Business Law Paper - D. Terry Final
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Running Header: SHOULD COMPANIES BEHAVE ETHICALLY 1
Should companies behave ethically and be held accountable by society for their actions?
Daniel Terry
Southeastern University
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SHOULD COMPANIES BEHAVE ETHICALLY 2
Table of Contents
Abstract……………………………………………………………………………………………3
Should Companies Behave Ethically and Be Held Accountable by Society for Their Actions?....4
Overview of Corporate Social Responsibility………………………….…………………………4
Environmental Initiatives……………………………………….…………………………5
Social Initiatives…………………………………………………………………………...5
Theories………………..……………………………………………...…………………...5
Stakeholder Approach Theory…………………………..………………………...5
Corporate Citizenship Theory……………………………………………………..6
Advantages and Disadvantages of CSR…………………………………………………………..6
Advantages………………………………………………………………………………...6
Profitability and Value…………………………………………………………….6
Customer Relations………………………………………………………………..6
Disadvantages……………………………………………………………………………..7
Costs………………………………………………………………………………7
Pressure to Perform………………………………………………………………..7
The Need for CSR…………………………………………………………………………………7
BP and Deepwater Horizon……………………………………………………………….7
Coca-Cola…………………………………………………………………………………8
Application of CSR……………………………………………………………………………….8
IBM………………………………………………………………………………………..8
Conclusion………………………………………………………………………………………...9
References………………………………………………………………………………………..11
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SHOULD COMPANIES BEHAVE ETHICALLY 3
Abstract
This paper provides an overview and theories as well as advantages and disadvantages, including
profitability and value, customer relations, costs, and pressure to perform, associated with the
application of corporate social responsibility (CSR) in organizations of all sizes and kinds.
Examples of companies that would be good candidates for CSR initiatives are explored —
BP/Deepwater Horizon and Coca-Cola — as well a company in which CSR initiatives are
already present — IBM.
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SHOULD COMPANIES BEHAVE ETHICALLY 4
Should companies behave ethically and be held accountable by society for their actions?
In today’s marketplace, companies worldwide are competing for the top rung of the
corporate ladder. However, determining how to generate the most profits possible while also
doing so ethically and responsibly can surprisingly be a great challenge for many companies.
Especially with the outsourcing of labor to workers in foreign countries becoming even more
commonplace, executives may be tempted to turn a blind eye to issues such as poor labor
conditions or misuse of environmental resources. In order to combat this situation, a movement
known as corporate social responsibility (CSR) has become popular among companies seeking to
demonstrate their concern for the economic, social and environmental impact of their business
operations.
Overview of Corporate Social Responsibility
Corporate social responsibility (CSR), also known as corporate citizenship, is defined as
“a corporation's initiatives to assess and take responsibility for the company's effects on
environmental and social well-being” (“Corporate Social Responsibility Definition,” n.d.). This
typically involves companies adopting codes of ethical conduct, which are enforced not only in
their own operations but also at all suppliers and other entities along their supply chain. These
initiatives promote socially and environmentally conscious business practices that often go
beyond the regulations put into place by environmental agencies and other regulatory bodies
(“Corporate Social Responsibility Definition,” n.d.).
There was a time that CSR initiatives were something only a special niche of
organizations participated in. However, today it is growing ever more popular for executives to
look beyond their fiscal goals and implement CSR initiatives at their companies. Throughout the
world, companies are making environmentally and socially conscious business decisions that
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SHOULD COMPANIES BEHAVE ETHICALLY 5
will not only improve the future of the environment and its people but also enhance consumers’
view of participating companies — leading to purchases of their goods and/or services. An
increasing number of companies now report on their initiatives in the area of corporate social
responsibility, with only 2,000 companies reporting in 2008 to nearly 6,000 reporting in 2011
(Blancard, 2012).
Environmental Initiatives
The environmental component of CSR is what is often thought of when people think of
this movement. Multiple companies “go green,” hoping to garner goodwill with consumers.
Even television companies will turn their logo green for a month to remind their audience that
they are trying to reduce their carbon footprint on the world.
