Stockholder vs Stakeholder

Enron 's ex-role: model of ethics
For the gurus of socially responsible investing, what lessons from a tarnished star?

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By Laurent Belsie, Staff writer of The Christian Science Monitor / March 4, 2002
Perhaps the ultimate irony about Enron Corp. is how it charmed ethical investors, even the pros, for so long.
The Houston-based energy giant not only said the right things, it also invested in solar energy, addressed questionable labor practices at overseas facilities, and supported diversity in the workplace.
Small wonder, then, that it earned a spot on the respected Domini 400 Social Index. Or that last March, the socially minded Calvert Group added the company to its index. Or that just months before the firm filed for bankruptcy in a still-unfolding tale of apparent financial chicanery, the nation 's oldest socially responsible fund - Pax World Balanced Fund - still held Enron as its top holding.
How did ethical-investing professionals get tangled up with such an unethical company? That story, plus the lessons those professionals have learned since Enron 's downfall, could help socially responsible investors navigate through the minefields of corporate balance sheets to find truly great and good companies.
But first, a caveat. While the gurus of SRI (social-responsibility investing) are wiping egg off their faces, so are many other Wall Street pros. Fraud of the kind alleged at Enron turns out to be very difficult for outsiders to detect.
"Everyone has gone back and done a postmortem on this," says Anita Green, director of social research at Pax World Funds, in Portsmouth, N.H. "It simply wasn 't there to see."
That 's why many SRI mutual funds are pushing the government for rules that would force more disclosure.
"We learned what everybody has learned," says Julie Gorte, interim director of social research at Calvert, based in Bethesda, Md. "We need a better system of disclosure and transparency. It 's really the bedrock of all investing."
Of course, corporate officers who collude to hide transactions aren 't going to reveal them, no matter how stringent disclosure rules become, these analysts say.
The trick, then, is to beef up firms ' internal oversight. SRI experts point to two areas of special concern: auditors and independent board members.
Even before the Enron scandal broke, Pax World last year adopted a rule of thumb: If an auditor made at least 75 percent of its revenues from consulting with (rather than auditing) a firm, the fund would vote against the auditors at that firm 's annual meeting.
At the time, Ms. Green thought the standard too loose. Even so, Pax World wound up voting against the auditors 37 percent of the time. "It 's very alarming," she says. With auditors earning such a high percentage of their money from consulting, "how can you possibly be independent?... I think you 're going to be looking at us significantly lowering that threshold."
Another problem: the independence of the corporate board. "This whole thing is a wake-up call for the SRI community," says Jay Falk, president of SRI World Group in Brattleboro, Vt., which runs several Web sites on social investing. "Investors don 't have a whole lot of say in who is on their board of directors. It doesn 't make any difference how many people vote against candidates if they 're the only ones running." At the very least, he says, the board 's audit committee should be run by a board member who is truly independent of the company, he says. But assessing that independence can get tricky. Outside directors can have ties to companies that aren 't always apparent. "If that information is not available, it 's extremely difficult to determine how clean a corporation 's governance is," Mr. Falk says.
Another caveat: Just because a company shows up on an SRI index doesn 't mean it 's a good investment. Typically, a listing means the firm has passed certain criteria - such as no involvement in tobacco - that a particular organization emphasizes, but not always the rigorous financial analysis used in actively managed portfolios.
Sometimes, SRI indexes will list companies with many ethical problems if management is making progress in addressing them. That 's why Calvert, which offers more SRI funds than any other US mutual-fund company, added Enron to its social index last March.
"There were lots of concerns with Enron, but we thought, 'here is a company we can engage with, ' " says Alya Kayal, senior analyst with Calvert.
Throughout last year, Enron officials showed a willingness to look at problems Calvert raised about the firm 's impact on the environment, indigenous communities, and human-rights concerns at its foreign facilities.
Then the scandal broke, and Calvert, which had very little money invested, de-listed Enron in December. Enron also fell from the Domini index. Pax World sold most of its shares of Enron before the company tanked. Originally enamored with the company 's move into solar power, its balanced fund had accumulated some 1 million shares - its top holding - before selling most of them in the middle of last year. The reason: Other investments looked more compelling.
That 's about the time Jeffrey Schappe, director of research at Citizens Funds, took a fresh look at Enron. But he dismissed the company because its financial statements were too opaque. "If I don 't understand them, I throw in the towel," he says.
The problem with screening companies solely by social criteria is that fundamental financial analysis sometimes suggests ethical problems that social screens miss, he says. For example, executive compensation should be linked to a firm 's long-term performance. If it looks too lavish, he gets wary.
Such varying approaches by SRI practitioners have led to different stands on other controversial companies. For example, while Citizens Funds has never invested in Wal-Mart, Pax World owned the stock in the early 1990s before divesting in the middle of the decade after witnessing a lack of responsiveness by management.
The Domini 400 index continued to list Wal-Mart until a year ago, when it determined vendors weren 't meeting human-rights and labor standards.
On the other hand, Microsoft Corporation remains an SRI darling. "We felt that the antitrust case was more of a legal matter," explains Green of Pax World. "It didn 't violate our screens."
"Microsoft 's behavior was not shown to harm consumers," adds Mr. Schappe of Citizens Funds, although he continues to monitor its handling of its settlement of the suit with the US Justice Department and nine states.
"There are no perfect companies out there," cautions Mr. Falk. "What you 're looking for is companies that are heading in the right direction."

Published on The Nation (http://www.thenation.com)

