Corporate Social Responsibility in Business - Case Study Example

Corporate Social Responsibility Case Study Introduction Corporate social responsibility (CSR) and business ethics are intertwined. In fact, some definitions of CSR take into account the fact that businesses have to behave ethically even as they conduct their activities with a motive to maximise profits. This paper analyses three different views of CSR based on a case study by Velasquez (2012) titled “The tobacco companies and product safety” (p. 316). The classical economic view The classical economic view is based on Milton Friedman’s perception of CSR and argues against CSR activities. Friedman denied the status of corporate citizenship and any other duty of a firm other than making profits (Bacher, 2007, p. 16; Bueble, 2009, p. 4). From this point of view, the role of a business is to conduct business and make money, and the firm should therefore use its resources for the sole purpose of maximising profit. Turning to the case study, the US government alleged that cigarette firms conspired to deceive the public about the dangers of smoking and its addictive nature. From Friedman’s viewpoint, the cigarette firms had only one objective: to make money from manufacturing and selling tobacco products. Thus, from the classical view of CSR, there was really no need for the cigarette firms to look beyond the narrow view of maximising profit since doing so is seen to generate a net cost to the company (Zu, 2009, p. 23). For instance, if the cigarette forms would have engaged in campaigns to enlighten the public on the dangers of smoking, this would have twofold implications: first, the firms would have to bear the costs of those campaigns; and second, the campaigns would result in reduced sales as some consumers would quit smoking. Both instances would possibly result in losses or reduced sales for the cigarette firms, which is not the aim of doing business from Friedman’s standpoint. Friedman’s arguments as to why firms (in this case tobacco companies) should not engage in initiatives that do not increase their profits are threefold. First, Friedman argued that corporate philanthropy would distort allocative efficiency (Bacher, 2007, p. 16). That is, when firms start to donate money or other resources such as working hours of employees to charitable activities or to organisations like hospitals, for purposes that are not expected to offer the highest expected payoff, then it is a waste of resources. In other words, cigarette firms should stick to their business of manufacturing and selling cigars. The second argument is that it is undemocratic for organisations to use shareholders’ resources to support “good causes” or charities. Getting involved in charitable activities means that a tobacco firm could have to reduce its employees’ wages, extend credit limits and set higher prices for consumers in order to counterbalance the resources consumed. According to Friedman, corporations (in this case the tobacco companies) are not the agents eligible to exert distributive justice since this is the role of governments and other relevant authorities (Bacher, 2007, p. 16). The third point is about the nature of an organisation. Friedman’s argument for instance is that firm managers are no more than agents of the shareholders who ultimately are their employers. Therefore, going by this approach, any activity by managers of cigarette firms which does not aim to maximise profits is like a tax to the organisation, which should be left to the government alone (Mullerat, 2010, pp. 32-33). Consequently, any notion of CSR would not have been applied since they did whatever they could to ensure that they maximise their profits. As such, from the perspective of Friedman’s argument, the issue of CSR does not arise for the tobacco companies. The socio-economic view This approach represents the narrow view of making profits but accepts that practicing some degree of social responsibility will result in net gains to the company in terms, for instance, of avoiding too costly and discomfiting regulation, establishing cordial customer relationships, amicable supplier relationships, or the politics of networking (Zu, 2009, p. 23). This view also reflects the “Kew Gardens” principle which touches on the consequences of failing to act given a scenario that could have deleterious consequences in the end (Monks & Minow, 2012,). For instance, cigarette companies in the case study were aware of the consequences of smoking but they went on to convince the public to buy them by presenting findings to dispute the harmful effects of smoking. They also convinced the public that 113,597 doctors were smoking the Camel brand (Velasquez, 2012, p. 316). There is no doubt that the companies had knowledge of the consequences of smoking as indicated in the case study, hence the minimum they would have done was to inform the public of the dangers of smoking. This is what is referred to as the “moral minimum”, denoting that however one may elect to limit the concept of social responsibility, one cannot ignore the negative injunction associated with disregard of social responsibility as stated by Simon et al. (cited by Smith, 1990, p. 57). In regard to the “Kew Gardens” principle, the cigarette firms in the case study should at minimum have made people aware that smoking is harmful to their health instead of promoting the sale of the products without this disclosure. According to Monks and Minow (2012), organisations are required to act when it is apparent that failing to do so would undoubtedly result in serious damage for the society (p. 92). This statement also goes hand-in-hand with the point by Simon et al. (cited by Smith, 1990, p. 57 ) that there may be a responsibility for correcting or preventing injury even if one may or many not appear to have caused or assisted in causing a social