Examensarbete i Hållbar Utveckling 56

Assessing the Compatibility of Business

Ethics and Sustainable Development

Matthias Witt

INSTITUTIONEN FÖR GEOVETENSKAPER

Uppsala University
Uppsala Center for Sustainable Development (CSD)

Assessing the Compatibility of

Business Ethics and Sustainable Development

Matthias David Witt, BA UZH in Economics and Business Administration

Date of Seminar: 2012/02/13

Date of Submission: 2012/02/20

Date of Resubmission: 2012/02/20

MSc in Sustainable Development 2010 - 2012

Degree Project E in Sustainable Development (1GV038), 30 ECTS
Supervisor: Gloria Gallardo

Contact details: Matthias David Witt

Langholzstrasse 32
CH-6333 Hünenberg See
Switzerland
Phone: +41 41 780 65 64
E-mail: [email protected]
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ABSTRACT

Since 1987, the United Nations has promoted sustainable development as a form of
development that takes into account and balances economic, ecological, and social
considerations. To achieve sustainability, the United Nations has repeatedly required private
businesses—among other actors—to assume a broader set of social responsibilities. This is
though highly contested in the corporate world and among economists. To throw light on this
debate, the aim of this paper is to assess whether contemporary theories of business ethics are
compatible with the Brundtland notion of sustainable development. For that reason, the
responsibilities for sustainable development that corporations should assume are deduced
from the Brundtland Report; followed by an introduction to the field of business ethics and a
detailed discussion of major contemporary theories reflecting instrumental, integrative,
political, and ethical approaches to corporate social responsibility. By comparing the different
responsibilities the compatibility of sustainability with each discussed theory on business
ethics is assessed. This paper finds that the compatibility is low for instrumental theories,
moderate for integrative and political theories, and high for ethical theories on business ethics.

Nevertheless, ethical theories assume a normative perspective on sustainable development,

idealizing how corporations ought to act in a sustainable world. In reality, the world is far
from sustainability. This is not least a result of national economic and legal policies
maintaining conditions and structures that continue to promote globalization and free markets.
It is argued that the combination of fierce competition and corporations’ opportunities to take
advantage of weak legal systems in emerging and developing countries leads firms to further
subscribe to an instrumental approach to business ethics. It is suggested that international
politics develop a global legal framework based on sustainable development that provides
competitive conditions at arm’s length.

At the same time, recent management research is presented that suggests that corporations can
promote sustainability if they contribute solutions to the social and environmental problems of
our time. The pursuit of sustainability, therefore, results more from business opportunities
than from any ethical convictions.

Keywords: Sustainable development, business ethics, corporate social responsibility (CSR),

shareholder value, stakeholder management, corporate citizenship.

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TABLE OF CONTENTS

ABSTRACT..........................................................................................................................iii
TABLE OF CONTENTS ......................................................................................................iv
LIST OF TABLES ................................................................................................................vi
LIST OF FIGURES..............................................................................................................vii
LIST OF ABBREVIATION................................................................................................viii
1 INTRODUCTION............................................................................................................ 1
1.1 Background...................................................................................................... 1
1.2 Aim of the study .............................................................................................. 5
1.3 Scope and limitations....................................................................................... 5
1.4 Methods........................................................................................................... 6
1.5 Outline............................................................................................................. 8
2 CONCEPTUAL FRAMEWORK ..................................................................................... 9
2.1 What is a corporation? ..................................................................................... 9
2.2 Economic growth and profit and shareholder value maximization principles.. 10
2.3 Brief history of environmental issues on the international political agenda..... 11
2.4 Brundtland definition of sustainable development .......................................... 13
2.5 Expectations on business from a sustainability perspective............................. 15
2.6 Classification of the corporate responsibilities for sustainability..................... 16
2.6.1 Economic function of corporations..................................................... 16
2.6.2 Social function of corporations .......................................................... 18
2.6.3 Political function of corporations....................................................... 19
2.6.4 Ethical function of corporations......................................................... 22
2.7 Framing business ethics ................................................................................. 24
2.7.1 What is business ethics?..................................................................... 24
2.7.2 Defining morality, ethics and ethical theory ....................................... 24
2.7.3 Why is business ethics important? ...................................................... 25
2.8 Corporate Social Responsibility ..................................................................... 27
2.8.1 Instrumental approach to CSR — Shareholder Perspective ................ 28
2.8.2 Integrative approach to CSR —Philanthropy and Stakeholder
management....................................................................................... 30
2.8.3 Political approach to CSR — Corporate citizenship........................... 34
2.8.4 Ethical approach to CSR — Universal rights ..................................... 36

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3 COMPARISON.............................................................................................................. 40
3.1 Overview ....................................................................................................... 40
3.2 Instrumental approach to CSR — Shareholder Perspective............................. 41
3.3 Integrative approach to CSR —Philanthropy and Stakeholder management ... 41
3.4 Political approach to CSR — Corporate citizenship ....................................... 42
3.5 Ethical approach to CSR — Universal rights.................................................. 43
4 DISCUSSION AND CONCLUSIONS ........................................................................... 45
4.1 Instrumental approach to CSR — Shareholder Perspective............................. 45
4.2 Integrative approach to CSR — Philanthropy and Stakeholder management .. 47
4.3 Political approach to CSR — Corporate citizenship ....................................... 49
4.4 Ethical approach to CSR — Universal rights.................................................. 51
4.5 A new approach: The concept of shared value................................................ 52
4.6 Summary of findings...................................................................................... 53
4.7 Conclusions ................................................................................................... 54
REFERENCES .....................................................................................................................ix

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LIST OF TABLES

Table 1: Overview of milestones in the economic development, political and

environmental awareness, UN conferences on environment, development
and sustainable development, and theories and related approaches on CSR
between 1950 and 2020........................................................................................4
Table 2: Responsibilities of corporations for sustainable development .............................23
Table 3: Theories on Corporate Social Responsibility ......................................................28
Table 4: The UN Global Compact....................................................................................38
Table 5: The benefits of participating in the UN Global Compact ....................................39
Table 6: Compatibility of business ethics theories with responsibilities for
sustainable development (no or low compatibility = 0, moderate
compatibility = 1, strong compatibility = 2)........................................................40

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LIST OF FIGURES

Figure 1: Parsons’ AGIL paradigm......................................................................................7

Figure 2: The relationship between ethics and the law.......................................................10
Figure 3: The three dimensions of sustainable development ..............................................15
Figure 4: The Pyramid of CSR ..........................................................................................31
Figure 5: The stakeholders of the corporation....................................................................33
Figure 6: Compatibility of instrumental theories with proposed responsibilities for
sustainable development.....................................................................................41
Figure 7: Compatibility of integrative theories with proposed responsibilities for
sustainable development.....................................................................................42
Figure 8: Compatibility of political theories with proposed responsibilities for
sustainable development.....................................................................................43
Figure 9: Compatibility of ethical theories with proposed responsibilities for
sustainable development.....................................................................................44
Figure 10: Sustainable development requires an expansion and standardization of
national legal systems at the international level ..................................................55

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LIST OF ABBREVIATIONS

CC Corporate Citizenship
CSR Corporate Social Responsibility
FDI Foreign Direct Investment
MNC Multinational Corporation
NGO Non-Governmental Organization
TNC Transnational Corporation
UN United Nations
UNCED United Nations Conference on the Environment and Development
UNCHE United Nations Conference on the Human Environment
UNGA United Nations General Assembly
UNGC United Nations Global Compact
WCED World Commission on Environment and Development
WSSD World Summit on Sustainable Development

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1 INTRODUCTION

Man has the fundamental right to freedom, equality and adequate conditions of life, in an
environment of a quality that permits a life of dignity and well-being.
(Stockholm Declaration, Principle 1, 1972)1

1.1 Background

During the World Summit on Sustainable Development (WSSD) in Johannesburg in 2002,

held on the tenth anniversary of the UN Conference on the Environment and Development
(UNCED) in Rio de Janeiro, the then UN Secretary-General Kofi Annan (2002) stated that:

And more and more we are realizing that it is only by mobilizing the
corporate sector that we can make significant progress. The corporate
sector has the finances, the technology and the management to make
this happen (Annan, 2002, para. 5-6).

By ‘this’ Annan meant sustainable development. Speaking in front of executives, he urged

them to consider their businesses as important and leading actors for making sustainable
development happen. Although Annan’s call to action was easy to understand, he gave the
auditions no answer about how corporations could play an active role and successfully
promote sustainable development in practice. If corporations are to be concerned with
sustainable development, they should have access to some form of reliable academic guidance
for adequate corporate behavior for sustainability (Moon, 2007). The scientific foundation for
the role of business and its contribution to sustainable development remains vague, even
though the number of academic articles on this subject has increased lately (Moon, 2007;
Payne & Raiborn, 2001; Porter & Kramer, 2011; Rushton, 2002; Steurer, Langer, Konrad &
Martinuzzi, 2005).
According to some scholars, the research on corporate behavior for sustainable development
has thus to be seen as a part of the broader concept of business and society relations (Garriga
& Melé, 2004; Hansen, 2010). The research field of ‘business and society’ (Schwartz &
Carroll, 2008) focuses on exploring the “relationships that exist between business and
society” and “the contributions each can make to a better quality of life for all people”
(Wood, 1991, p. 385). While the relationship between business and society has been

1
UN, Report of the United Nations Conference on the Human Environment, Document
A/CONF.48/14/Rev.1, Chapter 1 (New York: 1972).

