ARGUMENTS FOR & AGAINST CORPORATE SOCIAL RESPONSIBILITY

What research evidence is there of a positive correlation between CSR and financial performance?

n  Put another way: how do CSR and financial performance relate to each other?

n  There is quite a range of research papers which explore this relationship

Webley and More (2003) Does Business Ethics Pay, London IBE as summarised by Fisher & Lovell (2009, pp12-15)

n  “There is a a strong indication that having a code,”..(of ethics) ”..managing the non-financial risks of a company … and being rated by one’s peers as a reputable company are associated with higher and more stable financial returns.

n  However… a statistical association does not mean that the adoption of ethical business practices is the cause of financial improvement.”

Preston LE & O'Bannon DP (1997) The Corporate Social-Financial Relationship – A Typology and Analysis Business & Society, Vol 36 No 4 December, pp. 419-429

n  3 causal sequences each with a positive and a negative hypothesis

n  1.  Social Performance (SP) leads to financial performance(FP)

n  POSITIVE - Higher/ lower levels of SP lead to higher/ lower FP – not much evidence

n  NEGATIVE - Higher /lower levels of SP leads to lower/ higher levels of FP– Friedman position (see later in these slides)

n  Financial Performance Leads to Social Performance:

n  POSITIVE – Higher/ lower levels of FP lead to higher/ lower levels of SP – because the funds are available – quite a bit of evidence

n  NEGATIVE – Higher/ lower levels of FP lead to lower/ higher SP – because of managerial opportunism

n  Financial Performance is synergetic (either positively or negatively) with Social Performance – ie the time pattern of their interaction cannot be detected from available data

n  Their survey of 67 large US firms 1982-1992 – showed overwhelming evidence of a positive relationships – the strongest being that FP precedes or is contemporaneous with SP 

Enhancing the Brand and Reputation

n  Developing the social image of a brand may have the effect of improving a company’s reputation in both the public and business community

n  This has become known as cause-related marketing

n  However,  such improvements are difficult to measure and quantify

Attracting and Retaining Employees

n  78% of employees would rather work for an ethical and reputable company than receive a higher salary. (Source: The Cherenson Group, 2001)

n  Companies that introduce competitive employee benefit programmes can decrease company costs related to absenteeism, turnover, disability and health-care claims by 30%. (Source: Medstat Group/American Productivity and Quality, 2001)

Reduced Operating Costs

n  reduced waste

n  reduced inefficiencies

n  reduced absenteeism

n  increased employee retention

n  reduced training costs

Changing Environmental Factors demand a more proactive response to stakeholders

n  Increased globalisation & decentralisation of business

n  Increased stakeholder expectations - often fuelled by  pressure from media / activist groups

What have we established so far?

n  We have explored a range of arguments for a company taking CSR seriously.

n  The arguments cover the interests of a range of stakeholder groups

So what are the arguments against CSR?

n  The nature of the argument here is rather different from what we’ve just assembled on the “pro” side

n  The main thrust of the “anti” argument is to question the legitimacy of stakeholder based arguments

Alison Azer “The Ethics of Corporate Social Responsibility: Management Trend of the New Millenium?”

n  “A common theme among these definitions is the notion that corporations must now be accountable to a broad network of stakeholders that includes but is not limited to shareholders.” p.3

This opens up the question of for whom organisations should be run

n  There are two broad arguments:

n  Shareholder view/ paradigm

n  Stakeholder view

Milton Friedman’s criticisms of CSR

n  Friedman M (1970), (reprint from 1962), “The Social Responsibility of Business is to Increase Its Profits”, New York Times Magazine, September 13th, pp. 122-6

n  Corporations should only have one aim: to make profits for shareholders. The only sort of corporate philanthropy is if it can shown that as a result of a good deed (eg a gift) profits will improve in a way superior to any other. Fisher & Lovell (2009) in their book Business Ethics & Values call this “prudential altruism”

n  He argued that it is undemocratic for companies to use shareholder funds to support charities or other “good causes” - such a thing can only reduce dividends, increase prices, reduce wages (or a combination of these 3)

n  “How can it be ethical that a corporation should act first as unpaid tax collector (ie levying a tax on the shareholders, customers and/or employees) and then as unaccountable benefactor?”

n  Corporations cannot possess responsibilities. They are social constructs brought into existence by the law . Philosophically, only individuals can have responsibilities.

Wolf (2000), “Sleepwalking with the enemy: CSR distorts the market by deflecting business from its primary role of profit generation”, FT, 16th May

n  He rehearses many of these arguments - you might find it useful.

So, how should legitimate corporate purposes be determined?

n  Two useful general (and short) articles available in full-text via Science Direct:

–        Argenti J (1997), Stakeholders: The Case Against, Long Range Planning, Vol 30, No 3, pp. 442-446

–        Campbell A (1997), Stakeholders: the Case in Favour, Long Range Planning, Vol 30, No 3, pp. 446-449

John Argenti  Andrew Campbell