Social Responsibility and Business Ethics
The terms ethics and social responsibility are often used interchangeably, but each has a distinct meaning. In Chapter 1, we defined social responsibility as an organizations obligation to maximize its positive impact on stakeholders and minimize its negative impact. For example, Starbucks encouraged investors to get involved with its sustainability efforts by issuing $496 million in bonds just for sustainability projects. The Container Store pays its average retail worker an average of $48,000. SC Johnson gives 5 percent of pre-tax profits to corporate giving and is investing in wind turbines to power some of its manufacturing plants. Conversely, one study found that a firm’s sales margin will be damaged by the unethical treatment of stakeholders. Many other businesses have tried to determine what relationships, obligations, and duties are appropriate between their organizations and various stakeholders. Social responsibility can be viewed as a contract with society, whereas business ethics involves carefully thought-out rules or heuristics of business conduct that guide decision making.
There are four levels of social responsibility—economic, legal, ethical, and philanthropic (see Figure 2-3). At the most basic level, companies have a responsibility to be profitable at an acceptable level to meet the objectives of shareholders and create value. Of course, businesses are expected to obey all relevant laws and regulations. For example, the European Union passed a law giving EU Internet users the “right to be forgotten.” This means that consumers have the right to request Google to delete content they no longer want recorded from search results. Individual countries in the European Union have the freedom to enforce this ruling as they see fit. An EU panel believes this ruling should apply to all countries, not just those limited to the European Union. A worldwide enforcement of this law would require Google to make extensive changes to how it manages customer information.
Figure 2-3Steps of Social Responsibility
© Galyna Andrushko/ Shutterstock.comSource: Adapted from Archie B. Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders,” Business Horizons 34 (July–August 1991): 42, Fig.3.
Business ethics, as previously defined, comprises principles and values that meet the expectations of stakeholders. Philanthropic responsibility refers to activities that are not required of businesses but that contribute to human welfare or goodwill. Ethics, then, is one dimension of social responsibility. Ethical decisions by individuals and groups drive appropriate decisions and are interrelated with all of the levels of social responsibility. For example, the economic level can have ethical consequences when making managerial decisions.
The term corporate citizenship is often used to express the extent to which businesses strategically meet the economic, legal, ethical, and philanthropic responsibilities placed on them by various stakeholders. Corporate citizenship has four interrelated dimensions: strong sustained economic performance, rigorous compliance, ethical actions beyond what the law requires, and voluntary contributions that advance the reputation and stakeholder commitment of the organization. A firm’s commitment to corporate citizenship indicates a strategic focus on fulfilling the social responsibilities its stakeholders expect. Corporate citizenship involves acting on the firm’s commitment to corporate citizenship philosophy and measuring the extent to which it follows through by actually implementing citizenship initiatives. Table 2-2 shows companies that have been ranked each year through the Ethisphere World’s Most Ethical Companies. These 13 companies have received recognition repeatedly out of over 120 recognized firms. As Chapter 1 demonstrated, many of these companies have superior financial performance compared to the indexes of other publicly traded firms.
Table 2-2
Ethisphere World’s Most Ethical Companies–Honorees Every Year of the Ranking
1.
Aflac Inc.
2.
Deere & Company
3.
Ecolab Inc.
4.
Fluor Corporation
5.
General Electric
6.
International Paper
7.
Kao Corporation
8.
Milliken & Company
9.
PepsiCo
10.
Starbucks Corporation
11.
Texas Instruments
12.
UPS, Inc.
13.
Xerox Corporation
Source: Jeff Kauflin, “The World’s Most Ethical Companies 2017,” Forbes, March 14, 2017, https://www.forbes.com/sites/jeffkauflin/2017/03/14/the-worlds-most-ethical-companies-2017/#3fa09637bc33 (accessed April 6, 2017).
Reputation is one of organization’s greatest intangible assets with tangible value. The value of a positive reputation is difficult to quantify, but it is important. A single negative incident can influence perceptions of a corporation’s image and reputation instantly and for years afterward. Corporate reputation, image, and brands are more important than ever and are among the most critical aspects of sustaining relationships with constituents including investors, customers, employees, media, and regulators. Although an organization does not control its reputation in a direct sense, its actions, choices, behaviors, and consequences influence stakeholders’ perceptions of it. For instance, employees are likely to perceive their firm’s corporate social responsibility initiatives as authentic if the program appears to fit with the company’s true identity and if they take a leadership role in these initiatives. Employees who feel their firms’ corporate social responsibility programs are authentic are more likely to identify and connect with the organization. Even lower-level, frontline, and service contact employees identify and move with an organization if they perceive that management and the firm’s customers support social responsibility programs. This means social responsibility initiatives can create observable changes in employee behavior.
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