Social Initiatives
Another aspect of CSR is community involvement. This goal of CSR can consist of
funding research, donating to the community, and other actions that will positively affect a
community. Many environmental actions can also be considered as considered to be social
initiatives and vice versa.
Theories
There are a variety of theories today focusing on the application of CSR in organizations,
two of the most common being the stakeholder approach and corporate citizenship.
Stakeholder approach theory. The stakeholder approach focuses on a company’s duty
to its shareholders and groups that are affected by the company’s choices and actions — its
stakeholders. A company has to be wary of how its decisions affect its stakeholders. Within this
view, it is possible that in certain circumstances, some of the outside groups may have more at
stake than the shareholders do. The problem that often arises is which group should be
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SHOULD COMPANIES BEHAVE ETHICALLY 6
considered to be more important when they have a conflict in interest — that is, if one decision
affects one group and the opposite decision affects another group, which should be the most
important (Clarkson, Miller, & Cross, 2012)?
Corporate citizenship theory. The corporate citizenship theory calls for companies to
behave as good citizens. Under this view, a company should strive for goals that society views as
worthy and work to remedy social issues. “With great power comes great responsibility” — With
the amount of wealth and power a company has, it is responsible to use its influence in a positive
way that will benefit communities (Clarkson, Miller, & Cross, 2012).
Advantages and Disadvantages of CSR
Advantages
Profitability and value. Companies that introduce energy-efficiency and recycling
programs are cutting costs of operations as well as improving the environment. Because a
company is more accountable through its CSR initiatives, its actions often make the company
more appealing to investors, such as mutual funds that incorporate CSR in their process of
selecting stocks. By being more open to shareholders, investor analysts, the media, and local
communities, companies are increasing their value and probability (Kielmas, n.d.).
Customer relations. Consumers are becoming more and more interested in companies
that have a positive reputation. Research has shown that 77 percent of consumers think that a
company should be socially responsible. Research has also shown that consumers will spend 10
percent more for products if the company has a reputation of being socially responsible
(Kielmas, n.d.).
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Disadvantages
Costs. A major disadvantage of CSR can be the costs associated with implementing the
initiatives, especially when it comes to small businesses; large companies can often afford
budgeting for CSR implementation and reporting. For small businesses, however, social media
can be a cost-effective way to spread the word about its CSR initiatives to its customers and
community — that is, unless the business decides to hire an employee to manage the social
media efforts full time (Kielmas, n.d.).
Pressure to perform. Companies that implement CSR initiatives are often under
pressure to continue their efforts and even outdo themselves as the years go by. As a result,
greenwashing is a temptation for some firms. Greenwashing occurs when a company says that it
is socially responsible — potentially even devoting money toward marketing itself as such.
However, profit is its primary end game, and its initiatives may be little more than hot air. There
are those who believe that a company has a duty to its shareholders first and foremost. They
believe that CSR is in direct conflict with their belief, and maximizing profits for shareholders
should be the main focus for executives (Kielmas, n.d.).
The Need for CSR
BP and Deepwater Horizon
One example of a company’s actions that negatively impacted not only the environment
itself but also the surrounding communities was the 2010 BP and Deepwater Horizon oil spill. In
addition to the damage caused to marine life, locals and businesses that relied on fishing to make
a living were negatively impacted. Florida’s tourism also took a hit, as visitors avoided beaches
that might have oil and dead animals washing up on shore.
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SHOULD COMPANIES BEHAVE ETHICALLY 8
Coca-Cola
Coca-Cola is another corporation that has been shown to abuse workers' rights, according
to the International Labor Rights Forum. Eight union leaders from Coca-Cola bottling plants
located in Colombia were murdered between 1989 and 2002 following protests of the company's
labor practices. In addition, hundreds of other Coca-Cola workers who have joined or considered
joining a Colombian union known as SINALTRAINAL have been kidnapped, tortured, and
detained by paramilitaries who were hired to intimidate workers in order to prevent them from
unionizing (“The 14 Worst Corporate Evildoers,” 2005).