The AIG Bailout Scandal
William Greider | August 6, 2010
The government’s $182 billion bailout of insurance giant AIG should be seen as the Rosetta Stone for understanding the financial crisis and its costly aftermath. The story of American International Group explains the larger catastrophe not because this was the biggest corporate bailout in history but because AIG’s collapse and subsequent rescue involved nearly all the critical elements, including delusion and deception. These financial dealings are monstrously complicated, but this account focuses on something mere mortals can understand—moral confusion in high places, and the failure of governing institutions to fulfill their obligations to the public.
Three governmental investigative bodies have now pored through the AIG wreckage and turned up disturbing facts—the House Committee on Oversight and Reform; the Financial Crisis Inquiry Commission, which will make its report at year’s end; and the Congressional Oversight Panel (COP), which issued its report on AIG in June.
The five-member COP, chaired by Harvard professor Elizabeth Warren, has produced the most devastating and comprehensive account so far. Unanimously adopted by its bipartisan members, it provides alarming insights that should be fodder for the larger debate many citizens long to hear—why Washington rushed to forgive the very interests that produced this mess, while innocent others were made to suffer the consequences. The Congressional panel’s critique helps explain why bankers and their Washington allies do not want Elizabeth Warren to chair the new Consumer Financial Protection Bureau.
The report concludes that the Federal Reserve Board’s intimate relations with the leading powers of Wall Street—the same banks that benefited most from the government’s massive bailout—influenced its strategic decisions on AIG. The panel accuses the Fed and the Treasury Department of brushing aside alternative approaches that would have saved tens of billions in public funds by making these same banks “share the pain.”
Bailing out AIG effectively meant rescuing Goldman Sachs, Morgan Stanley, Bank of America and Merrill Lynch (as well as a dozens of European banks) from huge losses. Those financial institutions played the derivatives game with AIG, the esoteric practice of placing financial bets on future events. AIG lost its bets, which led to its collapse. But other gamblers—the counterparties in AIG’s derivative deals—were made whole on their bets, paid off 100 cents on the dollar. Taxpayers got stuck with the bill.
“The AIG rescue demonstrated that Treasury and the Federal Reserve would commit taxpayers to pay any price and bear any burden to prevent the collapse of America’s largest financial institutions,” the COP report said. This could have been avoided, the report argues, if the Fed had listened to disinterested advisers with a less parochial understanding of the public interest.
Fed and Treasury officials dismiss this critique as second-guessing of tough decisions they had to make in the fall of 2008, amid the fast-moving global crisis. Yet two years later, those controversial decisions remain highly relevant. Public anger has not abated. It fuels the election turmoil that this year threatens to bring down incumbents in both parties who voted for bank bailouts.
Although the AIG bailout was carried out in the waning days of George W. Bush’s presidency, the popular sense of injustice has deeply scarred Barack Obama, since he too adopted a forgiving approach toward culpable financial interests. Obama came to office intent on restoring public trust in government. His indulgence of the mega-banks led to the opposite result.
More to the point, the AIG story raises real doubts and suspicions about how the government will respond next time. Or whether the new financial reform legislation actually corrects government’s deference to the pinnacles of private financial power. Massive federal intervention was certainly necessary, the Warren panel agrees, including quick action to forestall AIG’s bankruptcy. But government declined to demand anything in return.
The AIG rescue was done in ways that had “poisonous effects” on the financial marketplace and public opinion, the report concluded. Cynical expectations were confirmed, both for citizens and financial players. Some financial firms are simply “too big to fail,” it seems; Washington will not let them collapse, no matter what the president claims.
The most troubling revelation in this story is the astonishing weakness of the Federal Reserve and its incompetence as a faithful defender of the public interest. In the lore of central banking, the Fed is awesomely powerful and intimidating. As regulator of the banking system, it has life-and-death influence over banks. As manager of the economy, it has open-ended authority to intervene in the financial system to restore stability, as the central bank did massively during the crisis.
Yet the Fed was strangely passive and compliant when it came to demanding cooperation and sacrifice from the largest financial institutions. Timothy Geithner was then president of the New York Federal Reserve Bank, the lead regulator of Wall Street’s largest banks. He briefly insisted they must accept the burden of rescuing AIG. But the bankers called his bluff and blew him off—and Geithner deferred to their wishes. The taxpayer bailout followed. The episode is relevant to the future, because Geithner is now Obama’s Treasury Secretary and in charge of preventing the next taxpayer bailout.
In the early autumn of 2008, mayhem swept through global financial markets. It engulfed AIG on Monday morning, September 15. Lehman Brothers had just failed. Panicky credit markets were seizing up. American International Group, largest insurance company in the world, was hemorrhaging capital, rapidly sinking toward bankruptcy. At the New York Fed, Geithner had the problem covered, or so he thought.
Geithner informed top executives of Wall Street’s most important financial houses—Jamie Dimon of JPMorgan Chase and Lloyd Blankfein of Goldman Sachs—that the banking industry, not the Federal Reserve, must step up and do the rescue. Geithner told them it was “inconceivable that the Federal Reserve could or should play any role in preventing AIG’s collapse.”
That Monday morning, Geithner summoned representatives from Goldman and the JPMorgan bank to Fed offices and told them to organize a private-sector consortium of major lenders to provide the emergency liquidity loans that would keep AIG afloat until things settled down. It was presumed JPMorgan would be the lead lender; Goldman, as an investment bank, could help AIG sell off assets to raise capital. Given the Fed’s blessing, other banks were expected to cooperate.
The New York Fed president did not need to threaten anyone. This was the gentlemanly way in which the central bank can invoke its informal authority, with numerous precedents in the past. Prodded by the Fed and Treasury, major banks had done something similar back in 1998 to save the hedge fund Long Term Capital Management, whose collapse threatened a chain reaction on Wall Street. During the Latin American debt crisis of the 1980s, the Fed had used its overbearing influence to make leading US banks grant concessions and write down outstanding loans—a grudging “workout” that saved Mexico, Brazil and Argentina from default but also saved some famous New York banks from imploding.
This time, the entire system was at risk, so virtually everyone was vulnerable. Geithner expected the biggest banks to package a substantial bridge loan that would give AIG the time to sell assets and raise capital, an orderly resolution. After all, AIG was an insurance corporation, not a bank. The Fed had no direct regulatory authority over it. Geithner had gotten an early glimpse of AIG’s troubles in the summer, when its CEO approached him and asked for access to the Fed’s discount window, the place banks go for short-term liquidity loans. Geithner turned him down, but learned how deeply Wall Street and Europe’s leading banks were entwined in AIG’s troubles.
The problem was derivatives. During the housing bubble, AIG had reaped a fortune selling derivative contracts based on mortgage-backed securities—hedging devices that made investors feel safe holding these assets. When the bubble burst and housing securities plummeted in value, AIG’s derivatives became its instrument of self-destruction. The counterparties, as per their contract, demanded immediate payment to cover their losses—more and more capital, as housing prices continued to fall. Goldman Sachs, almost alone among big banks, had bet right on the housing bubble. Now it was aggressively collecting on its bet.
The bankers’ committee assembled at the Fed worked all day and into the night, joined by AIG, the New York State insurance regulators, with investment bank Morgan Stanley acting as Treasury’s new adviser. The group drafted a “term sheet” that toted up AIG’s exposure. It would need as much as $75 billion, they estimated.
In Washington, Treasury Secretary Henry Paulson kept his distance, while fighting other bonfires. Paulson assured reporters the meeting under way at the New York Fed had nothing to do with a government bailout for AIG. “What’s going on in New York is a private-sector effort,” Paulson said.
Sometime after midnight, the bankers called to say, sorry, they were not interested. There would be no private-sector rescue. According to Thomas Baxter, general counsel at the New York Fed, notification came on Tuesday morning, not from the principal executives of Goldman and JPMorgan but from a bankruptcy lawyer, Marshall Huebner, advising JPMorgan on AIG’s problems. The New York Fed immediately hired him as its own lawyer and proceeded to do what the bankers had refused to do—bail out AIG.
JPMorgan and Goldman offered no public explanation for rejecting Geithner’s proposal. The public wasn’t ever told the banks were asked to do their part. Nor did Federal Reserve officials argue with the decision or try to apply persuasive pressures. It did not put the squeeze on to convince the bankers they must accept some kind of sacrifice in the interest of sharing the pain. Nor did Geithner threaten to pursue an alternative strategy that could have forced the banks to negotiate the terms. This was considered out of the question, though the central bank has employed all these tools on past occasions.
In a subsequent hearing, Damon Silvers, the AFL-CIO policy director who is a member of Warren’s oversight panel, asked Baxter, “When you’re pulling together the private sector to solve a problem that they’ve created of the type that AIG represented, is it typical to accept no for an answer?” Baxter fudged. “Well, I started out by saying there was nothing typical about the crisis,” he replied. He talked in circles and never answered the question.
If the bankers refused to participate, the Fed had to move fast to stanch the bleeding. AIG faced another downgrade from credit rating agencies (the same agencies that had given triple-A blessings to mortgage securities). The Fed adopted the bankers’ “term sheet” as its operating guide and swiftly created a revolving credit fund of $85 billion.
Late on Tuesday, the central bank lent $12 billion to AIG. The next day, it lent another $12 billion. This was only the beginning. The AIG operation became a gigantic spigot for circuitously distributing public money to private banking interests. As the New York Fed pumped more money into AIG, the insurance giant pumped it right out the door to satisfy the demands from counterparties like Goldman Sachs. Having helped scuttle the private rescue, Goldman collected $13 billion from this backdoor public assistance. The Fed did not stop AIG’s hemorrhage. It began financing it, with no questions asked.
The Fed has always insisted this financial daisy chain was not designed to pump more capital into the leading banks. “This was not about the banks,” a senior vice president of the New York Fed told the New York Times. If not, then why did the Federal Reserve work so hard to keep their names secret? Fed lawyers labored for months to prevent disclosure of the beneficiaries. Ranking Federal Reserve governors coldly rejected as “inappropriate” the repeated Congressional demands to know the names. If it wasn’t about helping those banks, why did the Fed not pause to reconsider its initial decision and develop a less costly approach? It became instead the paymaster for AIG’s failed derivative contracts—conducting business as usual in the midst of national emergency.
This process continued for nearly two months and swelled to horrendous proportions before the Federal Reserve finally figured out a way to turn off the spigot. In November, it arranged a complex swap, known as “Maiden Lane,” in which the government paid off counterparties, acquired the remaining derivative contracts and extinguished them. The bankers again collected roughly full value on assets that were then selling in financial markets for less than 50 cents on the dollar.
The Fed claimed victory for the public, but in reality the game was already lost, despite the generous public financing. AIG was facing another downgrade, and everyone understood this one would probably be fatal—triggering the bankruptcy the Fed had tried to avoid. After the bankers had gotten the money, they graciously agreed to settle.
Back in September, when the Federal Reserve hired JPMorgan’s lawyer as its own, there was no public outcry because the public didn’t know about it. Marshall Huebner of the law firm Davis Polk & Wardwell was an expert in corporate bankruptcy and would help the Fed get up to speed quickly. The arrangement was not illegal and not unethical, given the precious distinctions the legal profession makes on ethics. JPMorgan gave its lawyer consent to switch sides, though Huebner’s firm continued to represent the Morgan bank (Davis Polk graciously gave the Fed a 10 percent discount of Huebner’s $1,000-an-hour billing rate). The Federal Reserve limited his advice to AIG matters. Huebner later also became Treasury’s lawyer when it added TARP funds to AIG, though the Fed and Treasury do not have identical interests.
What was troublesome about swapping lawyers? There was a “third client” in this matter—the American public—who faced huge exposure to losses but didn’t have its own lawyer in the room. The central bank, with its high sense of rectitude, would insist it represents the public interest. The Congressional Oversight Panel did not buy that.
The government, the Warren report said, “put the efforts to organize a private AIG rescue in the hands of only two banks, JPMorgan Chase and Goldman Sachs, institutions that had severe conflicts of interest as they would have been among the largest beneficiaries of taxpayer rescue.”
Once the immediate panic subsided, the Fed did not seek out alternative opinions and proposals on what to do next, either from independent debtor counsel or even from AIG’s bankruptcy lawyer. “By failing to bring in other players, the government neglected to use all of its negotiating leverage,” the report observed.
In fact, the Congressional Oversight Panel found an incestuous stew of private financial players in the AIG case, who switched their allegiance between public and private roles numerous times. Severely conflicted loyalties are commonplace on Wall Street. The Fed saw nothing wrong with it.
Goldman Sachs always claimed it was fully hedged against loss, even if AIG went bankrupt, but the oversight panel discovered a crucial gap in its protection. Goldman would have been more vulnerable if the Fed had succeeded in arranging a “voluntary” workout by the private banks. Such a deal could have compelled Goldman and other counterparties to make concessions—accept a “haircut,” as Wall Street financiers put it. Goldman helped dump that possibility.
Morgan Stanley, another investment bank that had its own near-death experience in the fall of 2008, got a similar though much smaller benefit while also acting as adviser to the Treasury Department. The Federal Reserve provided both Goldman and Morgan Stanley with shelter from the storm by designating each as a “bank holding company,” even though neither owned many retail banks. The status gave them access to emergency loans at the Fed’s discount window—just in case.
JPMorgan Chase was vulnerable in a different way. It was not a counterparty holding AIG derivatives, but the Morgan bank was itself the banking industry’s largest issuer of derivatives. It held $9.2 trillion in credit derivatives—four times its capital assets—and many trillions more in other forms of derivatives. By its actions, the Fed greatly reduced the risks for the Morgan bank.
“The rescue of AIG distorted the marketplace by transforming highly risky derivative bets into fully guaranteed payment obligations,” the COP explained. “The result was that the government backed up the entire derivatives market, as if these trades deserved the same taxpayer backstop as savings deposits and checking accounts.”
Bankers will be bankers. But what about the Federal Reserve? The oversight panel expressed sympathy for the circumstances Fed officials faced, but drew a harsh conclusion: “By adopting the term sheet developed by the private sector consortium and retaining most of its terms and conditions, the Federal Reserve Bank of New York chose to act, in effect, as if it were a private investor in many ways, when its actions also had serious public consequences whose full extent it may not have appreciated.”
That summarizes the moral confusion of the Federal Reserve. In a state of national emergency, it was acting under the business-as-usual expectations of the private financial system, while skipping lightly over the public consequences. This quality was most clearly demonstrated in the choices it did not make. The oversight report explains in detail the alternative approaches the Fed did not even explore. The central bank has insisted that none of these were pursued because they were either unworkable or prohibited. The explanations tend to be legalistic and narrowly argued in the logic of Wall Street investors.
To put it crudely, the Fed could have taken some key players in a back room and discreetly banged their heads together. Central bankers do this on occasion with uncooperative bankers. In extreme circumstances, the Fed can apply formidable powers of persuasion. Most bankers do not wish to provoke the Fed’s disfavor, especially when the system is wobbly and they might need the central bank’s help to survive. This time the Fed did not even try.
Timothy Geithner told panel members he does not think it is the Federal Reserve’s role to use the tools at its disposal to induce the banks it regulates to do something they do not want to do. That posture implicitly gives the high ground to the regulated banks—their choice, not the government’s.
Baxter, general counsel at the New York Fed, testified that the Fed did not seek to pressure banks into compromising on their contract rights. “We see that as an abuse of regulatory power,” he said. Scott Alvarez, general counsel for the Federal Reserve Board in Washington, testified, “We had no legal authority to force anyone to take actions they did not want to take and at this time in this economic circumstance, they did not want to provide assistance to a struggling firm. So there was nothing more that we could do.”
The oversight panel did not accept these claims of regulatory impotence. Neither do many Wall Street veterans familiar with the Fed’s potential power. Given the scale of the crisis, the Fed could have decided to organize a joint public-private consortium to handle emergency lending for AIG. That inevitably pushes counterparties to make their share of concessions, like the “haircuts” creditors typically accept to settle corporate bankruptcy cases.
The Fed could not force them to accept, but it could make refusal very awkward. Any holdouts could be “named and shamed” and held up for public scorn—as bankers who accepted public bailouts but refused to do their part. There’s nothing irregular about that. Such “workouts” are standard practice when major creditors have to resolve problems of indebted companies. Typically they will settle for less to avoid the enormous costs and delay of long-running bankruptcy litigation. Martin Beinenstock of the law firm Dewey & LeBoeuf testified: “A fundamental principle of workouts is shared sacrifice, especially when creditors are being made better off than they would be if AIG were left to file bankruptcy.”
The alternatives described by the COP report are variations on this same theme of accountability—the equity of threatened bankers stepping up to “share the pain” alongside their public benefactors. Any of these other solutions would have been difficult and involved mind-bending legal complications. But the reality was that the largest financial players were far more vulnerable and dependent on the government than they or the Fed would acknowledge.
Instead of pumping out more billions, the central bank could have supplied short-term credit to AIG, while announcing that this was only a temporary measure to get through the storm. The Fed could then have declared it was preparing the insurance company to file for regular bankruptcy. This would put creditors on notice: they faced a long and expensive legal tangle in which they were unlikely to get everything they wanted. That would give them a strong incentive to negotiate a settlement for something less than 100 percent. As leading creditor, the Federal Reserve would have a lot of influence on the parties the bankruptcy judge helped or penalized.
This approach was roughly the strategy for bailing out General Motors. Government expended billions, but it also claimed the role as the lead player and asserted control—demanding new management and a thorough reorganization of the corporation. In this “managed bankruptcy,” every GM stakeholder took a hit—the workers and shareholders, but also the creditors. Fed defenders cite legal obstacles that made the AIG case different. And the Fed was also reluctant to take control of AIG, even after it became 80 percent owner.
Citing legal inhibitions seems a strange excuse for the Federal Reserve to invoke. During the larger crisis, the central bank dispensed trillions of dollars in imaginative and unprecedented ways, often with no explicit authority. The law is deliberately vague and says the Fed can lend to virtually anyone in “exigent circumstances.” The Fed itself gets to define what that vague phrase means.
The Federal Reserve proved to be a weak and unreliable regulator for the public interest, but blamed its weakness on inadequate laws. That excuse has now been taken away by the new financial-reform legislation, which gives the central bank more explicit legal authority to intervene and take control of troubled financial institutions. The Fed has always been able to do this—if it had the nerve to use its implicit powers in strong-armed ways. For longstanding reasons, it has lacked the will.
The Fed is now in the crosshairs and will be tested by future events. Officials may issue threats and warnings, but market players and the general public will remain skeptical until the central bank actually seizes an errant financial institution, disassembles its dangerous elements and shuts it down. That alone is needed to destroy the cynical assumption among investors, depositors and bankers that the unacknowledged doctrine of “too big to fail” still reigns. Taking this action would of course deliver a great shock to the financial system. That is why I doubt the Fed will do it.
The Congressional Oversight Panel did not address the new law and its potential effectiveness. What follows is my analysis, based on many years of observing the central bank during its turmoil of the past generation. The Fed is weak for many reasons, some revealed in the AIG story, but like any proud institution, it dares not speak candidly about its predicament. The political system is likewise still too intimidated to challenge the myth and mystery, but sharp questions have been raised since the financial crisis. If I am right, a stronger reform critique will be forthcoming when the Fed fails again to put its public obligations ahead of the banks.
One weakness is embedded in the institutional culture of the Fed—its chummy relations with the most powerful institutions and the moral confusion between public purpose and private returns. In some ways, these traits date back to the Federal Reserve’s origins in 1913, when this hybrid government agency was created, melding public and private interests. Regulated bankers participate side by side with their regulators. The central bank’s obligation to protect the “safety and soundness” of the financial system often becomes a euphemism for defending bank profitability. These qualities might conceivably be bleached away with fundamental reform of the venerable institution. Ideally, it could start with the conflicted loyalties so obvious at the powerful New York Fed.
Even in that unlikely event, the Federal Reserve will still be handicapped by the other great source of its weakness—the structural imbalance of power in which the banking giants can easily outgun their principal regulator. We saw how that happened in the AIG story when the bankers called Geithner’s bluff, after which he retreated obediently.
The awkward secret, understood by savvy Fed governors, is that the central bank has been steadily weakened by the deregulation of banking and finance over the past generation. As the Fed was deprived of various control levers with which it used to discipline the banking system, private financial power accordingly became stronger—more reckless and more concentrated at the top. As the mega-banks allied themselves with unregulated hedge funds and leverage was multiplied through off-balance-sheet gimmicks, the system became more powerful yet also more fragile, a dangerous combination. Some leaks have been plugged, but not all of them. And bankers are good at finding new ones.
Savvy bankers understand what Fed officials understand—the central bankers are trapped in a game of chicken with important banks that can call their bluff. If the Fed acts in a prompt fashion to curb or punish reckless behavior before it get dangerous, the bankers will accuse it of stifling profit and progress. Bank examiners are chastened, told to back off.
If the Fed waits too long to intervene, as it regularly did during the past twenty-five years, then it may be faced with a far more dangerous situation: given the globalization of financial markets, the system now operates with a hair-trigger response to threatening rumors or disclosures. We saw it happen in the fall of 2008. A broad panic raced around the world, freezing credit markets, collapsing financial assets and bringing down major institutions.
This discreet power struggle is never candidly acknowledged by the governing institutions (who fear it would weaken them further), but it has fed the growing instability for several decades. Fed regulators have lacked the nerve (or the hard evidence) to stop dangerous practices by banks before they reach the crisis stage. Yet once calamity appears imminent, it’s feared that taking action might provoke a wider disaster—a global “run” by investors—since other banks are engaged in similar behavior.
We might feel more sympathy for the Federal Reserve, except its leaders have actively contributed to their predicament. Paul Volcker, Fed chairman in the Carter and Reagan era, privately grumbled that removing ceilings on interest rates would weaken the central bank’s hand, but he reluctantly supported it. His successor, Alan Greenspan, led cheers for liberating the banks from government regulation. The consequences are now fully visible.
The first “too big to fail” bailout, of Continental Illinois Bank in 1984, was supervised by Volcker in circumstances that would lead to other bailouts in later years. Volcker knew the Chicago bank was drowning in bad loans, so he demanded that the board of directors fire its go-go chairman, Roger Anderson, and start writing off the bad debt. The directors called Volcker’s bluff and did the opposite. At the climax, Volcker arranged a federal rescue because he feared several other major banks were similarly vulnerable. If the Fed didn’t rescue Continental, that could touch off something worse.
“Yeah, maybe we should have nailed them,” Michael Bradfield, Volcker’s general counsel, acknowledged afterward (reported in my book Secrets of the Temple). “What are you going to say? Goddamn it, as long as Roger Anderson is chairman of your bank, we’re not going to lend any money at the discount window? You can say it and it’s pretty intimidating, but the directors can call your bluff…. as a practical matter, you can’t. The consequences of refusing to supply liquidity support to a bank are too severe.”
In other words, the AIG case was not only about weak regulators. Geithner was weak and easily spun around by the bankers, but Volcker was a monumentally tough regulator, and he made similar decisions when his bluff was called. That comparison is my evidence for the structural causes beneath politics and personalities. Those deeper causes have not been fixed.
Lots of ordinary citizens have figured this out. If some banks are too big to fail, then government should compel them to become smaller banks. The harsh reality is that our bloated financial sector is too large for the economy it serves, its power too concentrated at the top. Neither the president nor either political party is yet ready to face the imperative of breaking up the mega-banks. Until they do, the system will remain unstable and prone to excesses, maybe worse.
Meanwhile, the Federal Reserve’s dilemma has been made much larger. It has been given broad discretion to enforce many structural changes on the financial system. But discretion can be fatal for regulators, as AIG illustrated. It asks Fed leaders to get tough with their principal clients, when Congress didn’t have the nerve to do the same. Congress needs to write hard-nosed laws with concrete prohibitions and specific enforcement triggers, not wishful requests. If the Fed again fails to act, as I fear, another crisis becomes more likely. If that occurs, the Federal Reserve will be the next big subject for reform.

