ISU MODULE TEMPLATE

Subject: FM BACC 3 – Good Governance & Social Responsibility

1. Title of the Module

Chapter 2: Ethics and Social Responsibility

2. Introduction
This chapter explains the relationship of ethics to social responsibility.
It also covers the different concepts and perspectives of corporate social
responsibility and its essence to business. This chapter also discusses the
history on how the concept of CSR emerged.

3. Learning Outcome
At the end of the chapter, the students should be able to:

 Discuss the concept of CSR

 Retell the historical phases of CSR
 Point out the perspective on CSR
 Show how to assess practice of CSR
 Identify and explain the 4 corporate social responsibilities
 Discuss social responsibility towards consumers, the community &
environment and suggest additional ideas

4. Learning Content

The Concept of Corporate Social Responsibility

Corporate Social Responsibility, often abbreviated "CSR", is a

corporation's initiatives to assess and take responsibility for the company's effects on
environmental and social well-being. The term generally applies to efforts that go beyond
what may be required by regulators or environmental protection groups.

Businesses have, today, emerged as one of the most powerful institutions on the
earth. Some of the biggest companies in the world are in fact, bigger in size than some of
the developing countries of the world. Globalization makes the world smaller, and
business, worldwide, is expanding like never before. Companies are expanding their
operations and crossing geographical boundaries.

In the current scheme of things, business enterprises are no longer expected to play
their traditional role of mere profit-making enterprises. The ever-increasing role of civil
society has started to put pressure on companies to act in an economically, socially and
environmentally sustainable way.

The companies are facing increased pressure for transparency and accountability,
being placed on them by their employees, customers, shareholders, media and civil
society.

Business does not operate in isolation and there is today, an increased realization
that not only can companies affect society at large, but they are also in a unique position to
influence society and make positive impact.

The concept of CSR goes beyond charity or philanthropy and requires the company
to act beyond its legal obligations and to integrate social, environmental and ethical
concerns into its business process. Business for Social Responsibility defines CSR as
“achieving commercial success in ways that honor ethical values and respect people,
communities, and the environment”.

It means addressing the legal, ethical, commercial and other expectations that
society has for business and making decisions that fairly balance the claims of all
key stakeholders. In its simplest terms it is: “what you do, how you do it, and when and
what you say.” A widely quoted definition by the World Business Council for Sustainable
Development states that “Corporate social responsibility is the continuing commitment by
business to behave ethically and contribute to economic development while improving the
quality of life of the workforce and their families as well as of the local community and
society at large”.

Though, there is no universal definition of CSR but the common understanding

amongst most of these definitions concern with how the profits are made and how they are
used, keeping in mind the interests of all stakeholders. The concept of Corporate Social
Responsibility is constantly evolving.

The triple bottom line approach to CSR emphasizes a company’s commitment to

operating in an economically, socially and environmentally sustainable manner. The
emerging concept of CSR advocates moving away from a ‘shareholder alone’ focus to a
‘multi-stakeholder’ focus. This would include investors, employees, business partners,
customers, regulators, supply chain, local communities, the environment and society at
large.

Historical Phases of CSR

In the United States, the idea of corporate social responsibility appeared around the
start of the 20th century. Corporations at that time came under attack for being too big, too
powerful, and guilty of antisocial and anticompetitive practice. Critics tried to curb
corporate power through antitrust laws, banking regulations, and consumer protection
laws.

Faced with this social protest, a few farsighted business executives advised
corporations to use their power and influence voluntarily for broad social purposes rather
than for profits alone. Some of the wealthiest business leaders—steelmaker Andrew
Carnegie is a good example—became great philanthropists who gave much of their wealth
to educational and charitable institutions. Others, like automaker Henry Ford, developed
paternalistic programs to support the recreational and health needs of their employees.

As these early ideas about business’ expanded role in society gained influence, two
broad principles emerged: the charity principle and the stewardship principle. These
principles shaped business thinking about social responsibility during the 20 th century and
are the foundation stones for the modern idea of corporate social responsibility.

