MGMT 341 Final
Business Case for CSR
-"At its core, the business case for CSR is the proposition that 'being socially responsible is good business.' But is this always true?" -One response: CSR contributes to profitability because market rewards responsible behavior -Another response: CSR is potential source of competitive advantage
Worker Participation
-A process that allows employees to exercise some influence over their work and the conditions under which they work -Sample forms of participation include work councils, which are shop-floor worker organizations that are mandated in many Western European countries; codetermination, in which workers elect one or more board directors to represent them; grievance, mediation, and arbitration proceedings, which may be stipulated in employee contracts; collective bargaining by unions; quality circles and other employee involvement in total quality management programs; and self-directed teams
Legal Protection for Expression
-Although free speech is guaranteed by the U.S. Constitution and the constitution of every state, this right protects only citizens against state action and not the action of private individuals or organizations *Thus, it is illegal for the government to limit people's expression, but the Constitution places no restriction on the actions of private businesses ->As a result, public and private employers and employees are treated differently under the law -The free-speech right of government employees is not unlimited *In general, the courts have employed a balancing test that weighs the value of freedom of expression when a government employee speaks out on a matter of public concern with the need of government agencies to maintain order and efficiency in the workplace
Property Rights Argument
-Assumes both employers and employees have property (i.e., factory owner owns machinery and raw materials, employees have labor) -Employment involves an exchange of property -Owners are free to utilize productive resources of factory, workers are free to accept -Any restriction on agreements between employers and employees is violation of property rights -Based on Locke's belief that property represents a foundational right -Locke believes property rights serve a role in satisfying basic needs, and maintaining personal liberty
Justifying the Classical View
-Business activity justified by the fact that it secures well being of society as whole (Adam Smith) -A certain level of ethical conduct is necessary for the invisible hand to operate, or indeed for business activity to take place at all *Milton Friedman speaks of the "rules of the game," by which he means "open and free competition, without deception or fraud" -Minimize harm -Corporations have become so large and powerful that they are not effectively restrained by market forces and government regulation, as the invisible hand assumes -The classical view assumes that business is best suited to provide for the economic well-being of the members of a society, whereas noneconomic goals are best left to government and the other noneconomic institutions of society
Meaning of CSR
-Business firms have not one but many different kinds of responsibilities, including economic and legal responsibilities -Corporations have an economic responsibility to produce goods and services and to provide jobs and good wages to the workforce while earning a profit. Economic responsibility also includes the obligation to seek out supplies of raw materials, to discover new resources and technological improvements, and to develop new products -Legal responsibility to act as a fiduciary, managing the assets of a corporation in the interests of shareholders, but corporations also have numerous legal responsibilities to employees, customers, suppliers, and other parties -The concept of corporate social responsibility is often expressed as the voluntary assumption of responsibilities that go beyond the purely economic and legal responsibilities of business firms -Corporations need to make a profit, but can forgo a certain level of profit to achieve other noneconomic ends
Classical View of CSR (James W. McKie)
-Business organizations distinct from other organizations in society -Business performance measured in terms of economic efficiency, and growth in production of goods and services -Primary goal of business is profit -Therefore, corporations should engage only in economic activity, and leave social concerns to other institutions in society
CSR Now
-CSR is thriving. It is now an industry in itself, with full-time staffs, websites, newsletters, professional associations and massed armies of consultants -Milton Friedman: "Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than making as much money for their stockholders as possible" -At the other extreme are critics who would like corporations to be more socially responsible but are mistrustful. They consider talk about corporate social responsibility to be a public relations ploy designed to legitimize the role of corporations in present-day American society, to divert attention away from the destructive social consequences of corporate activity, and to forestall more appropriate government action -Even those who are more favorably disposed to the idea have reservations about the ability of corporation to respond effectively to social issues. Businesses are single-purpose institutions, conceived, organized, and managed solely in order to engage in economic activity. As such, they lack the resources and the expertise for solving major social problems, and some add that they lack the legitimacy as well. Corporate executives are not elected officials with a mandate from the American people to apply the resources under their control to just any ends that they deem worthwhile
Historical Context of CSR
