Business Government And Society A Managerial Perspective Text And Cases 13th Edition By Steiner - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Chapter 05 Corporate Social Responsibility True / False Questions The duty of a company to create wealth in ways that …
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Business Government And Society A Managerial Perspective Text And Cases 13th Edition By Steiner – Test Bank
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Sample Questions Are Posted Below
Chapter 05
Corporate Social Responsibility
True / False Questions
Multiple Choice Questions
Short Answer Questions
Essay Questions
Chapter 05 Corporate Social Responsibility Answer Key
True / False Questions
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Short Answer Questions
Corporate social responsibility is the duty of a corporation to create wealth in ways that avoid harm to, protect, or enhance societal assets. It is also known as corporate citizenship, stakeholder management, sustainability, and, in Japan, kyosei, a word that translates as “living and working together for the common good.”
Difficulty: Easy
Social Darwinism is a philosophy of the late 1800s and early 1900s that used evolution to explain the dynamics of human society and institutions. The idea of “survival of the fittest” in the social realm implied that rich people and dominant companies were morally superior. According to this philosophy, charity interfered with the natural evolutionary process in which society shed its less fit to make way for the better adapted.
Difficulty: Easy
During the Progressive era, interrelated themes of broader responsibility emerged. One of them was, managers who were trustees, that is, agents whose corporate roles put them in positions of power over the fate of not just stockholders, but also of others such as workers, customers, and communities. This power implied a duty to promote the welfare of each group.
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Service principle was a near-spiritual belief that individual managers served society by making each business successful and if they all prospered, the aggregate effect would eradicate social injustice, poverty, and other ills.
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Friedmanism is the theory that the sole responsibility of a corporation is to optimize profits while obeying the law.
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Essay Questions
Opponents of corporate social responsibility are found toward the left and right edges of the political corporate social responsibility (CSR) spectrum. On the far left, it is seen by radical Progressives as an insufficient doctrine, one that substitutes only poorly for tougher laws and regulations, allowing corporations to form a smoke screen of virtue behind which their “inviolable core” of profit seeking behavior is untouched.
On the far right, it is seen as a pernicious doctrine, draining and enervating the strength of the corporate institution. Conservative economists see it as an unwarranted cost. It creates administrative expenses, distracts executives, confuses economic goals with other goals, and subtracts from social welfare when the corporation is less efficient. Corporations are owned by shareholders and the primary responsibility of managers is acting lawfully to maximize profits for them, thereby producing maximum value and surplus wealth for society. Conservatives dislike CSR for thwarting natural market dynamics. They reject the agenda of corporate social responsibility, seeing it as centered in progressive ideology and based, therefore, on the goals of a movement at heart dubious of capitalism. Markets, not politics, should direct corporations. When markets fail, they should be corrected by the policies of representative government, not by unelected executives or activists.
Difficulty: Difficult
Throughout American history, classical capitalism has been the basic inspiration for business. In the classical view, a business is socially responsible if it maximizes profits while operating within the law, because an “invisible hand” will direct economic activity to serve the good of the whole. This ideology was derived from Adam Smith’s “Wealth of Nations” and is compelling in its simplicity and its resonance with self-interest. In 19th century America, it was elevated to the status of a commandment. However, the idea that markets harness low motives and work them into social progress has always attracted skeptics. Smith himself had a number of reservations about the market’s ability to protect human welfare. Today the classical ideology still commands the economic landscape, but ethical theories of broader responsibility have worn down its prominences.
Difficulty: Medium
By the late 1800s the business elite realized that prevailing doctrines used to legitimize business defined its responsibilities too narrowly. Industrialization had fostered social problems and political corruption. Farmers were in revolt. Labor was increasingly violent. Socialism was at high tide. Average Americans began to question unfettered laissez-faire economics and the doctrine of social Darwinism. Businesses started feared a growing clamor for more regulation. They were terrified of socialist calls for appropriation of assets. So they sought to blunt the urgency of these appeals by voluntary action.
During the Progressive era, three interrelated themes of broader responsibility emerged. First, managers were trustees, that is, agents whose corporate roles put them in positions of power over the fate of not just stockholders, but also of others such as workers, customers, and communities. This power implied a duty to promote the welfare of each group. Second, managers had an obligation to balance these multiple interests. They were, in effect, coordinators who settled competing claims. Third, many managers subscribed to the service principle, a near-spiritual belief that individual managers served society by making each business successful; if they all prospered, the aggregate effect would eradicate social injustice, poverty, and other ills. This belief was only a fancy reincarnation of classical ideology. However, many of its adherents conceded that companies were still obligated to undertake social projects that served the public. These three interrelated ideas—trusteeship, balance, and service—expanded the idea of business responsibility beyond simple charity. But the type of responsibility envisioned was still paternalistic.