The Charity Principle

The charity principle is the idea that the wealthiest members of society should be
charitable toward those less fortunate. During the 20 th century, Andrew Carnegie and other
wealthy business leaders endowed public libraries, supported settlement houses for the
poor, gave money to educational institutions, and contributed funds to many other
organizations.

When wealthy industrialists reached out to help, they were accepting some
measure of responsibility for improving the conditions of life in their communities. In doing
so, their actions helped counteract critics who claimed that business leaders were uncaring
and interested only in profits.

The Stewardship Principle

Many of today’s corporate executives see themselves as stewards, or trustees, who

act in the general public’s interests. Business leaders who follow the stewardship principle
believe that they have an obligation to see that everyone—particularly those in need or at
risk—benefits from their firm’s actions. Business leaders incur a responsibility to use
resources in ways that are good not just for the stockholders alone but for the society, as
well as for the natural environment.

This kind of thinking has eventually produced the modern theory of stakeholder
management. According to this theory, corporate managers need to interact skillfully with
all groups that have a stake in what the corporation does. If they do not do so, their firms
will not be fully accepted by the public as legitimate.

Perspectives on CSR

Corporate social responsibility is defined by two perspectives: the Classical View is

from Friedman (1962) who argues that goal of CSR is to maximize shareholder value.
Since a firm's shareholders are owners, the firm’s responsibility is to use its resources to
increase profits…without deception or fraud. It comes from a classical economics
interpretation “firms that maximize individual profits also maximize social gain”. This origin
of this idea is attributed to Adam Smith who based his reasoning on a utilitarian view of the
world. The second perspective is from Carroll (1991) who argues that CSR is a multi-
dimensional construct embracing four sets of responsibilities: economic, legal, ethical, and
philanthropic. Carroll represents the four components of CSR in a pyramid and proposes
that each of these responsibilities should be fulfilled together and in parallel rather than
within a sequence.
Assessment on the Practice of CSR

A CSR assessment is an evaluation of how well a company has integrated the

principles of CSR into their business.  An assessment program is a first step into an
ongoing monitoring process. The objective of the assessment is to get a clear picture of a
company’s Corporate Social Responsibility practices (i.e. environment, social, ethics,
supply chain…). The assessment results will enable you to understand how your company
is positioned, but you can also use the assessment results to communicate your CSR
commitment to your stakeholders.

The first step is to gather, analyze and examine all relevant and important
information about the company’s services, products, activities and decision-making
processes where the company currently stands in relation to its activities and locate points
to apply CSR. A proper CSR assessment should provide the following information about
the company assessed in respect to these four themes:

Environment Human Resources

 Social  Employee Health & Safety

 Ethics  Working Conditions
 Sustainable Procurement  Social Dialog
 Operations  Career Management
 Energy/CO2
 Water Human Rights
 Biodiversity
 Pollution  Child & Forced Labor
 Waste  Non-Discrimination
     Fundamental Human Rights
Product  Corruption & Bribery
 Anti-Competitive Practices
 Product use  Responsible Marketing
 Product end of life  Suppliers Environmental Performance
 Customer safety  Suppliers Social Performance
 Advocacy

The CSR Assessment should show the main risks and opportunities and give a
thorough analysis of the following: How well is the company’s strategy in responding to
emerging opportunities and issues? What are the company’s strengths and weaknesses
with regards to CSR? These are important information which can be used as a selling
point to stakeholders.

Why carry out a CSR Assessment?

Most companies conduct these assessments at the request of their clients or

stakeholders. When the top management does not have an accurate overview of the
corporate social responsibility status and progress, it would be difficult and unlikely for
them to make important decisions for the future. The information gathered from the
assessment can protect a firm from making an ineffective and uncalculated CSR approach
or heading in an unsustainable direction with their business. An assessment will also help
identify CSR loopholes and potential opportunities which will improve the decision-making
process and also as a reminder of legal obligations in business practices.

How is it carried out?

A basic assessment process is outlined below:

1. Assemble a CSR leadership team.

2. Develop a working definition of CSR.
3. Identify legal requirements.
4. Review corporate documents, processes and activities.
5. Identify and engage key stakeholders.