1
extensively researched, both the purpose and extent of this relationship have been subject to a
highly controversial discourse among scholars in the past (for an overview see Whetten,
Rands & Godfrey, 2002). Originally, there are two opposite perspectives on the social role of
business. One the one hand, businesses, based on their influential position and the “far-
reaching scope and consequences of their decisions” (Lee, 2008, p. 58), are obligated to
consider the social consequences and recognize the responsibilities resulting from their
corporate activities. Corporations are acting socially responsible if, and only if, corporate
outcome is “desirable in terms of the objectives and values of our society” (Bowen, 1953, p.
6). Hence, corporations are assumed to follow the primacy of social well-being. On the other
side, Friedman (1970, p. 34), a fierce proponent of neoliberalism and awarded with the Nobel
Prize in economics in 1976, notes that the only responsibility of business is “to make as much
money as possible while conforming to the basic rules of the society, both those embodied in
law and those embodied in ethical custom.” Primacy is given to profit maximization, and
social concerns are only taken into account if their consideration maximizes shareholder value
(Garriga & Melé, 2004).
Considering this substantial difference between the diametrically opposed perceptions of
Bowen (1953) and Friedman (1970), Wallich and McGowan (1970) point out that the social
role of corporations respectively their social responsibilities would always remain
controversial if they could not be aligned with shareholder interests. Consequently, they
introduced a ‘new rationale’ that promotes the social responsibilities of corporations without
compromising the interests of their shareholders. Assuming that corporate organizations are
embedded in and interacting with society, and if this surrounding society deteriorates for
some reasons, corporations are likely to lose the basis for their commercial operations
(Wallich & McGowan, 1970). As a result, corporations have a long-term interest to support
and sustain the well-being of the society in which they operate (Lee, 2008).
Following the Post-Second World War economic recovery, which was facilitated by the
relaxation of the East-West tension in the late 1980s (Ikenberry, 2010), the ongoing process of
global integration of geographically divided economies into a single global economy (Beck,
2000; Kearney, 2010), proved to pose new challenges for the social role of corporations
(Crane & Matten, 2010). Whereas globalization has made regional differences less important,
it has also revealed economic, political, and cultural differences, some of them hardly
reconcilable with each other (Robertson & Crittenden, 2003). Yet, globalization is highly
contested (Jackson, 2009), not least because of diametric effects on the preservation of natural

2
resources (Rockström et al., 2009)2 and an uneven distribution of accumulated wealth among
regions, nations and individuals (World Bank, 2009). Inequality both within and between
countries has proven to be one of the main obstacles to human development (UN, 2009).
Multinational corporations (MNCs, also referred to as transnational corporations, TNCs) are
generally understood to play an active role in both promoting and taking advantage of
globalization through the expansion to and diversification of production into new regions and
markets (Deresky, 2008). On the other side, non-governmental organizations (NGOs) are
assumed to have evolved as counteracting force in the face of the steadily increasing power of
MNCs (Palazzo & Scherer, 2006). Spar and La Mure (2003) assess the impact of NGOs on
global business and note a tendency of NGOs to blame MNCs for growing social inequality
and environmental degradation.
Scherer, Palazzo and Matten (2009) adduce two reasons for reconsidering the social
responsibility of MNCs. First, globalization reduces the capacity of national governments and
institutions to regulate and enforce socially desirable corporate behavior. Second, MNCs are
increasingly exposed to heterogeneous social, cultural and political values due to their global
activities. Consequently, MNCs are assumed to often operate in ‘legal limbo’ as they are no
longer subject to a given legal system, but can rather choose between many alternative
frameworks considering economic factors. This means that people affected by economic and
political decisions are less and less involved in the decision-making process (Palazzo &
Scherer, 2006).
Table 1 provides an overview of important events for the economic development, the increase
in political awareness for environmental issues, the corresponding UN conferences on the
environment and sustainable development, and the historical development of theoretical
approaches to corporate social responsibilities (CSR) between 1950 and 2020. As can be seen
from Table 1, all four dimensions are interlinked, yet economic development and its
consequences having preceded the political awareness for environmental issues and actions
by the United Nations (UN). Indeed, it took the international community almost four decades
to address the need for sustainable development. Interestingly, the academic debate about
CSR has evolved in parallel with the economic development.

2
Rockström et al. (2009, p. 472) point out the consequences if there is no change in current economic practices:
“Since the Industrial Revolution ... human actions have become the main driver of global environmental change.
This could see human activities push the Earth system outside the stable environmental state ... with
consequences that are detrimental or even catastrophic for large parts of the world.”

3
Table 1: Overview of milestones in the economic development, political and environmental
awareness, UN conferences on environment, development and sustainable development, and
theories and related approaches on CSR between 1950 and 2020.

Source: Author based on Baylis, Smith & Owens (2008); Crane & Matten (2010); McNeill
(2001).

If the implications of globalization call for greater corporate responsibilities, Walsh (2005)
notes that established management theories hitherto do not sufficiently answer questions
regarding type and scope of such responsibilities in a global context. For example, can MNCs
regulate themselves, and if so, why? Should MNCs provide global public goods such as
education, health, and environmental protection? What are limits to corporate responsibility?
Providing answers to these questions has traditionally been the objective of studies on
business ethics. Although attached with little importance in the past (Crane & Matten, 2010),
theories on business ethics have gained attention and become more important in the
management discourse lately (Scherer et al., 2009).

Considering Annan’s quote at the beginning of this chapter, it can be said that corporations,
and especially MNCs, are not only assumed to play a major role in globalization but also in

4
adopting and promoting sustainable development. This raises the question of whether theories
of business ethics can also serve as academic basis for corporate sustainable behavior.

1.2 Aim of the study

The aim of this paper is to assess whether contemporary theories of business ethics are
compatible with the notion of sustainable development. Therefore, this paper seeks to explore
and outline the role of business for sustainable development and to compare this role to the
social roles of business suggested by selected theories of business ethics. The purpose of this
thesis paper is to answer the following research questions:

(1) What type of responsibilities for sustainable development does the Brundtland Report
suggest corporations should assume?

(2) Which contemporary theories of business ethics, if any, are possible to combine with
the notion of sustainable development and the responsibilities for sustainable
development of corporations?

(3) If the theories discussed in (2) are deficient, are there any present contributions to the
business management literature that take into account the responsibilities for sustainable
development of corporations?

1.3 Scope and limitations

Although the idea of sustainable development is a relatively new one, a large number of
varying definitions of sustainable development exist in the academic literature. For the aim of
this paper, the notion of sustainable development is limited to the classic definition provided
by the Brundtland Commission in 1987, which was later adapted during the World Summit on
Sustainable Development in Johannesburg in 2002.
Similarly, the role of business in society has been subject to controversial discussions in
academic writing since the early 1950s. While many different theories on business ethics
exist, this paper focuses to present and discuss major contemporary theories reflecting
instrumental, integrative, political, and ethical approaches to CSR. This study does not
attempt to provide a thorough review or comparison of all theories associated with sustainable
development and business ethics. This paper focuses on theories specifically related to CSR.

5
1.4 Methods

This study is exclusively based on a literature review of the academic discourse on corporate
responsibilities, which is the main subject of business ethics theories; an analysis of the
Brundtland notion of sustainable development regarding the expected corporate sustainable
behavior; a compilation of selected business ethics theories; and a comparison of these
selected theories with the expected corporate sustainable behavior according to the
Brundtland notion.

In the 1950s, the American sociologist Parsons developed his theory on the basic functions
that every system is required to maintain if it is to persist (Holton, 2001). According to
Parsons (1951, 1961), any system is faced with four interconnected problems:

(1) The extraction and distribution of resources among the system.

(2) The definition of system goals, including the provision of resources to achieve these
goals, which requires a system to prioritize its goals.
(3) The coordination and maintenance of viable relationships among different parts of the
system.
(4) The adherence all parts of the system to appropriate values, which motivate interaction
within the system and resolve conflicts between different parts of the system.

According to Parsons (ibid.), the existence of these problems requires any system to develop
the following abilities:

(a) Adaptation, or the ability of a system to interact with the environment and adapt to
changing external conditions.
(b) Goal attainment, or the ability of a system to define and pursue goals.
(c) Integration, or the ability of a system to establish and secure cohesion and inclusion
based on broad and converging values and norms.
(d) Latency, or latent pattern maintenance, or the ability of a system to maintain the basic
structures and value patterns, and thus enabling the integration throughout time.

When a system has these abilities, the roles and norms are established and guide interactions
between individuals and groups. The system is thus said to be stable. Where the system lacks
one or more abilities, for example to adapt to environmental changes, the system falls apart
and either forms a new system with new structures, or the system dissolves.

6
To fulfill these four functions, a system forms specific subsystems that deal with the
respective tasks (Parsons, 1977). In a broad and abstract action system, these subsystems
consist of:

(a) A behavior system based on needs that organizes individual actions.

(b) A personal system based on motives that aligns individual actions with set goals.
(c) A social system based on social roles that enables interaction between and integration of
different actors.
(d) A cultural system based on values that organizes the values, norms, and symbols of a
system on which different actors interact in the system.

Each action, whether of individuals or groups (including organizations), is always a result

from these four subsystems. Moreover, each subsystem can be subdivided further, using the
four required functions for the system. For example, the social system consists of an
economic system (adaptation), a political system (goal attainment), a commonwealth
(integration), and a cultural system (latency). Figure 1 depicts these connections in detail.

Adaptation Goal A G
attainment

Behavior Personal
system system

Latency Integration L I
A G
A G
Economic system Political system

Cultural Social
system system

Cultural system Commonwealth

L I
L I

Figure 1: Parsons’ AGIL paradigm. Source: Author based on Parsons (1951; 1961; 1977).

Since sustainable development is about creating and maintaining “the conditions under which
humans and nature can exist in ... harmony, that permit fulfilling the social, economic and
other requirements of present and future generations” (EPA, 2011, para. 1), the Brundtland
Report (UNGA Report of the World Commission on Environment and Development

7
(hereinafter WCED), 1987) envisions a lasting system for humanity on earth. It is assumed
that the Brundtland Report (ibid.) describes the world as social system, which requires
Parsons’ four abilities to persist in the future. For the purpose of this paper, a firm’s
responsibilities for sustainable development can then be classified into economic
responsibilities (related to resources and economics), political responsibilities (related to goal
definition and achievement), social responsibilities (related to integration and securing
cohesion), and ethical responsibilities (related to culture and values).

