This module will introduce you to the theme of corporate social responsibility. Three representative cases will help to pose the central problems and basic issues of CSR. Then you will work on developing a social contract between the business corporation and society to articulate the interests, goods, and rights at stake in CSR. Three different approaches dominate this field: the shareholder approach set forth by Milton Friedman, the stakeholder approach articulated by Evan and Freeman, and Patricia Werhane's alliance model. Finally, you will work on developing a CSR program for the hypothetical corporation, Burger Man. This will be based on a shareholder meeting that consists of six or seven stakeholder presentations. (You will play the role of one of the stakeholders.) Your CSR program will address and integrate the needs and interests of the Burger Man stakeholders.
Three CSR Challenges
Patricia Werhane discusses how six corporate organizations deal with three CSR challenges: (1) carrying out oil drilling in a corrupt political environment, (2) working with suppliers who impose sweatshop conditions on employees, and (3) addressing the HIV/AIDS challenge in Africa. Each challenge elicits two corporate responses, one from a shareholder or stakeholder perspective, the other from an alliance perspective. Shell Oil's response to political corruption in Nigeria will be compared with Exxon/Mobile's response in Chad and Cameroon. Nike's answer to public criticism of the employment practices of its third world suppliers will be compared to Wal Mart's reputedly heavy-handed treatment of its employees and suppliers. Finally, while the pharmaceutical industry has developed an expensive drug cocktail to treat HIV/AIDS in patients in developed nations, the NGO (Non Government Organization), the Female Health Company, has designed a program to distribute of condoms to prevent infection in the frst place. These paired corporate responses to CSR challenges are not provided in support of the position that the superiority of the alliance approach is a "no-brainer." Instead, they provide you with a menu of CSR strategies that you will evaluate using the CSR framework you will develop out of the social contract that between business and society. These three CSR challenges come from Werhane (2007)
Operating in a Corrupt Environment
- A big challenge facing multinational corporations is how they should respond to local corruption. Both Shell Oil and Exxon/Mobile sought to carry out drilling operations at sites plagued by corrupt local and national governments.
- Shell took a shareholder approach arguing that their primary CSR was to their stockholders and that involvement in corrupt local politics would be tantamount to paternalism.
- Exxon/Mobile, on the other hand, adopted a more active approach. They took expensive measures to mitigate the environmental impact of their operations. They also hired and provided technical training to local residents. Finally, they worked to ensure that the revenues they introduced into the local communities were not lost through political and business corruption.
- What are the CSRs of multinational corporations that operate in corrupt local environments? Are these fashioned around the minimal obligation of creating no additional harm? Or should they expand to preventing harm (if possible) that others are about to inflict? To move even further up the ladder of responsibility, do multinational corporations have positive, supererogatory responsibilities that consist of adding value to the communities they do business in?
Vicarious CSR: Responding to Supplier Sweatshops
- Vicarious responsibility occurs when one agent accepts responsibility for actions executed by another. For example, under agency theory, the principal bears overall moral and legal responsibility for the action since he or she has originated it. Although the agent executes the action, he or she is responsibility only for executing the action faithfully and treating the principal's interests as his or her own.
- In this context, can we hold corporations such as Nike and Wal Mart vicariously responsible for the morally questionable actions of their suppliers? If so, then under what conditions?
- Nike fell under siege when the press found out that its suppliers based in the third world imposed harsh, sweatshop conditions on their employees, including child labor. Nike could have argued that
- this was beyond the scope of their responsibility. How could they be held vicariously responsible for the actions of another? Their job was to produce shoes at the lowest possible price to deliver an affordable quality product to customers and to maximize shareholder value. But Nike went beyond this minimal responsibility to carefully vet suppliers and to work with them to improve working conditions. Thus, they expanded the scope of their CSR to include improving working conditions for, not only their employees, but also the employees of their suppliers.
- Wal Mart has been identified by Collins and Porras (Built to Last) as a highly successful and visionary company. It has certainly led the way in providing consumers with high quality products at surprisingly low prices. But the savings it provides to customers and the high returns it guarantees investors are purchased at a high price. Wal Mart prevents its employees from joining unions which has lowered their wages and restricted their health and retirement benefits. Wal Mart employees are also expected to work long hours for the company. While it provides cheap, high quality products to its customers, Wal Mart pushes suppliers narrowing their profit margin and placing upon them the responsibility of supplying product just-in-time to meet demand.
- In its earlier days, Wal Mart targeted small towns. Their competitive practices forced less aggressive, local business to leave. While they have brought considerable benefits to these communities, they have also seriously changed established business and social structures.
- Finally, Wal Mart, like Nike initially, exercises minimal supervision over their suppliers many of whom are oversees. Wal Mart suppliers also have been known to impose harsh working conditions on their employees.
