Management and Organizational Studies 2285 Lecture Notes - Lecture 6: Corporate Social Responsibility, Disposable And Discretionary Income, Profit Maximization

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What is corporate social responsibility?
- CSR: behaviour in which firms engage that considers the interests of stakeholders outside of the firm, along with
and not solely including hose of the firm itself
- Depeds upo the perspetie ou take as to h firs ight egage i C“R…
1. Legitimacy
- Atig i the fir’s iterest
- The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations
that a society has of organizations (Carroll, 1979)
- C“R is hat soiet sas it is, ad the fir itself does’t deide, it sipl reats
- Meeting the behavioural expectations of society
Legitimacy provides firms with access to the resources (financing, customers, employees) they
need to survive and reduces costs associated with operations (less scrutiny, reduced taxes)
Legitimacy = Social Acceptance
- Society grants legitimacy and power to business. In the long run, those who do not use power in a manner in
which society considers responsible will tend to lose (Wood, 1991)
- If power is lost, the business fails
- Economic rationality
“ie the fir eeds legitia to surie, it is i the fir’s est iterest to at i a aer that
is socially responsible because if it loses legitimacy it will fail
“oiall resposile for surial’s sale
- Does not refer to specific socially responsible activities broader expectations, generic responsibilities
- Businesses should care about everything
Society expects a lot of businesses, but if the expectations are met the rewards are great
- The only ability firms have is how to manage change
2. Public responsibility
- Atig i soiet’s iterest
- Business corporations have an obligation to work for the social betterment (Fredrick, 1986)
- Firms must go beyond simply doing what is expected, but be proactive in improving society since its success is a
result of its use of the society (public responsibility)
- Businesses are responsible for outcomes related to their primary and secondary areas of involvement with
- Businesses are not responsible for solving all social problems, but they are responsible for solving social
problems they caused and to which they are related
- Links firms with the ramifications of their operations without burdening them with too much responsibility.
- Automakers and air pollution, recyclable cars etc.
- How strong does the link need to be? Where does the responsibility end?
- Lower behavioural expectations not beholden to all of society
- “oiall resposile ehaiour is ot therefore defied  his of soiet, ut  diret results of the fir’s
actions while still providing latitude within that range
3. Managerial discretion
- Acting i the idiidual’s iterest
- The fir’s osideratio of, ad respose to, issues eod the arro eooi, tehial, ad legal
requirements of the firm to accomplish social benefits along with the traditional economic gains (Davis 1973)
- Managers have to balance society and performance, but do both (managers discretion)
- Managers are moral actors. Within every domain of corporate social responsibility, they are obliged to exercise
such discretion as is available to them, toward socially responsible outcomes while at the same time maximizing
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- A fir’s soial resposiilities are ot et  a astrat orgaizatioal ator; the are et  idiidual
- People make up firms and the people are responsible to society
- Relies on ethics, judgement and values of managers
- Managers are given positions of power to act on behalf of their organization. They should use this power to
make their firm behave in a socially responsible manner
- Suggests that CSR refers to acting responsibly to avoid creating problems as opposed to solving existing
should businesses act in a socially responsible manner?
- Depends on your perspective
Economic view (Freidman)
- Does CSR lead to better firm performance or does better firm performance lead to CSR?
- Answering this question is the heart of the debate
- If CSR leads to better economic performance and shareholder wealth maximization, then it should be followed
- Legitimacy
- Friedman Perspective
Business should only be about profit maximization
When a business allocates resources to endeavours other than profit maximization it is not
fulfilling its fiduciary duty
Agency problem in whose interests are managers acting when they allocate profits to CSR
Allocating profits to CSR activities is like a tax on the owners of the firm the shareholders and
fir’s do ot hae this right
If I want to give charity I will do it with my money
Not against CSR, only against CSR that is not profit oriented
CSR may have indirect profitability benefits and these should be pursued, but the intent must be
to create shareholder wealth, not society
Must always follow laws and ethics
Consistent with Legitimacy and Public Responsibility perspectives
Legitimacy improves performance
Public Responsibility legally and ethically responsible for behaviours
- Profits mean employment less welfare, government money spent on more beneficial outlets
- More discretionary income means more money spent on socially responsible causes
- Businesses do not have competencies in CSR, leave it to exports
- CSR has a monetary cost. Money spent on CSR is not spent on wages, innovation, efficiencies and dividends
- Society benefits from higher profits and wages (more taxes, greater discretionary income), innovation (high-tech
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