1.5 Outline

First, the concept of the corporation and principles of profit and shareholder value
maximization are introduced (2.1 and 2.2). Then, the notion of sustainable development is
outlined based on official documents from the Brundtland Commission and the conferences
on environment and development in Rio de Janeiro (1992) and Johannesburg (2002), as well
as from academic literature on sustainable development (2.3 and 2.4). Using these sources,
the role of business for sustainable development is derived and outlined to get a summary of
the demands from the international political level (2.5 and 2.6). Then, using primarily
management literature, the notion of business ethics and the idea of CSR are introduced (2.7).
Following, the selected theories of business ethics are outlined (2.8). Fifth, it is analyzed if
and to what extent the selected theories are compatible with the Brundtland notion of
sustainable development (3.1 – 3.4). In case the theories outlined in 2.8 fall short on
explaining the responsibilities outlined in 2.6, it is discussed whether there are other present
contributions to the business management literature that could help corporations to understand
sustainable development (4.1 - 4.5). This paper ends with a summary of the findings and the
presentation of some conclusions (4.6 and 4.7).

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2 CONCEPTUAL FRAMEWORK

2.1 What is a corporation?

The corporation is the prevalent type of business entity in most market economies (Crane &
Matten, 2010). Gutenberg (1951) states three constitutive features of the company, including
the principle of profit maximization, the principle of private property, and the principle of
autonomy. These principles are usually stated in a nation’s economic order and allow
companies to freely engage and invest in economic activities within the boundaries of the
national law. From a legal perspective, corporations are normally regarded “as independent
from those who work in them, manage them, invest in them, or receive products or services
from them” (Crane & Matten, 2007, p. 42). Corporations are thus separate entities in their
own right, which has significant implications for the understanding of the responsibilities of
corporations:

(a) Legally, corporations are broadly considered as artificially created entities. As ‘artificial
persons’ corporations are entitled to certain rights in society, but are also obliged to
legal responsibilities similarly to individual citizens.
(b) Although the shareholders own corporations through their shares, corporations exist
independently of them. Shareholders’ responsibilities for a corporation’s misconduct,
including debts and damages to people and the environment, is legally limited to their
equity stake in the company.
(c) Where the shareholders do not manage corporations themselves, appointed managers
and directors have a fiduciary responsibility to represent the shareholders’ interests for
the benefit of the shareholders. Narrowly defined, corporate executives are generally
expected to protect shareholders’ equity against external claimants, while putting their
personal interests aside.

Consequently, the basis legal framework for a corporation’s legal responsibilities is well
established. Yet in practice, scope and enforcement on national level may differ greatly
between various nations (Tricker, 2009). Crane and Matten (2010) argue that the problem
with legal frameworks is that they hardly assign any moral responsibility to corporations.
Therefore, legal frameworks are of little or no use when it comes to the moral aspects of
‘doing the right or wrong thing’ thus putting companies in a grey area between binding
legislation and voluntarily applied ethics as shown in Figure 2.

9
Figure 2: The relationship between ethics and the law. Source: Adapted from Crane and
Matten (2007).

On the other side, why, can be argued, should corporations assume a broader set of
responsibilities that go beyond legally binding obligations? These reasons are outlined in
subsequent parts.

2.2 Economic growth and profit and shareholder value maximization principles

In economics, two basic assumptions are that personal needs are unlimited while the resources
to meet these needs are limited. This means that all needs cannot be satisfied in an economy at
a given point in time. However, an economy can gradually improve and meet increasingly
more needs. In neoclassical economic thinking, economic growth (also economic progress) is
mainly the result of profit-maximizing activities and initiatives on part of corporations
(Henderson, 2005). In their own interests, firms maximize their profits by maximizing the
difference between its total revenues and its total costs. According to Brickley, Smith,
Zimmerman & Willett (2003, p. 25), a firm creates value “whenever it sells something whose
benefit to the customer is greater than the costs incurred by both the company in producing
the product and the customer in owning it.” Based on the price, the created value is shared
between the customers and the corporation. The more customers are willing to pay above the
settled price, the more value they capture. By contrast, a firm that can perfectly differentiate
its customers according to their willingness to pay captures the entire value (Hirshleifer,
Glazer & Hirshleifer, 2005). (For a generic discussion of value creation and capture, see
Lepak, Smith & Taylor, 2007).
While originally an Anglo-Saxon tradition (Tricker, 2009), Brickley et al. (2003) note that
corporations in all parts of the world are increasingly committed to maximize shareholder

10
value. Shareholders, through their investment, are by definition the residual claimants of the
firm (Fama & Jensen, 1983) and, therefore, entitled to the residual value created by the firm.
Lately, shareholders are increasingly interested in the return on their investments, that is the
cash that they receive from the firm (Brickley et al., 2003). Managers on part of the firm can
increase shareholder value when they find ways to increase present and future cash payouts to
shareholders, primarily by either increasing revenues or reducing costs. Importantly, Brickley
et al. (2003, p. 33) emphasize, “creating value is not sufficient for maximizing shareholder
value. It is also important for firms to capture that value.” In a competitive environment, firms
may have difficulties in capturing value for a considerable time. Even if the firm finds a way
to generate profits (for example, through a process innovation that decreases the production
costs), competing firms will eventually imitate the successful firm to profit for themselves
(Hirshleifer et al., 2005; Lepak et al., 2007). Competition, therefore, leads to lower prices and
reduces the value that the innovating firm can capture. Most notably, competition benefits
customers, who can buy highly valued products and services at competitively low prices
(Brickley et al., 2003).

From an economic point of view, the maximization of profits and shareholder value seem to
be desirable principles. On the other side, this one-sided orientation of firms is said to be the
cause of some of the largest environmental and social problems of our time. Therefore, the
shareholder value principle is challenged against the notion of sustainable development in
subsequent parts.

2.3 Brief history of environmental issues on the international political agenda

Environmental concerns have not always been at the center of attention in the international
political discourse. Until the Second World War, the conservation of natural resources and the
handling of damage caused by pollution from industrializing economies used to be the major
environmental concerns (McNeill, 2001). Where pollution happened to be border-crossing,
solutions were usually found by bilateral negotiations between the neighboring states. Then,
after World War II, economic recovery was heavily pushed by political interventions towards
a higher degree of integration of geographically separated economies (Beck, 2000). Though
economic activity and prosperity grew rapidly in many parts of the world, it became clear that
economic growth had adverse effects on the natural environment, including the increasing

11
pollution of the atmosphere, watercourses, and oceans. 3 Nevertheless, such issues were
“hardly the stuff of great power politics” nor of the UN General Assembly (UNGA) (Baylis,
Smith & Owens, 2008, p. 353).
Then, in the late 1960s when environmental problems became more apparent, the involved
Swedish government proposed to hold an international conference on environmental issues.
Only a few years later, the first UN Conference on the Human Environment (UNCHE) was
held in Stockholm in 1972. The defined goal was:

[To] provide a framework for comprehensive consideration within the

U.N. of the problems of the human environment in order to focus
Governments’ attention and public opinion on the importance of this
question and also to identify those aspects of it that can only or best be
solved through international co-operation and agreement (UNGA,
1968, quoted as in Galizzi, 2005, p. 961).

The main achievement of this conference was the creation of the UN Environment
Programme (UNEP) and that many governments formed special environment departments to
prevent further environmental degradation (Chasek, Downie & Welsh Brown, 2010).
Nevertheless, it became shortly afterwards clear that the countries of the South would not be
willing to refrain from their legitimate demands for development and financial aid (Sachs,
1999). Referring to the proclamation of the Second Development Decade by the UNGA in
1970, 4 the countries of the South claimed that environmental and development questions had
to be dealt with integratively rather then separately. According to Baylis et al. (2008), the
political interest for a conference on both the environment and development was present
shortly after the UNCHE in Stockholm. Yet, the global economic downturns of the 1970s and
the intensification of the Cold War pushed environmental concerns down on the international
political agenda (Mitchell, 2010).

3
These effects are often border-crossing and require both attention and action by more than one state. Such
circumstances were subsequently considered by the Brundtland Report (WCED, 1987, p. 49): “National
boundaries have become so porous that traditional distinctions between matters of local, national, and
international significance have become blurred. Ecosystems do not respect national boundaries. Water pollution
moves through shared river, lakes, and seas. The atmosphere carries air pollution over vast distances. Major
accidents—particularly those of nuclear reactors or at plants or warehouses containing toxic materials—can have
widespread regional effects.”
4
UNGA Resolution 2626/XXV, 24 October 1970

12
Despite economic and foreign-policy related matters, the deterioration of the natural
environment continued nevertheless. In the early 1980s, the recognition of new environmental
challenges such as acid rain, a thinning ozone layer and the possibility of climate change, in
combination with supporting scientific facts and figures, raised the political and public
interest for environmental issues again (McNeill, 2001; WCED, 1987). Yet, at this time both
environmental and development concerns had to be considered as a single issue. These
considerations, then, formed the basis for the Brundtland Commission and its much-noticed
report on sustainable development (Rist, 2002).

2.4 Brundtland definition of sustainable development

The classic notion of sustainable development was developed by the WCED, convened by the
UNGA in 1983 and chaired by the former Norwegian Prime Minister Gro Harlem Brundtland,
and first introduced by its Commission Report (commonly referred to as “Brundtland Report”
respectively “Our Common Future”) in 1987. The report, which was the first one of its kind,
was intended to build on the insights from the earlier Stockholm conference in 1972 and to
include the development demands of the countries of the South. Sustainable development was
thus defined as:

Sustainable development is development that meets the needs of the

present without compromising the ability of future generations to meet
their own needs. ... in particular the essential needs of the world’s
poor, to which overriding priority should be given (WCED, 1987, p.
54).

