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2013-2014Lecture 6 & 7
MBA- Banking
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Companies
makes
significantcontribution
to addressing
poverty,
exclusion and
environmental degradation
through
trade.
Believes in
bothcorporate as
3rd Generation
Companies,
and
industries seeCSR as an
integral part
of business
strategy
2nd
Generation
Companies
contributing
out of theirown free will
towards
charity or
corporate
philanthropyto address
social,
economic &
other issues
1ST
Generation
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NGO activism
Investor
pressure
Demand for
increaseddisclosure
FDI
Rising customerInterest ( domestic& international)
Responsible InvestmentIncreasing supply-chainresponsibility
Litigation
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Why should managers look at the theoreticalpropositions in CSR?
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Friedmans Theory ( Stockholder)
Social Contract Theory Deontological Theory
Rights TheorySocial Justice
Carnegie Theory
Stakeholder
Theory
Trusteeship
Theory
Keith Davis
Tom CannonTheoretical Premise
of CSR
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The only social responsibility ofbusiness to use its resources and
engage in activities designed to
increase its profits for it
stockholders
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The Social Responsibility of Business is toincrease its profits
The Underlying Ethical principle: Manager hasFiduciary Responsibilityto Owners
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provide employment
eliminate discrimination
avoid pollution help the community
make life better for workers
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To think business should do anything otherthan make a profit is to preach socialism andundermine free society.
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Businesses cannot have responsibility,because only people can haveresponsibilities.
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Executive has obligation to stockholders a corporate executive is an employee of theowners of the business. He has a direct
responsibility to his employers. That
responsibility is to conduct the business inaccordance with their desires, which generallywill be to make as muchmoney aspossible
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while conforming to thebasic rules of thesociety, both those embodied in law andthose embodied in ethical custom.Manager has obligation to the
Law
Ethical Custom
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Social responsibilities of the executive:Family, conscience, feelings of charity,church, clubs, city, country
Fiduciary responsibility: To make money forstockholders
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He must act as an agent of thestockholders, not society ingeneral.
http://images.google.com/imgres?imgurl=http://www.powayarts.org/press/Robin_Hood.jpg&imgrefurl=http://www.powayarts.org/press_room.asp&h=485&w=485&sz=60&hl=en&start=29&tbnid=l3nnAlvT9f_fVM:&tbnh=129&tbnw=129&prev=/images?q=robin+hood&start=20&gbv=2&ndsp=20&svnum=10&hl=en&sa=N7/27/2019 MBA Banking Lecture 6&7.pptx
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No way for Executive to know how to solvesocial illsthats not his expertise!
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Majority speaks through the law. Dontundermine or circumvent democracy byimposing ones views on other peoplesmoney-use via subversive private tax
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If Companies give money to good causesbecause it gives them good Public Relations,then count it as advertising and dont pretendit is done for the sake of charity. The
Windowdressing/cloak of social-responsibility is a lie and a sham whichundermines free society.
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Freidman thinks firms ought to maximizetheir profits (they have social obligation to doso) Becauseprofit really represents the netcontribution that the firm makes to the social
good and the profits should therefore bemade as large as possible.
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Freidman also assumes natural constraints ofthe market will help keep companies incheck. i.e., if a company is known to bedishonest or terrible to their employees, then
consumers will not buy from that company!
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It assumes that forces of competition aresufficiently vigorousbut they arent.
Government regulations are essential to forcecompanies to act in an ethical manner. Suchregulations direct the market towards ethicalbehavior.
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Distribution of income that results fromunrestrained profit maximization is veryunequal.
( Differences of Income Levels)
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Maximizing profits is socially inefficient whencosts are not paid
Examples: pollution
traffic congestion
No taxes poorly educated workforce
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Maximizing profits is socially inefficient whenseller has great knowledge advantage overbuyer
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Resistant to change:dangerous to rely
simply on
stockholder
satisfaction
Not consistent withthe law: law doesnot simply uphold
stockholders rights
Usually ignoresethics: the
Separation Fallacy:businessdecision vs
ethicaldecision
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The Social Contract Theory account ofcorporate social responsibility has its rootsin a broader political theory. Responsibilities and rights of individuals
grounded in a hypothetical contract betweenmembers of society.
Expanding on this notion, people havesuggested that the moral responsibility ofbusinesses are similarly rooted in acontract between them and society.
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The benefits of business (especiallycorporations) to society are well recognized. Accumulation of capital; distribution of risk; jobs.
The potential costs are also obvious. Resource depletion; political corruption;
concentration of wealth; threats to democracy.
A contract is the best way to understandthe tradeoffs between these benefits and
risks Takes the form of specific principles which guide
behavior of all parties to the contract.
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The iron law of responsibility refers to thenegative consequences of the absence ofuse of power.
Whoever does not use his social powerresponsibly will lose it. In the long runthose who do not use power in a mannerwhich society considers responsible will
tend to lose it because other groupseventually will step in to assume thoseresponsibilities
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Deontological theory deals with the beliefthat everyone, including corporate managers,has a moral duty to treat everyone else withrespect, including listening and considering
their needs.
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Deontologyis the branch of moral philosophy thatconcentrates on duties or moral obligationsitputs the responsibility in corporate socialresponsibility.
If an action does (does not) fulfill one's duties, thenthe action is (is not) an ethical one.
