Social Responsibility and Business

4TH EDITION
FERRELL • THORNE • FERRELL
CHAPTER 1 (Summary)
Social Responsibility Framework

95% of Respondents Agree

U.S. corporations should have more than one purpose. They also owe something to their
workers and the communities in which they operate, and they should sometimes sacrifice some
profit for the sake of making things better for their workers and communities. Source: "How
Business Rates: By the Numbers, Business Week, Sept. 11, 2000, pp. 148-149.

What do you believe organizations should be responsible for accomplishing?

Social Responsibility Defined

Social responsibility
The adoption by a business of a strategic focus for fulfilling the economic, legal, ethical and
philanthropic responsibilities expected of it by its stakeholders
Businesses should look beyond their self-interests and recognize that they belong to a larger
group that expects responsible participation.
Social Responsibility Defined (cont.)
Applies to all types of businesses
Small businesses
Large businesses
Sole proprietorships
Multinational corporations

Social Responsibility Defined (cont.)

Adopts a strategic focus
Requires a formal commitment from top management
Communicated through mission and vision statements, annual reports, websites, and public
relations
Requires action and results
Depends on collaboration and coordination across business and among constituencies
Large companies often create specific positions and departments to support social
responsibility programs

Social Responsibility Defined (cont.)

Fulfills societal expectations
Provides a return on investment for owners
Obeys the law and regulatory agencies
Acts in a just, fair, and correct manner
Promotes human welfare and good will
 TOTO CORPORATE RESPONSIBILITY COMMITTEE STRUCTURE

PYRAMID OF SOCIAL RESPONSIBILITY

Social Responsibility Defined (cont.)

Economic Ethical
Maintain profitability Ensure just and fair behavior in the
workplace
Legal Philanthropic
Abide by legal and regulatory influence Promote human welfare and goodwill
 SOCIAL RESPONSIBILITY CONTINUUM

Who are the keystakeholders of the organization?

Social Responsibility Defined (cont.)

Requires a stakeholder orientation
Customers
Employees
Investors
Stockholders
Suppliers
Government
Communities

Stakeholders
Those constituents who have a stake in, or claim on, some aspect of a company’s products,
operations, markets, industry, and outcomes
Companies that operate with a stakeholder orientation recognize that business and society are
interpenetrating systems, in that each affects and is affected by the other.

Evolution of Social Responsibility:1940s–1960s

1940s
Economic dominance of corporations
Total autonomy of top management
1950s–60s
Few formal governance procedures restraining management actions
Organizational charitable giving expanded (charities, arts, culture, and community)
Laws are passed that require protection of the natural environment, safer products, promotion
of equity, and supportingworkplace diversity.

Evolution of Social Responsibility:1970s–1980s

1970s
World competition, bankruptcies, mergers and acquisitions
1980s
Flatter organizations (downsizing)
More business scandals
Empowerment of lower-level employees
Focus on profitability and economies of scale

Evolution of Social Responsibility:1990s–2000s

1990s
Less employee loyalty and increased “job hopping”
Growth of temporary employment
Greater interest in ethics and social responsibility
2000s
Special interest groups, companies, human rights activists, and government strive to balance
economic and social goals.
Major scandals damage the global economy.

Transparency
Long-term perspective
Liquidity
Limited use of derivatives
Absence of rating triggers
Minimal counter-party exposure
Diversification
Lessons Learned from Economic Crises

Global Nature of Social Responsibility

Who determines social responsibility on a global scale?
Host country
Home country
Outside organizations

MANAGING SOCIAL RESPONSIBILITY IN HOME AND HOST MARKETS

Benefits of Social Responsibility
Greater trust with stakeholders
Greater customer satisfaction
Stronger employee commitment
Stronger investor loyalty
Greater profitability
Countries with greater trust-based institutions foster a productivity-enhancing environment.
Competitive processes are more efficient and effective.

Social Responsibility Builds Trust

Trust is the glue that holds organizational relationships together.
Stephen Covey contends that low trust results in organizational decay and relationship
deterioration.
Political problems and inefficiency
Most workers feel they can be trusted more than they can trust others.

Social Responsibility Builds Trust (cont.)

All organizational members should share a sense of trust.
Trust should exist between departments within a firm.
An Ethics Resource Center study shows that 93% of employees who say trust is frequently
evident in their organization report satisfaction with their employer

TO TRUST OR NOT TO TRUST

Social ResponsibilityImproves Customer Satisfaction
Focuses on customer satisfaction and strengthens trust. This is especially key in service
organizations.
Seventy percent of consumers in a Cone/Roper poll indicated they would switch to brands
associated with a good cause if price and quality were equal.

What happens when consumer– organizational trust is breached?

Seventy-five percent of consumers say they would avoid or refuse to buy from certain
businesses.
Consumers may avoid products from companies that treat their employees unfairly.

Social ResponsibilityStrengthens Employee Commitment

The greater a company’s dedication to employees, the greater the likelihood that employees
will take care of the organization.
Failure to care for employees results in lower loyalty and commitment.
Employees’ perceptions are affected by:
Safe working conditions, competitive salaries, and contractual fulfillment
Social programs, including work-familyrelationships, stock ownership, community service
What happens whenemployee loyalty is breached?
Quality is compromised.
Service is compromised.
Efficiency decreases.
StrengtheningEmployee Commitment
Employee stock ownership plans (ESOPs)
Rewards employees for contributing to and gaining from organizational success and allows
them to gain from it
Employee-centered programs
Health care benefits
Health clubs
Child care and elder care
Cafeteria benefits plans
Social ResponsibilityContributes to Investor Loyalty
Investor relationships require dependability, trust, and commitment.
Shareholders are concerned about ethics, social responsibility, and corporate reputation.
Half of investors sell their stock within one year.

Social ResponsibilityEnhances Economic Performance

Does business conduct relate to a nation’s overall economic conduct?
Economic well-being is promoted by:
Trust and a sense of community
Rigor in the legal and ethical systems
Consistent exercise of authority within society
Social institutions that foster access, productivity, and economic growth
Positive attitudes about work, innovation, savings, and profits