Although Meadows (1972) had pointed to the limitations of growth almost two decades
before the Brundtland Report was published, the Commission explicitly recognized social,
technological, and environmental limitations to future growth (WCED, 1987). Whereas the
political aim was to accommodate the concerns for the environment in industrialized states
and the demands for development of developing countries, the report made also clear that
further economic growth was essential to overcome the inhumane situation of the world’s
poorest (WCED, 1987).5 So with the Brundtland notion of sustainable development, demands

5
Indeed, the Brundtland Commission (WCED, 1987, p. 51) noted that: “Far form requiring the cessation of
economic growth, [sustainable development] recognizes that the problems of poverty and underdevelopment
cannot be solved unless we have a new era of growth in which developing countries play a large role and reap
large benefits. ... But policy makers ... will necessarily work to assure that growing economies remain firmly

13
for environmental protection and development were transformed into the idea of
environment-friendly economic growth (Baylis et al., 2008), which has been heavily
criticized by some scholars (Rist, 2002; Sachs, 1999).
Twenty years after the UNCHE in Stockholm in 1972 and five years after the publication of
the Brundtland Report, the UNCED was held in Rio de Janeiro in 1992. The primary
objective of the conference was to carry forward the discussion about how environmental and
development issues could be interlinked (UN, 1993). Yet, as Baylis et al. (2008, p. 480) note,
the outcome of the conference was “the legitimation of market based development policies to
further sustainable development, with self-regulation for transnational corporations.” The
main accomplishment of the conference were the adoption of Agenda 21, a plan of action
addressing sustainability issues at supranational, national and especially sub-state level, and a
convention on the preservation of biodiversity (UN, 1993).
One decade later, the WSSD was held in Johannesburg in 2002 with a focus on globalization,
poverty eradication and improvement of living conditions, not least on the African continent
(UN, 2002). From then on, all actions for sustainable development were dedicated “to ensure
a balance between economic development, social development and environmental protection
as interdependent and mutually reinforcing pillars of sustainable development” (UNGA, 57th
Session, p. 2).
Figure 3 depicts the concept of sustainable development based on the initial Brundtland
Report and the extended definition from the WSSD in Johannesburg in 2002. As shown,
sustainable development requires the balance of environmental, economic, and social needs.
Sustainable development is the progress towards an economically and environmentally viable,
socially and environmentally bearable, and socially and economically equitable end state, that
is, sustainability.

attached to their ecological roots and that these roots are protected and nurtured so that they may support growth
over the long term.”

14
Figure 3: The three dimensions of sustainable development. Source: Adapted from Elkington
(1998).

It is thanks to the UN conferences that environmental concerns were first added to the
international political agenda, and successfully reflected the underlying changes in the scope
and perception of environmental problems (Chasek et al., 2010; McNeill, 2001). However, as
Annan (2002) notes the goal of sustainable development can only be achieved if corporations
play a major, leading role and accept a broad set of economic, social, political, and ethical
responsibilities. In the following, the details of these responsibilities are derived from the
Brundtland Report in 1987 (WCED, 1987).

2.5 Expectations on business from a sustainability perspective

As early as in Gro Brundtland’s foreword, the report suggests a crucial role for corporations
for making sustainable development happen:

The Commission is also addressing private enterprise, from the one-

person business to the great multinational company with a total
economic turnover greater than that of many nations, and with

15
 possibilities for bringing about far-reaching changes and
improvements (WCED, 1987, p. 16).

In the following paragraphs, the Brundtland notion of sustainable development (see 2.4) is
studied and analyzed regarding statements indicating the role of corporations for sustainable
development. These statements are deduced from the comprehensive, over three hundred
pages counting Commission Report (WCED, 1987) and classified to make a subsequent
comparison with selected business theories on CSR possible. For this classification, Parsons’
theory on systems (1951, 1961, 1977) is applied.

2.6 Classification of the corporate responsibilities for sustainability

Applied on the Brundtland Report (WCED, 1987), Parsons (1951, 1961, 1970) theory of
social systems implies that corporate responsibilities can be classified into economic
responsibilities (related to resources and economics), political responsibilities (related to goal
definition and achievement), social responsibilities (related to integration and securing
cohesion), and ethical responsibilities (related to culture and values). This classification will
simplify the subsequent comparison with CSR expressed in the business literature.

2.6.1 Economic function of corporations

Considering the economic role of business, which constitutes the core function of business,
the Commission (WCED, 1987) expects corporations to take on greater responsibilities in
three areas: (1) foreign direct investment (FDI), (2) transfer of technology, knowledge and
managerial skills, and (3) innovation of new technologies.

First, foreign trade has proven to be an important driver of economic growth and increasing
prosperity. Many developing countries have traditionally relied on the extraction and export
of non-renewable resources (such as fossil fuels and minerals) to earn foreign exchange for
their own development process. Since the need for increasing export volumes, resulting from
the absence of feasible alternatives, has revealed the risk of unsustainable overexploitation
and impoverishment of the natural resource base in the long-term, developing countries must
develop alternative goods and services for export. The Commission (WCED, 1987)
recognizes that:

If developing countries are to reconcile a need for rapid export growth

with a need to conserve the resource base, it is imperative that they

16
 enjoy access to industrial country markets for non traditional exports
where they enjoy a comparative advantage (WCED, 1987, p. 90).

In this respect, MNCs have become to play an important role in developing a diversified
export structure, usually with the consent of developing countries. With the use of foreign
direct investments, MNCs can set up own manufacturing sites, enter into joint ventures as
partners, or grant license agreements to local manufactures (Deresky, 2008). Consequently,
MNCs are involved in the mining and manufacturing sectors as well as in the production of
primary commodities in many developing countries (WCED, 1987). Yet, if MNCs are to have
a positive influence on long-term sustainable development, they are required to strictly
observe the principle of sovereignty of the host countries, respect their environmental
concerns, and to fairly share managerial skills and technological knowledge with domestic
corporations (ibid.).

Second, “[m]any developing countries ... need assistance and information from industrialized
nations to make the best use of technology. Transnational corporations have a special
responsibility to smooth the path of industrialization in the nations in which they operate”
(WCED, 1987, p. 31). Technological progress will continue to change social, cultural, and
economic patterns and can thus positively affect sustainable development. If used and
managed wisely “new and emerging technologies offer enormous opportunities for raising
productivity and living standards, for improving health, and for conserving the natural
resource base” (ibid., p. 217). Yet, “[t]he real challenge is to ensure that the new technologies
reach all those who need them, overcoming such problems as the lack of information and in
some cases an inability to pay for commercially developed technologies” (ibid., p. 94).

Third, a successful promotion of sustainable development will in a large part depend on

broad-based efforts to develop and spread new environmentally sound technologies all over
the world (WCED, 1987). Challenges requiring improvement include among others
agricultural production, clean and renewable energy systems, and environmental protection.
Corporations are thus expected to integrate environmental considerations into their planning
and decision-making processes and come up with technological innovations and solutions
increasing the efficiency of resource use (ibid.).

17
2.6.2 Social function of corporations

The Commission notes that “[r]ising poverty and unemployment have increased pressure on
environmental resources” (WCED, 1987, p. 23). Since the majority of people affected by
environmental pollution and degradation tend to be poor and lack the capabilities to complain
effectively, corporations get away with externalizing the negative impacts of their activities
on these underprivileged people. Moreover, these people living in affected regions often have
no other alternatives but rather depend heavily on the natural resources, which in itself
deteriorate the livelihood of these people. From a sustainability perspective, the social
function of corporations is consequently understood as promoting social development. This
includes (1) the opportunity of employment, (2) the provision of public goods such as
education and health, which not least (3) improve the position of women in society.

First, the Commission notes that “[t]he principal development challenge is to meet the needs
and aspirations of an expanding developing world population. The most basic of all needs is
for a livelihood: that is, employment” (WCED, 1987, p. 64).6 Employment is especially
needed for a large number of young people in developing countries, who comprise most of
their population. Since agriculture can only absorb a limited number thereof, corporations
have the responsibility of providing sustainable employment opportunities for a growing
population (ibid.). As much as employment is important, corporations are also responsible to
pay sufficient wages, which will “enable poor households to meet minimum consumption
standards” (ibid., p. 64).

Second, employment is just one of many elementary needs. A ‘life of dignity and well-being’
(UNGA, 1972) presupposes also access to food, education and health care. Yet, present
population growth rates already compromise many governments’ abilities to provide adequate
levels of the very same goods and services (WCED, 1987). Many governments, furthermore,
lack funding for maintaining present provision levels, let alone for increasing them.
Consequently, the quality of education and health care services deteriorate (ibid.). This does
not only open new possibilities for corporations, it also places a responsibility on them. After
all, the Commission (ibid.) holds that:

6
Based on data from the UN (2011a), between 2010 and 2050 the labor force (population at age 15 to 64) in
developing countries will increase by more than 1.4 billion people, and new livelihood opportunities will have to
be generated for roughly 60 million people each year until 2050.

18
 Economic and social development can and should be mutually
reinforcing. Money spent on education and health can raise human
productivity. Economic developments can accelerate social
development by providing opportunities for underprivileged groups
spreading education more rapidly (WCED, 1987, p. 64).

Third, the Commission (WCED, 1987) argues that rapid population growth is a main driver of
both environmental and economic challenges. The human population on earth has increased
2.7-fold from 2.5 billion in 1950 to 6.9 billion in 2010 (UN, 2011a). By 2050, the UN expects
the world population to grow additionally to 8.1 billion (low scenario), 9.3 billion (medium
scenario), or 10.6 billion (high scenario) (ibid.). While the population in the developed world
is expected to grow only slightly, developing countries will face a large increase in their
population levels.7 Since these rapid increases are substantially driven by the status of women
in society, socio-cultural values and disparities in economic and political power, sustainable
development must enhance social development, and be designed to “improve the position of
women in society, to protect vulnerable groups, and to promote local participation in decision
making” (WCED, 1987, p. 49). Corporations are expected to contribute to this development
by offering employment and education to people in developing countries, yet with a special
focus on women. If these women can be included into the formal economy and earn their own
income, female empowerment is enhanced and fertility rates are expected to decline. A higher
status of women in society in the developing world can thus help to lower fertility rates and
decelerate population growth in these parts of the world.