Source URL: http://www.thenation.com/article/153929/aig-bailout-scandal
Difference Between a Shareholder & a Stakeholder
By Alan Valdez, eHow Contributor
Corporations have potential for creation as well as destruction. A corporation can generate wealth and employment, develop life-saving medicines or distribute affordable food. On the other hand, it can exploit lax child labor laws in developing countries, pollute the environment or leave thousands out of work to maximize revenue. Theories of corporate governance seek to determine the duties of the corporation, balancing the interests of the shareholders and the stockholders.
Shareholders
A shareholder or stockholder is anyone who owns shares of a given corporation or mutual fund. Stockholders can be individuals or institutions, with the only requirement being ownership of at least one share. Collectively, the shareholders provide a significant portion of the capital of the organization.
Duty to Shareholders
Directors of a corporation are charged with taking care of other people 's money, usually thought to belong to the shareholders. In modern business practice, maximizing shareholder wealth/value is the ultimate business objective. Directors who take unprofitable but socially responsible actions can be accused of doing charity with other people 's money. On the other hand, a company focused on increasing short-term value with no regards of the social cost runs the risk of alienating stakeholders and decreasing long-term viability.
The Friedman Doctrine, also known as the stockholder theory, is an idea proposed by economic theorist Milton Friedman, which states that a company 's only responsibility is to increase its profits.[1][2]
Friedman argued that a company should have no "social responsibility" to the public or society because its only concern is to increase profits for itself and for its shareholders. He wrote about this concept in his book Capitalism and Freedom. In it he states that when companies concern themselves with the community rather than focusing on profits, it leads to totalitarianism.
( Totalitarianism (or totalitarian rule) is a political system where the state holds total authority over the society and seeks to control all aspects of public and private life wherever necessary)
In the book, Friedman writes: "There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."[6]
The idea of the stockholder theory, some argue, is inconsistent with the idea of corporate social responsibility at the cost of the stakeholder. For example, a company donating services or goods to help those hurt in a natural disaster, in some ways, may be considered not taking action in the best interest of the shareholder. Some may argue that goods provided to society in a time of need builds further allegiance to a corporation and in theory, meeting the stockholder theory 's requirement to look in the best interest of the stockholder.
The Friedman Doctrine is highly controversial. In left-wing social activist Naomi Klein 's book The Shock Doctrine, Klein criticizes the theory.[7]

The Social Responsibility of Business is to Increase its Profits by Milton Friedman
The New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company.
When I hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are–or would be if they or anyone else took them seriously–preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.
The discussions of the "social responsibilities of business" are notable for their analytical looseness and lack of rigor. What does it mean to say that "business" has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but "business" as a whole cannot be said to have responsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom.

Presumably, the individuals who are to be responsible are businessmen, which means individual proprietors or corporate executives. Most of the discussion of social responsibility is directed at corporations, so in what follows I shall mostly neglect the individual proprietors and speak of corporate executives.
In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary purpose–for example, a hospital or a school. The manager of such a corporation will not have money profit as his objective but the rendering of certain services.
In either case, the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them.
Needless to say, this does not mean that it is easy to judge how well he is performing his task. But at least the criterion of performance is straightforward, and the persons among whom a voluntary contractual arrangement exists are clearly defined.
Of course, the corporate executive is also a person in his own right. As a person, he may have many other responsibilities that he recognizes or assumes voluntarily–to his family, his conscience, his feelings of charity, his church, his clubs, his city, his country. He ma}. feel impelled by these responsibilities to devote part of his income to causes he regards as worthy, to refuse to work for particular corporations, even to leave his job, for example, to join his country 's armed forces. Ifwe wish, we may refer to some of these responsibilities as "social responsibilities." But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are "social responsibilities," they are the social responsibilities of individuals, not of business.
What does it mean to say that the corporate executive has a "social responsibility" in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price in crease would be in the best interests of the corporation. Or that he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire "hardcore" unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty.
In each of these cases, the corporate executive would be spending someone else 's money for a general social interest. Insofar as his actions in accord with his "social responsibility" reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers ' money. Insofar as his actions lower the wages of some employees, he is spending their money.
The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct "social responsibility," rather than serving as an agent of the stockholders or the customers or the employees, only if he spends the money in a different way than they would have spent it.
But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other.
This process raises political questions on two levels: principle and consequences. On the level of political principle, the imposition of taxes and the expenditure of tax proceeds are governmental functions. We have established elaborate constitutional, parliamentary and judicial provisions to control these functions, to assure that taxes are imposed so far as possible in accordance with the preferences and desires of the public–after all, "taxation without representation" was one of the battle cries of the American Revolution. We have a system of checks and balances to separate the legislative function of imposing taxes and enacting expenditures from the executive function of collecting taxes and administering expenditure programs and from the judicial function of mediating disputes and interpreting the law.
Here the businessman–self-selected or appointed directly or indirectly by stockholders–is to be simultaneously legislator, executive and, jurist. He is to decide whom to tax by how much and for what purpose, and he is to spend the proceeds–all this guided only by general exhortations from on high to restrain inflation, improve the environment, fight poverty and so on and on.
The whole justification for permitting the corporate executive to be selected by the stockholders is that the executive is an agent serving the interests of his principal. This justification disappears when the corporate executive imposes taxes and spends the proceeds for "social" purposes. He becomes in effect a public employee, a civil servant, even though he remains in name an employee of a private enterprise. On grounds of political principle, it is intolerable that such civil servants–insofar as their actions in the name of social responsibility are real and not just window-dressing–should be selected as they are now. If they are to be civil servants, then they must be elected through a political process. If they are to impose taxes and make expenditures to foster "social" objectives, then political machinery must be set up to make the assessment of taxes and to determine through a political process the objectives to be served.
This is the basic reason why the doctrine of "social responsibility" involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses.
On the grounds of consequences, can the corporate executive in fact discharge his alleged "social responsibilities?" On the other hand, suppose he could get away with spending the stockholders ' or customers ' or employees ' money. How is he to know how to spend it? He is told that he must contribute to fighting inflation. How is he to know what action of his will contribute to that end? He is presumably an expert in running his company–in producing a product or selling it or financing it. But nothing about his selection makes him an expert on inflation. Will his hold ing down the price of his product reduce inflationary pressure? Or, by leaving more spending power in the hands of his customers, simply divert it elsewhere? Or, by forcing him to produce less because of the lower price, will it simply contribute to shortages? Even if he could answer these questions, how much cost is he justified in imposing on his stockholders, customers and employees for this social purpose? What is his appropriate share and what is the appropriate share of others?
And, whether he wants to or not, can he get away with spending his stockholders ', customers ' or employees ' money? Will not the stockholders fire him? (Either the present ones or those who take over when his actions in the name of social responsibility have reduced the corporation 's profits and the price of its stock.) His customers and his employees can desert him for other producers and employers less scrupulous in exercising their social responsibilities.
This facet of "social responsibility" doc trine is brought into sharp relief when the doctrine is used to justify wage restraint by trade unions. The conflict of interest is naked and clear when union officials are asked to subordinate the interest of their members to some more general purpose. If the union officials try to enforce wage restraint, the consequence is likely to be wildcat strikes, rank-and-file revolts and the emergence of strong competitors for their jobs. We thus have the ironic phenomenon that union leaders–at least in the U.S.–have objected to Government interference with the market far more consistently and courageously than have business leaders.
The difficulty of exercising "social responsibility" illustrates, of course, the great virtue of private competitive enterprise–it forces people to be responsible for their own actions and makes it difficult for them to "exploit" other people for either selfish or unselfish purposes. They can do good–but only at their own expense.
Many a reader who has followed the argument this far may be tempted to remonstrate that it is all well and good to speak of Government 's having the responsibility to impose taxes and determine expenditures for such "social" purposes as controlling pollution or training the hard-core unemployed, but that the problems are too urgent to wait on the slow course of political processes, that the exercise of social responsibility by businessmen is a quicker and surer way to solve pressing current problems.
Aside from the question of fact–I share Adam Smith 's skepticism about the benefits that can be expected from "those who affected to trade for the public good"–this argument must be rejected on grounds of principle. What it amounts to is an assertion that those who favor the taxes and expenditures in question have failed to persuade a majority of their fellow citizens to be of like mind and that they are seeking to attain by undemocratic procedures what they cannot attain by democratic procedures. In a free society, it is hard for "evil" people to do "evil," especially since one man 's good is another 's evil.
I have, for simplicity, concentrated on the special case of the corporate executive, except only for the brief digression on trade unions. But precisely the same argument applies to the newer phenomenon of calling upon stockholders to require corporations to exercise social responsibility (the recent G.M crusade for example). In most of these cases, what is in effect involved is some stockholders trying to get other stockholders (or customers or employees) to contribute against their will to "social" causes favored by the activists. Insofar as they succeed, they are again imposing taxes and spending the proceeds.
The situation of the individual proprietor is somewhat different. If he acts to reduce the returns of his enterprise in order to exercise his "social responsibility," he is spending his own money, not someone else 's. If he wishes to spend his money on such purposes, that is his right, and I cannot see that there is any objection to his doing so. In the process, he, too, may impose costs on employees and customers. However, because he is far less likely than a large corporation or union to have monopolistic power, any such side effects will tend to be minor.
Of course, in practice the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.
To illustrate, it may well be in the long run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employees, it may reduce the wage bill or lessen losses from pilferage and sabotage or have other worthwhile effects. Or it may be that, given the laws about the deductibility of corporate charitable contributions, the stockholders can contribute more to charities they favor by having the corporation make the gift than by doing it themselves, since they can in that way contribute an amount that would otherwise have been paid as corporate taxes.
In each of these–and many similar–cases, there is a strong temptation to rationalize these actions as an exercise of "social responsibility." In the present climate of opinion, with its wide spread aversion to "capitalism," "profits," the "soulless corporation" and so on, this is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest.
It would be inconsistent of me to call on corporate executives to refrain from this hypocritical window-dressing because it harms the foundations of a free society. That would be to call on them to exercise a "social responsibility"! If our institutions, and the attitudes of the public make it in their self-interest to cloak their actions in this way, I cannot summon much indignation to denounce them. At the same time, I can express admiration for those individual proprietors or owners of closely held corporations or stockholders of more broadly held corporations who disdain such tactics as approaching fraud.
Whether blameworthy or not, the use of the cloak of social responsibility, and the nonsense spoken in its name by influential and prestigious businessmen, does clearly harm the foundations of a free society. I have been impressed time and again by the schizophrenic character of many businessmen. They are capable of being extremely farsighted and clearheaded in matters that are internal to their businesses. They are incredibly shortsighted and muddleheaded in matters that are outside their businesses but affect the possible survival of business in general. This shortsightedness is strikingly exemplified in the calls from many businessmen for wage and price guidelines or controls or income policies. There is nothing that could do more in a brief period to destroy a market system and replace it by a centrally controlled system than effective governmental control of prices and wages.
The shortsightedness is also exemplified in speeches by businessmen on social responsibility. This may gain them kudos in the short run. But it helps to strengthen the already too prevalent view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces. Once this view is adopted, the external forces that curb the market will not be the social consciences, however highly developed, of the pontificating executives; it will be the iron fist of Government bureaucrats. Here, as with price and wage controls, businessmen seem to me to reveal a suicidal impulse.
The political principle that underlies the market mechanism is unanimity. In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate. There are no values, no "social" responsibilities in any sense other than the shared values and responsibilities of individuals. Society is a collection of individuals and of the various groups they voluntarily form.
The political principle that underlies the political mechanism is conformity. The individual must serve a more general social interest–whether that be determined by a church or a dictator or a majority. The individual may have a vote and say in what is to be done, but if he is overruled, he must conform. It is appropriate for some to require others to contribute to a general social purpose whether they wish to or not.
Unfortunately, unanimity is not always feasible. There are some respects in which conformity appears unavoidable, so I do not see how one can avoid the use of the political mechanism altogether.
But the doctrine of "social responsibility" taken seriously would extend the scope of the political mechanism to every human activity. It does not differ in philosophy from the most explicitly collectivist doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means. That is why, in my book Capitalism and Freedom, I have called it a "fundamentally subversive doctrine" in a free society, and have said that in such a society, "there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