Difficulty: Medium
In 1954, Howard R. Bowen in his book “Social Responsibilities of the Businessman” said that managers felt strong public expectations to act in ways that went beyond profit-maximizing. He also laid out the basic arguments for social responsibility (1) managers have an ethical duty to consider the broad social impacts of their decisions; (2) businesses are reservoirs of skill and energy for improving civic life; (3) corporations must use power in keeping with a broad social contract, or lose their legitimacy; (4) it is in the enlightened self-interest of business to improve society; and (5) voluntary action may head off negative public attitudes and unwanted regulations.
The primary dissenters of Bowen’s arguments were conservative economists who claimed that business is most responsible when it makes money efficiently, not when it misapplies its energy on social projects. The best known advocate of this view is Nobel laureate Milton Friedman. Friedman argues that managers are the employees of a corporation’s owners and are directly responsible to them. Stockholders want to maximize profits, so the manager’s sole objective is to accommodate them. If a manager spends corporate funds on social projects, he/she is diverting shareholders’ dollars to programs they may not even favor. Similarly, if the cost of social projects is passed on to consumers in higher prices, the manager is spending their money. Furthermore, if the market price of a product does not reflect the true costs of producing it, but includes costs for social programs, then the market’s allocation mechanism is distorted.
The opposition of Friedman and other adherents of classical economic doctrine proved to be a principled, rearguard action. In theory the arguments were unerring, but in practice they were inexpedient. When the great tides of consumerism, environmentalism, civil rights, and feminism rose in the 1960s, leftist critics wanted to control rip-offs, pollution, employment discrimination, and other perceived excesses of capitalism with new regulations. It incited critics and invited retaliation and more regulation should the business community openly agree. Moreover, the idea that corporations could undertake expanded social responsibility was useful for business. If corporations volunteered to do more it would calm critics, forestall regulation, and preserve their legitimacy. Friedman’s view was decisively rejected by business leaders, who soon articulated a new vision.
Difficulty: Difficult
The three elements of social responsibility are market actions, externally mandated actions, and voluntary actions.
Market actions are responses to competitive forces in markets. Such actions have always dominated and this will continue. When a corporation responds to markets, it fulfills its first and most important social responsibility. All else pales before its economic impact.
Mandated actions are those required either by government regulation or civil regulation. Government, or public, regulation is rooted in the authority of the state and its mandates are enforceable by law. Government mandates have multiplied rapidly in developed countries over the last 75 years. Civil regulation is regulation by nonstate actors based on social norms or standards enforced by social or market sanctions. Civil regulation has many faces. It is imposed when activists, consumers, investors, lenders, shareholders, or employees make demands on a company and failure to comply will lead to reputational or financial damage. Such mandates are enforced by the power of the market, not the power of law. Mandates based on civil regulation are now expanding rapidly in the global economy.
The third element is voluntary actions that go beyond those compelled by law or regulation. Some voluntary actions can be called “legal plus” because they exceed required mandates. Other actions are unrelated to mandates, but respond to public consensus. Still other actions may be strategic initiatives where the firm seeks to profit from solving a social problem.
Difficulty: Medium
Some of the principles of corporate social responsibility are:
Corporations are economic institutions run for profit. Their greatest responsibility is to create economic benefits. They should be judged primarily on economic criteria and cannot be expected to meet purely social objectives without financial incentives. Corporations may incur short-run costs on social initiatives that promise long-term benefits. And they should seek ways to solve social problems at a profit.
All firms must follow multiple bodies of law including (1) corporation laws and chartering provisions, (2) the civil and criminal laws of nations, (3) legislated regulations that protect stakeholders, and (4) international laws, including treaties and trade agreements.
Managers must act ethically. They must respect the law and, in addition, conform their behavior to ethical principles; model ethical values such as integrity, honesty, and justice; and set up codes, policies, and procedures to elevate behavior within the firm.
Corporations have a duty to correct adverse social impacts they cause. They should try to internalize negative external costs, or adverse costs of production borne by society.
Difficulty: Difficult
In the early 21st century, the doctrine of corporate responsibility is widely accepted in industrialized nations. Although its early development was strongest in the United States, sometime in the 1990s leadership passed to Europe, where welfare state systems have nurtured some of the most powerful social justice NGOs and consumers are more inclined to purchase goods from companies they see as responsible. Until this time American corporations took the lead in evolving voluntary responses to societal demands because, relative to Europe, American markets were more laissez-faire and government regulation was looser, leaving more of the company’s total responsibility in the voluntary category.