2.6.3 Political function of corporations

The Commission recognizes that, “[m]aking the difficult choices involved in achieving
sustainable development will depend on the widespread support and involvement of an
informed public and NGOs, the scientific community, and industry. Their rights, role and
participation in development planning, decision making, and project implementation should
be expanded” (WCED, 1987, p. 36). Companies are thus required to take into account effects
of their operations, actions, and investments. For example, setting up a hydropower project
should not only be understood as a mean of producing electricity, but also take into account
the positive and negative effects upon the local environment and living conditions of local

7
For example, the population of Africa surpassed 1 billion in 2009 and is expected to double in three and a half
decades by 2044 (UN, 2011a).

19
societies. Consequently, the expected political function of corporations includes beyond
compliance with national law and regulations especially (1) cooperation with political
institutions, particularly in developing countries, (2) increased basis of legitimacy of
corporate decisions through stakeholder discourse, and improved and all-encompassing
accounting of corporate actions and transparency, and (3) establishment of international code
of conducts for sustainable development.

First, the Commission (WCED, 1987) recognizes that corporations constitute a critical link
between people and the environment, since they have a significant impact on the way natural
resources are used for development and economic growth. Hence, “[l]arge industrial
enterprises, and transnational corporations in particular, have a special responsibility” for
sustainable development (ibid., p. 229). These companies are equipped with scarce technical
skills and know about the highest safety and health protection standards available, and hence
are expected to accept the responsibility for constructing safe facilities, developing safe
operational processes design, and training its staff adequately (ibid.). Consequently,
corporations, together with its technologies and processes, play a crucial role for the success
of sustainable development. Governments, both in industrialized and developing countries,
should aspire after a closer cooperation with corporations for mutual benefits (ibid.).
Nevertheless, small, poor, developing countries continue to mistrust large corporations.
Comparable with the colonial era, these countries experience negotiations with the latter
repeatedly to be one sided, with large corporations taking advantage of “a developing
country’s lack of information, technical unpreparedness, and political and institutional
weakness” (ibid., p. 93). Developing countries find it thus difficult to defend their position
against financially independent MNCs when it comes to concerns regarding the introduction
of new technologies, the development and exploitation of national resources, and the
sustainable use of the environment. The Commission then argues that MNCs must take steps
to reduce the information asymmetry, and engage with governments in developing countries
to build mutual trust and counteract conflicts (ibid.).

Second, this can be achieved if MNCs share their knowledge and assist governments in
developing countries in strengthening policies in this sphere, but also seek for the views of
NGOs and the local community where new industrial facilities are being planned (WCED,
1987). Corporations should disclose relevant information on corporate policies and standards
applied for investment and operations in their own home country. For example, MNCs are

20
expected to carry out environmental assessments based on the same criteria as required in
industrialized countries prior to major investment in developing countries. Moreover,
corporations have the responsibility to fully inform relevant national and local authorities
regarding “the properties, potentially harmful effects, and any potential risks to the
community of the technology, process, or product being introduced” (ibid., p. 230). This is
particularly important for the implementation of new technologies, which often bring new
hazards, and thus requires MNCs of enhancing and adopting their risk assessment and risk
management policies. The relevant information about a specific investment should then be
communicated to nearby residents in an easy to understand way. By sharing the resulting
information, risk assessment, and recommendation with the host country’s government, the
latter is empowered and capable of making well-founded decisions regarding a specific
investment and the resulting benefits for its country (ibid.). Where sustainability
considerations are significant, investments should be rejected, even though the might be
financially attractive in the short run. Where manageable risks allow companies to implement
projects, they must institute environmental and safety audits, and subsequently disclose the
results to local government and other interested parties (ibid.). Moreover, corporations are
required to work collaboratively with “the local government and community in contingency
planning and in devising clearly defined mechanisms for relief and compensation to pollution
or accident victims” (ibid., 230). From the corporate perspective, enhanced transparency will
thus increase the basis of legitimacy of corporate decisions and operations in developing
countries.

Third, from a broader perspective, corporations could gain legitimacy if they engaged in joint
advisory councils for sustainable development with governments. Such joint advisory
councils could be designed “for mutual advice, assistance, and cooperation in helping to
shape and implement policy, laws, and regulations for more sustainable forms of
development” (WCED, 1987, p. 321). On the international level, actors from governments,
corporations and NGOs should convene and work towards basic codes of conduct for
sustainable development, where they could draw and extend relevant existing voluntary codes
of conduct (ibid.). These codes could control guide corporate behavior for sustainable
development at supranational level.

21
2.6.4 Ethical function of corporations

The concept of sustainable development presupposes that economic exchange is only

beneficial for all involved if “[t]he sustainability of ecosystems on which the global economy
depends” is guaranteed and “the economic partners must be satisfied that the basis of
exchange is equitable” (WCED, 1987, p. 76). None of these conditions were met in 1987,
when the Brundtland Report was published. While the responsibilities outlined in the
economic, social, and political function of corporations are designed to eventually bring about
economic equity and sustainability, international efforts concerning the regulation of MNCs
have proved extremely difficult to negotiate and unsatisfactory in purpose and scope (ibid.).
Corporations should thus (1) voluntarily commit to a broader sense of social and
environmental responsibility that go beyond simple compliance with regulations, and accept
certain special responsibilities where required. Further, (2) corporations should encourage
sustainable consumption standards, and (3) aim towards a global ethic and social justice.

First, to this end, all industrial enterprises together with trade associations and labor unions
should “establish [and adopt] company or industry-wide policies concerning resource and
environmental management, including compliance with the laws and requirements of the
country in which they operate” (ibid., p. 222). Moreover, sustainable behavior requires
corporations to change their values and attitudes towards the use of environmental resources,
people inside and outside their operations both at home and overseas, and their role in society
in general. Corporations are thus expected to establish corporate code of conducts, which
reflect these values and control corporate behavior at firm level.

Second, since “[l]iving standards that go beyond the basic minimum are sustainable only if
consumption standards everywhere have regard for long-term sustainability. Yet many of us
live beyond the world’s ecological means” (WCED, 1987, p. 54-55). This includes mainly the
patterns of energy use, but also over fishing, deforestation, and natural resource depletion.
Since perceived needs result from socially and culturally constructed moral values,
corporations should actively engage to promote values “that encourage consumption
standards that are within the bounds of the ecological possible and to which all can reasonably
aspire” (ibid., p. 55).

22
Third, throughout the Brundtland Report, the Commission tries to elevate sustainable
development to ‘a global ethic’ (WCED, 1987, p. 303), which could be the decisive factor for
future human survival and well-being. The quality of life on earth depends on all actors’
efforts, including the willingness and cooperation to alleviate international poverty, to
reinforce peace and enhance security around the world, and to manage the global commons in
a sustainable way (ibid.). These efforts require a common set of broadly shared values and
attitudes, and a global ethic could be the reference point for sustainable development and
social justice.
The previous sections named and described the economic, social, political, and ethical
responsibilities of corporations for sustainable development as outlined in the Brundtland
Report (WCED, 1987) and seen by all official institutions belonging to the UN. In Table 2,
these responsibilities are briefly summarized.

Table 2: Responsibilities of corporations for sustainable development

Role of corporations

Economic Social Political Ethical

(1) Use of foreign direct (1) The opportunity of (1) Close cooperation (1) Voluntarily
investment (FDI) as employment and fair with political commitment to a
driver of economic salaries, enabling poor institutions, particularly broader sense of social
growth and increasing households to meet in developing countries, and environmental
prosperity minimum consumption reducing the responsibilities beyond
standards information asymmetry, regulatory compliance,
building mutual trust and accept certain
and counteracting special responsibilities
conflicts where required,
controlling and guiding
corporate behavior at
firm level
Responsibilities

(2) Transfer of (2) The provision of (2) Broader stakeholder (2) Promotion of values
technology, knowledge public goods such as discourse and and attitudes
and managerial skills to education and health to disclosure of relevant encouraging
make the best use of accelerate and raise information, enhancing sustainable
technology human productivity transparency and consumption standards
increasing legitimacy of world-wide
corporate decisions
and operations

(3) Innovation and (3) Improving the (3) Establishment of (3) Promotion of a
diffusion of new, position of women in international codes of global ethic, a common
environmentally sound society through conduct for sustainable set of broadly shared
technologies employment and development, values and attitudes,
education, lowering controlling and guiding enabling sustainable
fertility rates and corporate behaviour for development and
decelerating population sustainable social justice
growth development at
supranational level

Source: Based on WCED (1987).

23
In 2.7, the concept of business ethics is briefly introduced for a better understanding of the
following discussion of theories on CSR in 2.8. These theories provide an instrumental, an
integrative, a political, and an ethical approach to corporate responsibility. In 3, these theories
are compared to the corporate responsibilities for sustainable development derived in 2.6.

2.7 Framing business ethics

2.7.1 What is business ethics?

Crane and Matten (2010, p. 5) define business ethics as “the study of business situations,
activities, and decisions where issues of right and wrong are addressed.” As such, business
ethics aim to answer the fundamental question of whether corporations have responsibilities
to make moral decisions beyond their economic core function of supplying goods and
offering services on a profitable basis. Since the early 1950s, when Bowen (1953) launched
the discussion about the social role of corporations, a number of theories defining and
justifying these potentially wider responsibilities have been presented (Whetten et al., 2002).
Though some of these theories are complementary, scholars have differed greatly in their
conception of what such responsibilities should be. To answer the question of whether
corporations can have a moral responsibility in the same way as individual people do, it is
important to have a basic understanding of morality, ethics and ethical theory.

2.7.2 Defining morality, ethics and ethical theory

According to Crane and Matten (2004, p. 11) “morality is concerned with the norms, values,
and beliefs embedded in social processes which define right and wrong for an individual
community.” Other, although similar definitions of morality, suggest “morality is generally
used to describe a sociological phenomenon, namely the existence in a society of rules and
standards of conduct” (Boatright, 2007, p. 22) and morality serves as “a practical guide for
interpersonal behavior” (Remmé, 2008, p. 176). Matten and Crane (2007) note that a basic
sense of morality is inherent to all individuals and communities. Ethics is then the systematic
and rational study of morality. By applying reason, philosophers seek for normative rules and
principles, which define right and wrong for a given situation of moral uncertainty (Boatright,
2000). These rules and principles can be universally valid or context-dependent and
subjective. Finally, ethical theories comprise these rules and principles in a codified form
(Matten & Crane, 2007).