injury. Therefore, from the case study, it is apparent that the cigarette firms failed to comply with the social view of social responsibility because while they were well aware that smoking could cause disease, they did not do anything to avert the impacts of smoking on smokers or other people affected by cigarette smoke. According to the case study, whereas the US Department of Justice (DOJ) indicated that smoking caused the deaths of 400,000 to 500,000 people annually in the US, the companies involved in manufacturing cigarettes did not care to offer any warning about the health risks and addictive nature of smoking. They went as far as targeting children whom they knew were vulnerable and had scanty information about the consequences of smoking. The DOJ’s action to sue cigarette manufacturers can be viewed from the socio-economic perspective of CSR which requires managers to be concerned with their organisation’s impact on the broader social welfare and not just profits (Schermerhorn, 2010, p. 69). That is, the cigarette companies would have been concerned that cigarette smoke affects both smokers and people near them, and therefore, whether smoking was the sole cause of smoke-related deaths or not, there was need to mitigate the impact by getting involved in campaigns to create awareness or supporting the treatment of patients with smoke-related complications. Broad social view of CSR This view captures a CSR perspective in which a business maintains its relationship with the wider matrix of society where there are net gains emanating from socially responsible activity both in the short- and long-terms (Zu, 2009, p. 23). Based on arguments by Carroll (1979, 1983, 1991 – cited by Zu, 2009, p. 23) CSR has three distinct layers: economic, legal, ethical and discretionary groups of business performance which business leaders must put in mind during their operations. Similarly, Banerjee (2007) argues that supporters of the broad view of stakeholders base their claim on a moral stance where the focus is on establishing and maintaining moral relationships or a company accomplishing its affirmative responsibility to stakeholders by ensuring that there is an equitable and fair distribution of the costs and benefits of the organisation’s actions (p. 25). In the case study, it is clear that the cigarette companies did not comply with the broader view of CSR which requires them to be responsible for the side effects of using their products. Instead, they advertised their products, portraying how good they were and giving assurance that there was no relationship between smoking and disease. It can therefore be said that the cigarette companies did not act ethically because they did not give full disclosure of the possible consequences of using cigarettes to its stakeholders and particularly consumers. Notably, the World Business Council for Sustainable Development’s definition of CSR (cited by Jeurissen, 2007) includes businesses acting ethically and improving the lives of the local community and the society at large (p. 10). Turning to the case study, the cigarette firms acted unethically because they not only kept promoting cigarettes with full knowledge of their adverse consequences, but they also colluded to form an organisation through which they would assure the public that cigarettes were not harmful. Additionally, they targeted children because of their gullibility. Yet the firms did not make any attempts to claim responsibility for their actions and they did not implement any strategies to improve the quality of life of the community around them and the American society at large as would be expected under the broader view of CSR. Conclusion The classical economic view, the socio-economic view and broad social view of CSR give different approaches to the CSR concept. The classical economic gives no credit to CSR since it perceives CSR as a cost to a business as the concept does not contribute directly to profitability. From this view, the cigarette firms were under no obligation to campaign about the adverse consequences of smoking since their motive was to increase profitability. The socio-economic view of CSR focuses on making profits as well as some level of social responsibility. The broad social view on the other hand regards CSR as a core concept of doing business since firms have to give back to the communities and societies in which they operate and be responsible for their actions. Based on the case study, the cigarette firms failed to comply with CSR as they did not warn the public about the consequences of smoking, nor did they support community initiatives to deal with the effects of smoking but instead focused on campaigns to promote smoking. References Bacher, C. (2007). Corporate social responsibility. Munich: GRIN Verlag. Banerjee, S. B. (2007). Corporate social responsibility: The good, the bad and the ugly. Cheltenham: Edward Elgar Publishing. Bueble, E. (2009). Corporate social responsibility: CSR communication. Munich: GRIN Verlag. Jeurissen, R. (2007). Business ethics and corporate responsibility. In R. Jeurissen (eds.) Ethics & business. Uitgeverij Van Gorcum. Chapter 1, pp. 9-17. Monks, R. A. G. & Minow, N. (2012). Corporate governance (5th ed.). New York: John Wiley & Sons. Mullerat, R. (2010). International corporate social responsibility: The role of corporations in the economic order of the 21st century. Alphen aan den Rijn: Kluwer Law International. Schermerhorn, J. R. (2010). Management (11th ed.). New York: John Wiley & Sons Smith, N. C. (1990). Morality and the market: Consumer pressure for corporate accountability. London: Taylor & Francis. Velasquez, M. G. (2012). Business ethics: Concepts & cases (7th ed.). Upper Saddle River, N.J.: Pearson Education Inc. Zu, L. (2009). Corporate social responsibility, corporate restructuring and firm's performance. New York: Springer. Read More