This is not the only way to do an assessment; rather it is one way a firm can review
the full range of its operations through a CSR lens. A number of organizations, such
as EcoVadis have developed tools and CSR rating methodology to help companies
perform a CSR assessment on themselves or on their suppliers. Below is a brief
explanation of the EcoVadis methodology.

EcoVadis CSR Assessment and Rating methodology:  The objective of the

EcoVadis CSR rating methodology is to assess the quality of a company’s CSR
management system-through its policies, implementation measures and results. The
process captures and analyzes information and distills it into a scorecard with a Rating on
a 0 to 100 scale. The rating methodology is based on seven founding principles:

1. Evidence Based
2. Industry sector, country and size matter
3. Diversification of sources
4. Technology is a must
5. Assessment by international CSR experts
6. Traceability and transparency
7. Excellence through continuous improvements

The Four Types of Social Responsibility

The idea behind corporate social responsibility is that companies have multiple
responsibilities to maintain. These responsibilities can be arranged in a pyramid, with basic
responsibilities closer to the bottom. As a business meets lower-level responsibilities that
obligate it to shareholders and the law, it can move on to the higher-level responsibilities
that benefit society.

Economic Responsibilities

A company's first responsibility is its economic responsibility — that is to say; a

company needs to be primarily concerned with turning a profit. This is for the simple fact
that if a company does not make money, it won't last, employees will lose jobs and the
company won't even able to think about taking care of its social responsibilities. Before a
company thinks about being a good corporate citizen, it first needs to make sure that it can
be profitable.

Legal Responsibilities
 A company's legal responsibilities are the requirements that are placed on it by the
law. Next to ensuring that company is profitable, ensuring that it obeys all laws is the most
important responsibility, according to the theory of corporate social responsibility. Legal
responsibilities can range from securities regulations to labor law, environmental law and
even criminal law.

Ethical Responsibilities

Economic and legal responsibilities are the two big obligations of a company. After
a company has met these basic requirements, a company can concern itself with ethical
responsibilities. Ethical responsibilities are responsibilities that a company puts on itself
because its owners believe it's the right thing to do — not because they have an obligation
to do so. Ethical responsibilities could include being environmentally friendly, paying fair
wages or refusing to do business with oppressive countries.

Philanthropic Responsibilities

If a company is able to meet all of its other responsibilities, it can begin meeting
philanthropic responsibilities. Philanthropic responsibilities are responsibilities that go
above and beyond what is simply required or what the company believes is right. They
involve making an effort to benefit society — for example, by donating services to
community organizations, engaging in projects to aid the environment or donating money
to charitable causes

Social Responsibility Towards Consumers

The concept of corporate social responsibility or CSR is based on three dimensions

which serve as its three pillars. These are the economic, social, and environmental
responsibility. For a company to successfully practice CSR, all the three pillars have to be
balanced and should be based on obligation and accountability.

Social responsibility is the most current dimension of CSR in which corporations

take active participation in social issues and community affairs. The target of responsibility
is the stakeholders which includes the customers or the buying public. The perception of
offering respect and satisfaction to customers is nothing new to businesses but being
responsible to customers creates an impact on profitability.

The consumers are more than essential to the business because without them,
putting up a profit-generating firm is useless. Customers buy the products or services
which they think can benefit them. It simply would not work if there is no support from the
buying public.

Responsibility towards Consumers or Customers

So, how can an organization extend CSR to customers? Talking about

responsibilities, a company’s obligation to the consumers are broader compared to other
stakeholders; it may even take into account giving good value for money. The primary
expectation of consumers towards the corporations is a stable supply of goods and
services. So, companies must meet that expectation by delivering the right product or
service with desirable quality at the right time, right place, and fair price.
 Other responsibilities that companies have towards consumers are improving the
standard of living through delivery of high-quality products as well as treating the
customers equally in the different aspects of the business interaction. And of course,
customer satisfaction is no longer a plain objective of companies but it has now turned into
a responsibility as an important factor for a firm to succeed. The powerful “word of mouth”
advertisement of a company product or brand is proven to be effective in increasing
product sales and revenue.

