Introduction
Carroll’s corporate social responsibility (CSR) model categorizes CSR into four distinct levels of economic responsibilities, legal responsibilities, ethical responsibilities and philanthropic responsibilities (Crane and Matten 2007). Economic responsibilities are perceived to be at the center of all other legal, ethical and philanthropic responsibilities of a business.
It is considered that without economic responsibilities, all other types of responsibilities are moot. Legal responsibilities are perceived to be the conformity to societal expectations. Different laws (such as federal laws and state laws) characterize these expectations. Legal responsibility therefore defines a ‘social contract’ between a business and the society.
Ethical responsibilities define those activities that are expected or prohibited by members of the society (but not necessarily enshrined in the law) (Crane and Matten 2007). The difference between economic responsibilities, legal responsibilities and ethical responsibilities is that the law may not necessarily govern ethical responsibilities.
Mainly, ethical responsibilities refer to societal expectations. Legal and economic responsibilities are governed by the principles of ‘fairness’ and ‘justice’. Philanthropic responsibilities are those actions taken by a business according to the societal expectations of good corporate citizenship among businesses. Philanthropic responsibilities involve actions of welfare intended to promote humanity’s welfare (Crane and Matten 2007).
A socially responsible business should be located in the ethical level of Carroll’s CSR model because this level defines what is good and what is right (as opposed to being a good corporate citizen). Ethical responsibility carries a heavier significance on corporate social responsibility because it touches on fairness and doing what is good in the society.
In a recent ranking of the ten most socially responsible companies in the world, Statoil (an oil company based in Norway) was ranked the first (Just-Means 2012, p. 1). The reason advanced for this ranking was the fact that the company operated under strict ethical principles, informed by the will to do no harm to people and the environment.
Statoil’s conviction to uphold shrewd ethical principles emanated from the fact that the company derives most of its revenues from oil exploration. Its activities are therefore dangerous to the environment, people and wild life (Just-Means 2012, p. 1). The determination to observe strict ethical principles is just one among many initiatives that the company strives to undertake (to be socially responsible).
Investing in green energy ventures is also another strategy adopted by the company. However, in a snapshot, the basis for rating the company as the top most socially responsible business in the world is defined by Carroll’s third tier of ethical responsibilities.
When we look at the most corporate socially responsible business in the US, (Walt Disney) we can also establish the same ideology which puts Statoil to be the best socially responsible company in the world. World Disney is ranked as the best socially responsible company in the US because it is environmentally conscious and acknowledges the damage its activities cause on the environment.
As a result, the company runs most of its trains on biodiesel to reduce the company’s dependency on fossil fuel (Just-Means 2012, p. 2). When we place Disney’s environmentally conscious attitude on Carroll’s four tier pyramid, we can establish that the basis for ranking the company as the best socially responsible company in the US is its ethical initiatives.
Therefore, the decision to use green energy can neither be termed a philanthropic responsibility (according to Carroll’s fourth tier), a legal responsibility (like Carroll’s second tier) or an economic responsibility (lie Carroll’s first tier) (Kress 2011, p. 7). This analysis only leaves out ethical responsibility as the main determinant for social responsibility.
Therefore, it is correct to say that businesses, which are socially responsible, are ethically responsible (as well). The focus on ethical responsibility therefore stands out as an important study in the field of corporate social responsibility. This emphasis has prompted further studies on ethical theories.
Ethical Theory
Ethical theories have been used in many fields of study including business. Today, there is a strong need for businesses to uphold strong ethical principles because of globalization and the need to uphold international standards of doing business. There are different ethical theories that can be used by managers as guidelines for their actions. The most commonly used ethical theories are capitalism and equality.
Capitalism explains that managers are ethical when they ensure that the wishes of the business owners are fulfilled. Similarly, capitalism explains that managers are acting ethically if they undertake strategies aimed at making profits (because profit maximization is the main aim of the business owner). However, a study of theical theories reveals that not all ethical theories promote the maximization of profits.
The equality theory proposes that a manager only acts ethically when he/she is able to make workers work together. Here, it is explained that managers receive respect when they adopt a participatory management style, which includes incorporating the views of all employees. Observing this ethical principle leads to improved organizational performance (Werden 2012, p. 1).
Many managers understand the importance of having good credibility in business but yet some are still caught red-handed taking part in unethical business practices. Recent years have seen the reemergence of bad business practices among some of the world’s most reputable companies.
McDonald has been cited as a classic example of how managers fail to integrate ethical theories in their management practices because the company has received bad publicity for soiling its reputation with its stakeholders for adopting poor ethical practices (Nayab 2011, p. 4). Infamously, McDonald’s poor ethical reputation has been known as the ‘McDonald legislation’ (Nayab 2011, p. 4).
