How should social responsibility and ethics affect the decisions of even for-profit companies

The goal of business is to get the maximum profit for owners and shareholders. That’s a simple statement that doesn’t describe how companies can and can’t go about their business. The pursuit of profitability doesn’t give companies the liberty to override the law or harm groups or individuals in the process. The two terms are often used interchangeably, but they have different meanings. The difference between business ethics and social responsibility is an important issue for every business consider. While the forms that ethics and social responsibility take will vary significantly from one company to another, each of them has a place within every organization.

Defining Business Ethics

Ethics comes from the Greek word, ethos, which means moral character. Ethics means knowing the difference between right and wrong and continuing to do the right thing. Ethical business decisions can be based on your conscience or based on principle. In either case, individuals make their own decisions according to the laws of the land or according to their core beliefs.

In a business sense, corporate leaders must follow the right behavior to benefit the good of everyone including the shareholders, stakeholders, employees, customers, and the community. Business activities shouldn’t harm people, products, or services and they should help to protect the reputation of the company.

Consultants Doug Wallace and John Pekel from the Twin Cities in Minnesota say that business ethics are critical in times of fundamental change such as we are in now. During good and stable times, it’s common for good values to be taken for granted. By contrast, during times of crisis or confusion, people’s ethics tend to guide their behavior. The general response to that is to question and scrutinize behavior to ensure that good ethics are being played out in the workplace

Defining Social Responsibility

Social responsibility refers to businesses doing what they can to benefit their communities. Societies set their own acceptable norms. To be successful, businesses have to adhere to social norms and expectations. Some values have eroded over time and that has left no moral compass to guide leaders through complex social dilemmas over right and wrong. That means that businesses are on their own to decide the ways that they can best demonstrate social responsibility and give back to their communities.

Bringing Business Ethics and Social Responsibility into the Workplace

To ensure good business ethics and social responsibility, many companies establish an ethics management program that’s in keeping with their mission, vision, and values. Each ethics program is unique to the organization. A corporate ethics program is designed to teach employees the values and policies which set the behavioral standard for those who work and in and around the company.

A company’s mission, vision, and values form a credo that describes the highest set of values that a company operates under. They describe the types of thoughts and behaviors that employees and other stakeholders should aspire to. A formal code of ethics is a little different. It’s a policy that states what employees and others should not do. A code of ethics is specific to those who work under it. For large companies, they may establish specific codes of ethics for individual departments and have one general code of ethics that everyone must abide by.

Human resource departments and legal departments typically collaborate on devising an appropriate code of ethics. At the same time, codes of ethics are more than a legal mechanism. Ethical behavior is part of the corporate culture and the appropriate language and behavior start at the top.

Business ethics can be challenging because our decisions are often a reflection of our own beliefs and cultures in addition to the corporate culture. Relationships are complicated and there’s not always one clear-cut appropriate answer. Cultural assessments can be a valuable part of understanding whether certain behaviors are in keeping with a company’s code of ethics.

Social Responsibility in Business

We live in a more socially responsible period than ever before. Corporate social responsibility is connected to what today’s companies call ESG—environmental, social, and governance. ESG is a practice that incorporates sustainability into a company business model.

Companies that embrace ESG find that it improves their brand and ultimately increases profitability. Customers of today are more inclined to buy from socially responsible companies and employees are more interested in working for socially responsible companies. In research by Cone Communications, the study found that over 60% of Americans looked favorably on companies that pursued social and environmental change whether it was regulated or not. Almost 90% of consumers in the survey indicated they’d be inclined to purchase a particular product if it supported an issue that was close to their heart. The study also showed that 75% of consumers refused to buy anything from a company if it supported an issue they were against.

As the economy improves, society is beginning to expect corporations to give back to their environments and communities. Besides going a long way to boost a company’s branding and image, sustainable practices can aid the financial bottom line. Using less packaging and less energy in production helps to reduce production costs and increase revenue.