24
Ethical theories can be divided into consequentialist and non-consequentialist theories.
Reasoning in non-consequentialist theories is based on generally applicable rules and
principles. Actions are judged based on their underlying motivations and principles without
regard to the desirability of their outcomes. By contrast, consequentialist theories understand
these rules and principles to be context-dependent and subjective. The morality of actions is
judged based “on the intended outcomes, the aims, or the goals of a certain action” (Crane &
Matten, 2007, p. 91). For example, corporations act morally right if their activities lead to a
desirable outcome such as the provision of goods and services. This differentiation, and the
actual difficulties in combining these perspectives, will become clearer in the subsequent
outline and discussion of theories on business ethics.
To sum up this short introduction to ethics, one can say that business ethics theories typically
aim to contribute to “the enhancement of ethical decision-making” in the business context
(Crane & Matten, 2007, p. 9). As is shown in the following, the number of situations with
moral uncertainty has increased lately, and more ‘ethical decision-making’ is, therefore,
required.

2.7.3 Why is business ethics important?

The Great Depression in the 1930s had disastrous consequences on individuals, societies, and
entire nations (Tricker, 2009). These circumstances raised the question of the power relations
between the state and corporations. Berle and Means (1932) describe this relation as follows:

The rise of the modern corporation has brought a concentration of

economic power which can compete on equal terms with the modern
state—economic power versus political power, each strong in its field.
The state seeks in some aspects to regulate the corporation, while the
corporation, steadily becoming more powerful, makes every effort to
avoid such regulation. Where its own interests are concerned, it even
attempts to dominate the state (Berle & Means, 1932, p. 357).

Though the raise of corporations is largely based on political institutions, corporations

continuously seek for loopholes to take advantage of institutional ambiguities. To some
extent, it looks like corporations are playing cat and mouse with national states. In 1932,
Berle and Means (1932) were rather pessimistic about the future power relations between
corporations and states:

25
 The future may see the economic organism, now typified by the
corporation, not only on an equal plane with the state, but possibly
even superseding it as the dominant form of social organization (Berle
& Means, 1932, p. 357).

Although White (2008) argues that the corporation as an economic organization will never
replace the state since “the part cannot supersede the whole” (2008, p. 402), it seems likely
that Berle and Means’ prediction has come true nowadays. As Kegley (2009, p. 208) notes
“MNCs have grown dramatically in scope and potential influence with the globalization of
the world political economy since World War II.” These MNCs obtain their power through
large-scale, worldwide economies, strategic flexibility, and the control over technology use
and production location (Deresky, 2008). The paradox is that a majority of the people
themselves have gained from the increasing power of MNCs by an increased supply and
lower prices as a result of competition (for a discussion on the mechanism of competition, see
2.2), but blame the very same MNCs for financial scandals, human rights violations,
environmental side-effects, collaboration with repressive regimes and other problematic
issues (Palazzo & Scherer, 2006). At the same time, it has become increasingly difficult to
influence the actions of MNCs in a positive way, even if people are interested (Spar & La
Mure, 2003). Tricker (2009) notes that the complexity of the financial system has made it
almost impossible for an individual shareholder to have an influence on the behavior of the
company:

[Since] an individual might invest in a pension fund, which invests in

a highly geared hedge fund, which invests in an index tracking fund,
which invests in the shares on a given stock market index ... it can be
difficult for the [individual] to exercise any influence over ... the
company in which his funds have been invested, which was the
original intention of the corporate concept (Tricker, 2009, p. 18).

While individuals seem to be powerless, and political institutions are tied up closing
loopholes, and thus always lag behind corporations, society increasingly distrusts large
corporations. Indeed, Porter and Kramer (2011, p. 64) hold that the legitimacy of business has
dropped to the lowest levels in recent history, not least since “companies are widely perceived
to be prospering at the expense of the broader community.” Moreover, some scholars deny
corporations any form of legitimacy if they are unable of creating value and wealth for many
different stakeholders. Post, Preston and Sachs (2002) argue that “the corporation ... cannot—

26
and should not—survive if it does not take responsibility for the welfare of all of its
constituents and for the well-being of the larger society within which it operates” (2002, p.
16-17). Corporate legitimacy is at stake, and moral responsibilities of corporations have
become a very critical issue for corporations, especially for MNCs with global operations
(Palazzo & Scherer, 2006).
Potential solutions to these issues are the topic of theories on CSR, which offer a wide range
of approaches to corporate moral responsibility and enhanced legitimacy. A selection of these
theories is outlined and discussed in the following section.

2.8 Corporate Social Responsibility

The role of business in society has been subject to controversial discussions in academic
writing since the early 1950s. Garriga and Melé (2004) suggest to categorize the different
theories on CSR based on the applied approach into instrumental, integrative, political, and
ethical theories. These four groups are explained and one or two contemporary and widely
accepted approaches are discussed for each specific group. Table 3 summarizes the outlined
approaches and provides a short description and key readings for each approach.

27
Table 3: Theories on Corporate Social Responsibility
Type of theory Approaches Short descirption Authors and references

Instrumental theories Maximization of Long-term value Friedman (1970), Jensen

(focusing on achieving shareholder value maximization (2002)
economic objectives
through social activities)

Integrative theories Stakeholder management Balances the interests of Freeman (1984)

(focusing on the the stakeholders of the
integration of social firm
demands)
Corporate philanthropy Searches for social Carroll (1979)
legitimacy and processes
to give appropriate
responses to social
issues

Political theories Corporate citizenship The firm is understood as Matten and Crane (2005)
(focusing on a being like a citizen with
responsible use of certain involvement in the
business power in the community
political arena)

Ethical theories Universal rights Frameworks based on UN Global Compact

(focusing on the right human rights, labor rights (2000)
thing to achieve a good and respect for the
society) environment

Source: Adapted from Garriga and Melé (2004).

2.8.1 Instrumental approach to CSR — Shareholder Perspective

From an instrumental perspective, the corporation is perceived as an instrument for the

creation of wealth. Social wealth is maximized if each corporation in the economy maximizes
its total market value (Jensen, 2002). The only social responsibility of corporations is thus to
maximize its profits, and decisions are solely made upon economic considerations.
Consequently, social activities are accepted if, and only if, they create value for the
corporation. Garriga and Melé (2004) suggest calling this group of theories instrumental
theories as they conceive CSR as a mere, strategic tool for the profit maximization. Theories
included in the instrumental group discuss primarily shareholder value maximization.

The most prominent proponent of an instrumental approach to CSR is Nobel Prize laureate
Milton Friedman. According to Friedman (1970), corporations cannot have moral
responsibilities. As a corporation is an artificial person from a legal perspective, its
responsibilities can only be of artificial kind. Yet, Friedman notes that individuals do have

28
moral responsibilities. Typically, management is employed on behalf of the shareholders, and
their primary responsibility is thus to the owners of the firm (ibid.). This responsibility is of
fiduciary kind, and requires corporate executives to:

[C]onduct the business in accordance with their [the owners of the

business] desires, which generally will be to make as much money as
possible while conforming to the basic rules of the society, both those
embodied in law and those embodied in ethical custom (Friedman,
1970, p. 33).

This concludes that corporate behavior is driven by the primacy of profit maximization, and
the only legitimate stakeholders are the company’s shareholders. Social activities by the
corporation are only desirable if their outcomes are compatible with shareholders’ interest. In
these cases, and although corporations are tempted to rationalize these efforts as an exercise
of its social responsibilities, these expenditures are entirely justified in the self-interest of the
corporation (Friedman, 1970). Consequently, a corporation’s engagement in CSR is first an
attempt to increase its reputation under ‘the cloak of social responsibility’ (ibid.). Moreover,
any corporate engagement in CSR for other reasons than the above is counterproductive due
to the following reasons (Friedman, 1970):

(a) Problem of competing claims: The main objective of firms should be economical, not
social. CSR distracts firms from further development and impairs their economic
efficiency.
(b) Competitive disadvantage: Investing in CSR will cause competitive disadvantages for
the firm. For example, environment-friendly products will increase production costs.
(c) Lack of competence: Firms would not gain any competence through dealing with social
issues. Friedman (1962) argues that investing in CSR is an inefficient use of money
since firms have no core competence in CSR and therefore lowers shareholder value by
investing in it.
(d) Fairness-domination by business: If firms obtain excessive concentration of power, it
may threaten the power of other institutions.
(e) The role of government: Friedman (1962) argues that companies should leave social
issues to be managed by the government and support it through their payment of taxes.

As Friedman (1970) concludes, the notion of social responsibilities of a corporation is “a

fundamentally subversive doctrine ... [that] harm[s] the foundations of a free society ... [by]

29
help[ing] to strengthen the already too prevalent view that the pursuit of profits is wicked and
immoral and must be curbed and controlled by external forces [other than the market].”

Clearly, the shareholder perspective on CSR has a neo-liberal bias towards the free market
ideology. Globalization and free trade increase the opportunities for profits, and thus
increased social welfare. Moreover, free trade is seen as a major driver of development. As
Krauss (1997, p. 51) notes “the way to help poor people abroad is to open our markets to them
not to force them to adopt ... human rights standards.” Indeed, even some economists from
developing countries argue that “a lousy job is better than no job at all” (Martinez-Mont,
1996). If corporations trade with and invest in developing countries, corporations contribute
to economic development and enhanced productivity, and wages and labor standards will
increase (Irwin, 2002). Consequently, “efforts to limit international trade or to shut down the
sweatshops are counterproductive” (Irwin, 2002, p. 214). From an economic point of view,
economic development is a necessity for democratization and social and environmental
standards in developing countries (Barro, 1997).