The ‘McDonald legislation’ refers to donations made by some of the company’s managers to government officials so that they can be allowed to pay lower wages to teenagers working in their outlets. The blatant influence that McDonald’s managers exerted on the legislator was unethical but it was a classic example of how corporations influence lawmakers to create policies that favor their business practices.
McDonald has also been reported to disallow the formation of unions for its workers. A case is reported where the company’s employees in Quebec attempted to form a union and the company shut down the outlet instantly (Nayab 2011, p. 4). The lack of will to allow the formation of unions is just one example among many accusations of unethical business practice that McDonald faced during the late 80s and early 90s.
During this period, McDonald was accused of facilitating third world poverty by paying very low wages to children and serving dangerously unhealthy foods to people without considering the health implications of their activities.
Similarly, the company was accused of neglecting animal rights that were being flouted by some of its major food suppliers. The failure to observe good ethical practices cost McDonald its good reputation (globally) (Nayab 2011, p. 4).
Motivated by the greed to make more profits, Nestle also suffered strong credibility erosion due to bad ethical conduct. It was reported that infants who consumed nestle breast milk formula developed mortality rates, which were five to ten times greater than normal children were.
This incident was mainly registered in third world countries where Nestle used unqualified nurses to distribute insufficient milk powder to lactating mothers and infants who had no access to clean water and sufficient funds to purchase the milk formula (even though they became entirely dependent on it) (Nayab 2011).
Nestle made a lot of money in the process while many children died as a result. This was an unethical business practice because it created a lot of harm to the children affected. Comprehensively, McDonald and Nestle cases highlight the importance of managers to understand ethical theories.
Socially Responsible Investing (SRI) and Shareholder Activism
SRI and shareholder activism share some inherent similarities and differences in their applications. One notable distinction is the fact that shareholder activism is reactive while SRI is proactive.
The concept behind socially responsible investing is very simple; usually investors practicing this strategy keep away from companies that do not practice socially responsible ways and instead invest in socially responsible companies (Donovan 2012). This strategy is mainly proactive in that, investors distance themselves from unethical conduct.
For example, investors would rather keep away from companies that produce tobacco or make weapons and invest in companies that produce socially acceptable goods. However, investors who practice social activism are reactive because they strive to change an existing status by lobbying for such an eventuality.
The proactive nature of SRI makes it more effective than shareholder activism because there is a high risk of failure in the latter. For example, businesses, which draw their lifeline from producing socially unacceptable goods or engaging in socially unacceptable practices, are unlikely to heed to shareholder activism pressures.
For example, a tobacco producing company would not be in business if shareholder activism were effective. The same situation is also true for a weapon producing company because if they heed to calls to stop producing weapons (because they are a danger to society), they would equally not be in business.
SRI also tends to have an effective and spontaneous impact on a company’s practices while shareholder activism tends to drag and result in lukewarm changes that may be aimed at hoodwinking investors as opposed to consciously changing business practices.
For example, when it was reported that the government of South Africa was practicing apartheid, several companies were advised to pull out of the economy in protest of this social practice. Nike was one such company (Donovan 2012).
The abolishment of apartheid in South Africa was not only prompted by the lack of investor input but the overall result was conclusive because the ultimate aim of eliminating apartheid was achieved (Donovan 2012). This outcome was conclusive. However, shareholder activism does not show the same results. Its outcome is very unsatisfactory and slow.
For example, Wal-Mart has been accused of practicing unfair work policies where its workers are unfairly treated. As a result, there has been a lot of shareholder activism in the company, urging its management to change its labor practices. Significant gains have been made over the years but still some people see Wal-Mart’s practices to be partially unfair to workers (to date).
Now, investors have a 50-50 split opinion regarding Wal-Mart’s ethical practices (Donovan 2012). Comprehensively, we can say that the main goal of the shareholder activism process took too long to be achieved and a lukewarm result was evident in the end.
This example shows that SRI is more effective than shareholder activism. Nonetheless, one of the distinct similarities between SRI and shareholder activism is the fact that both strategies aim to uphold socially responsible behavior among companies. Their methodologies are their only distinguishing features.
References
Crane, A. & Matten, D. 2007. Business Ethics: Managing Corporate Citizenship and Sustainability in the Age of Globalization, Oxford University Press, Oxford.
Donovan, W. 2012, Why Some Social Investors Keep Their Shares of Offending Companies. Web.
Just-Means 2012, The 10 Most Socially Responsible Companies in the World? Web.
Kress, S. 2011, Evaluate the Social Responsibility of Ben & Jerry’s in a Global Economy, GRIN Verlag, London.
Nayab, N. 2011, Real-World Examples of Bad Business Ethics. Web.
Werden, K. 2012, Why Is it Important to Study Business Ethics?. Web.