Chapter 7 Theories of Social Responsibility The Corporate

Chapter 7 Theories of Social Responsibility, The Corporate Social Audit and Corporate Sustainability

Theories of Social Responsibility u Four Theories for Social Responsibility: 1. Maximizing Profits 2. Moral Minimum 3. Stakeholder Interest 4. Corporate Citizenship

Theories of Social Responsibility Maximizing Profits Corporate Citizenship Moral Minimum Stakeholder Interest

1. Maximizing Profits u. A theory of social responsibility that says a corporation has a duty to take actions that maximize profits for shareholders. u The interests of other stakeholder are not important.

2. Moral Minimum u. A theory of social responsibility that says a corporation’s duty is to make a profit while avoiding harm to others. u As long as business avoids or corrects the social injury, it has met its duty of social responsibility.

Moral Minimum (continued) u The legislative ( )ﺍﻟﺘﺸﺮﻳﻌﻴﺔ and judicial branches of government have established laws that enforce the moral minimum of social responsibility on corporations. e. g. , Occupational safety laws. n e. g. , Consumer protection laws for product safety. n

3. Stakeholder Interest u. A theory of social responsibility that says a corporation must consider the interests of all stakeholders, including stockholders, employees, customers, suppliers, creditors, and local community. u This theory was criticized because it is difficult to harmonize the conflicting interests of stakeholders.

Employees Suppliers Customers Creditors Local Community

4. Corporate Citizenship u. A theory of responsibility that says a business has a responsibility to do good and u helping to solve social problems. u Corporations owe a duty to promote the same social goals as do individual members of society.

Corporate Citizenship (continued) u This theory argues that corporations owe a debt to society to make it a better place. n u. A This duty arises because of the social power granted on corporations. major criticism of this theory is that the duty of a corporation to “do good” can not be expanded beyond certain limits.

Theories of Social Responsibility – Summary Theory Social Responsibility Maximizing profits To maximize profits for stockholders. Moral minimum To avoid causing harm and to compensate for harm caused. Stakeholder interest To consider the interests of all stakeholders, including stockholders, employees, customers, suppliers, creditors, and local community. To do good and solve social problems. Corporate citizenship

The Corporate Social Audit u Definition of Social Auditing (SA): u SA: is a formal review used to measure the impact that a corporation has on its clients, staff and society as a whole. The purpose of a social responsibility audit is to ensure that the company is doing all it can to support non-tangible gains such as employee satisfaction, community support and customer loyalty. u

What is Social Auditing ? SA is a management tool and accountability mechanism which can enhance an organization’s capacity to: u Evaluate their impact on stakeholders. u Determine how well they are living up to the values they promote. u Improve their strategic planning process by identifying potential problems before they come up; and u Increase their accountability to the groups they serve and depend on.

Reasons to conduct a SA: Know what is happening. u Understand what people think and want. u Tell people what you are achieving. u Strengthen loyalty / commitment. u Enhance decision-making. u Improve overall performance. u

The Corporate Social Audit : u 1. 2. 3. 4. 5. 6. u A social audit looks at factors such as : a company’s record of charitable giving. volunteer activity. energy use. work environment. Worker safety. Consumer protection. Social audits are optional--companies can choose whether to perform them and whether to release the results publicly or only use them internally.

The Corporate Social Audit : u Corporate audits should be extended to include the moral health of the corporation. u Corporations that conduct social audits will be more suitable to prevent unethical and illegal behaviors by managers, employees, and representatives.

The Corporate Social Audit (continued) u The audit would examine how well: Employees have followed the company’s code of ethics; and n The corporation has met its duty of social responsibility. n

The Corporate Social Audit (continued) Companies should institute the following procedures when conducting a social audit: 1. An independent outside firm should be hired to conduct the audit. n This will ensure autonomy and objectivity. 2. The company’s staff should cooperate fully with the auditing firm while the audit is being conducted.

The Corporate Social Audit (continued) Procedures for conducting the audit (continued): 3. The auditing firm should report its findings directly to the company’s board of directors. 4. The board of directors should determine how the company can: Better meet its duty of social responsibility; and n Use the audit to implement a program to correct any insufficiency it finds. n

Corporate Sustainability u Corporate sustainability : involves meeting the needs of today’s stakeholders in a manner that protects the environment and resources needed for future generations, directed at improving a company’s Triple Bottom line (TBL). u The TBL is an accounting framework that includes three dimensions of performance: social, environmental and economic.

Corporate Sustainability The Triple Bottom Line (TBL) is made up of: "Social, Economic and Environmental" "People, Profit, Planet "

Triple Bottom Line (TBL)

What is triple bottom line reporting? TBL reporting : “ is a framework for measuring and reporting corporate performance against economic, social and environmental factors” A move from one dimensional economic reporting to three dimensional economic, social and environmental reporting. u

Economic factors: q q Generally accounting principles. Customers. Suppliers. Employees. Social factors: q q q Bribery and corruption. Child labor. Training and diversity. Environmental factors: q q q Energy. Water. Emissions, and waste.

Triple Bottom Line (TBL) TBL reporting enables organizations to: 1. 2. 3. Measure and manage their financial and nonfinancial performance. Have their performance and impacts demonstrated independently. Communicate effectively with consumers, governments, investors, employees, other stakeholders and supervisory groups.

How is TBL reporting achieved? u TBL reporting achieved through the application of what is called the Global Reporting Initiative “GRI’. u GRI is “a common framework for sustainability reporting” https: //www. globalreporting. org/Pages/default. aspx u Started in 1997 by the combination for Environmentally Responsible Economies and the United Nations.

Global Reporting Initiative “GRI” u GRI became independent in 2002, and is an official collaborating centre of the United Nations Environment Programme (UNEP) and works in cooperation with UN Secretary-General.