Wal-Mart and Corporate Social Responsibility
The Wal-Mart Corporation is a multi-billion dollar low-cost retail organization, consisting of 6400 stores and 1.8 million sales associates worldwide. Wal-Mart’s influence on the retail world and the enormity of their corporate size is unparalleled. Wal-Mart can easily report sales of $312.4 billion dollars per fiscal quarter and net profits of $3.8 billion dollars. Wal-Mart promises her customers "Always low prices. Always!" and upholds this motto by providing low prices to her customers and high return on investment to her stockholders. One way that Wal-Mart has managed to maintain a competitive edge over other low cost retail giants and provide low prices is by cutting wages and by not offering too many company benefits to their employees. Full-time employee working at Wal-Mart only make $8 an hour, while only 45% of the workers can afford to be covered by health insurance. Wal-Mart also increase part time employees from 20 percent to 40 percent so that they do not have to cover all of their employees for health insurance . Although Wal-Mart may not provide excellent benefits to her employees, it successfully performs as a legitimate business operating in a capitalistic society. Wal-Mart upholds the primary fiduciary duty to satisfy her stockholder and follows free the market libertarianism model, which states that a business should not interfering with the free market. In a free market Wal-Mart has a direct responsibility to her primary stockholders rather than the employees of a company.
According to philosopher Milton Friedman the only Corporate Social responsibility a
Corporation has is to increase profits for its stockholders. Through a utilitarian perspective, we can see that Wal-Mart is acts in a way to product the greatest possible balance of good over dissatisfaction for their stockholders. Wal-Mart upholds the fiduciary duties to their stockholders by not increasing wages of their employees, instead they take the sum of money and return it back to their stockholders and shareholders such as customers and suppliers. Wal-Mart creates the happiness for the amount of people who invest in the company. Ethics is about the consequences of an action and the consequence of Wal-Mart’s actions creates the greatest amount of good for the people who are the primary stockholders of the corporation.
We can argue that Wal-Mart’s pursuit of profits does not lead to the greatest collective good for society because many small business owners and Wal-Mart employees have to declare bankruptcy. This occurs because customers prefer the lower prices offered at Wal-Mart to smaller convenience stores. According to utilitarian theory and Corporate Social Responsibility Wal-Mart should create the greatest possible good for the entire society. Requiring Wal-Mart to satisfy the stockholders and the stakeholders- suppliers, shareholders, employees, customers, and managers. Through the help of multiple partners Wal-Mart can grow as a corporation and return the profits earned to the stakeholders.
In support of a company’s fiduciary responsibility to its stockholders Friedman’s argues three major points, starting with, a corporation does not have an obligation to its employees because the only social responsibility a corporation has is to increase profits for it’s shareholders. So the manager of a company would only have a direct responsibility to the owners of the firm, and the owners of the firm are its stockholders. If stockholders desire that the company make as much profit as possible, the company needs to honor that decision and find ways to decrease costs and increase profits. Thus, a manager has the direct responsibility to maximize profits for the firm, even if it means to reduce the pay and benefits the company’s employees. Friedman also argues against the unjust taxation of stockholders because if a manager spends money on Corporate Social Responsibility activities, he or she is essentially imposing unjust taxes on the stockholder. For it is only the government’s role to impose taxes on the stockholders, and not the corporate manager’s. Thus, it is not ethical for the manager to spend money on CSR .A corporate manager should ideally have no knowledge of CSR if contributing to the society independently (Friedman). Kant supports this argument by stating the example that it would be unethical to violate an innocent person’s right of life in order to save five, thus it is unethical to tax the stockholders for the benefits of the shareholders. Lastly, Friedman mentions that if a manager’s actions reduce returns to stockholders, then the manager is spending the stockholder’s money. It is unethical to spending the stockholder’s money in a way that does not benefit the stockholder or is different than the way stockholder would have spent the money. Essentially managers are stealing from the stockholders. Stealing is ethically wrong, therefore any action such as Corporate Social Responsibility that reduces returns to would be considered ethically wrong.
The philosopher Freeman argues against the stockholder theory and presents us with the stakeholder theory. Which states that a Corporation should partake in Corporate Social Responsibility because the government alone cannot maintain the well being of the society by using tax revenues alone. Wal-Mart should extend their fiduciary duty to include their employees’ in order build trust, unity and company spirit in order to succeed. A successful business needs to have a good fiduciary relationship with its stakeholders in order for both parties to grow, a company should “keep employees satisfied with their morale high because employees are innovation and idea driven”(Freeman). Freeman argues that a corporation has a responsibility to remain true to its mission statement and corporate values. Wal-Mart’s mission statement is: “to give ordinary folk the chance to buy the same thing as rich people.” (Wal-Mart). Most of Wal-Mart’s employees are ordinary people, who shop at Wal-Mart after receiving their paychecks (High Cost). But if Wal-Mart doesn’t manage to pay their employees enough to shop at Wal-Mart, then they are not staying true to their mission statement. Freeman continues that “a mission statement and corporate values does not state profit maximization as a fundamental purpose”, thus a corporation’s main goal should not be profit maximization rather it should be to provide service to their customers.
The Wal-Mart Corporation is an attractive employer for many Americans because it a provider of numerous jobs throughout the country. Wal-Mart work policies are also not in direct violation of U.S. Labor Laws. Unfortunately Wal-Mart uses abusive labor practices at home and abroad by paying their employees low wages and aggressively seeking to keep wages down. This in turns reduces the standard of life for many people and pushes them towards poverty. On average “ Wal-Mart workers earn an estimated $8.00/hour with a 32 hour work week. This equals $256 a week or $13,312 a year. The Federal poverty level for a family of three is $14,630(Markkula)” Therefore we see many single-parent families who can’t afford to afford health insurance for their families and have to work multiple shifts to make ends meet. Wal-Mart also has been charged because they “lay off older workers to bring in younger and cheaper employees. Some 40 lawsuits accuse Wal-Mart of a failure to pay overtime”(Markkula).Kant would point out the lack of ethics in Wal-Mart’s relationships with its employees by arguing that a corporation should “act so that we treat humanity as an end and never as a means only”. According to Kant Wal-Mart should not take advantage of its employees as a means to increase revenues for their stockholders, because all of mankind has value in society. It is unfair to treat some groups of people better than others.

Works Cited
Chang, Michael, Phil 116 Lectures 10/307 to 10/29/07. University of California, Riverside.
Ethics is the field of philosophy that studies systems, norms, or values that distinguish between what is good and bad or right and wrong. The field of business ethics focuses on examining conduct and policies and promoting appropriate conduct and policies within the context of commercial enterprise, both at the individual and the organizational level. Business ethics is a form of applied ethics where researchers and professionals use theories and principles to solve ethical problems related to business. Consequently, a central question of business ethics is "How do businesses determine what is appropriate or ethical conduct for any given commercial task?" Business ethics covers all levels of business activity, including the obligations and responsibilities of businesses to customers, employees, other businesses, national and multinational governments, and the environment.
As with other aspects of society relevant to ethics, conventions and folkways dictate the ethics of some kinds of business activities, while local, state, and federal laws regulate other kinds of activities. The latter kinds sometimes are referred to as institutionalized business ethics, which include laws covering warranties, product safety, contracts, pricing, and so forth. Furthermore, a number of corporations and professions contributed to the institutionalization of business ethics by establishing codes of ethics.
As in the broad field of ethics, many theories and approaches to business ethics exist. Business professionals and ethicists explore the field of business ethics in three common ways: (1) by studying the (often conflicting) views of famous philosophers, (2) by identifying major ethical concerns of businesses and proposing solutions to them through legislation or ethical theory, and (3) by examining case studies that shed light on ethical dilemmas.
The concept of business ethics is relatively new, having become an issue and an organized field of study only since the 1970s. Although numerous factors have contributed to the increased interest in business ethics, a chief influence has been a shift in societal values that underlie the business system. The change in American values has been characterized, in general, by a move away from traditional Judeo-Christian ethics toward pluralism, relativism, and self-fulfillment. The end result has been a diminished base of universal moral norms and a subsequent interest in, and concern about, resolving ethical conflict. Understanding the evolution of morality in the United States is crucial to the study of business ethics.
BACKGROUND: THE PROTESTANT WORK
ETHIC 'S RISE AND DECLINE
Derived from the views of Protestants John Calvin (1509-1564) and Martin Luther (1483-1546), the Protestant work ethic that was imported from Europe to North America during the 17th, 18th, and early 19th centuries was a set of beliefs that encompassed secular asceticism—the disciplined suppression of gratification in favor of ceaseless work in a worldly calling according to God 's will. This work ethic emphasized hard work, self-reliance, frugality, rational planning, and delayed gratification that formed the foundation of modern capitalism and allowed American and European societies to accumulate economic capital. The Protestant work ethic dominated white American society through the 1800s.
This ethic aided in the emergence of an upwardly mobile bourgeois class—comprised of successful farmers, industrialists, and craftsmen—that was preoccupied with social conformity and materialism. At the same time, a much clearer definition of success and failure developed that was wrapped up in material terms; this definition would play a major role in the societal evolution of the Western world.
A significant factor that contributed to the decline of the Protestant work ethic was the accumulation of wealth, which gradually diminished the religious basis of the ethic. As workers increased their wealth, consumption gradually became the motivation for work, replacing the work-for-work 's-sake foundation of the Protestant work ethic. In the growing cities, the religious component, which included frugality, was jettisoned in favor of the conspicuous consumption of a consumer society as people began producing more than they could consume and marketing their products to others to avoid waste.
As the original Protestant work ethic gave way to a "success ethic," other factors contributed to a change in moral norms during the latter half of the 20th century. The demographic makeup of the United States changed as large numbers of non-Protestants immigrated and joined the workforce. They brought with them different value systems and confronted the society 's Protestant bias. In addition, many Americans rebelled against what they viewed as suppressive social norms that had carried over from Protestant asceticism. Those norms were replaced by a belief in individualism and relativism—which holds that any individual 's or group 's values are as good as any other 's. As a result, a societal bias against universal norms of behavior developed. Such beliefs carried over into views about business-related conduct.
The new morality underlying business behavior in the United States was characterized by an emphasis on salary and status, self-fulfillment, entitlement, impatience, and consumption, and an attitude that the ends justify the means (or it is all right to break the law to achieve your goal as long as you do not get caught). Proponents of the new morality point out that it has resulted in the most productive economy and living standard in the history of the world. Critics argue that the lack of moral norms has created havoc in the business world (and society) that threatens long-term economic stability. They cite destructive business behavior, such as the dumping of hazardous wastes and the exploits of corrupt financiers.
THE ETHICAL DILEMMA
In addition to ethical issues arising out of changing norms and contrasting social theories, ethical dilemmas plague everyone, even individuals who are honest and confident in their moral stance. Conflicts result from day-to-day business decisions that are intrinsically influenced by factors such as loyalty. For example, in choosing a course of action, individuals must ask themselves whom they are serving with their decisions: society, the corporation, their God, themselves, their family, or some other entity. Saul W. Gellerman, in his essay "Why 'Good ' Managers Make Bad Choices" in The Business of Ethics and the Ethics of Business, identified four common rationalizations that lead to unethical business behavior by well-intentioned managers.
One reason often cited for engaging in immoral behavior is that the activity seemed to fall within reasonably acceptable moral bounds; because everybody else was doing it, it was not "really" illegal or unethical. A second rationalization was that the unethical act was performed in the interest of the corporation; perhaps the company even expected or ordered the violator to perform the act, possibly with the threat of reprisal for inaction. A third reason was that the offender believed that the conduct was safe because it would never be discovered—because the risk of getting caught was so low, it was okay to commit the act. Fourthly, offenses are carried out because the company condones the behavior, minimizes its impropriety, and assures protection for those who engage in it.
In fact, employees often do have a motivation to engage in technically unethical behavior for their corporations. Studies have indicated that whistle-blowing, or divulging unethical corporate behavior, is generally frowned upon by American society. Pressure from fellow employees, managers, and even the local community can cause an employee to continue even highly unethical behavior, in the interest of being a team player and not being labeled a tattletale.
KEY THEORIES OF BUSINESS ETHICS
The intensified interest in business ethics, particularly during the 1980s and 1990s, was partly the result of diverging moral norms and a perceived decay of self-regulation and honesty. Paradoxically, however, it is the accompanying bias against moral norms that makes the study of business ethics so imprecise. Because all philosophies relating to ethics are generally assumed to have merit (i.e., none is right or wrong), most treatises and educational programs on the subject do not advocate a philosophy. Instead, they offer contrasting views for contemplation, such as those outlined below.
ALBERT CARR.
The 20th century thinker Albert Carr believes that ethics do not necessarily belong in business; they are a personal matter. The business world might contain a set of rules for participants to follow, but those have nothing to do with the morals of private life. Business, Carr asserts, is really more like a poker game, the purpose of which is to win within the context of the rules. Cunning, deception, distrust, concealment of strengths and strategies—these are all parts of the game. Businesspeople cease to be citizens when they are at work. Furthermore, no one should criticize the rules of the game simply because they differ from societal morals.
Carr 's basic views on ethics in business are recognized for the insight they provide into the dynamics of a free and competitive market. Critics point out that he views business ethics very narrowly, simply as a set of rules created by the government and the courts that must be obeyed. He assumes that one 's role as a businessperson takes precedence over one 's other societal roles. But, if one 's personal morals conflict with business rules, should one have to compromise one 's personal beliefs?
Further study of Carr 's views reveals a bent toward ethical relativism, which supports his view that we should not criticize rules of business, even if they conflict with our personal ethics. A positive aspect of relativism is that it cultivates tolerance of other people and groups (after all, who is qualified to determine what the social norms should be for everyone?). But it also raises questions about ethical conduct. For example, is it okay to accept a bribe to award a contract in a country where that practice is accepted? Were the Nazis correct in their beliefs simply because others did not have a right to judge them?
MILTON FRIEDMAN (1912-).
Milton Friedman advocates the classical theory of business, which essentially holds that businesses should be solely devoted to increasing profits as long as they engage in open and free competition devoid of fraud. Managers and employees, then, have a responsibility to serve the company they work for by striving to make money for it. The very act of seeking profits is, according to Friedman, a moral act. An extreme example relates his point: If a person invested all of his or her savings into a venture and then the company gave away the money to the homeless, would that be ethical? No, proffers the classical theory, because the investor gave the money to the company in good faith for the purpose of earning a profit.
ADAM SMITH (1723-1790).
Friedman 's views generally support those of Adam Smith, who held that the best economic system for society would be one that recognized individual self-interest. That concept seems to conflict with the classical theory of business ethics. In his renowned Inquiry into the Nature and Causes of the Wealth of Nations (1776), however, Smith stated that society is best served when each person pursues his own best interests; an "invisible" hand will ensure that self-interested behavior serves the common social good. The competition that would result between individuals would be played out within the confines of government regulations.
Smith 's invisible hand concept is based on the theory of psychological egoism, which holds that individuals will do a better job of looking after their own interests than those of others. A tenet of that theory is that enlightened egoists will recognize that socially responsible behavior will benefit them.
Both psychological egoism and the classical theory can be defended by the utilitarian argument. Utilitarianism maintains that any action or system is good if it results in the greatest good for the greatest number of people. In summary, if, as Smith contended, self-interest is a chief motivator and the invisible hand really works, then as companies seek to maximize profits, the greatest public good will result for the greatest number.
Critics of Smith 's and Friedman 's theories contend that they neglect the need for cooperation and teamwork in society, and that chaos can be avoided only with heavy policing of self-interested behavior. Proponents of the invisible hand counter that individuals will usually pursue cooperation and self regulation because it is in their own interest.
JOHN LOCKE (1632-1704).
Although perhaps best known for his advocacy of life, liberty, and property during the 17th century, John Locke is credited with outlining the system of free enterprise and incorporation that has become the legal basis for American business. His philosophy was founded on a belief in property rights, which are earned through work and can be transferred to other people only at the will of the owner. Under Locke 's theory, which now seems intuitive because of its commonality, workers agree by their own will to work for a company for a wage. Shareholders receive the profits because they have risked their property. Thus, it is the responsibility of the company 's workers to pursue profits.
Opponents of Locke 's system, particularly proponents of socialism, argue that property rights are not inalienable. For that reason, Locke-style capitalism is morally unacceptable because it prohibits the public from benefiting from property that actually belongs to everyone. Indeed, according to socialists, the right to profits is not assumed because the profits emanate from the surplus value created by the work of the entrepreneur and laborer. In fact, property ownership itself is unethical. It is merely an attempt by powerful owners to keep control of their property and to exploit other people.
To their credit, socialist and Marxist systems do lead to less inequality. Utilitarians, however, would counter that those more equitable systems do not produce the greatest good for the greatest number.
IMMANUEL KANT (1724-1804).
The German philosopher Immanuel Kant believed that morality in all spheres of human life should be grounded in reason. His renowned "categorical imperative" held that: (1) people should act only according to maxims that they would be willing to see become universal norms (i.e., the Golden Rule); and (2) people should never treat another human as a means to an end. The categorical imperative is easily demonstrated: It would be unethical for a person to break into a long line at a theater, because if everyone did the same thing anarchy would result. Similarly, it would be immoral for a person to have a friend buy him or her a ticket under the agreement that he or she would reimburse the friend, but then fail to pay the friend back.
Kant 's theory implied the necessity of trust, adherence to rules, and keeping promises (e.g., contracts). When people elect to deviate from the categorical imperative, they risk being punished by the business community or by government enforcement of laws. More importantly, Kant suggested that certain moral norms that are ingrained in humans allow them to rise above purely animalistic behavior. People have the capacity to forgo personal gain when it is achieved at the expense of others, and they can make a choice as to whether they will or will not follow universal norms.
MAJOR ISSUES OF BUSINESS ETHICS IN
THE LATE 20TH CENTURY
In the late 1980s, the Conference Board published a report that surveyed about 300 corporate executives from around the world. The report indicated the primary ethical concerns of businesses fell into four categories: equity, rights, honesty, and the exercise of corporate power, each of which is addressed below.
Equity—referring to general fairness—includes the disparity between executive/manager salaries and entry-level worker salaries. The ethical question here is whether it is fair to pay executives over 30 times more than entry-level workers earn. Researchers of business ethics such as Peter Drucker (1909-) propose that companies ensure fair compensation by limiting executive compensation to just 10 times what entry-level workers earn. In addition, fair product pricing also falls into this category.
The category of rights covers entitlements of employees, customers, communities, and other parties as established by laws, court rulings, and social conventions. Rights generally protect these various parties from activities by businesses that can limit their freedom and safety. This rubric also subsumes issues such as sexual harassment, discrimination, and employee privacy.
Honesty, the broadest category, refers to the truthfulness and integrity of businesses ' actions and policies, including corporate conduct as well as employee conduct done in the name of the company. Furthermore, issues of honesty pertain to advertising content, financial procedures, bribes and gifts, fraud, and wastefulness. In addition, honesty also includes employee obligations, such as not disclosing confidential information to a company 's competitors.
The key issue surrounding exercise of corporate power is whether companies ethically can fund and support certain political action committees whose efforts may benefit their businesses but cause social harm. This category also covers worker, product, and environmental safety concerns and raises questions about employers ' responsibilities for workplace equipment that may cause injuries after prolonged use, products that may harm consumers, and conduct and products that may contaminate the environment.
CASE STUDIES
Ethical violations at the Manville Corporation (formerly called Johns Manville), a manufacturer of asbestos, reflect the many dynamics that influence immoral behavior in large organizations. In the 1940s the company 's medical department began to receive information that indicated asbestos inhalation was the potential cause of a debilitating lung disease. Manville ' s managers suppressed further research and elected to conceal the information from at-risk employees, even going so far as refusing to allow them to view chest X-rays. The company 's medical staff also participated in the cover-up.
After more than 40 years of suppressing this secret, Manville was exposed and was forced to turn over 80 percent of its equity to a trust that would pay benefits to affected workers and their families. An important point of the case is that many employees—mostly ordinary men and women—participated in the cover up, with reasons ranging from company loyalty to fear of job loss. Rather than hurt the company or damage their career, executives and managers chose to remain silent and conceal data.
A similar incident occurred in the 1980s at E. F. Hutton & Company, a brokerage that pleaded guilty to more than 2,000 counts of mail and wire fraud. The company stole money from 400 of its banks by drawing against uncollected funds or nonexistent sums. It would return the money into the accounts after it had used it—interest free. Like Manville 's cover-up, the E. F. Hutton conspiracy involved many managers over a period of several months. The company encouraged its branch managers to illegally borrow from the accounts, suggesting to them that the practice was savvy business rather than a violation of law or ethics. In some instances, E. F. Hutton even rewarded managers for their skill at utilizing the funds. The managers were likely influenced by the perception that everyone else was doing it and that the company would protect them in the unlikely event that they were caught. In the end, several managers were fired and/or indicted. E. F. Hutton agreed to pay between $3 million and $11 million in damages, and its reputation in the financial community was damaged.
An ongoing ethical dilemma in the business world involves the tobacco industry. Critics of cigarette companies argue that, despite abundant evidence that smoking is a health hazard responsible for millions of deaths, manufacturers continue to produce and sell the deadly goods. The cigarette manufacturers counter that their product embodies a heritage of smoking that dates back several centuries. They also argue that data linking smoking to cancer and other ailments are lacking. Cigarette makers continue to advertise their products using positive, alluring images, and to play down the potential health risks of smoking. As with most business ethics dilemmas, rationalization and the lack of a clear-cut solution cloud the issue.
[ Dave Mote updated by Karl Heil ]
FURTHER READING:
Bowie, Norman E. Business Ethics. Blackwell Pub., 1999.
Braybrooke, David. Ethics in the World of Business. Totowa, NJ: Rowman & Allanhead, 1983.
Cavanaugh, Gerald F., and Arthur F. McGovern. Ethical Dilemmas in the Modern Corporation. Englewood Cliffs, NJ: Prentice Hall, 1988.
Freeman, Edward R., ed. Business Ethics: The State of the Art. New York: Oxford University Press, 1991.
Harvard Business Review. The Business of Ethics and the Ethics of Business. Boston: Harvard College, 1986.
Madsen, Peter, and Jay M. Shafritz. Essentials of Business Ethics. New York: Meridian, 1990.