-CSR movement arose in the US during the 1950's, when American corporations grew in size, influence, and power, thus creating a concern for their legitimacy in a democracy -Further growth in the movement came in US during the 1960's and 1970's, during periods of great social upheaval and change (the nation confronted pressing social problems, such as poverty, unemployment, race relations, urban blight, and pollution) -CSR came later to Europe, but some would say it is more influential there now than in the US -In the 80's and 90's, American companies recognized general responsibility to society, but this was confronted by technological and competitive challenges in globalizing economy -Pressure to be profitable led to reduced resources available for CSR -However, more pressure on companies in regards to their operations abroad (i.e., NIKE)
Due Process
-Comes from 14th Amendment to US Constitution: no state shall "deprive any person of life, liberty, or property without due process of law" *In this political context, due process is a check on the arbitrary exercise of government power: The state may not use its considerable power in ways that harm citizens in important respects without adequate justification ->This justification consists not only in having an adequate cause or good reason for the state's action but also in following fair or just procedures -The concept of due process in employment is similar to its application in a political context *Due process restricts the right of an employer to dismiss an employee without having a just cause and without following just procedures
Worker Compensation
-Determining the appropriate level of pay for each employee and the appropriate distribution of wages among all employees is vitally important for the success of any business -Although compensation is determined largely by market forces, employers must consider not only the market price of labor but also the effect of pay on attracting, retaining, and motivating their employees -Besides wages, compensation takes other forms, including bonuses, profit sharing, employee stock ownership plans (ESOPs), fringe benefits (especially health insurance and pension plans), and employee stock options -The level and form of pay are determined mostly with a view to efficient production, which includes worker motivation and satisfaction, but they may also be linked to decisions about a company's strategy *For example, Walmart has pursued a strategy of low-priced products that depends on low wages and few benefits for a heavily part-time labor force *Meanwhile, Starbucks pays relatively high wages with generous benefits to its workers, as part of a strategy of providing a special ambiance for customers ->The higher compensation at Starbucks is offset by the benefits of a more skilled workforce with lower turnover and an experience for customer that allows the company to charge high prices for coffee *The differences in compensation at Walmart and Starbucks are due not merely to the cost of labor in the market but also to these companies' different strategies
Doctrine of Employment at Will
-Doctrine that states that an employer can terminate an employee at any time and for any reason, unless a contract specifies otherwise (with some exceptions) -Two parties willingly enter into an agreement, and relationship continues only as long as both parties will it to be -Employees and employers have the right to enter into a mutually agreeable agreement, and each party has the right to end it in accord with the stipulated agreement
Right to Expression for Employees in the Private Sector
-Employees in the private sector have a right to expression insofar as such a right is contained in employment contracts -The doctrine of employment at will precludes any legal protection for at-will employees who are dismissed or disciplined for expressing their view, no matter the subject, location, or audience
Public Policy
-Employees ought not to be subject to discipline, demotion, or discharge for refusing to violate the law -Employers ought not to prevent employees from receiving the full benefit of their legal rights and entitlements relating to employment (collective bargaining, workers' compensation for injuries suffered on the job) -An employer's right to dismiss at will should not interfere unduly in the ability of government to promote social welfare *For example, when an employee was dismissed for being away from work to serve on a jury, an Oregon court held that the discharge was for a "socially undesirable motive" that tended to "thwart" the jury system, thus undermining the administration of justice
Efficiency Argument
-Employment at Will is important for the efficient operation of business, which benefits employers, employees, and society -When both parties agree to employment at will, it would appear that it mutually benefits employer and employee -This is the most efficient use of resources, for both the employer as well as the employee
Freedom of Contract Argument
-Employment is a contractual agreement between employers and employees -Can be explicit (document signed by both parties), where business states terms, and employee states willingness to accept those terms -Can be implicit, too, where conditions of employment are understood and accepted "tacitly" by both parties -Placing limits on employer's ability to terminate an employee, or on employee's right to leave a job, would be a violation of each party's freedom of contract -Locke again; considered exercise of right to contract as part of general freedom of action -Kantian argument: "Autonomy involves the capacity and opportunity to make meaningful choices about matters that bear most significantly on our lives." Acting autonomously involves making mutually binding voluntary agreements
Bad Faith and Malice
-Even without an implied contract, a commonly accepted principle in business is acting in good faith *This concept is applied widely as both a moral and legal requirement in collective bargaining, contract negotiations, consumer relations ,and indeed virtually all commercial dealings -An example of conspicuous bad faith is the case of a 25-year veteran employee of the National Cash Register Company, named Fortune, who was dismissed the next business day after he had secured an order for $5 million worth of equipment to be delivered over the next four years *The court found that the dismissal was motivated by a desire to deprive Fortune of the very substantial commission he would receive as the equipment was sold *The Massachusetts court held that Fortune had an implied contract with his employers and stated that "in every contract there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract, which means that in every contract their exists an implied covenant of good faith and fair dealing"