There are four general and specific ways that companies can join their efforts between business ethics and social responsibility. They include:

1. Environmental efforts
2. Philanthropy
3. Ethical labor practices
4. Volunteering

Concluding Thoughts on the Difference Between Business Ethics and Social Responsibility

The expectations for good business ethics and corporate social responsibility are at an all-time high. Most likely, those expectations will continue to grow in the future. Since they are here to stay, it’s wise to give employees a voice in what those expectations look like in practice. To ensure that your company’s efforts are seen as genuine, it’s important to review your expectations to ensure they dovetail with the company’s mission and vision. Your involvement in such issues is something to be proud of so be certain to promote your efforts and make sure your customers are aware of it. Attention to business ethics and corporate social responsibility creates a win-win situation for all stakeholders.

Social responsibility is the duty of organizations and individuals to act in ways that benefit society and/or the environment.

Examine how social responsibility helps to sustain the equilibrium between economic development and the welfare of society and the environment

Key Takeaways

Key Points

• Corporate social responsibility is the expectation that a firm maintain a balance between making a profit and contributing to society.
• Socially responsible entities are conscious of the tradeoff between economic development and the welfare of society and the environment. They therefore refrain from socially harmful practices and contribute to activities that are socially beneficial.
• Companies can demonstrate social responsibility in a variety of ways, such as donating funds to education, arts, culture, and underprivileged children.

Key Terms

• social responsibility: A voluntarily assumed obligation toward the good of society at large as opposed to the self alone.
• not-for-profit: A company or organization that is not meant to make a profit.

A tradeoff always exists between material economic development and the welfare of society and the environment. Social responsibility is the idea that an organization or individual is obligated to act to benefit society at large—i.e., to maintain equilibrium between the economy and the ecosystem.

Social responsibility in business is also known as corporate social responsibility (CSR), corporate responsibility, corporate citizenship, responsible business, sustainable responsible business, or corporate social performance. This term refers to a form of self-regulation that is integrated into different disciplines, such as business, politics, economy, media, and communications studies.

The Conference Board of Canada, a not-for-profit organization that specializes in economic trends, organizational performance, and public policy, wrote a National Corporate Social Responsibility Report. In it they explain that corporate social responsibility is a way of conducting business through balancing the long-term objectives, decision making, and behavior of a company with the values, norms, and expectations of society.

Companies can demonstrate social responsibility in a myriad of ways. They can donate funds to education, arts and culture, underprivileged children, or animal welfare, or they can make commitments to reduce their environmental footprint, implement fair hiring practices, sponsor events, and work only with suppliers with similar values. CSR can be practiced passively, through refraining from committing socially harmful acts, or actively, through performing activities that directly advance social goals. The below diagram shows the various ways that a company can invest in being socially responsible and the value those actions can bring to the company.

The Value of CSR: This diagram shows the various ways that a company can invest in being socially responsible and the value those actions can bring to the company.

The Conference Board of Canada, a not-for-profit organization that specializes in economic trends, suggests that social responsibility is a way of conducting business through balancing the long-term objectives, decision-making, and behavior of a company with the values, norms, and expectations of society. Social responsibility can be a normative principle and a soft law principle engaged in promoting universal ethical standards in relationship to private and public corporations.

Companies can demonstrate social responsibility in a myriad of ways. They can donate funds to education, arts and culture, underprivileged children, animal welfare, or they can make commitments to reduce their environmental footprint, implement fair hiring practices, sponsor events, and work only with suppliers with similar values.

Social responsibility in business is also known as corporate social responsibility, corporate responsibility, corporate citizenship, responsible business, sustainable responsible business, or corporate social performance. This term refers to a form of self-regulation that is integrated into different disciplines, including business, politics, economy, media, and communications studies.

Social responsibility is the idea that an entity needs to act in a way that balances its own gain with societal benefits.

Recognize Andrew Carnegie’s business principles of charity and stewardship as the precursors to modern organizational social responsibility

Key Takeaways

Key Points

• Social responsibility as an ethical principle was first drawn from the business philosophy of Andrew Carnegie, the 19th century steel magnate who believed in charity and social stewardship.
• Economist Milton Friedman held that humans act in self-interest, to maximize profit, and social issues were the government’s issue.
• After recent significant corporate scandals and disasters, the relationship between society and corporations has been severely tested.

Key Terms

• social audit: reporting on the societal and environmental effects of organizations’ economic actions to particular interest groups
• charity: An organization, the objective of which is to carry out a charitable purpose.
• social responsibility: A voluntarily assumed obligation toward the good of society at large as opposed to the self alone.