Read more: http://www.referenceforbusiness.com/encyclopedia/Bre-Cap/Business-Ethics.html#ixzz2DwCNq6uY

Freeman Edward, A Stakeholder Theory of the Modern Corporation. Ethical Theory and

Business, (Englewood Cliffs, NJ: Prentice Hall, 1994), 66-74

Friedman Milton, The Social Responsibility of Business Is to Increase Its Profits, New York

Times Magazine, September 12, 1970. The New York Times Company.

Markkula Center for Ethics: Santa Clara University. “Is it Ethical to Shop at Wal-Mart?” 09

August 2007.

Shaw, William and Vincent Barry. “Utilitarianism and Kantian Ethics” in Moral Issues in

Business, 8th Ed, Belmont: Wadsworth, 2001, 59-69.
How to Cite this Page
MLA Citation:
"Wal-Mart and Corporate Social Responsibility." 123HelpMe.com. 26 Oct 2012
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Arthur Laffer: Corporate Social Responsibility Detrimental to Stockholders
By PRANAY GUPTE, Special to the Sun | January 19, 2005 http://www.nysun.com/business/arthur-laffer-corporate-social-responsibility/7944/ The man widely hailed as the "father of supply side economics," Arthur Laffer, yesterday bitterly denounced what has become a fashionable notion in the business world - corporate social responsibility, or CSR - as being detrimental to stockholders ' interests and harmful for corporate profitability.
"What corporate social responsibility really means, in my view, is irresponsibility," Dr. Laffer said at a news conference that was organized by the Washington-based Competitive Enterprise Institute at the Marriott Financial Center on West Street in Manhattan. "The modern corporation is meant to be a vehicle to create wealth for its shareholders, and that is what CEOs must always keep in mind."
But he acknowledged that corporate chief executives are under increasing pressure from mainly left-of-center lobbies - often consisting of well-funded nongovernmental organizations - to demonstrate that their businesses tend to social and environmental concerns as much as they did to their institutions ' bottom lineS. Such pressure often puts corporations on the defensive, Dr. Laffer said, when, in fact, they should be "realizing that corporations are legitimate entities whose prime responsibility is to make profits for those who have invested in them."
Unveiling a study that he undertook with two other economists, Andrew Coors and Wayne Winegarden, Dr. Laffer said that his research into the performance of 28 companies cited by Business Ethics magazine as being among its top 100 "Corporate Citizens" between 2000 and 2004 showed "no significant positive correlation between CSR and business profitability as determined by standard measures."
Indeed, he added, "there are some indications from our study that CSR activities lead to decreased profitability."
The 65-year-old Dr. Laffer, who lives in San Diego, said that a profitability comparison of compound annual net income growth, net profit margin, and stock price appreciation showed that "only a minority of the 28 CSR-leading companies in each comparison outperformed their peers."
"Being a CSR-leading company was negatively or not correlated with compound annual net income growth, net profit margin, and stock price appreciation," Dr. Laffer said.
His study is intended to generate public discussion of CSR at a time when many top business organizations are under growing pressure to demonstrate more transparency and accountability. Nongovernmental organizations, often taking their cue from Maurice F. Strong - a left-leaning Canadian businessman and environmentalist - have tried to force corporations into supporting environmental and social justice movements as a way of expatiating perceived corporate malfeasance.
This NGO strategy drew fire yesterday from the Competitive Enterprise Institute 's president, Fred L. Smith Jr.
"Modern businesses have sought to apologize, appease, and buy off criticism," he said. "It 's what I like to call the Captain Hook theory: You feed a crocodile your leg in the hope that it will become a vegetarian."
Moving on from the metaphor of crocodiles, Mr. Smith said that NGOs "have become modern-day mandarins."
"And like the mandarins of yesteryear, these NGOs would love to see the expansion of their mandarinate."
There are an estimated 500,000 NGOs in the 191 member states of the United Nations, with nearly 2,000 enjoying consultative status in the UN 's Economic and Social Council, or Ecosoc. Several informal studies have calculated that Western foundations, mainly American ones, typically give around $10 billion annually in grants to NGOs, ostensibly for grassroots projects. But invariably the money gets routed into large-scale demonstrations and protest movements against Big Business, a bete noire of social activists, especially in the Third World.
Dr. Laffer averred that he simply could not bring himself to share what he characterized as the "deep pessimism" of social activists concerning the motives and ability of contemporary corporations.
Being a realist, he said, he understood that the tussles between corporations and social activists frequently flowed from political exigencies. He said he well understood that politics made for both strange bedfellows and stranger foes.
"Perhaps this social tension is exactly what the doctor ordered," he said, adding, however, that "companies are now better run and better organized than they ever were."
That was why he was dismayed by the relentless assault on corporate integrity by social activists, Dr. Laffer said, stressing that such attacks often overlooked the efforts made by CEOs to genuinely reform internal management in order to avoid the sort of scandals that have plagued the business world in recent years.
"What CSR means, really, is redistribution of wealth," he said. In fact, he suggested that consumers who place money in the so-called socially responsible funds often find themselves at the short end of profit-making.
His research found that "those who invest exclusively in companies deemed to be 'socially responsible ' do not appear to receive financial returns that are better than those of conventional investors," Dr. Laffer said.
But he emphasized that his reservations concerning social activism did not mean that he was opposed to protecting the environment and pushing for clean air and water. "No one wants to lose on correct environmental issues," Dr. Laffer said.
Although yesterday 's news conference was intended to highlight his study, titled "Does Corporate Social Responsibility Enhance Business Profitability?" - the answer, of course, was that it doesn 't - Dr. Laffer used the occasion to promote the importance of the tax cuts advocated and instituted by President George W. Bush.
"We are living in absolutely spectacular times," Dr. Laffer said. "This world is fantastic."
Part of his enthusiasm for Mr. Bush 's tax cuts seemed predicated on the fact that the president 's economic policy is based on trickle-down economics, known as supply-side stimulus. One of Mr. Bush 's predecessors, the late President Reagan, was also a subscriber to this economic theory. It holds that the best way to stimulate the economy is to cut taxes on upper-income earners. According to Dr. Laffer, when the tax rates on the wealthy fall, the rich will increase their investments in the economy.
It was in November 1974 that Dr. Laffer drew a curve on a napkin in a Washington bar, linking average tax rates to total tax revenue. That crude drawing soon came to be known as "The Laffer Curve," and it was quickly embraced by right-of-center economists and think tanks - and by Mr. Reagan. Dr. Laffer has since savored the fact that his "curve" became an icon of supply-side economics, drawing encomiums from sources ranging from The Wall Street Journal in New York to The Indian Express in New Delhi. The Laffer theory fell under the rubric of "supply side economics" because the stimulus, or the tax cut, was applied to the suppliers of goods and services from the business sector.
According to one economic Web site, some economists said that "The Laffer Curve" proved that most governments could raise more revenue by cutting tax rates, an argument that was often cited in the 1980s by the tax-cutting governments of President Reagan and Prime Minister Thatcher of Britain. But Dr. Laffer also encountered criticism from other economists that most countries were still at a point on the curve at which raising tax rates would increase revenue.
The other main criticism of supply-side economics has been that there 's no certainty that when taxes on the wealthy are cut, they will use the money to invest in new businesses. As one unidentified writer on an economic Web site puts it, "since these tax cuts happen in bad economic times, investors might decide that their money is safer if they save it rather than invest it."
Yesterday, however, the "father" of supply side economic dismissed such criticisms.
"Tax cuts work. The progress we 're making is in the right direction."
Corporate social responsibility
From Wikipedia, the free encyclopedia
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"Corporate responsibility" redirects here. For other types of responsibility, see Corporate responsibilities. | It has been suggested that corporate citizenship be merged into this article or section. (Discuss) Proposed since August 2012. |
Corporate social responsibility (CSR, also called corporate conscience, corporate citizenship, social performance, or sustainable responsible business/ Responsible Business)[1] is a form of corporate self-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. CSR is a process with the aim to embrace responsibility for the company 's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere who may also be considered as stakeholders.
The term "corporate social responsibility" came into common use in the late 1960s and early 1970s after many multinational corporations formed the term stakeholder, meaning those on whom an organization 's activities have an impact. It was used to describe corporate owners beyond shareholders as a result of an influential book by R. Edward Freeman, Strategic management: a stakeholder approach in 1984.[2] Proponents argue that corporations make more long term profits by operating with a perspective, while critics argue that CSR distracts from the economic role of businesses. Others argue CSR is merely window-dressing, or an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations.
CSR is titled to aid an organization 's mission as well as a guide to what the company stands for and will uphold to its consumers. Development business ethics is one of the forms of applied ethics that examines ethical principles and moral or ethical problems that can arise in a business environment. ISO 26000 is the recognized international standard for CSR. Public sector organizations (the United Nations for example) adhere to the triple bottom line (TBL). It is widely accepted that CSR adheres to similar principles but with no formal act of legislation. The UN has developed the Principles for Responsible Investment as guidelines for investing entities. Contents[hide] * 1 Approaches * 2 Social accounting, auditing, and reporting * 3 Potential business benefits * 3.1 Human resources * 3.2 Risk management * 3.3 Brand differentiation * 3.4 License to operate * 4 Criticisms and concerns * 4.1 Nature of business * 4.2 Motives * 4.3 Ethical consumerism * 4.4 Globalization and market forces * 4.5 Social awareness and education * 4.6 Ethics training * 4.7 Laws and regulation * 4.8 Crises and their consequences * 4.9 Stakeholder priorities * 4.10 Industries Considered Void of CSR * 5 Arguments for Including Disability in CSR * 6 See also * 7 Notes * 8 References * 9 External links * 10 Further reading |
[edit] Approaches
Some commentators have identified a difference between the Canadian (Montreal school of CSR), the Continental European and the Anglo-Saxon approaches to CSR.[3] And even within Europe the discussion about CSR is very heterogeneous.[4]
A more common approach to CSR is corporate philanthropy. This includes monetary donations and aid given to local and non-local nonprofit organizations and communities, including donations in areas such as the arts, education, housing, health, social welfare, and the environment, among others, but excluding political contributions and commercial sponsorship of events.[5] Some organizations[who?] do not like a philanthropy-based approach as it might not help build on the skills of local populations, whereas community-based development generally leads to more sustainable development.[clarification needed Difference between local org& community-dev? Cite]
Another approach to CSR is to incorporate the CSR strategy directly into the business strategy of an organization. For instance, procurement of Fair Trade tea and coffee has been adopted by various businesses including KPMG. Its CSR manager commented, "Fairtrade fits very strongly into our commitment to our communities."[6]
Another approach is garnering increasing corporate responsibility interest. This is called Creating Shared Value, or CSV. The shared value model is based on the idea that corporate success and social welfare are interdependent. A business needs a healthy, educated workforce, sustainable resources and adept government to compete effectively. For society to thrive, profitable and competitive businesses must be developed and supported to create income, wealth, tax revenues, and opportunities for philanthropy. CSV received global attention in the Harvard Business Review article Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility [1] by Michael E. Porter, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School; and Mark R. Kramer, Senior Fellow at the Kennedy School at Harvard University and co-founder of FSG Social Impact Advisors. The article provides insights and relevant examples of companies that have developed deep linkages between their business strategies and corporate social responsibility. Many approaches to CSR pit businesses against society, emphasizing the costs and limitations of compliance with externally imposed social and environmental standards. CSV acknowledges trade-offs between short-term profitability and social or environmental goals, but focuses more on the opportunities for competitive advantage from building a social value proposition into corporate strategy. CSV has a limitation in that it gives the impression that only two stakeholders are important - shareholders and consumers - and belies the multi-stakeholder approach of most CSR advocates.
Many companies use the strategy of benchmarking to compete within their respective industries in CSR policy, implementation, and effectiveness. Benchmarking involves reviewing competitor CSR initiatives, as well as measuring and evaluating the impact that those policies have on society and the environment, and how customers perceive competitor CSR strategy. After a comprehensive study of competitor strategy and an internal policy review performed, a comparison can be drawn and a strategy developed for competition with CSR initiatives.