The two major deontological frameworks are:
1. The theory of rights, concerned with individualsmoral rights and the duties/responsibilitiesof moralagents to respect and protect those rights, and
2. The theory of justice, dealing with fairness and equityin decision making.
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Groups: civil, political rights economic, social, cultural rights group rights
Features: inherence in human beings universal
inalienable
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Civil and Political RightsFreedom from discrimination (UDHR Article 2)
Right to life and to liberty and security of person (UDHR Article 3)
Freedom from forced labour/ servitude (UDHR Article 4)
Freedom from torture, cruel, inhuman or degrading treatment
or punishment (UDHR Article 5)
Right to a fair trial and to recognition as a person
before the law (UDHR Articles 6, 7, 10, 11)
Right to privacy (UDHR Article 12)
Freedom of movement (UDHR Article 13)
Freedom of opinion, expression, thought, conscience and
religion (UDHR Articles 18, 19)
Right to take part in government (UDHR Article 21)
Right to peaceful assembly and freedom of association
(UDHR Articles 20, 23(4))
Economic, Social and Cultural Right
Right to family life (UDHR Article 16)
Right to own property (UDHR Article 17)
Right to work and to just and favourable conditions atwork
(UDHR Articles 23, 24, 25)
Right to an adequate standard of living (UDHR Articles22, 25)
Right to adequate health (UDHR Article 25)
Right to adequate housing (UDHR Article 25)
Right to adequate food (UDHR Article 25)
Right to education (UDHR Article 26)
Right to participate in cultural life (UDHR Article 27)
Right to intellectual property (UDHR Article 27(2))
Universal Human Rights
Group RightsRight to development
Right to c lean environment
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Repressive regimes
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Rights theory, is concerned with themeaning of rights, including basic humanrights and property rights.
One argument in rights theory is that
property rights should not override humanrights. This means that while shareholdersof a corporation have certain propertyrights, this does not give them license to
override the basic human rights ofemployees, local community members, andother stakeholders
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Social justice theory, focuses on fairness and
distributive justice how, and according towhat principles, societys goods (here
meaning wealth, power, and otherintangibles) are distributed amongst themembers of society.
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Justice: Consists in giving each person his or her due, treating
equals equally and unequals unequally
Distributive Procedural
Compensatory
Retributive
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Legendary steel tycoon - Advocates benevolent, paternalistic
leadership Enunciated
Charity principle & Stewardship principle-thebusiness of benevolence"
He believed in the "Gospel of Wealth," which meantthat wealthy people were morally obligated to givetheir money back to others in society.
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Wanted capitalists to act as trustees (notowners) of their property and conductthemselves in a socially responsible way.
Gandhi's theory of trusteeship is based on
two basic premises A) The rich cannot accumulate wealth
without the cooperation of the poor.
B) Western socialism and communism arenot the last words on the question ofmass poverty.
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"Believing as he did in non-violence, Gandhi
was against the physical liquidation of thecapitalists and landlords. Yet their exploitationhad to end. This he believed could be done ifthe landlords and the capitalists acted astrustees of the poor.
His doctrine of Trusteeship is designed to workin all spheres of life. Like parents acting astrustees for their children, the government
should act as trustees of those who havechosen them to be their representatives in thelegislative assemblies. The trustee, by itsimplications, meant that he is not the owner.
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The theory of trusteeship as an alternative tocapitalism and scientific socialism. He was opposedto the western capitalism, which necessarily leadsto oppression, exploitation, concentration ofwealth and inequality.
At the same time, he was against an increase in thepower of the state which, in his opinion, isessentially based on violence.
Gandhi, wanted to provide the institution oftrusteeship as a compromise between privateenterprise and state controlled enterprise.
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Managing for stakeholders is aboutcreating as much value as possible forstakeholders, without resorting totradeoffs.
The basic idea is that businesses, andthe executives who manage them,actually do and should create value forcustomers, suppliers, employees,communities, and financiers (orshareholders). And, that we need to paycareful attention to how theserelationships are managed and how valuegets created for these stakeholders.
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To create value for stakeholders, executivesmust understand that business is fullysituated in the realm of humanity. Businessesare human institutions populated by real live
complex human beings.
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Enlightened self interestIt is in organisations interest to act in
ways that society considers responsible.
Iron law of responsibilityThose who do not exercise power
responsibly will tend to loose it
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Cannons views With the advent of the Joint Stock
Company, society or state provides to
business, two special rightsPotential immortality
Limited Liability
Business does have social responsibility tofulfill in return for these privileges.
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Tom CannonBusiness provides
Products & services
Direct & indirect
employment
Income generation
Society provides
Means of exchange
Trained manpower
Legal & banking
system Social & physical
infra-structure
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Desired by the Society
Expected by Society
Required
By the Society
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Philanthropic Model Statist Model ( State Intervention)
Liberal Model ( Friedman Model)
Stakeholder Model ( Freeman Model)
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Principles of SR1. Ethical behaviour 2. Respect for rule of law
3. Respect for international norms of behaviour
4. Respect for and considering of stakeholder interests5. Accountability 6. Transparency
7. Precautionary approach 8. Respect for human rights
OrganizationalGovernance
HumanR
ights
LabourPractises
Environment
Fairoperatingpractises
Consumerissues
Community
&society
development
Core Subjects Implementing SR
7.2Defining scope
7.5Implementing in daily practise
7.7Evaluating performance
7.8Enhancing credibility
7.4Integrating into organization
7.3 Working With Stakeholders
7.3 Communicating
How Does CSR benefit
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How Does CSR benefit
Business
Reputation
Loyal Employees
&Customers
Less Law Suits
Less MediaHarassment
Access to
Capital
ImprovesImproves
ProductivityCommunity
GoodwillBetter
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