SOCIAL RESPONSIBILITY AND ETHICS

The terms ethics and social responsibility are often used interchangeably, but each has a distinct meaning. In Chapter 1 , we defined social responsibility as an organization’s obliga- tion to maximize its positive impact on stakeholders and minimize its negative impact. For example, Google makes it a mission to become a zero-carbon company by investing in alternative energy, purchasing carbon offsets, and constructing more energy-efficient data centers. 25 Intuit matches employee donations and gives employees paid time off for volunteering in their communities. 26 SC Johnson gives 5 percent of pre-tax profits to corporate giving and is investing in wind turbines to power some of its manufactur- ing plants. 27 Conversely, one study found that a firm’s sales margin will be damaged by the unethical treatment of stakeholders. 28 Many other businesses have tried to determine what relationships, obligations, and duties are appropriate between their organizations and various stakeholders. Social responsibility can be viewed as a contract with society, whereas business ethics involves carefully thought-out rules or heuristics of business con- duct that guide decision making.

There are four levels of social responsibility—economic, legal, ethical, and philan- thropic (see Figure 2–3 ). 29 At the most basic level, companies have a responsibility to be

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Chapter 2: Stakeholder Relationships and Social Responsibility 37

profitable at an acceptable level to meet the objectives of shareholders and create value. Of course, businesses are also expected to obey all relevant laws and regulations. For example, the European Union established an online privacy law going beyond what other countries require. Under the law individuals will be able to delete uploaded personal data if there are no legitimate grounds for retaining it. The law also addresses cookies, the common Internet files websites use to remember data about users that other firms collect to track users’ online behavior. This means if a U.S. company such as Google wants to do business in the EU, it must obey the law or pay up to $ 1.4 million per violation. 30

Business ethics, as previously defined, comprises principles and values that meet the expectations of stakeholders. Philanthropic responsibility refers to activities that are not required of businesses but that contribute to human welfare or goodwill. Ethics, then, is one dimension of social responsibility. Ethical decisions by individuals and groups drive appro- priate decisions and are interrelated with all of the levels of social responsibility. For exam- ple, the economic level can have ethical consequences when making managerial decisions.

The term corporate citizenship is often used to express the extent to which businesses strategically meet the economic, legal, ethical, and philanthropic responsibilities placed on them by various stakeholders. 31 Corporate citizenship has four interrelated dimensions: strong sustained economic performance, rigorous compliance, ethical actions beyond what the law requires, and voluntary contributions that advance the reputation and stakeholder commitment of the organization. A firm’s commitment to corporate citizenship indicates a strategic focus on fulfilling the social responsibilities its stakeholders expect. Corporate citizenship involves acting on the firm’s commitment to corporate citizenship philosophy and measuring the extent to which it follows through by actually implementing citizen- ship initiatives. Table 2–2 lists some of the world’s most ethical companies, all of which have demonstrated their commitment to stakeholders. As Chapter 1 demonstrated, many of these companies have superior financial performance compared to the indexes of other publically traded firms.