[edit] Social accounting, auditing, and reporting
Main article: Social accounting
For a business to take responsibility for its actions, that business must be fully accountable. Social accounting, a concept describing the communication of social and environmental effects of a company 's economic actions to particular interest groups within society and to society at large, is thus an important element of CSR.[7]
Social accounting emphasizes the notion of corporate accountability. D. Crowther defines social accounting in this sense as "an approach to reporting a firm’s activities which stresses the need for the identification of socially relevant behavior, the determination of those to whom the company is accountable for its social performance and the development of appropriate measures and reporting techniques."[8] An example of social accounting, to a limited extent, is found in an annual Director 's Report, under the requirements of UK company law.[9]
A number of reporting guidelines or standards have been developed to serve as frameworks for social accounting, auditing and reporting including: * AccountAbility 's AA1000 standard, based on John Elkington 's triple bottom line (3BL) reporting * The Prince 's Accounting for Sustainability Project 's Connected Reporting Framework * The Fair Labor Association conducts audits based on its Workplace Code of Conduct and posts audit results on the FLA website. * The Fair Wear Foundation takes a unique approach to verifying labour conditions in companies ' supply chains, using interdisciplinary auditing teams. * Global Reporting Initiative 's Sustainability Reporting Guidelines * GoodCorporation 's Standard developed in association with the Institute of Business Ethics * Earthcheck www.earthcheck.org Certification / Standard * Social Accountability International 's SA8000 standard * Standard Ethics Aei guidelines * The ISO 14000 environmental management standard * The United Nations Global Compact requires companies to communicate on their progress (or to produce a Communication on Progress, COP), and to describe the company 's implementation of the Compact 's ten universal principles. This information should be fully integrated in the participant’s main medium of stakeholder communications, for example a corporate responsibility or sustainability report and/or an integrated financial and sustainability report. If a company does not publish formal reports, a COP can be created as a stand-alone document.[10] * The United Nations Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) provides voluntary technical guidance on eco-efficiency indicators, corporate responsibility reporting, and corporate governance disclosure.
The FTSE Group publishes the FTSE4Good Index, an evaluation of CSR performance of companies.
In some nations, legal requirements for social accounting, auditing and reporting exist (e.g. in the French bilan social), though international or national agreement on meaningful measurements of social and environmental performance is difficult. Many companies now produce externally audited annual reports that cover Sustainable Development and CSR issues ("Triple Bottom Line Reports"), but the reports vary widely in format, style, and evaluation methodology (even within the same industry). Critics dismiss these reports as lip service, citing examples such as Enron 's yearly "Corporate Responsibility Annual Report" and tobacco corporations ' social reports.
In South Africa, as of June 2010, all companies listed on the Johannesburg Stock Exchange (JSE) were required to produce an integrated report in place of an annual financial report and sustainability report.[11] An integrated report includes environmental, social and economic performance alongside financial performance information and is expected to provide users with a more holistic overview of a company. However, this requirement was implemented in the absence of any formal or legal standards for an integrated report. An Integrated Reporting Committee (IRC) was established to issue guidelines for good practice in this field.
[edit] Potential business benefits
The scale and nature of the benefits of CSR for an organization can vary depending on the nature of the enterprise, and are difficult to quantify, though there is a large body of literature exhorting business to adopt measures beyond financial ones (e.g., Deming 's Fourteen Points, balanced scorecards). Orlitzky, Schmidt, and Rynes[12] found a correlation between social/environmental performance and financial performance. However, businesses may not be looking at short-run financial returns when developing their CSR strategy. Intel employ a 5-year CSR planning cycle.[13]
The definition of CSR used within an organization can vary from the strict "stakeholder impacts" definition used by many CSR advocates and will often include charitable efforts and volunteering. CSR may be based within the human resources, business development or public relations departments of an organisation,[14] or may be given a separate unit reporting to the CEO or in some cases directly to the board. Some companies may implement CSR-type values without a clearly defined team or programme.
The business case for CSR[15] within a company will likely rest on one or more of these arguments:
[edit] Human resources
A CSR program can be an aid to recruitment and retention,[16] particularly within the competitive graduate student market. Potential recruits often ask about a firm 's CSR policy during an interview, and having a comprehensive policy can give an advantage. CSR can also help improve the perception of a company among its staff, particularly when staff can become involved through payroll giving, fundraising activities or community volunteering. CSR has been found to encourage customer orientation among frontline employees.[17]
[edit] Risk management
Managing risk is a central part of many corporate strategies. Reputations that take decades to build up can be ruined in hours through incidents such as corruption scandals or environmental accidents.[18] These can also draw unwanted attention from regulators, courts, governments and media. Building a genuine culture of 'doing the right thing ' within a corporation can offset these risks.[19]
[edit] Brand differentiation
In crowded marketplaces, companies strive for a unique selling proposition that can separate them from the competition in the minds of consumers. CSR can play a role in building customer loyalty based on distinctive ethical values.[20] Several major brands, such as The Co-operative Group, The Body Shop and American Apparel[21] are built on ethical values. Business service organizations can benefit too from building a reputation for integrity and best practice.
[edit] License to operate
Corporations are keen to avoid interference in their business through taxation or regulations. By taking substantive voluntary steps, they can persuade governments and the wider public that they are taking issues such as health and safety, diversity, or the environment seriously as good corporate citizens with respect to labour standards and impacts on the environment.
[edit] Criticisms and concerns
Critics of CSR as well as proponents debate a number of concerns related to it. These include CSR 's relationship to the fundamental purpose and nature of business and questionable motives for engaging in CSR, including concerns about insincerity and hypocrisy.
[edit] Nature of business
Milton Friedman and others have argued that a corporation 's purpose is to maximize returns to its shareholders, and that since only people can have social responsibilities, corporations are only responsible to their shareholders and not to society as a whole. Although they accept that corporations should obey the laws of the countries within which they work, they assert that corporations have no other obligation to society. Some people perceive CSR as in-congruent with the very nature and purpose of business, and indeed a hindrance to free trade. Those who assert that CSR is contrasting with capitalism and are in favor of the free market argue that improvements in health, longevity and/or infant mortality have been created by economic growth attributed to free enterprise.[22]
Critics of this argument perceive the free market as opposed to the well-being of society and a hindrance to human freedom. They claim that the type of capitalism practiced in many developing countries is a form of economic and cultural imperialism, noting that these countries usually have fewer labour protections, and thus their citizens are at a higher risk of exploitation by multinational corporations.[23]
A wide variety of individuals and organizations operate in between these poles. For example, the REALeadership Alliance asserts that the business of leadership (be it corporate or otherwise) is to change the world for the better.[24] Many religious and cultural traditions hold that the economy exists to serve human beings, so all economic entities have an obligation to society (see for example Economic Justice for All). Moreover, as discussed above, many CSR proponents point out that CSR can significantly improve long-term corporate profitability because it reduces risks and inefficiencies while offering a host of potential benefits such as enhanced brand reputation and employee engagement.
[edit] Motives
Some critics believe that CSR programs are undertaken by companies such as British American Tobacco (BAT),[25] the petroleum giant BP (well known for its high-profile advertising campaigns on environmental aspects of its operations), and McDonald 's (see below) to distract the public from ethical questions posed by their core operations. They argue that some corporations start CSR programs for the commercial benefit they enjoy through raising their reputation with the public or with government. They suggest that corporations which exist solely to maximize profits are unable to advance the interests of society as a whole.[26]
Another concern is that sometimes companies claim to promote CSR and be committed to sustainable development but simultaneously engage in harmful business practices. For example, since the 1970s, the McDonald 's Corporation 's association with Ronald McDonald House has been viewed as CSR and relationship marketing. More recently, as CSR has become mainstream, the company has beefed up its CSR programs related to its labor, environmental and other practices[27] All the same, in McDonald 's Restaurants v Morris & Steel, Lord Justices Pill, May and Keane ruled that it was fair comment to say that McDonald 's employees worldwide 'do badly in terms of pay and conditions '[28] and true that 'if one eats enough McDonald 's food, one 's diet may well become high in fat etc., with the very real risk of heart disease. '[29]
Royal Dutch Shell has a much-publicized CSR policy and was a pioneer in triple bottom line reporting, but this did not prevent the 2004 scandal concerning its misreporting of oil reserves, which seriously damaged its reputation and led to charges of hypocrisy. Since then, the Shell Foundation has become involved in many projects across the world, including a partnership with Marks and Spencer (UK) in three flower and fruit growing communities across Africa.
Critics concerned with corporate hypocrisy and insincerity generally suggest that better governmental and international regulation and enforcement, rather than voluntary measures, are necessary to ensure that companies behave in a socially responsible manner. A major area of necessary international regulation is the reduction of the capacity of corporations to sue states under investor state dispute settlement provisions in trade or investment treaties if otherwise necessary public health or environment protection legislation has impeded corporate investments.[30] Others, such as Patricia Werhane, argue that CSR should be considered more as a corporate moral responsibility, and limit the reach of CSR by focusing more on direct impacts of the organization as viewed through a systems perspective to identify stakeholders. For a commonly overlooked motive for CSR, see also Corporate Social Entrepreneurship, whereby CSR can also be driven by employees ' personal values, in addition to the more obvious economic and governmental drivers.
[edit] Ethical consumerism
The rise in popularity of ethical consumerism over the last two decades can be linked to the rise of CSR. As global population increases, so does the pressure on limited natural resources required to meet rising consumer demand (Grace and Cohen 2005, 147). Industrialization, in many developing countries, is booming as a result of both technology and globalization. Consumers are becoming more aware of the environmental and social implications of their day-to-day consumer decisions and are therefore beginning to make purchasing decisions related to their environmental and ethical concerns.[31] However, this practice is far from consistent or universal.
[edit] Globalization and market forces
As corporations pursue growth through globalization, they have encountered new challenges that impose limits to their growth and potential profits. Government regulations, tariffs, environmental restrictions and varying standards of what constitutes "labor exploitation" are problems that can cost organizations millions of dollars. Some view ethical issues as simply a costly hindrance, while some companies use CSR methodologies as a strategic tactic to gain public support for their presence in global markets, helping them sustain a competitive advantage by using their social contributions to provide a subconscious level of advertising. (Fry, Keim, Meiners 1986, 105) Global competition places a particular pressure on multinational corporations to examine not only their own labor practices, but those of their entire supply chain, from a CSR perspective. that all government is controlling.
[edit] Social awareness and education
