Stocking Error” Questions 4-2
Learning Outcome 1 4-3
Learning Outcome 2 4-4
Learning Outcome 3 4-4
Learning Outcome 4 4-5
Learning Outcome 5 4-6
Learning Outcome 6 4-7
Life Skills 4-8
Progress ✓Questions 4-8
Ethical Dilemma 4-11
Frontline Focus: “A Stocking Error—Claire Makes a Decision 4-13
Key Terms 4-14
Review Questions 4-15
Review Exercises 4-16
Internet Exercises 4-17
Team Exercises 4-18
Thinking Critically 4-20
Chapter 04 - Corporate Social Responsibility
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Chapter Summary
This chapter examines the topic of Corporate Social Responsibility (CSR) where we change the
internal perspective of the organization to an external one and look at how an organization
should interact with its stakeholders in an ethical manner. This chapter begins with a definition
of CSR and discusses the different ethical perspectives. In addition, this chapter covers and
explains the five major trends behind the CSR phenomenon. Further, the triple bottom line
approach to corporate performance measurement is evaluated and the relative merits of Carbon
Offset Credits.
Learning Outcomes
After studying this chapter, the student should be able to:
1. Describe and explain corporate social responsibility (CSR).
2. Distinguish between instrumental and social contract approaches to CSR.
3. Explain the business argument for “doing well by doing good.”
4. Summarize the five driving forces behind CSR.
5. Explain the triple bottom-line approach to corporate performance measurement.
6. Discuss the relative merits of carbon-offset trading.
Extended Chapter Outline
Frontline Focus
“An Improved Reputation” Questions
1. What type of CSR approach is Mr. Jones looking to adopt here? Read the definitions in the
following sections for more details.
2. Would you say that Mr. Jones’ statement represents a sincere commitment to CSR practices
at the oil company? Why or why not?
3. What should Claire do now? Research the CSR initiatives of some regional oil companies
Chapter 04 - Corporate Social Responsibility
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for ideas.
Learning Outcome 1: Describe and Explain Corporate Social Responsibility (CSR).
• Corporate Social Responsibility (CSR) can be defined as the actions of an organization
that are targeted toward achieving a social benefit over and above maximizing profits for
its shareholders and meeting all its legal obligations. It is also known as corporate
including:
➢ Payment of all taxes related to the operation of the business
➢ Payment of all employer contributions for its workforce
➢ Compliance with all legal industry standards in operating a safe working
environment for its employees
attention on issues that previously were not considered as part of a traditional strategic
plan.
• Porter and Kramer pointed out that many companies awoke to [CSR] only after being
Learning Outcome 2: Distinguish Between Instrumental and Social Contract Approaches to
CSR.
• The instrumental approach is the perspective that the only obligation of a corporation is
Chapter 04 - Corporate Social Responsibility
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o The most famous advocate of this “classical” model is the Nobel Prize-winning
economist Milton Friedman.
has an ethical obligation to fulfill his role in delivering on the expectations of his
employers.
• The social contract approach is the perspective that a corporation has an obligation to
society over and above the expectations of its shareholders.
o Originally, the primary focus of the social contract was an economic one, assuming
that continued economic growth would bring an equal advancement in the quality of
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Learning Outcome 3: Explain the Business Argument for “Doing Well by Doing Good.”
o Customers
o Employees
o Suppliers
o Communities
• Depending on the actions taken by the corporation, some of these groups will be positively
affected and others will be negatively affected.
the services it can provide to its residents—schools, roads, police force, etc.
➢ In addition, those local suppliers who made deliveries to that factory also have
Learning Outcome 4: Summarize the Five Driving Forces Behind CSR.
• Joseph F. Keefe of NewCircle Communications asserts that there are five major trends
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o Knowledge
o Sustainability
o Globalization
Learning Outcome 5: Explain the Triple Bottom-Line Approach to Corporate Performance
Measurement.
• Organizations pursue operational efficiency through detailed monitoring of their bottom
• As a testament of how seriously companies are now taking CSR, many have adapted their
annual reports to reflect a triple bottom-line approach, for which they provide social and
environmental updates alongside their primary bottom-line financial performance.