2.8.2 Integrative approach to CSR — Philanthropy and Stakeholder management

Rather than existing independently from its environment, the corporation is understood as a
part of its environment from an integrative perspective. The corporation is embedded in a
network of economic, social, and political relations. The corporation interacts with society on
social aspects, and social legitimacy is critical for its existence, continuity, and growth
(Palazzo & Scherer, 2006). Consequently, corporate management should consider social
expectations, and integrate them into its business so that corporate behavior reflects social
values. Preston and Post (1975) note that the content of business responsibility is contextually
determined, with space and time altering the values of society over time. Therefore, the role
of corporations and its responsibilities may change throughout time and different locations.
As Garriga and Melé (2004, p. 59) note integrative theories “are focused on the detection and
scanning of, and response to, the social demands that achieve social legitimacy, greater social
acceptance and prestige.”

Carroll (1979) has been an early proponent of this integrative approach to CSR. In an attempt
to reconcile the economic orientation with the social role of corporations, Carroll proposes
that CSR consists of economic, legal, ethical, and discretionary responsibilities. These four
dimensions reflect the evolutionary path of corporations, namely an early emphasis on

30
economic aspects, first followed by legal concerns and later by ethical and philanthropic
aspects. Subsequently, Carroll (1991) visualizes his perception of CSR in form of a pyramid,
convinced that it would help managers to “see that the different types of obligations are in a
constant tension with one another” (1991, p. 42). Figure 4 depicts this pyramid.

Figure 4: The Pyramid of CSR. Source: Adapted from Carroll (1991) and Hansen (2010).

Carroll (1991) accepts that the raison d’être of the firm is to create value for its shareholders
through satisfying society’s needs. Corporations have thus first an economic responsibility,
which constitutes the bottom of the pyramid. All other responsibilities can be assigned to
corporations if, and only if, the corporation is economically sound. On the next level, the
corporation has legal responsibilities, which include adherence to the law, regulations and
rules that ensure responsible business practices with contractual stakeholders (Claydon,
2011). On the third level of the pyramid, the ethical responsibilities oblige corporations to act
in a right, just and fair manner with their broad set of stakeholders. Corporate behavior should
especially avoid doing these stakeholders any harm. On the uppermost level, Carroll (1991)
argues that corporations have philanthropic responsibilities to the communities in which they
operate. Corporations must consider themselves as citizen with rights and responsibilities, and
thus fairly contribute to society like any other individual is required to do (Dahl, 1972).

31
Although Carroll’s (1991) approach to CSR proposes a broader set of corporate
responsibilities, it is important to understand that “a company will only ever be socially
responsible if this fits in with its economic goal of maximizing profit” (Crowther & Claydon,
2009, p. 262). As a result, efforts towards increased CSR are inevitably economically
motivated.

A second integrative approach to CSR is Freeman’s theory on the stakeholders of the firm
(1984). Though the notion of stakeholder in business dates from the 1960s (Crane & Matten,
2007), it was Freeman who developed a theoretical framework. According to Stark (1993),
the stakeholder theory of the firm is one of the most popular and influential approaches to the
social responsibilities of corporations. Freeman (1984, p. 52) argues that corporations are not
simply responsible to its shareholders alone, but to a broader set of stakeholders that “can or
[are] affected by the achievement of the organization’s objectives.” It has been suggested that
stakeholders are those individuals and groups with a ‘critical eye’ on the corporation
(Bowmann-Larsen & Wiggen, 2004). Since the scope of Freeman’s initial definition of
stakeholders is too broad to be applicable in specific situations, other scholars have refined
the definition. Hill and Jones (1992) suggest that only stakeholders with a legitimate claim on
the corporation should be considered. Crane and Matten (2010, p. 62) suggest that “[a]
stakeholder of a corporation is an individual or a group which either: is harmed by, or benefits
from, the corporation; or whose rights can be violated, or have to be respected, by the
corporation.” Even though the set of stakeholders may vary among different companies an
overview of the most common stakeholders in the stakeholder view of the corporation is
presented in Figure 5.

32
Figure 5: The stakeholders of the corporation. Source: Adapted from Ulrich (2008, 2010).

As depicted, the corporation has obligations to a wide range of groups that are affected by its
activities. This view reflects the opinion that the purpose of the organization is to create value
for many different stakeholders, including earnings for shareholders, salaries for employees,
benefits for customers, taxes for government, and employment for local communities (Post et
al., 2002). Since various stakeholders, by definition, “have different views as to what is
valuable because of unique knowledge, goals, and context conditions” (Lepak et al., 2007, p.
185), corporations must identify to whom and for whom they are responsible, and what these
responsibilities entail. Lately, the impact of governments and local communities, NGOs and
media on corporations has increased (Spar & La Mure, 2003). Although each of these groups
has its own perception of responsible corporate practices (Garriga & Melé, 2004), Rushton
(2002) notes:

It is now clear that stakeholders demand high standards of ethical and

social responsibility from companies. ... Companies need to
understand the mindset of their stakeholders that governs their

33
 perception as to what constitutes responsible corporate behaviour, and
then develop a strategy to satisfy these expectations so far as possible
[since] successful companies are those that can operate in harmony
with the needs and aspirations of their stakeholders (Rushton, 2002,
pp. 137-138).

A stakeholder approach to CSR requires corporations to integrate its identified stakeholders

into their managerial decision-making process, and thus helps the company to grasp both
strong and weak signals received from its environment. A stakeholder approach does
therefore “not only enhance a company’s sensitivity to its environment but also increases the
... understanding of the dilemmas facing the organization” (Kaptein & Van Tulder, 2003, p.
208).

2.8.3 Political approach to CSR — Corporate citizenship

There are theories of CSR that study the political power of corporations in the relationship
with society. It is assumed that corporations with economic power do have political
responsibilities. The corporation must accept social duties and rights and a certain
involvement in the community. Garriga and Melé (2004) suggest calling this group political
theories. Matten and Crane’s (2005) theoretical conceptualization of Corporate Citizenship
(CC) is widely recognized (Baumann & Scherer, 2010), and focuses on how corporations can
use their power in a responsible manner in the political sphere.

The notion of CC emerged in the late 1990s and has mainly been used among corporations to
combine their social responsibilities. Yet, corporations have used CC in many different ways,
and consequently, its usage has neither been consistent nor particularly clear (Matten &
Crane, 2005). Carroll (1999) suggests that CC is an extension of already existing work on
CSR, and thus builds on his earlier CSR pyramid (1991). Matten and Crane (2005) classify
the traditional understanding of CC into two categories:

(1) A limited view on CC, which consists of a corporation’s engagement in strategic

philanthropy focusing on its immediate business environment and local communities.
Rather than traditional philanthropy in Carroll’s sense (1979), CC is a rational, long-
term investment motivated by the self-interest of the corporation (Porter & Kramer,
2006). Firms do so because a profitable business depends on a stable social,
environmental, and political environment (Matten & Crane, 2005)

34
(2) An equivalent view on CC, where the notion of CC is used as an equivalent to CSR
intended to rebrand, relaunch, and disseminate existing ideas about the relations of
business and society among corporations and managers (for example Carroll, 1998).

In addition, Matten and Crane (2005) suggest an extended view of CC, which takes into
account the consequences of globalization for the social role of corporations. They argue that
the prevailing understanding of citizenship in most industrialized societies reflects a liberal
perspective, where citizenship includes a set of individual rights. According to Marshall
(1965), a liberal citizenship is characterized by three types of entitlements, including:

(1) Social rights, or positive rights that provide the individual with the freedom to
participate in society, including the rights to education, healthcare, and welfare. Social
rights entitle an individual towards third parties.
(2) Civil rights, or negative rights that provide the individual with the freedom from abuses
and impairment by stronger powers (mostly the government), including the rights to
own property, to engage in the market economy, and to exercise freedom of speech.
Civil rights protect the individual against the infringement of stronger third parties.
(3) Political rights that provide the individual with active and passive voting rights, the
freedom of association and the right to assemble. Political rights enable the individual to
participate in the political process and influence political outcome.

Traditionally, national governments used to govern these rights for their citizen. Yet, the
space of action and control for national governments has narrowed as globalization
increasingly promotes unconditional free trade and fierce global competition (Beck, 2000).
Hence in the globalized world, the power of rule-making and rule-implementation moves
away from single national states towards a supranational level on a global scale (Zürn, 2002),
and a substate level below traditional governmental politics (Beck, 2000). As Scherer,
Palazzo and Baumann (2006) note MNCs and civil society groups increasingly contribute to
the formulation and implementation of rules in public policy areas, which were traditionally
the responsibility of the state. Consequently, Matten and Crane (2005, p. 69) observe that “at
the same time, as we have witnessed a weakened state, we have also witnessed a parallel
development, which has seen a massive rise in corporate power and influence.” Hence,
corporations, which are one of the mains drivers of globalization (Deresky, 2008) and directly
contribute to the weakening of traditional national states, are increasingly faced with a new,
political responsibility to compensate for the loss of control of national governments,
especially concerning citizens’ rights. Indeed, “corporations have increasingly taken on a role

35
in society which is similar to that of traditional political actors” (Crane & Matten, 2010, p.
77). According to Matten and Crane (2005, p. 173), CC is then “the role of the corporation in
administering citizenship rights for individuals” in the following situations:

(1) Governments can no longer secure the citizens’ rights; or

(2) Governments do not yet provide the citizens’ rights; or
(3) Governments are in principle incapable of ensuring the citizens’ rights.

In these situations, corporations can replace the traditional national state and provide social
rights, enable civil rights and channel political rights (Matten & Crane, 2005). Firms can thus
have a significant impact on these societies. For example, in situation (3) when governments
generally fail to ensure the citizens’ rights, corporations can offer education to local people (a
social right), protect property such as pension funds (a civil right), and encourage a broader
political participation such as the formation of worker unions (a political right). As the
motives for a corporation’s engagement in CC remain unclear, Crane and Matten (2010)
observe that:

It is evident that corporate citizenship may be the result either of

voluntary, self-interest driven corporate initiative, or of a compulsory,
public pressure-driven corporate reaction—either way it places
corporations squarely in a political role rather than just an economic
one. Most firms actually claim to not want to take on such a political
role in society, yet it seems that increasingly they do, either because of
pressure from activists, or sometimes simply out of necessity (Crane
& Matten, 2010, p. 79).