Customer satisfaction, simply put, is how the customers are properly dealt if, for
example, they have complaints and queries. Companies are obliged to deliver prompt and
courteous attention to such issues. They must keep a fair advertising and trading
standards and not mislead the consumers into something that is not true. Firms are also
responsible for providing the buying public with complete product, service, and company
information to both existing and potential customers.

Social Responsibility Towards the Community & Environment

Corporate social responsibility in business companies covers different areas. These

are: market environment, public environment, the area of employment, relations with
investors and environmental protection. As one of the most serious effects of external
economic activity is detrimental impact on the environment, the environmental issues are
of great importance in the company. Corporate social responsibility here means ecological
management. This includes activities in accordance with the adopted law, supports
environmental awareness in the given surrounding, and also creates its own solutions to
minimize the harmfulness of core business. All these elements do not function in isolation
– they interlace to create a model of economic management which is responsible for the
natural resources.

In addition to the legal framework, according to the concept of CSR, a company

must trend to:

 reduce the consumption of raw materials and energy, reduce production of

hazardous waste and pollution,
 respect, protect and restore natural ecosystems,
 identify potential negative environmental effects,
 introduce mechanisms to internalize external environmental costs,
 take into account environmental objectives at the stage of product design (eco-
design, life cycle analysis – LCA / LCM)
 implement technologies to reduce harm done to the environment in production
processes,
 promote ecological behavior within the company, as well as saving energy and
water in every department of the company.

5. Teaching and Learning Activities

  Discussion using video presentation and soft copy module (Distributed
ONLINE via E-mail or Messenger) and/or using hard copy module (Distributed
OFFLINE via drop-off areas)
 Individual Activity. Distributed ONLINE via E-mail or Messenger and/or
OFFLINE via drop-off areas

6. Recommended learning materials and resources for supplementary reading.

https://en.wikipedia.org/wiki/Business_ethics
https://en.wikipedia.org/wiki/Social_responsibility
https://en.wikipedia.org/wiki/Corporate_social_responsibility

7. Flexible Teaching Learning Modality (FTLM) adopted

Remote (asynchronous)
//module, exercises, video presentation

8. Assessment Task
Identify what Type of Social Responsibility is related in each item and explain why.

1. A certain manager of a company did not release the employees’ year-end

bonus. The manager’s reason was low profit (although the company’s
financial statement was not disclosed) and his other reason was the company
is private.

2. A business owner did not pursue on her planned project entitled “Help a
Barangay” due to low sales.

3. The marketing manager regularly checks their budget and always finds a way
to utilize it wisely. At the end of an operation, the said manager always reports
the remaining budget, if there is.

4. A hired manager of a middle-class restaurant always gives a small amount of

food and drink to a certain beggar that always walks by to the restaurant
around 7 o’clock in the evening. Everything that is given to the beggar is on to
the manager.

5. Martha––the senior manager, 34 years old, and a hot & sexy single mom––
favors all proposition, ideas, and suggestions of Tony––one of the 4 junior
managers, 25 years old, hunk, single––despite the fact that 90% of Tony’s
plans always turns into failure unlike the other 3 junior managers who has
very successful projects. Later that year, she promoted him.

6. A certain company seeks a way to reduce employee permanency for a lesser

salary & benefit expenses.
 7.

8.

9.

10.

9. References (at least 3 references preferably copyrighted within the last 5

years, alphabetically arranged)
C., Ferrell, O. (January 2016). Business ethics: ethical decision making and
cases, (Eleventh ed.). Boston, MA.
Kiyoteru Tsutsui, Alwyn Lim, Corporate Social Responsibility in a
Globalizing World, 2015
Richard Rose; Caryn Peiffer., Bad Governance and Corruption, July 5, 2018
Skripak Stephen J., Fundamentals of Business: Ethics and Social
Responsibility, Pamplin College of Business and Virginia Tech Libraries
July 2016
https://en.wikipedia.org/wiki/Business_ethics
https://en.wikipedia.org/wiki/Social_responsibility
https://en.wikipedia.org/wiki/Corporate_social_responsibility