In Europe, social welfare states intervened more in markets and mandated extensive protections for workers, consumers, and the natural environment. European companies never needed the spectrum of voluntary social actions that American companies did. Then, in the 1990s, Europe reacted to the rise of global competition, engaging with neoliberal ideas, deregulating markets, grinding away protections for workers, and shrinking other legal mandates on companies. In response, leading activist groups pressured firms to engage in more voluntary corporate social responsibility (CSR) activity and the stronger social welfare expectations in European nations gave birth to a robust, creative, and expansive design of corporate responsibility that now dominates and defines Western practice.
Corporate responsibility has strong roots elsewhere in both the developed and developing world and, as in Europe, its practice often diverges from the U.S. experience. Global CSR is now defined and dominated by the progressive ideology of Western civil society and the practices of Western multinationals. It has little foundation in some rapidly growing non-Western nations and as their businesses gain power in the world economy the consequences for CSR practice are unknown.
Difficulty: Difficult
While there is no consensus on the meaning and extent of corporate social responsibility (CSR) from nation to nation, the idea has taken on new and novel international dimensions in response to economic globalization. As governments deregulated markets and lowered trade barriers in the 1980s, cross-border trade and investment began a steep rise. Dominant corporations grew larger and more active. As they did, critics and observers perceived the exercise of too much power and too little restraint, particularly of Western corporations in developing nations.
The perception that transnational corporations elude proper controls is rooted in a group of observations. First, international law, as found in treaties, conventions, and trade agreements, is weak in addressing social impacts of business. It strongly protects commercial rights, but norms protecting labor, human rights, nature, indigenous cultures, and other social resources are little codified. Second, transnational corporations are subject to uneven regulation in developing nations, where institutions may be rudimentary and enforcement feeble. Some
governments have overly bureaucratic agencies riddled with corruption. And some are undemocratic, run by elites that siphon off the economic benefits of foreign investment and neglect public needs. Third, in adapting to global economic growth, corporations use strategies of joint venture, outsourcing, and supply chain extension that create efficiencies, but sometimes also distance them from direct accountability for social harms. And fourth, significantly more government regulation of transnational firms is unlikely. No global government exists and no nation-state has the power to regulate international commerce. Developing nations fear, correctly, that stricter rules will deter foreign investment.
Difficulty: Difficult
A defining moment came at the Rio conference on sustainability in 1992, when nongovernmental organizations (NGOs) demanded for regulation of corporations. Their agenda failed, in part because the philosophy of economic liberalization driving the world economy was inhospitable to restrictions on business and in part because corporations and business groups that lobbied against regulation promoted an expanded, international doctrine of voluntary corporate responsibility. NGOs, unable to secure the hard regulations they wanted, were forced to work with business groups in developing new, innovative corporate social responsibility (CSR) mechanisms.
In hindsight, these conferences led to several important changes in the operating environments of multinational corporations. First, they generated a series of declarations, resolutions, statements of principle, guidelines, and frameworks under UN auspices that shaped international norms for the conduct of both nations and corporations. These documents created what international legal scholars call soft law. In the realm of international law, hard law, found mainly in treaties, creates binding rights, prohibitions, and duties. While soft law creates no binding obligations or duties for corporations, if its contents are widely accepted as expressing international norms it can, over time, become the basis for interpreting treaties. Second, the conferences provided occasions for NGOs to interact and develop influence strategies for confronting corporations. Third, they set the stage for further, this time global, expansion of the CSR ideology.
Difficulty: Medium
A norm is a standard that arises over time and, as agreement on it becomes widespread, is enforced by social sanction or law. It is similar to a principle, which is a rule, natural law, or truth used as a standard to guide conduct. The norms and principles that direct global CSR are derived in part from timeless accretions of civilization, but international conventions to codify and interpret them are increasingly influential. An early codification of norms is the Universal Declaration of Human Rights, the rights in this document are now widely accepted and it is the foundation for many of the human rights standards in corporate and NGO conduct codes. A second milestone in the development of norms is the Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy. It sets forth a long list of guidelines related to worker rights. Over the years, the Tripartite Declaration has been accepted as a foundational statement and it now is the basis for most international labor codes. At the leading edge of emerging norms is a draft compilation of Norms on the Responsibilities of Transnational Corporations. The Norms obligate multinational corporations to protect a lengthy list of universal rights of peoples, consumers, workers, and the environment. It requires transnational corporations to adopt internal rules for compliance, submit to monitoring by the UN in which NGOs would participate, and make prompt reparation for injuries due to lack of compliance. Nations would be asked to pass laws to legalize enforcement of the Norms. For now the Norms are moribund. Landmark statements of norms and principles arise from the steady accretion of innumerable international charters, declarations, conventions, multilateral agency policies, and treaties on labor, human rights, corruption, migratory birds, and other issues that promote broad acceptance of progressive, developed-country values as universal norms. These norms are the basis for proliferating codes of conduct that target corporate behavior.
Difficulty: Difficult
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