Minimum Wage Justifications
-Exploitation: Some proponents contend that it is exploitative for employers to offer unconscionably low wages to workers who have fewer employment options -Redistribution: It serves to redistribute income in society so that the lives of workers at the lowest income levels are improved -Virtually all economists agree that whatever the distributional effect, which is small at best, the minimum wage is a very inefficient way to raise the income of the poor
Employee Benefits of Employment at Will
-Firms can better utilize skills and talents of their employees, and therefore employees can be more productive -Makes it much easier for employees to change jobs, and not be stuck in positions (creating job immobility) -Arguably, with job immobility, ability of employer to be abusive is reduced -"Any employer who abuses the legal right to dismiss at will pays a high price in the market, and this market price may deter such abusive behavior more effectively than any legal sanction can" *In a more open job market, where employees can simply quit, the freedom of employers to be overly demanding or abusive is sharply limited *High job mobility restricts the freedom of employers to fire without due process because valued employees who perceive any dismissals to be arbitrary or unfair may respond by reducing their commitment to the company and seeking jobs elsewhere
Support for Due Process
-First, it is argued that a terminated employee suffers some substantial harm that ought not to be inflicted without an adequate reason and a fair hearing -A second argument for a right to due process is that this right is owed out of respect for the dignity of workers *Kant might agree with this argument -Third, some proponents of a right to due process argue that treating employees fairly is simply good management practice that pays off in increased productivity *Utilitarians might agree with this
Archie B. Carroll's Views on CSR
-Four parts to CSR -Economic, legal responsibilities, but also ethical responsibilities ("additional behaviors and activities that are not necessarily codified into law but nevertheless are expected of business by society's members") -Discretionary societal responsibilities (philanthropy)
Classical View's Legitimate Limits that Government Places on Business
-Government may act to impose regulations to limit the effects of externalities (i.e. worker injury and pollution) -Inequalities produced by economic activity can be reduced through government policies (i.e. progressive taxation and redistribution schemes) -Given that free markets are prone to instability, government can legitimately intervene to mitigate this instability (i.e. taxation, public expenditure and control of the money supply)
Some Concerns About Friedman's Fiduciary Argument
-How can one claim that business has no responsibility except to play within the rules of the game set by government and then allow business to also set the rules? -Once business assumes part of the role of government in setting rules, then it assumes some of the responsibilities of government to provide for society's welfare -Is government regulation sufficient? Shouldn't business be proactive in addressing externalities, if it is better equipped to understand the procedures necessary?
Executive Compensation
-Huge jump in CEO compensation during a period of time when workers' wages are stagnant, multiple layoffs, etc. -Disproportionate gains for top 1% -Inequality strikes many as unfair -One justification for high executive compensation is its incentive effect to induce CEOs to perform at their best *Some critics argue, though, that the same effect could be achieved at a lower cost *Critics also note that CEOs in Europe and Japan are paid much less but still seem to be effective
Challenges to Market Justice
-If there were a large number of potential workers in jobs that require few skills, the market-clearing rate would be so low that employers could exploit the opportunity to offer unconscionably low wages -The bargaining that takes place in labor markets may be among parties with unequal economic power, so that workers do not receive the true market value of their labor -The wealth created by a firm may not be distributed equitably in proportion to each group's contribution
Implied Contract
-In some instances, prospective employees are given assurances in job interviews that dismissal is only for cause, that attempts are made to work though any problems before the company resorts to dismissal, and that due process is followed in all cases -These assurances are conveyed in other instances by employee manuals, policy statements, personnel guidelines and procedures, and other company documents
Argument for Democracy
-In the workplace, where people spend a great portion of their adult life, people develop the attitudes, interests, and skills of citizenship that are critical for being an active citizen *Consequently, if people do not participate in workplace decisions, they may lack the ability to engage in outside political activity -Although workplace participation is likely to have some impact on civic involvement, the evidence of any significant effect is weak
Friedman's Taxation Argument
-Investors entrust their money to the managers of a corporation in order to make profits for the shareholders. When corporate executives spend money to pursue social ends in the way Friedman describes-such as by hiring "hardcore" unemployed people over others who may be better qualified-they take in a role of imposing taxes and spending the proceeds that belongs only to elected officials. They become, in effect, civil servants with the power to tax and spend, and as civil servants, they ought to be elected through the political process instead of being selected by the stockholders of private business firms -But is it really the shareholders' money? A corporation is a legal entity that owns property -Property owned by a corporation does not belong to the shareholders