The third point is about the nature of an organisation. Friedman’s argument for instance is that firm managers are no more than agents of the shareholders who ultimately are their employers. Therefore, going by this approach, any activity by managers of cigarette firms which does not aim to maximise profits is like a tax to the organisation, which should be left to the government alone (Mullerat, 2010, pp. 32-33). Consequently, any notion of CSR would not have been applied since they did whatever they could to ensure that they maximise their profits.

As such, from the perspective of Friedman’s argument, the issue of CSR does not arise for the tobacco companies. The socio-economic view This approach represents the narrow view of making profits but accepts that practicing some degree of social responsibility will result in net gains to the company in terms, for instance, of avoiding too costly and discomfiting regulation, establishing cordial customer relationships, amicable supplier relationships, or the politics of networking (Zu, 2009, p. 23). This view also reflects the “Kew Gardens” principle which touches on the consequences of failing to act given a scenario that could have deleterious consequences in the end (Monks & Minow, 2012,).

For instance, cigarette companies in the case study were aware of the consequences of smoking but they went on to convince the public to buy them by presenting findings to dispute the harmful effects of smoking. They also convinced the public that 113,597 doctors were smoking the Camel brand (Velasquez, 2012, p. 316). There is no doubt that the companies had knowledge of the consequences of smoking as indicated in the case study, hence the minimum they would have done was to inform the public of the dangers of smoking.

This is what is referred to as the “moral minimum”, denoting that however one may elect to limit the concept of social responsibility, one cannot ignore the negative injunction associated with disregard of social responsibility as stated by Simon et al. (cited by Smith, 1990, p. 57). In regard to the “Kew Gardens” principle, the cigarette firms in the case study should at minimum have made people aware that smoking is harmful to their health instead of promoting the sale of the products without this disclosure.

According to Monks and Minow (2012), organisations are required to act when it is apparent that failing to do so would undoubtedly result in serious damage for the society (p. 92). This statement also goes hand-in-hand with the point by Simon et al. (cited by Smith, 1990, p. 57 ) that there may be a responsibility for correcting or preventing injury even if one may or many not appear to have caused or assisted in causing a social injury. Therefore, from the case study, it is apparent that the cigarette firms failed to comply with the social view of social responsibility because while they were well aware that smoking could cause disease, they did not do anything to avert the impacts of smoking on smokers or other people affected by cigarette smoke.

According to the case study, whereas the US Department of Justice (DOJ) indicated that smoking caused the deaths of 400,000 to 500,000 people annually in the US, the companies involved in manufacturing cigarettes did not care to offer any warning about the health risks and addictive nature of smoking. They went as far as targeting children whom they knew were vulnerable and had scanty information about the consequences of smoking. The DOJ’s action to sue cigarette manufacturers can be viewed from the socio-economic perspective of CSR which requires managers to be concerned with their organisation’s impact on the broader social welfare and not just profits (Schermerhorn, 2010, p. 69). That is, the cigarette companies would have been concerned that cigarette smoke affects both smokers and people near them, and therefore, whether smoking was the sole cause of smoke-related deaths or not, there was need to mitigate the impact by getting involved in campaigns to create awareness or supporting the treatment of patients with smoke-related complications.

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