Social responsibility is the idea that an entity needs to act in a way that balances its own gain with societal benefits. Entities include individuals as well as businesses. Companies do need to make a profit, but not at the expense of society or the environment. Businesses should use ethical decision-making practices to make responsible decisions and reduce the need for government involvement such as, for example, Environmental Protection Agency (EPA), which monitors business decisions and practices to prevent pollution.

Oil Spill: Oil spills and other environmental disasters show the need for social responsibility.

The notion of social responsibility is far from new. Its roots are in economics and the writings of Andrew Carnegie (1835-1919), a Scottish-born businessman and founder of U.S. Steel. Carnegie’s business philosophy was based on two principles: charity (the more fortunate should assist those who are less fortunate) and stewardship (the rich hold their money “in trust” for the rest of society, using it for any purpose society deems appropriate).

Milton Friedman (1912-2006), an American economist and Nobel Laureate, later advocated that corporations exist only to maximize profit and behave in their own best self-interest. He argued that corporations’ attempts at social responsibility were “morally wrong,” as social issues and concerns were best dealt with by government. In the last half century, highly publicized corporate behavior like the handling of the Exxon Valdez oil spill, the financial scandal of Enron, and the more recent subprime mortgage crisis has undermined trust in corporations. Social responsibility has taken on heightened importance as a way of building trust in relationships.

Modern Trends in Social Responsibility

Socially responsible trends include corporate citizenship policies, social investing, sustainable accounting & social entrepreneurship.

Explain how the advent of socially responsible investing, sustainability accounting, and social entrepreneurship has contributed to the modernization of social responsibility

Key Takeaways

Key Points

• Corporate social responsibility (CSR) guides individuals and companies to act in socially and environmentally responsible ways.
• Businesses that seek to be socially responsible are described as having a double or triple bottom line; they judge their success not only by profit but also by their social and environmental impact.
• Sustainable accounting is a method of financial disclosure that reveals a corporation ‘s activities and impact on the environment. This information is available to stakeholders, suppliers, and the government for the sake of transparency.
• Social entrepreneurship is the use of entrepreneurial principles to organize a business venture that addresses a certain social problem. Profit and return may still be important to social entrepreneurs, but a positive impact on society is their key measure of success.
• The adoption of CSR policy is sometimes perceived as “window dressing” to prevent future government oversight.

Key Terms

• corporate social responsibility: A form of corporate self-regulation integrated into a business model in which companies aim to embrace responsibility for their actions and encourage a positive impact through their activities on the environment, consumers, employees, communities and other stakeholders. Commonly abbreviated as CSR.

Corporate social responsibility (abbreviated CSR; also called corporate conscience, corporate citizenship, social performance, or sustainable responsible business) is a form of self-regulation integrated into a business model. A socially responsible business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. The goal of CSR is for a company to take accountability for its actions and achieve and encourage a positive impact on the environment as well as its consumers, employees, communities, and other stakeholders.

CSR is designed to support an organization’s mission as well as to guide what the company stands for and will deliver to its consumers. ISO 26000 is the recognized international standard for CSR. Public sector organizations (e..g, the United Nations) adhere to the so-called triple bottom line (TBL): maximizing (1) profit, (2) social impact, and (3) environmental impact. The UN has developed the Principles for Responsible Investment as guidelines for investing entities. CSR adheres to similar principles but has no formal act of legislation.

The United Nations: The UN has developed the Principles for Responsible Investment as guidelines for investing entities.

Socially Responsible Investing

Socially responsible investing is the practice of investing funds only in companies deemed to be socially responsible according to a given set of criteria. It is a booming market in both the US and Europe. As of 2010, nearly one out of every eight dollars under professional management in the US is involved in socially responsible investing; this is 12.5% of the $25.2 trillion in total assets under management tracked by Thomson Reuters Nelson.

Sustainability Accounting

Sustainability accounting has increased in popularity over the past few decades. Many companies are adopting new methods and techniques in their financial disclosures that provide information about their core activities and their impact on the environment. As a result of this action, stakeholders, suppliers, and governmental institutions have a better understanding of how companies manage their resources to achieve sustainable development.

Sustainability accounting connects a company’s strategies to a sustainable framework by disclosing three dimensions of information: environmental, economic, and social. In practice, however, it is often difficult to put together policies that simultaneously promote environmental, economic, and social goals.