Some CSR Questions for Nike and Wal Mart
- From a broader CSR perspective, is Nike maximizing stakeholder value? Is it redistributing burdens and costs from customers and investors to its suppliers and their employees? Does CSR allow this redistribution of the corporate wealth form the shareholders to other stakeholders? (Think about Friedman's arguments here.
- If it is necessary to trade of stakeholder stakes as both Wal Mart and Nike do, which trade of is more just? Nike's distribution of its wealth from its stockholders to the needy manifested in its efforts to improve the working conditions and income of the employees of its suppliers? Or Wal Mart's distribution of benefits to its stockholders and its comparatively prosperous customers?
- Which model would Friedman prefer under the his version of the shareholder view of CSR? Explain and evaluate.
- Which model would be preferable by Evan and Freeman under the stakeholder view? Who are Nike and Wal Mart's stakeholders? What are their stakes? How should the wealth produced by these two corporations be distributed among their stakeholders?
- Werhane, in her alliance model, argues for the importance of a CSR model that decentralizes the corporation and facilitates morally imaginative solutions. Why does she argue that Nike's program is than Wal Mart's from this perspective? What could Wal Mart do to improve its CSR on the alliance view?
Facing the AIDS Challenge in Africa
- The widespread and devastating effects of the AIDS epidemic in Africa are well known. But what are the responsibilities of corporations in the face of this terrible CSR challenge? Should they do business as usual and allow others who are perhaps more qualified respond to this pervasive social problem? Or should they recognize a broader responsibility to channel their wealth, knowledge and expertise toward mitigating this social problem?
- Pharmaceutical corporations invest huge amounts of money in research and development. The market place is a good place for both encouraging this necessary risk and for distributing it among several groups and interests. Developing new medicines requires costly research. So Friedman's question is highly pertinent here: does imposing CSR on a corporation do more harm than good because it interferes with the delicate mechanism of the market?
- At any point along the way, the product may not meet expectations, a competitor may beat the pharmaceutical to the market, the regulatory process may delay or even prevent sale, and so on. The rewards from patenting a successful medicine are astoundingly high. But heavy, possibly devastating losses are also possible. Adding CSR to the mixture may be the formula for corporate disaster.
- Pharmaceutical corporations also face daunting challenges from regulatory agencies such as the Food and Drug Administration. New products must be exhaustively and painstakingly tested to avoid problems that have arisen in the past such as the Dalkon Shield and Thalidomide. Again, considerable effort must be expended in exploring the middle and long term consequences accompanying product and drug use, and all of this before the product can be marketed and profits made. Government regulation also raises another problem. Is government prodding necessary to force corporations into a proper CSR posture? Or should corporations be allowed to develop voluntarily their own CSR responses?
- In the case at hand, pharmaceutical companies have invested considerable resources to carry out research into medicines that control HIV infection and prevent it from developing into full-blown AIDS. But these treatments are very expensive and bring with them considerable side effects. An anti-AIDS chemical cocktail can cost patients in developed nations between 15 and 20 thousand dollars per patient per year. This is far beyond the financial resources available to a typical HIV/AIDS patient in Africa. Some NGOs and critics of the pharmaceutical industry accuse the latter of gouging victims and drawing excess profits from the misfortune of others. A spokesperson for "Doctors Without Borders," for example, claims that the AIDS treatment "cocktail" that costs U.S. patients 15 to 20 thousand dollars could be made available to Africans at less than 300 dollars per patient per year. Pharmaceuticals, according to their critics, need to rethink their CSR, cease operating as for-profit businesses, and make these drugs available to third world sufferers at cost.
- What are the CSRs of multinational pharmaceutical corporations for making HIV/AIDS drugs available to victims in the poverty-stricken nations of Africa? Are they responsible for charging what the market will bear? Assuming they have the right to recoup their heavy investment in research, should governments, recognizing the necessity of compensating drug companies for their research, buy these drugs and redistribute them at little or no cost to those who can't afford them? Or should the pharmaceuticals charge more to those who can pay and less to those who cannot? (This redistributes the burden of cost from the haves to the have nots.)
- Many NGOs have taken the stance that their responsibility lies in pressuring drug companies to do the right thing and donate medicines to patients who cannot pay. This is their corporate social responsibility, and the pharmaceutical industry certainly has enough money to do this.
- But others have tried to reframe this issue using moral imagination. Treating individuals for HIV infection once they have contracted it is expensive no matter how you look at it. But, redefining the problem, can moderate and affordable measures be taken to prevent the spread of the disease?
- This is the imaginative approach taken by the Female Health Company which has initiated a widespread effort to distribute condoms to those at risk for contracting AIDS.
- How does the approach of the FHO exemplify Werhane's alliance model? How should pharmaceutical companies respond to this kind of initiative? Is it necessary to frame the relation between the pharmaceutical industry and NGOs as an adversarial relation or should broader alliances be formed that coordinate the efforts of these groups?
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