Application of CSR
IBM
Corporate social responsibility is a top company priority at IBM. With more than $3
billion spent each year along its supply chain, IBM’s spending exceeds that of all other
technology companies in this area. As a result, it is important for IBM to set a standard of
excellence in maintaining high ethical standards of behavior at its local offices and along its
supply chain. IBM follows all applicable regulations and laws, but it had also extended its efforts
beyond that by helping develop an industry-specific code of conduct to aid in creating sound
global markets though ethical business practices (“Supply Chain Social Responsibility,” n.d.).
In conjunction with over 100 other electronic services, goods, and software companies
during March 2013, IBM helped develop and then adopted the Electronic Industry Citizenship
Coalition (EICC) code of conduct. The EICC code outlines the minimum social responsibility
standards expected among all suppliers who do business with IBM and the other member
companies (“Supply Chain Social Responsibility,” n.d.). Its standards focus on ethical, social,
and environmental issues common to the electronics industry supply chain. It is reviewed every
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SHOULD COMPANIES BEHAVE ETHICALLY 9
three years to determine whether the standards are still effective and relevant (“Code of
Conduct,” n.d.). IBM mandates that its suppliers follow the practices and expectations outlined
in the EICC code, but the company also encourages them to adopt the code and consider joining
the organization as well (“Supply Chain Social Responsibility,” n.d.).
Conclusion
The need for companies of all kinds and sizes to be held accountable by society for
behaving ethically is apparent, and corporate social responsibility initiatives could play an
important role in helping remedy the negative impact of organizations. As companies grow, they
have the potential to impact people, communities, and the environment in a significant — and
often negative — way. Forests might be leveled for the purpose of expansion, and cultures can
drown in a sea of growth. Even though there are companies that have done terrible things in the
name of profit and power, there has been a rise in companies striving to rectify the problems they
or other companies have caused.
Whatever the negative side effects of a company’s decision, they can no longer be
ignored as they once were. Social media is everywhere, and with it, people are becoming better
informed. Because of social media, other media outlets are starting to cover stories that were
before looked over in regard to organizations’ irresponsible actions. Previously, companies were
able to keep their affairs private and could get away with certain actions that they are no longer
able to do so. Companies now need to look forward and cast themselves in a positive light. Many
companies have moved beyond this self-serving mindset and begun focusing on serving others.
Companies are moving beyond the infant stages of CSR and are beginning to bring true
change. They are making positive choices, like “going green,” not only for goodwill but also to
improve the quality of people’s lives and hopefully prolong the environment. Some companies
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are starting to understand that consumers are looking for more that just a brand. They are looking
for companies that align with their beliefs. As a result, companies are looking into many
different theories of CSR, which are helping to fine-tune their initiatives.
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References
Blancard, D. (2012, May 14). Corporate Social Responsibility in the Supply Chain. Retrieved
May 1, 2016, from
http://www.industryweek.com/articles/corporate_social_responsibility_in_the_supply_c
hain_27347.aspx
Clarkson, K. W., Miller, R. L., & Cross, F. B. (2012). Business law: Text and cases. Mason, OH:
South-Western, CENGAGE Learning.
Code of Conduct. (n.d.) Retrieved May 1, 2016, from
http://www.eiccoalition.org/standards/code-of-conduct/
Corporate Social Responsibility Definition. (n.d.) Retrieved May 1, 2016, from
http://www.investopedia.com/terms/c/corp-social-responsibility.asp
Kielmas, M. (n.d.). Pros and Cons of Corporate Social Responsibility. Retrieved May 1, 2016,
from http://smallbusiness.chron.com/pros-cons-corporate-social-responsibility-
56247.html
Supply Chain Social Responsibility. (n.d.) Retrieved May 1, 2016, from http://www-
03.ibm.com/procurement/proWeb.nsf/ContentDocsByTitle/United+States~Supply+chai
n+social+responsibility
The 14 Worst Corporate Evildoers. (2005, February 12). Retrieved May 1, 2016, from
http://www.laborrights.org/in-the-news/14-worst-corporate-evildoers