Social Entrepreneurship

Social entrepreneurship is the recognition of a social problem and the use of entrepreneurial principles to organize, create, and manage a social venture to achieve social change. While a business entrepreneur typically measures performance in profit and return, a social entrepreneur also cares about positive social, cultural, and environmental progress. Social entrepreneurs are commonly associated with the voluntary and not-for-profit sectors, but this doesn’t necessarily mean they don’t make a profit.

Social entrepreneurship practiced with a global perspective or embedded in an international context is called international social entrepreneurship.

One well-known contemporary social entrepreneur is Muhammad Yunus, founder and manager of Grameen Bank and its growing family of social venture businesses. He was awarded a Nobel Peace Prize in 2006. Yunus’ and Grameen Bank’s work supports the claims of modern-day social entrepreneurs regarding the enormous synergies and benefits achieved when business principles are unified with social ventures. In some countries—including Bangladesh and, to a lesser extent, the USA—social entrepreneurs have filled the spaces neglected by a relatively small state. In other countries, particularly Europe and South America, social entrepreneurs tend to work more closely with public organizations at both the national and local levels.

Today, non-profits, non-governmental organizations, foundations, governments, and individuals play a role in promoting, funding, and advising social entrepreneurs around the world.

Stakeholders may have different interests related to the pursuit of profit and social impact.

Identify the importance of an organization recognizing the needs of its stakeholders

Key Takeaways

Key Points

• Corporations are motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them.
• The perspectives of stakeholders play a role in shaping the organization’s socially responsible activities, as the organization leadership should recognize the needs of its stakeholders in order to function effectively.
• It is the stakeholder theory that implies that all stakeholders (or individuals) must be treated equally regardless of the fact that some people will obviously contribute more than others to an organization.

Key Terms

• stakeholder: A person or organization with a legitimate interest in a given situation, action, or enterprise.

Increasingly, corporations are motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them. Understanding what causes are important to employees is usually the first priority because of the many interrelated business benefits that can be derived from increased employee engagement (i.e. loyalty, improved recruitment, increased retention, higher productivity, and so on). Key external stakeholders include customers, consumers, investors (particularly institutional investors), communities in the areas where the corporation operates its facilities, regulators, academics, and the media.

Various Types of Stakeholders: This image shows the various internal and external stakeholders.

Branco and Rodrigues (2007) describe the stakeholder perspective of CSR (corporate social responsibility) as the inclusion of all groups or constituents (rather than just shareholders ) in managerial decision making related to the organization’s portfolio of socially responsible activities. This normative model implies that the CSR collaborations are positively accepted when they are in the interests of stakeholders and may have no effect or be detrimental to the organization if they are not directly related to stakeholder interests. The stakeholder perspective suffers from a wheel and spoke network metaphor that does not acknowledge the complexity of network interactions that can occur in cross-sector partnerships. It also relegates communication to a maintenance function, similar to the exchange perspective.

Stakeholder and Other Theories

Whether it is a team, small group, or a large international entity, the ability for any organization to reason, act rationally, and respond ethically is paramount. Leadership must have the ability to recognize the needs of its members (or called “stakeholders” in some theories or models), especially the very basics of a person’s desire to belong and fit into the organization. It is the stakeholder theory that implies that all stakeholders (or individuals) must be treated equally regardless of the fact that some people will obviously contribute more than others to an organization.

Leadership not only has to place aside each of their individual (or personal) ambitions (along with any prejudices) in order to present the goals of the organization, but they also have to engage the stakeholder with the benefit of the organization in mind. Further, it is leadership that has to be able to influence the stakeholders by presenting the strong minority voice in order to move the organization’s members toward ethical behavior. Importantly, the leadership (or stakeholder management ) has to have the desire, the will, and the skills to ensure that the other stakeholders’ voices are respected within the organization, and leadership has to ensure that those other voices are not expressing views that are not shared by the larger majority of the members (or stakeholders). Therefore, stakeholder management, as well as any other leadership of organizations, has to take upon themselves the arduous task of ensuring an “ethics system ” for their own management styles, personalities, systems, performances, plans, policies, strategies, productivity, openness, and even risk(s) within their cultures or industries.