Ethics and Corporate Social Responsibility: The Regulatory and Legal Framework

Essay by TomJL February 2008

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Responsibilities of a Business FirmA narrow view of corporate responsibility, known as the 'shareholder primacy' theory has been enforced whereby a corporation's responsibility extends only to maximizing profits (Kercher, 2006). On the other hand, ethical responsibility theory advocates strong corporate self-restraint and duties and expansive public policy strengthening stakeholder rights. Economic responsibility theory advocates market wealth creation subject only to minimalist public policy and perhaps customary business ethics (Windsor, 2006).

It is universally agreed there is no single definition of Corporate Social Responsibility (CSR), but a great many companies and organizations worldwide promote its ever increasing use (McWilliams, Siegel, and Wright, 2006). According to some scholar, CSR are situations where the firm goes beyond compliance and engages in 'actions that appear to further some social good, beyond the interests of the firm and that which is required by law' (McWilliams, et. al, 2006). CSR is also defines as the open and transparent business practices that are based on ethical values and respect for the community, employees, the environment, shareholders and other stakeholders (Murthy, 2007), or the initiatives to improve the well-being of communities on local and global levels in such areas as health, race relations, the environment, or economic development (Bies, Bartunek, Fort, & Zald, 2007).

On the other hand, ethics is the study of morally appropriate behaviors and decisions, examining what "should be done" (Bies, et. al, 2007).

The language used in relation to CSR is often used interchangeably with other related topics, such as corporate sustainability, corporate social investment, triple bottom line, socially responsible investment and corporate governance (Kercher, 2006). In recent years, scholars and managers have placed greater attention to the strategic implications of CSR whereby over the past two decades, a growing number of corporations have been engaging in activities that promote positive social change.

Challenges to a Regulated CSR and Global EthicsCompanies that emerge from a single domestic environment usually adopt ethical norms and values from the host culture. In other words, the cultural context influences organizational ethics for example, if national practice is bribery, then most companies in that nation will use bribery (Cuervo-Cazurra, 2008). Another example, from the perspective of those in the 'developed' world, questions are raised about the ethicality of working practices, for example, in 'sweatshop' factories as illustrations of 'unethical' business practices, but it may evoke very different responses in those directly affected (Cairns & Śliwa, M., 2007). The challenge of business ethics lies in asking business enterprises and the people who run them to develop a hierarchy of what is good or "right" to do in a world where there are few widely accepted absolutes.

Donaldson (1996) says that there needs to be a global code of ethics, and that the challenge for creating one cannot be met with either of the traditional responses to ethics which are the 'relativism' (rights and wrongs are relative to a culture so we should do as other culture do even if it violates our sense of ethics and 'absolutism' (what is wrong is wrong; and what is right is absolutely right wherever you are).

The opponent of the view that the global ethical rules and regulated CSR are needed may view the its as an end rather than a beginning, in the sense they can depress innovation and creativity since rules are static but globalization is dynamic. Some argue that the introduction of prescriptive regulation with regard to CSR matters is unnecessary (Kercher, 2006) as CSR involves a voluntary business endeavor to address social and environmental issues beyond legal compliance, therefore, governments cannot impose hierarchical command-and-control policies to support it (David & Lipton, 2005).

CSR and Ethics InternationallyHistorically international law remedies in relation to CSR of the multinational corporations are considered weak especially due to the issues of jurisdiction (Kercher, 2006), or where the national law provided that the inappropriate conduct occurred is either inadequate or the judicial system or government is not motivated to commence action against the offending corporation (Cuervo-Cazurra, 2008).

New national and international precedents are challenging the historical view. Most attempts to regulate CSR have resulted from public international bodies and non government organizations (NGOs). Codes of conduct relating to CSR matters such as bribery, environment and human rights are voluntary and not legally binding, however, may be embodied as universally accepted standards. The trend in developed nations is to support the reporting of CSR without introducing legislation to mandate CSR practices, instead, most governments in the world appear to be content relying on initiatives introduced and championed by NGOs such as the United Nations (Kercher, 2006).

For example, The United Nations (UN) Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with regard to Human Rights ("UN Norms") attempts to establish a comprehensive legal framework for the human rights responsibilities of companies (Kercher, 2006).

Other UN's initiatives include of what known as the UN Global Compact ("the Compact"). Introduced in 1999, the Compact is a voluntary initiative based on 10 core principles relating to human rights, labour standards, the environment and anti‐corruption. The Compactʹs 10 principles enjoy consensus across many jurisdictions and are derived from various declarations such as The Universal Declaration on Human Rights; The International Labour Organization's Declaration on Fundamental Principles and Rights at Work; The Rio Declaration on Environment and Development; and The United Nations Convention Against Corruption (Kercher, 2006). The Compact is considered to be the world's largest corporate responsibility initiative so far (Nagler, 2007).

ReferencesBhanu Murthy, K.V.(2007, April). Business Ethics and Corporate Responsibility - A New Perspective. Paper presented at Workshop on ISO 26000 Guidance on Social Responsibility and the implications for Developing Countries, New Delhi. Retrieved January 10, 2008 from SSRN: http://ssrn.com/abstract=1059001Bies, R. J., Bartunek, J. M., Fort, T. L. & Zald, M. N. (2007). Corporations as social change agents: individual, interpersonal, institutional, and environmental dynamics [Electronic version]. Academy of Management Review, 32, 3, 788-793Cairns, G. & Śliwa, M. (2007, October). Bringing Ethics to the Non-Ethical: Can International Business Overcome its Past? [Electronic version]. International Review of Business Research Papers, 3 [4], 306-316Cuervo-Cazurra, A. (2008). The Effectiveness of Laws against Bribery Abroad. Journal of International Business Studies. Retrieved January 10, 2008 from SSRN: http://ssrn.com/abstract=1059001Donaldson, T. (2006, September/October). Values in Tension: Ethics Away from Home. Harvard Business Review, 74[5], 48-62. Retrieved January 10, 2008, from EBSCOHOST database.

Kercher, K. (2006, December). Corporate Social Responsibility: Impact of globalisation and international business. Bond University Corporate Governance eJournal. Retrieved January 10, 2008, from http://epublications.bond.edu.au/cgej/4Kimber, D. & Lipton, P. (2005, June). Corporate Governance and Business Ethics in the Asia-Pacific Region [Electronic version]. Business & Society, 44[2], 178-210.

McWilliams, A., Siegel, D. S., and Wright P. M. (2006). Corporate Social Responsibility: Strategic Implications [Electronic version]. Journal of Management Studies, 43 [1]Nagler, J. (2007). What are the achievements of the United Nations Global Compact. Unpublished working paper, The University of New South Wales.

Windsor, D. (2006). Corporate Social Responsibility: Three Key Approaches [Electronic version]. Journal of Management Studies, 43 [1], 93-114. Abstract retrieved on January 12, 2008 from SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=875051