Friedman on CSR
-Main Argument: Corporate executives, when they are acting in their official capacity and not as private persons, are agents of the shareholders of the corporation. As such, executives of a corporation have an obligation, indeed a fiduciary duty, to make decisions in the interests of the shareholders, who are ultimately their employers -"Social actions" potentially reduce returns to shareholders -This fiduciary arguments acknowledges laws, regulations, "rules of the game" -Philanthropy might be acceptable under this view, if the corporation receives some benefit from it
Criticism of Taxation Argument
-Managers of a corporation do not have an obligation to earn the greatest amount of profit for shareholders without regard for the means used -The obligation of managers is not merely to secure the maximum return but also to preserve the equity invested in a corporation -The interests of shareholders are not narrowly economic; corporations are generally expected by their owners to pursue some socially desirable ends *Friedman's response is that if shareholders want social goals, let them use their dividends for that purpose ->However, it may be more efficient for corporations to expend funds on environmental protection, for example, than for shareholders to spend the same amount in dividends for the same purpose
Exceptions to Employment at Will
-No right is without limit -US Courts have recognized three categories of restrictions on employment at will: 1) Public Policy 2) Implied Contract 3) Bad Faith and Malice
The Model Employment Termination Act (1991)
-No state has chosen to follow the lead of this document *Montana had previously adopted a just-cause statute in 1987 -Act says employer may not terminate employee without good cause ( a reasonable basis, and a good faith exercise of business judgment)
Employment at Will is a US Tradition
-Of common law derivation, affirmed by US Supreme and state courts -Very unique in the world; most countries strictly limit the powers that employers have to fire employees
Problems with Property Argument
-Property rights have the potential to enable employers to benefit at the expense of employees and to exercise not merely economic but also political power over them. -This objection rejects the basic assumptions of the property rights argument for employment at will—namely, that employment at will works to the benefit of employees as well as employers, and that employees are able to contract away from this system should it not be to their advantage.
Arguments over Expression
-Some expressions can create discord in the workplace, undermine loyalty and commitment, release confidential information, or tarnish a corporation's reputation -Benefit for individuals and society: a free, open, democratic society depends on a free, open exchange of ideas, and freedom of expression is essential to individual autonomy and liberty
Market Outcomes of Worker Compensation
-Supply and Demand -Market transactions result from voluntary contracting, with each party consenting to an exchange -Wages in a free market economy "reward people in proportion to the knowledge and skills that have acquired and the effort expended" -Freedom (market exchange), welfare (greater wealth produced), and desert (proportioning proceeds to a worker's contribution)
Justifying CEO Pay (Factors for Boards to Consider)
-The CEO must be motivated to achieve the maximal results -Compensation must be designed to overcome an agency problem *The interests of CEOs may not be the same as those of shareholders, and so a chief executive must be induced to become a loyal agent of the shareholder principals *One function of CEO pay in stock and stock options is to align the interests of a CEO with those of the shareholders by making that person a special kind of shareholder
Why can we say that worker compensation is a moral issue?
-The attitudes of employees, who depend on a paycheck for their livelihood, are affected by perceptions of fairness in the pay-setting process and in the overall distribution of pay in an organization *Even well-paid employees may be resentful is they perceive some unfairness -Society, which is concerned with people's welfare, has a strong interest in the justice of compensation *Among the conditions for a just society are that people's basic needs be met and that income and wealth be distributed justly *If the income that people receive from working enables the, to meet their basic needs, then compensation helps to create a just society ->However, if some people cannot support themselves from their earnings in a job or have no earnings at all, then an unjust society may result, and it may fall to society to provide for their well-being and secure justice -If a market distributes income and wealth in ways that society considers to be unjust, any injustice can be corrected in one of two ways: 1) Place legal limits on the operation of the market by minimum wage laws that mandate a certain level of pay 2) Provide for basic needs and redistribute wealth through government programs, such as the welfare system and progressive taxation
Corporate Social Responsiveness
-The capacity of a corporation to respond to social pressures -Socially responsive corporations anticipate issues, and develop programs and policies accordingly -A socially responsive corporation should integrate their social initiatives into their strategic planning process
Corporate Citizenship
-The process of identifying, analyzing and responding to the company's social, political and economic responsibilities as defined through law and public policy, stakeholder expectations, and voluntary acts flowing from corporate values and business strategies -Integration of social/environmental concerns into company practices
Problems with Legal Restrictions on Employment