The role among corporate stakeholders is to work collectively to pressure corporations that are changing. Shareholders and investors themselves, through socially responsible investing are exerting pressure on corporations to behave responsibly. Non-governmental organizations are also taking an increasing role, leveraging the power of the media and the Internet to increase their scrutiny and collective activism around corporate behavior. Through education and dialogue, the development of community awareness in holding businesses responsible for their actions is growing.[32] In recent years, the traditional conception of CSR is being challenged by the more community-conscious Creating Shared Value concept (CSV), and several companies are refining their collaboration with stakeholders accordingly.
[edit] Ethics training
The rise of ethics training inside corporations, some of it required by government regulation, is another driver credited with changing the behavior and culture of corporations. The aim of such training is to help employees make ethical decisions when the answers are unclear. Tullberg believes that humans are built with the capacity to cheat and manipulate, a view taken from Trivers (1971, 1985), hence the need for learning normative values and rules in human behavior.[33] The most direct benefit is reducing the likelihood of "dirty hands" (Grace and Cohen 2005), fines and damaged reputations for breaching laws or moral norms. Organizations also see secondary benefit in increasing employee loyalty and pride in the organization[citation needed]. Caterpillar and Best Buy are examples of organizations that have taken such steps.[34]
Increasingly, companies are becoming interested in processes that can add visibility to their CSR policies and activities. One method that is gaining increasing popularity is the use of well-grounded training programs, where CSR is a major issue, and business simulations can play a part in this.[citation needed]
One relevant documentary is The Corporation, the history of organizations and their growth in power is discussed. Corporate social responsibility, what a company does in trying to benefit society, versus corporate moral responsibility (CMR), what a company should morally do, are both important topics to consider when looking at ethics in CSR. For example, Ray Anderson, in The Corporation, takes a CMR perspective in order to do what is moral and he begins to shift his company 's focus towards the biosphere by utilizing carpets in sections so that they will sustain for longer periods. This is Anderson thinking in terms of Garret Hardin 's "The Tragedy of the Commons," where if people do not pay attention to the private ways in which we use public resources, people will eventually lose those public resources.
[edit] Laws and regulation
Another driver of CSR is the role of independent mediators, particularly the government, in ensuring that corporations are prevented from harming the broader social good, including people and the environment. CSR critics such as Robert Reich argue that governments should set the agenda for social responsibility by the way of laws and regulation that will allow a business to conduct themselves responsibly.
The issues surrounding government regulation pose several problems. Regulation in itself is unable to cover every aspect in detail of a corporation 's operations. This leads to burdensome legal processes bogged down in interpretations of the law and debatable grey areas (Sacconi 2004). For example, General Electric failed to clean up the Hudson River after contaminating it with organic pollutants. The company continues to argue via the legal process on assignment of liability, while the cleanup remains stagnant. (Sullivan & Schiafo 2005).
The second issue is the financial burden that regulation can place on a nation 's economy. This view shared by Bulkeley, who cites the Australian federal government 's actions to avoid compliance with the Kyoto Protocol in 1997, on the concerns of economic loss and national interest. The Australian government took the position that signing the Kyoto Pact would have caused more significant economic losses for Australia than for any other OECD nation (Bulkeley 2001, pg 436). On the change of government following the election in November 2007, Prime Minister Kevin Rudd signed the ratification immediately after assuming office on 3 December 2007, just before the meeting of the UN Framework Convention on Climate Change. Critics of CSR also point out that organisations pay taxes to government to ensure that society and the environment are not adversely affected by business activities.
Denmark has a law on CSR. On 16 December 2008, the Danish parliament adopted a bill making it mandatory for the 1100 largest Danish companies, investors and state-owned companies to include information on corporate social responsibility (CSR) in their annual financial reports. The reporting requirements became effective on 1 January 2009.[35] The required information includes: * information on the companies’ policies for CSR or socially responsible investments (SRI) * information on how such policies are implemented in practice, and * information on what results have been obtained so far and managements expectations for the future with regard to CSR/SRI.
CSR/SRI is still voluntary in Denmark, but if a company has no policy on this it must state its positioning on CSR in their annual financial report. More on the Danish law can be found at CSRgov.dk
[edit] Crises and their consequences
Often it takes a crisis to precipitate attention to CSR. One of the most active stands against environmental mismanagement is the CERES Principles that resulted after the Exxon Valdez incident in Alaska in 1989 (Grace and Cohen 2006). Other examples include the lead poisoning paint used by toy giant Mattel, which required a recall of millions of toys globally and caused the company to initiate new risk management and quality control processes. In another example, Magellan Metals in the West Australian town of Esperance was responsible for lead contamination killing thousands of birds in the area. The company had to cease business immediately and work with independent regulatory bodies to execute a cleanup. Odwalla also experienced a crisis with sales dropping 90%, and the company 's stock price dropping 34% due to several cases of E. coli spread through Odwalla apple juice. The company ordered a recall of all apple or carrot juice products and introduced a new process called "flash pasteurization" as well as maintaining lines of communication constantly open with customers.
[edit] Stakeholder priorities
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. more 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.
Branco and Rodrigues (2007) describe the stakeholder perspective of CSR 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.[36] 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.[37]
[edit] Industries Considered Void of CSR
Several industries are often absent from CSR research. The absence is due to the presumption that these particular industries fail to achieve ethical considerations of their consumers. Typical industries include tobacco and alcohol producers ("sin industry" manufacturers), as well as defense firms[38]
[edit] Arguments for Including Disability in CSR | The neutrality of this section is disputed. Relevant discussion may be found on the talk page. Please do not remove this message until the dispute is resolved. (October 2012) |
In recent years CSR is increasingly becoming a part of a large number of companies. It is becoming an important activity for businesses throughout the globe.
Basically, CSR means that a company 's business model should be socially responsible and environmentally sustainable. By socially responsible, it means that the company 's activities should benefit the society and by environmentally sustainable it means that the activities of the company should not harm the environment.
But currently what we can see is that there is an outburst of enthusiasm for environmental causes only[citation needed]. For example, controlling pollution, global warming, deforestation, mitigate carbon emissions, etc. Whereas it can be said that the same enthusiasm is not seen for social welfare[citation needed]. This is because most of the social welfare activities of the companies contribute to the welfare of us able bodied people but do not take into account the disabled people who are also a part of the society in which the company exists and who amount to at least 10% of the population. Therefore, disability must be made a part of CSR policies of the companies and people with disabilities must be allowed to become stakeholders.
There should be non-discrimination or diversity management awareness-raising and training for employees in the companies, that include disability treatment. They should include the disability factor in employment/HR indicators (age distribution, gender, contract type, professional categories and/or activity areas, rotation) so that the situation of people with disabilities can be compared with that of other employees. The companies should take into account the characteristics of people with disabilities when managing human resources (recruitment, selection, contracting and induction, promotion, training, prevention of risks at work). Customer care staff training should be carried out by the companies aimed at guaranteeing appropriate treatment of people with disabilities. They should have a policy or directive aimed at considering or favouring suppliers and subcontractors that employ people with disabilities, including Sheltered Workshops.
Thus, carrying out business practice which includes disabled people will help improve the company 's reputation and image in an increasingly competitive environment.
Finally, disability is one of the factors that can contribute to "Diversity" and Diversity is a rising value within companies’ management[citation needed]. However, disability is often pushed behind in favour of other diversity criteria[citation needed], thus disability needs to be specifically included within the CSR. [39]
[edit] See also * Accountability * Beneficiation * Business in the Community * Business ethics * Business philosophy * The Business for Peace Foundation * Carbon neutrality * Carbon offset * Chief Green Officer * Civil society * Corporate behaviour * Corporate benefit * Corporate citizenship * Corporate governance * Corporate personhood * Corporate Social Entrepreneurship * Corporate sustainability * Corporation * Csrwire Canada * Customer engagement * Ethical banking * Ethical job * Green economy * Green job * Inclusive business * ISO 26000 * Integrity Management * Life cycle assessment * Matching gift * Not Just For Profit * OECD Guidelines for Multinational Enterprises * Organizational Justice * Principles for Responsible Investment (PRI) * Public Eye Awards * Responsible mining * Shareholder primacy * Sustainability * The Corporation * Volunteer grant * Voluntary compliance
[edit] Notes 1. ^ D Wood, 'Corporate Social Performance Revisited ' (1991) 16(4) The Academy of Management Review 2. ^ R Freeman, Strategic management :a stakeholder approach (Pitman 1984) ISBN 978-0-273-01913-8, on &ots=6ZkgH5ObRI&sig=blXypqsI33PKbEs4Tzk0RBQ-tfg#v=onepage&q&f=false books.google.com 3. ^ Saether, Kim T.; Ruth V. Aguilera (2008). "Corporate Social Responsibility in a Comparative Perspective". In Crane, A., et al. (PDF). The Oxford Handbook of Corporate Social Responsibility. Oxford: Oxford University Press. ISBN 0-19-921159-0. http://www.business.uiuc.edu/aguilera/pdf/Williams%20Aguilera%20OUPfinal%20dec%202006.pdf. Retrieved 2008-03-06. 4. ^ Habisch, André; Jan Jonker, Martina Wegner, R. Schmidpeter (eds.) (2005). Corporate Social Responsibility across the Europe. Heidelberg: Springer. ISBN 978-3-540-23251-3. 5. ^ Tilcsik, A. & Marquis, C. 2013. “Punctuated Generosity: Events, Communities, and Corporate Philanthropy in the U.S., 1980-2006.” Administrative Science Quarterly 6. ^ http://www.fairtrade.org.uk/work/case_studies/read_a_case_study/default.aspx?ID=40 7. ^ R.H. Gray, D.L.Owen & K.T.Maunders, Corporate Social Reporting: Accounting and accountability (Hemel Hempstead: Prentice Hall, 1987) p. IX. 8. ^ D. Crowther, "Social and Environmental Accounting" (London: Financial Times Prentice Hall, 2000), p. 20 9. ^ See Companies Act 2006 section 417 ff 10. ^ http://www.unglobalcompact.org/docs/communication_on_progress/COP_Policy_Feb11.pdf 11. ^ https://www.saica.co.za/tabid/695/itemid/2344/language/en-ZA/An-integrated-report-is-a-new-requirement-for-list.aspx 12. ^ Orlitzky, Marc; Frank L. Schmidt, Sara L. Rynes (2003). "Corporate Social and Financial Performance: A Meta-analysis" (PDF). Organization Studies (London: SAGE Publications) 24 (3): 403–441. doi:10.1177/0170840603024003910. http://www.finanzasostenibile.it/finanza/moskowitz2004.pdf. Retrieved 2008-03-07. 13. ^ E. Curry, B. Guyon, C. Sheridan, and B. Donnellan, “Developing an Sustainable IT Capability: Lessons From Intel’s Journey,” MIS Quarterly Executive, vol. 11, no. 2, pp. 61–74, 2012. 14. ^ "Corporate Social Responsibility and Ethical Careers". University of Edinburgh Careers Service. http://www.careers.ed.ac.uk/STUDENTS/Careers/Corporate%20Social%20Responsibility%20and%20Ethical%20Careers.html. Retrieved 2008-03-07. 15. ^ Bhattacharya, CB, Sankar Sen and Daniel Korschun (2011) Leveraging Corporate Social Responsibility: The Stakeholder Route to Business and Societal Value, Cambridge University Press, Cambridge: UK. 16. ^ Bhattacharya, C.B., Sankar Sen and Daniel Korschun (2008), "Using Corporate Social Responsibility to Win the War for Talent," MIT Sloan Management Review, 49 (2), 37-44; "The Good Company". The Economist. 2005-01-20. http://www.economist.com/surveys/displayStory.cfm?Story_id=3555212. Retrieved 2008-03-07. 17. ^ Korschun, Daniel, C.B. Bhattacharya and Scott Swain (2011), When and How Does Corporate Social Responsibility Encourage Customer Orientation? Working Paper. |url= http://www.esmt.org/en/310145 18. ^ Eisingerich, A.B.; Ghardwaj, G. (2011). "Corporate Social Responsibility: Does Social Responsibility Help Protect a Company 's Reputation?". MIT Sloan Management Review 52 (March): 18–18. http://sloanreview.mit.edu/the-magazine/2011-spring/52313/does-social-responsibility-help-protect-a-companys-reputation/. 19. ^ Kytle, Beth; paramveer singh (2005). "Corporate Social Responsibility as Risk Management: A Model for Multinationals" (PDF). Social Responsibility Initiative Working Paper No. 10.. Cambridge, MA: John F. Kennedy School of Government, Harvard University. http://www.ksg.harvard.edu/m-rcbg/CSRI/publications/workingpaper_10_kytle_ruggie.pdf. Retrieved 2008-03-07. 