2.3 Managing a Socially Responsible Business

Corporate social responsibility (CSR) is a crucial aspect of modern business. It encompasses economic, legal, ethical, and philanthropic responsibilities. Companies must balance profitability with legal compliance, ethical behavior, and community engagement to create a positive impact on society.

Beyond legal requirements, socially responsible activities include sustainable practices, ethical sourcing, promoting diversity, supporting communities, and social advocacy. The corporate behavior spectrum ranges from illegal and irresponsible to legal and responsible actions. Emerging concepts like circular economy and shared value are shaping the future of CSR.

Corporate Social Responsibility

Components of corporate social responsibility

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• Economic responsibilities involve being profitable and providing value to shareholders serves as the foundation for the other responsibilities
• Legal responsibilities require complying with laws and regulations operating within the legal framework of society
• Ethical responsibilities entail acting in a manner consistent with societal expectations and ethical norms going beyond legal requirements to do what is right and fair
  • Ethical leadership plays a crucial role in setting the tone for organizational culture and decision-making
• Philanthropic responsibilities include contributing to the well-being and quality of life in the community engaging in charitable activities and supporting social causes
• The relationship between the components is hierarchical, with economic responsibilities as the base each level builds upon the previous, with philanthropic responsibilities at the top companies should strive to fulfill all four components simultaneously

Socially responsible activities beyond legality

• Implementing sustainable business practices by reducing carbon footprint and minimizing environmental impact using renewable energy sources (solar, wind) and eco-friendly materials (biodegradable packaging)
• Engaging in ethical sourcing and supply chain management ensuring fair labor practices and working conditions avoiding suppliers that exploit workers or engage in unethical practices (sweatshops, child labor)
• Promoting diversity, equity, and inclusion in the workplace implementing non-discriminatory hiring practices providing equal opportunities for advancement and leadership roles
• Supporting local communities through philanthropy donating to charitable organizations (food banks, homeless shelters) and causes encouraging employee volunteerism and community involvement (park cleanups, mentorship programs)
• Engaging in cause marketing and social advocacy aligning marketing campaigns with social issues (breast cancer awareness, LGBTQ+ rights) using brand influence to raise awareness and drive positive change
• Pursuing social entrepreneurship by developing innovative business models that address societal challenges while generating profit

Corporate Behavior Spectrum

Spectrum of corporate behavior

• Illegal and irresponsible behavior:
  1. Enron scandal (2001) involved fraudulent accounting practices and financial misrepresentation led to company's collapse and significant losses for stakeholders
  2. Volkswagen emissions scandal (2015) involved cheating on diesel emissions tests using defeat devices violated environmental regulations and misled consumers
• Legal but irresponsible behavior:
  1. Nestlé's water extraction practices legally extracting groundwater in areas facing water scarcity contributing to environmental strain and community hardship
  2. Pharmaceutical companies' drug price gouging drastically increasing prices of life-saving medications (insulin, EpiPens) exploiting patent protections and limited market competition
  3. Greenwashing: making misleading environmental claims to appear more eco-friendly than reality
• Legal and responsible behavior:
  1. Patagonia's commitment to sustainability using recycled materials (plastic bottles) and minimizing environmental impact donating a portion of profits to environmental causes (1% for the Planet)
  2. Microsoft's corporate philanthropy substantial donations to global health (malaria research) and education initiatives (STEM programs) employee matching programs and support for local communities (disaster relief)

Emerging Concepts in Corporate Social Responsibility

• Circular economy: designing products and systems to eliminate waste and maximize resource efficiency
• Shared value: creating economic value in a way that also produces value for society
• Social license to operate: earning and maintaining community acceptance and approval for business operations
• Impact investing: making investments with the intention to generate positive social and environmental impact alongside financial returns