-They add costs (litigation and foregone opportunities) -They put legislatures and courts in the position of making business decisions, which increases the complexity of business operations -An employer with an inflexible workforce must plan more carefully for the future and attempt to anticipate changing circumstances and new opportunities, which may be difficult due to lack of foreknowledge -Ultimately, prevents the most efficient allocation of resources to the business
Problems with Freedom of Contract Argument
-To an extreme, any worker protection legislation (minimum wage, laws limiting hours) would be incompatible with freedom of contract, including health, safety. -Large difference in bargaining power between employers and employees: *Bargaining almost always takes place between parties of different strengths, and the stronger side usually gains at the expense of the weaker *Lochner v. New York: involved an 1897 statute limiting the work of bakers to 10 hours a day and 60 hours a week. The law was intended to protect the heath of bakers, which was being undermined by the long exhausting hours they were required to work. This piece of protective legislation was struck down by the U.S. Supreme Court in 1905 on grounds that it violated the right of bakers and bakery owners alike to contract on mutually agreeable terms. The Lochner decision denied that there was any morally significant difference between bakery workers and their employers *West Coast Hotel v. Parrish: the doctrine of employment at will cannot be justified by a right to freedom of contract, according to Chief Justice Hughes, when the result is to deprive employees of the ability to protect their most vital interests. This decision was followed by a series of federal and state worker-protection laws that addressed the most serious abuses of employment at will
Workplace Democracy
-Workplace democracy exists when employees have some real control over organizational goal-setting and strategic planning, and can thus ensure that their own goals and objectives, rather than only those of the organization can be met -There are few examples of workplace democracy outside of employee-owned firms or worker co-operatives, which are not uncommon -In general, the implementation of participation and democracy is much more extensive in Europe and Japan than in the United States
Examples of CSR
1) Choosing to operate on an ethical level that is higher than what the law requires *Code of ethics *Monitoring 2) Making contributions to civic and charitable organizations and nonprofit institutions 3) Providing benefits for employees and improving the quality of life in the workplace beyond economic and legal requirements 4) Taking advantage of an economic opportunity that is judged to be less profitable but more socially desirable than some alternatives *Fair-trade *Environmental benefits 5) Corporate resources to operate a program that addresses some major social problem *Drug giveaways
Freedom of Expression
A definition of freedom of expression includes four elements: 1) The nature of the expression (whether it is speech, writing, or symbolic acts) 2) The subject of topic of the expression (whether it is about the workplace or unrelated matters) 3) The location or venue of the expression (whether it takes place in or outside the workplace) 4) The audience of the expression (whether it is made in private to a few people or publicly declared to many)
Business With a Mission: Social Enterprise
A social enterprise is any business venture created for a social purpose-mitigating/reducing a social problem or market failure-and to generate social value while operating with the financial discipline, innovation and determination of a private sector business
Please fill in the blank: "US Courts have recognized three categories of restrictions on employment-at-will: public policy, implied contract, and [blank]"
Bad Faith and Malice
Imagine that you are an employee, and you did not sign a contract with your employer. What company document, or documents, might you look for in order to determine what restrictions your employer might have in using the employment-at-will doctrine?
Employee Manuals, Policy Statements, Personnel Guidelines and Procedures, and Other Company Documents
It might seem as if only employers benefit from the flexibility that comes from employment-at-will. But employees can benefit from the employment-at-will doctrine, too. How? Please explain briefly.
Employees have higher job mobility and can easily leave a job if they do not find it meets their expectations. This helps employees to more easily find jobs where they will have higher productivity and receive higher compensation
We said in class that employment-at-will is relatively rare; most countries have strong legal protections that limit employers' ability to fire their employees. Why do some economists argue that this stronger protection for employees actually limits employment growth?
Employers may be less willing to hire new employees with these restrictions in place
Utilitarian Advantages of Employment at Will
Employers need freedom to: -Determine how many employees are needed -Assign them to the jobs to which they are best suited -Discipline and fire workers that do not perform their jobs sufficiently well
Please fill in the blank: Business is the institution best equipped to provide an economic well-being for society; [blank] is an example of an institution better suited to address non-economic goals.
Government
The property rights argument in support of the employment-at-will doctrine assumes that both the employer and employee have property to exchange. Employers might have property such as machinery and raw materials to exchange; what property do employees have to exchange?
Labor
Inequalities produced by economic activity can be reduced through government policies. Please give an example of this kind of government regulation.
Taxation
Corporate Social Performance (Donna Wood)
Three Elements: 1) The principle of being socially responsible 2) The process of social responsiveness 3) The socially responsible outcome