• The phrase, triple bottom-line approach, has been attributed to John Elkington, cofounder
of business consultancy SustainAbility, in his 1998 book Cannibals with Forks: The Triple
Bottom Line of 21st Century Business.
o As further evidence that this notion has hit the business mainstream, there is a trendy
acronym, 3BL, for corporations to use to prove, supposedly, that they are on the
“cutting edge” of this new trend.
• Organizations have jumped on the CSR bandwagon by adopting three distinct types of
Chapter 04 - Corporate Social Responsibility
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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
specific initiatives to give back to the company’s local community or to designated
national or international programs.
o Critics have argued that, from an ethical perspective, this type of CSR is immoral
since it represents a violation of shareholder rights if they are not given the
opportunity to vote on the initiatives launched in the name of corporate social
responsibility.
o The relative legitimacy of altruistic CSR is based on the argument that the
philanthropic initiatives are authorized without concern for the corporation’s overall
profitability.
CSR is ethically commendable because these initiatives benefit stakeholders while
Learning Outcome 6: Discuss the Relative Merits of Carbon-Offset Trading.
• At www.carbonfootprint.com/calculator.aspx, a person can calculate the carbon dioxide
emissions from his or her home, his or her car, and any air travel he or she does, and then
calculate his or her total emissions on an annual basis.
o The result is the person’s “footprint.”
o People can then purchase credits to offset emissions and to render themselves
“carbon neutral.”
• If a person has sufficient funds, he or she can purchase more credits than he or she needs to
Chapter 04 - Corporate Social Responsibility
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States has yet to sign).
o It didn’t take long for an entire infrastructure to develop in order to facilitate the
trading of these credits so that organizations with high emissions (and consequently a
larger demand for offset credits) could purchase credits in greater volumes than most
individual projects would provide.
and five carbon- trading organizations in Europe to create the European Carbon Investors
and Services Association (ECIS) to promote the standardization of carbon trading on a
global scale.
• In 2003, the Chicago Climate Exchange (CCX) was launched with 13 charter members and
today remains the only trading system for all six greenhouse gases (carbon dioxide,
Life Skills
Being Socially Responsible
This Life Skills box discusses how important one’s beliefs about corporate social responsibility
are in one’s daily life. It proposes questions pertaining to the damages done by companies who
simply provide products at the lowest possible price. It also discusses the importance of finding a
job with a company that one is proud to work for rather than taking the first opportunity that
comes along only to find oneself at odds with many of the company’s policies and philosophies.
Progress ✓ Questions
1. Define corporate social responsibility.
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2. Name two other terms that may be used for socially aware corporate behavior.
3. Give four examples of a corporation’s legal obligations.
4. Do investors always invest money in companies to make a profit?
5. What is the instrumental model of corporate management?
6. What is the social contract model of corporate management?
7. Research Friedman’s article—what are the assumptions of his argument?
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social responsibility that goes beyond serving the interests of their stockholders.
8. Do you agree or disagree with the social contract model? Why?
9. List the five major trends driving CSR.
10. Which one do you think is the most important? Why?
11. Explain why organizations are struggling to adopt CSR initiatives.
Organizations are struggling to adopt CSR initiatives not because the ethical action itself
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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
are just chasing customer favor. Also, many CSR initiatives do not generate immediate
financial gains to the organization.
12. Why would customers be cynical of CSR initiatives?
13. Explain the term triple bottom line.
Organizations pursue operational efficiency through detailed monitoring of their bottom
14. Explain the term ethical CSR.
Ethical CSR represents the purest or most legitimate type of CSR, in which organizations
15. Explain the term altruistic CSR.
Chapter 04 - Corporate Social Responsibility
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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Strategic CSR is a philanthropic approach to CSR in which organizations target programs
that will generate the most positive publicity or goodwill for the organization but which runs
the greatest risk of being perceived as self-serving behavior on the part of the organization.
Ethical Dilemma
Case 4.1 – Global Resources
1. If Global is paying a fair market price for drilling rights, are there any ethical violations
here? Why or why not?
Student responses may vary. Global Resources might be paying a fair market price for
drilling rights; however, they are not being honest to the landowners about the implications
2. Are the Global engineers as committed to “full disclosure” as they claim to be?
Students’ responses will vary. Some of them may say that Global engineers were not as
committed to “full disclosure” as they claimed to be because they didn’t talk about the
3. Is Global Resources Corporation being socially responsible, or are its local initiatives just
“window dressing”?