20. ^ Paluszek, John (April 6–7, 2005). "Ethics and Brand Value: Strategic Differentiation" (PowerPoint). Business and Organizational Ethics Partnership Meeting. Markkula Center for Applied Ethics, Santa Clara University. http://www.scu.edu/ethics/practicing/focusareas/business/ethics-and-brand-value.ppt. Retrieved 2008-03-07. 21. ^ "Dr. Tantillo’s 30-Second 'How To ': How To Brand CSR The American Apparel Way" Marketing Doctor Blog. March 28, 2008. 22. ^ Friedman, Milton (1970-09-13). "The Social Responsibility of Business is to Increase its Profits". The New York Times Magazine. http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html. Retrieved 2008-03-07. 23. ^ c.f., Aquino, M.P., Nuestro Clamor por la Vida. Teología Latinoamericana desde la Perspectiva de la Mujer (San José, Costa Rica: Departamento Ecuménico de Investigaciones, 1992), et al. 24. ^ Real Leadership Alliance 25. ^ "British American Tobacco Report Shows Truth Behind Greenwash" (Press release). Friends of the Earth. 2005-04-28. http://www.foe.co.uk/resource/press_releases/british_american_tobacco_r_27042005.html. Retrieved 2008-03-07. 26. ^ McKibben, Bill (November/December 2006). "Hope vs. Hype". Mother Jones. http://www.motherjones.com/news/feature/2006/11/hype_vs_hope.html. Retrieved 2008-03-07. 27. ^ McDonald 's Corporation CSR information 28. ^ [Appeal Judgment p247] 29. ^ [Judgment p264] 30. ^ Ganguly, S (1999) The Investor-State Dispute Mechanism (ISDM) and a Sovereign’s power to protect public health. Columbia Journal of Transnational Law 38:113 31. ^ Eisingerich, A.B.; Rubera, G.; Seifert, M.; Bhardwaj, G. (2011). "Doing Good and Doing Better Despite Negative Information? The Role of Corporate Social Responsibility in Consumer Resistance to Negative Information". Journal of Service Research 14 (February): 60–75. doi:10.1177/1094670510389164. http://jsr.sagepub.com/content/14/1/60.abstract. 32. ^ Roux, M. (2007). "Climate conducive to corporate action: 1 All-round Country Edition". The Australian: 14. http://www.theaustralian.news.com.au/story/0,25197,22356183-7583,00.html. 33. ^ Tullberg, J.; Tullberg, S. (1996). "On Human Altruism: The Discrepancy between Normative and Factual Conclusions". Oikos 75 (2): 327–329. doi:10.2307/3546259. JSTOR 3546259. 34. ^ Thilmany, J. (2007). "Supporting Ethical Employees". HR Magazine 52 (2). http://www.shrm.org/hrmagazine/07September/. 35. ^ Danish Centre for CSR 's official website CSRgov.dk 36. ^ Branco, M.C.; Rodrigues, L.L. (2007). "Positioning stakeholder theory within the debate on corporate social responsibility". Electronic Journal of Business Ethics and Organization Studies 12: 5–15. http://ejbo.jyu.fi/pdf/ejbo_vol12_no1_pages_5-15.pdf. Retrieved 13 March 2011. 37. ^ Shumate, M; O 'Conner, A. (2010). "The symbiotic sustainability model: Conceptualizing NGO-corporate alliance communication". Journal of Communication 60 (3): 577–609. doi:10.1111/j.1460-2466.2010.01498.x. 38. ^ Halpern, Barton; Keith F. Snider (2012). "Products that Kill and Corporate Social Responsibility: The Case of US Defense Firms". Armed Forces & Society 38 (4): 604-624. http://afs.sagepub.com/content/38/4/604.abstract. 39. ^ [rsed.fundaciononce.es/en/introduccion_RSED.htmlCached- "CSR and disability"]. rsed.fundaciononce.es/en/introduccion_RSED.htmlCached-. Retrieved 1/10/2011.
[edit] References | This article includes a list of references, but its sources remain unclear because it has insufficient inline citations. Please help to improve this article by introducing more precise citations. (July 2009) | * Baker, M. "[1]". "Companies in Crisis- What to do when it all goes wrong." * Bansal, P.; Roth, R. (2000). "Why Companies Go Green: A model of Ecological Responsiveness". The Academy of Management Journal 43 (4): 717–736. doi:10.2307/1556363. ISSN 0001-4273. JSTOR 1556363. * Bhattacharya, CB, Sankar Sen and Daniel Korschun (2011) Leveraging Corporate Social Responsibility: The Stakeholder Route to Business and Social Value, Cambridge University Press, Cambridge: UK. * Bulkeley, H. (2001). "Governing Climate Change: The Politics and Risk Society". Transactions of the Institute of British Geographers, New Series, Vol.26, No.4, pp. 430–447. * Brand Strategy (2007). "10 key things to know about CSR". London. pg.47. * Catalyst Consortium (2002). "What is Corporate Social Responsibility?" * Feltus, C.; Petit, M.; Dubois, E.(2009). Strengthening employee 's responsibility to enhance governance of IT: COBIT RACI chart case study, Proceedings of the first ACM workshop on Information security governance (WISG '09), Chicago, Il, USA. Strengthening employee 's responsibility to enhance governance of IT: COBIT RACI chart case study ISBN 978-1-60558-787-5 * Fialka. J. (2006). "Politics & Economics: Big Businesses Have New Take on Warming; Some Companies Move From Opposition to Offering Proposals on Limiting Emissions". Wall Street Journal. pg.A.4. * Fields, S. (2002). "Sustainable Business Makes Dollars and Cents". Environmental Health Perspectives, Vol.110, No.3, pp.A142-A145. * Fry, L. W.; Keim, G. D.; Meiners, R. E. (1982). "Corporate Contributions: Altruistic or for Profit?". The Academy of Management Journal 25 (1): 94–106. doi:10.2307/256026. ISSN 0001-4273. JSTOR 256026. * Grace, D., S. Cohen (2005). Business Ethics: Australian Problems and Cases. Oxford University Press. ISBN 0-19-550794-0. * International Court of Justice. "How the Court Works". * Pitts, C. (ed.), M. Kerr, R. Janda, & C. Pitts (2009) Corporate Social Responsibility: A Legal Analysis (Toronto: LexisNexis). ISBN 978-0-433-45115-0. * Roux, M. (2007). "Climate conducive to corporate action: 1 All-round Country Edition". The Australian. Canberra, A.C.T. pg.15. online article * Sacconi, L. (2004). A Social Contract Account for CSR as Extended Model of Corporate Governance (Part II): Compliance, Reputation and Reciprocity. Journal of Business Ethics, No.11, pp. 77–96. * Sullivan, N.; R. Schiafo (2005). Talking Green, Acting Dirty (Op-Ed). New York Times, June 12, 2005. * Sun, William (2010), How to Govern Corporations So They Serve the Public Good: A Theory of Corporate Governance Emergence, New York: Edwin Mellen, ISBN 978-0-7734-3863-7. * Thilmany, J. 2007. "Supporting Ethical Employees." HR Magazine, Vol. 52, No.2, September 2007, pp. 105–110. * Tullberg, S.; Tullberg, J. (1996). "On Human Altruism: The Discrepancy between Normative and Factual Conclusions". Oikos 75 (2): 327–329. doi:10.2307/3546259. ISSN 0030-1299. JSTOR 3546259. * K. C. John Wei (2011). Corporate Social Responsibility – A Comparison Between Vietnam and China, International Journal of Governance. Vol. 1, No.1, July 2011. * Visser, W., D. Matten, M. Pohl, Nick Tolhurst (eds.) (2008). The A to Z of Corporate Social Responsibility. Wiley. ISBN 978-0-470-72395-1.
[edit] External links * Foundation for Corporate Social Responsibility [2]
[edit] Further reading | This article 's further reading may not follow Wikipedia 's content policies or guidelines. Please improve this article by removing excessive, less relevant or many publications with the same point of view; or by incorporating the relevant publications into the body of the article through appropriate citations. (August 2010) | * Baker, Mallen. "Arguments against Corporate Social Responsibility". Business Respect. http://www.mallenbaker.net/csr/CSRfiles/against.html. Retrieved 2008-03-07. * Carroll, A.; A. Buchholtz (2006). Business and Society: Ethics and Stakeholder Management, 6th ed. Mason, OH: Thomson/South-Western. ISBN 0-324-22581-4. * Carroll, A. (1998). "The Four Faces of Corporate Citizenship". Business and Society Review. September, vol. 100, no. 1, pp. 1–7 * Cavett-Goodwin, David (2007-12-03). "Making the Case for Corporate Social Responsibility". Cultural Shifts. http://culturalshifts.com/archives/181. Retrieved 2008-03-07. * Clarkson, M. (1995). "A stakeholder framework for analyzing and evaluating corporate social performance". Academy of Management Review 20 (1): 92–117. doi:10.2307/258888. * Commission of the European Communities (2006): IMPLEMENTING THE PARTNERSHIP FOR GROWTH AND JOBS: MAKING EUROPE A POLE OF EXCELLENCE ON CORPORATE SOCIAL RESPONSIBILITY * Davis, K.; R. Blomstrom (1975). Business and Society: Environment and Responsibility, New York: McGraw-Hill. ISBN 0-07-015524-0. * Davis, Kevin R. (2007). "The Compliance Racket". The Chronicle of Higher Education 53 (20): B11. * Farnham Castle. "Corporate Social Responsibility: New Fad or Necessity". http://www.intercultural-training.co.uk/articles/general/corporate_social_resp.asp. Retrieved 2008-03-07. * "Ian Davis on business and society". The Economist. 2005-05-26. http://www.economist.com/printedition/displayStory.cfm?Story_ID=4008642. Retrieved 2008-03-07. - advantages and limitations of CSR * Feltus, C.; Petit, M. (2009). "Building a Responsibility Model Including Accountability, Capability and Commitment", Proceedings of the Fourth International Conference on Availability, Reliability and Security, Institute of Electrical and Electronics Engineers ( IEEE ), Fukuoka, 2009. Building a Responsibility Model Including Accountability, Capability and Commitment * Fombrun, C. (2000). "The value to be found in corporate reputation". Financial Times, December 4, 2000. * Griffin, J.; Mahon, J. (1997). "The Corporate Social Performance and Corporate Financial Performance Debate". Business and Society 36: 5–31. * Holton, Glyn A.. "Investor Suffrage Movement" (PDF). Financial Analysts Journal 62 (6). http://www.contingencyanalysis.com/home/papers/suffrage.pdf. Retrieved 2008-03-07. * Habisch, A; Jonker, J.; Wagner, M; Schmidpeter, R.(2005): Corporate Social Responsibility Across Europe. Springer. ISBN 3-540-23251-6. * Hemingway, C.A. (2005). "Personal Values as a Catalyst for Corporate Social Entrepreneurship". Journal of Business Ethics 60 (3): 233–249. doi:10.1007/s10551-005-0132-5. * Halpern, Barton H. and Keith F. Snider. (2012) Products that Kill and Corporate Social Responsibility: The Case of U.S. Defense Firms, Armed Forces & Society, Vol. 38, No. 4 * International Business Report (2008). Corporate Social Responsibility: a necessity not a choice, Grant Thornton. * Jastram, Sarah (2007). "The Link Between Corporate Social Responsibility and Strategic Management". CIS Papers No.17. Centre of International Studies, Hamburg. * Joseph, Amita (2010). "A Picture of CSR in India", CSR360 Global Partner Network. * Lin-Hi, Nick (2008). "Corporate Social Responsibility: An Investment in Social Cooperation for Mutual Advantage", Wittenberg Center for Global Ethics Discussion Paper 2008-6. * Maignan, I.; Ferrell, O.; Tomas, G. (1999). "Corporate Citizenship: Cultural Antecedents and Business Benefits". Journal of the Academy of Marketing Science 27 (4): 455–469. doi:10.1177/0092070399274005. * Maignan, I.; Ferrell, O. (2001). "Corporate citizenship as a marketing instrument". European Journal of Marketing 35 (3/4): 457–484. doi:10.1108/03090560110382110. * Matten, D.; Crane, A.; Chapple, W. (2003). "Behind the mask: Revealing the true face of corporate citizenship". Journal Business Ethics 45 (1): 109. * Menon, A.; Menon, A. (1997). "Enviropreneurial marketing strategy: the emergence of corporate environmentalism as marketing strategy". Journal of Marketing 61 (1): 51–67. doi:10.2307/1252189. * "Millennium Poll on Corporate Responsibility", Environics International Ltd., in cooperation with The Prince of Wales Trust, September 1999. * Jones, I., M. Pollitt, D. Bek (2006). "Multinationals in their communities: A social capital approach to corporate citizenship projects", University of Cambridge Working Paper 337. * Manne, Henry G. (2006-11-24). "Milton Friedman Was Right". The Wall Street Journal. http://www.opinionjournal.com/editorial/feature.html?id=110009295. Retrieved 2008-03-07. * Milchen, Jeff (May, 2000). "Inherent Rules of Corporate Behavior". ReclaimDemocracy.org. http://reclaimdemocracy.org/corporate_accountability/corporations_cannot_be_responsible.html. Retrieved 2008-03-07. * Norman, Wayne; Chris MacDonald. "Triple Bottom Line: a Critique". http://www.businessethics.ca/3bl. Retrieved 2008-03-07. * Porter, Michael; Mark Kramer. "The Link Between Competitive Advantage and Corporate Social Responsibility" (PDF). Harvard Business Review. http://harvardbusinessonline.hbsp.harvard.edu/email/pdfs/Porter_Dec_2006.pdf. * Rowe, James (2005-01-01). "Corporate Social Responsibility as Business Strategy". CGIRS-Reprint-2005-08. Center for Global, International, and Regional Studies, University of California, Santa Cruz. http://repositories.cdlib.org/cgirs/reprint/CGIRS-Reprint-2005-08/. Retrieved 2008-03-07. * Sen, Sankar, C. B. Bhattacharya and Daniel Korschun (2006). "The Role of Corporate Social Responsibility in Strengthening Multiple Stakeholder Relationships: A Field Experiment." Journal of the Academy of Marketing Science, 34 (2), 158-66. * SMEs Focus. "Making Europe a Pole of Excellence on Corporate Social Responsibility (CSR)". * Spence, L.; Habisch, A.; Schmidpeter R. (Editors) (2004). Responsibility and Social Capital. The World of Small and Medium Sized Enterprises. Palgrave. ISBN 0-333-71459-8. * Totikidis, V. & Heenitigala, K. (2008) "Corporate Social Responsibility in a Troubled World: Keeping Sight of Local and Global Community Problems". Poster presented at: Managing in the Pacific Century: The Australian and New Zealand Academy of Management 22nd Annual Conference. The University of Auckland Business School. 2–5 December 2008. * Visser, Wayne, Dirk Matten, Manfred Pohl, and Nick Tolhurst (Editors) (2007). The A to Z of Corporate Social Responsibility. London, England; New York, NY: Wiley. ISBN 978-0-470-72395-1. * Waddell, S. (2000). "New institutions for the practice of corporate citizenship: Historical Intersectoral, and Developmental Perspectives". Business and Society Review 105: 323–345. * Wartick, S.; Cochran, P. (1985). "The Evolution of the Corporate Social Performance Model". Academy of Management Review 10: 767. * Wheeler, David; Maria Sillanpää (1997). The Stakeholder Corporation: a blueprint for maximizing stakeholder value. London: Pitman. ISBN 0-273-62661-2. * Wood, D. (1991). "Corporate Social Performance Revisited". 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