Matten and Crane (2005) emphasize repeatedly that their extended view of CC is a descriptive
conceptualization of what corporations do, rather than what they should do. Their framework
therefore primarily improves the understanding of the political power of corporations in
relation to common citizens’ rights across nations, as well as the challenges posed by
globalized world. Moreover, improved citizens’ rights are closely linked to a new global
ethics of sustainability.

2.8.4 Ethical approach to CSR — Universal rights

A number of theories argue that the relationship between business and society is defined and
controlled by ethical values. Corporations ought to base their actions on ethical principles,

36
that is, doing the right thing at any time, and thus contribute to a good society. Moreover,
corporations voluntarily accept social responsibilities as an ethical obligation, irrespectively
of the outcome. Such theories are thus non-consequentialist. Garriga and Melé (2004) propose
to name this group ethical theories.

Ruston (2002, p. 139) argues that corporations willing “to survive and prosper in a world of
change will need to have strong ethical values and standards ... Successful global business
will be those that integrate sustainable development, including social responsibility, into their
business strategies.” Bondy, Matten and Moon (2004) note that codes of conduct stating
corporate values and principles are commonly thought to serve as a behavioral guidance
system towards CSR for a company’s employees. However, as Deresky (2008) points out
MNCs have repeatedly struggled in defining a corporate-wide ethical code of conduct, since
ethical standards vary greatly around the world. Indeed, many practices that are accepted
ways of doing business in one part of the world can be considered unethical in others (ibid.).

The UN Global Compact (UNGC), based on the widely accepted notion of human rights,
strives to overcome these difficulties. Officially launched in 2000, the UNGC asks companies
to “integrate universal principles into their strategies, operations and culture ... [since] global
markets must contribute to a world where all people can live in societies that are prosperous
and peaceful” (UN, 2010, p. 9). The UNGC focuses on ten principles regarding human rights
protection, fair labor conditions, environmental responsibility, and anti-corruption, which are
summarized in Table 4.

37
Table 4: The UN Global Compact

The Ten Principles

The UN Global Compact asks companies to embrace, support and enact, within their sphere of influence, a
set of core values in the areas of human rights, labour standards, the environment and anti-corruption:
Human Rights
Principle 1 Businesses should support and respect the protection of internationally proclaimed human
rights; and
Principle 2 make sure that they are not complicit in human rights abuses.
Labor
Principle 3 Businesses should uphold the freedom of association and the effective recognition of the
right to collective bargaining;
Principle 4 the elimination of all forms of forced and compulsory labour;
Principle 5 the effective abolition of child labour; and
Principle 6 the elimination of discrimination in respect of employment and occupation.

Environment
Principle 7 Businesses should support a precautionary approach to environmental challenges;
Principle 8 undertake initiatives to promote greater environmental responsibility; and
Principle 9 encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption
Principle 10 Businesses should work against corruption in all its forms, including extortion and bribery.

Source: Adapted from UN (2010, p.8).

The UNGC was initiated when representatives within the UN had come to realize at the end
of the twentieth century that globalization divided the world in winning and loosing parties.
While foreign-direct investment and global trade could raise living standards in selected parts
of the world, a large number of people and nations had been excluded from similar economic
development so far. Matters were complicated further by the fact that economic advances
increasingly occurred at the costs of neglecting human rights, social and environmental
responsibilities. The UN, therefore, addressed the need for a global governance system for the
private sector, which called on responsible CC and companies’ commitment “to act in a
principled way wherever and whenever they operated” (UN, 2010, p. 9). Notably, companies
were explicitly understood as part of the solution to the global challenges that humankind
would face in the new millennium.
Since the former UN Secretary-General Kofi Annan invited companies to commit to a global
compact of shared values and principles at the World Economic Forum (WEF) in Davos in
1999, over 8,700 companies and other stakeholders in more than 135 countries around the
world have signed the UNGC (as of December 2011; UN, 2010). As of today, the UNGC
represents the world’s largest, network-based, and purely voluntary initiative for corporate

38
responsibility and sustainability. Consequently, the UNGC benefits from the power of
collective action, and companies can contribute towards a more sustainable and inclusive
global economy in a collaborative effort with governments, labor and civil society
organizations, and the UN (UN, 2011b). The main objectives include mainstreaming the ten
principles in business activities around the world, and catalyzing actions in support of the UN
Goals (for example, the UN Millennium Development Goals), where the UNGC seeks to
facilitate the achievement of these objectives through mechanisms such as policy dialogues,
learning, country and regional networks, and projects (UN, 2011b). Importantly, the UNGC is
purely voluntary, and has thus no regulatory power to enforce favorable corporate behavior
and actions (UN, 2011b). If anything, the UNGC “relies on public accountability,
transparency and the enlightened self-interest of companies, labour and civil society to initiate
and share substantive action in pursuing the principles upon which the Global Compact is
based” (UN, 2007, p. 3). Form a corporate perspective, participating in the UNGC is said to
be advantageous for a number of reasons, which are summarized in Table 5.

Table 5: The benefits of participating in the UN Global Compact

1 Adopting an established and globally recognized policy framework for the development,
implementation, and disclosure of environmental, social, and governance policies and practices.

2 Sharing best and emerging practices to advance practical solutions and strategies to contemporary
challenges [related to globalisation, sustainable development and corporate responsibility in a multi-
stakeholder context].

3 Advancing sustainability solutions in partnership with a range of stakeholders, including UN agencies,

governments, civil society, labour, and other non-business interests.

4 Linking business units and subsidiaries across the value chain with the Global Compact's Local
Networks around the world — many of these in developing and emerging markets.

5 Accessing the United Nations' extensive knowledge of and experience with sustainability and
development issues.

6 Utilizing UN Global Compact management tools and resources, and the opportunity to engage in
specialized workstreams in the environmental, social and governance realms.

Source: Adapted from UN (2011b, para. 7).

Consequently, a company committed to the UNGC shows interest in a leading role to

contribute to a global dispersion of responsible CC. Internally, the company can manage its
risks more proactively through a broad stakeholder approach on critical issues. Finally,
companies help the UN leverage its global reach through the cooperation between
governments, businesses, civil society and other stakeholders.

39
3 COMPARISON

3.1 Overview

Based on the previously outlined responsibilities for sustainable development of companies

and the four described theories on CSR, each theory can be individually compared to the
responsibilities for sustainable development according to the Brundtland Report (see Table 2).
Table 6 summarizes the suggested compatibility of each theory with the proposed
responsibilities, where no or low compatibility = 0, moderate compatibility = 1, and high
compatibility = 2.

Table 6: Compatibility of business ethics theories with responsibilities for sustainable

development (no or low compatibility = 0, moderate compatibility = 1, strong compatibility =
2)
Instrumental Integrative Political
# Responsibilities Label Ethical theories
theories theories theories

Economic 1 Use of foreign direct investment (FDI) as driver of Econ1 2 2 2 0

economic growth and increasing prosperity

2 Transfer of technology, knowledge and managerial skills Econ2 2 2 2 2

to make the best use of technology

3 Innovation and diffusion of new, environmentally sound Econ3 2 2 2 2

technologies

Social 1 The opportunity of employment and fair salaries, Soc1 2 2 2 2

enabling poor households to meet minimum
consumption standards
2 The provision of public goods such as education and Soc2 1 1 2 0
health to accelerate and raise human productivity

3 Improving the position of women in society through Soc3 0 0 2 2

employment and education, lowering fertility rates and
decelerating population growth

Ethical 1 Voluntarily commitment to a broader sense of social and Eth1 0 1 2 2

environmental responsibilities beyond regulatory
compliance, and accept certain special responsibilities
where required, controlling and guiding corporate
behavior at firm level

2 Promotion of values and attitudes encouraging Eth2 0 0 0 2

sustainable consumption standards world-wide
3 Promotion of a global ethic, a common set of broadly Eth3 0 0 1 2
shared values and attitudes, enabling sustainable
development and social justice

Political 1 Close cooperation with political institutions, particularly Pol1 0 1 2 2

in developing countries, reducing the information
asymmetry, building mutual trust and counteracting
conflicts

2 Broader stakeholder discourse and disclosure of Pol2 0 2 2 2

relevant information, enhancing transparency and
increasing legitimacy of corporate decisions and
operations

3 Establishment of international codes of conduct for Pol3 0 1 1 2

sustainable development, controlling and guiding
corporate behaviour for sustainable development at
supranational level

Source: Author’s suggestion.

40
3.2 Instrumental approach to CSR — Shareholder Perspective

Figure 6 depicts the suggested compatibility of the instrumental theories with the proposed
responsibilities for sustainable development. It becomes clear that instrumental theories are
strongly consistent with the economic responsibilities (Econ1, Econ2 and Econ3), the
provision of employment opportunities (Soc1) and partly consistent with the provision of
public goods (Soc2) in cases where this maximizes shareholder value in the long-term. By
contrast, instrumental theories do not assume any responsibility for improving the role of
women in society (Soc3), or any ethical (Eth1, Eth2 and Eth3) or political responsibilities
(Pol1, Pol2 and Pol3).

Figure 6: Compatibility of instrumental theories with proposed responsibilities for

sustainable development.

3.3 Integrative approach to CSR — Philanthropy and Stakeholder management

Figure 7 depicts the suggested compatibility of the integrative theories with the proposed
responsibilities for sustainable development. It becomes clear that integrative theories are
strongly consistent with the economic responsibilities (Econ1, Econ2 and Econ3), the
provision of employment opportunities (Soc1) as well as the integration of a broader
stakeholder discourse (Pol2). They are partly consistent with the provision of public goods
(Soc2), the voluntary commitment to a broader sense of social and environmental

41
responsibilities (Eth1), a closer cooperation with political institutions (Pol1) and the
establishment of international codes of conduct (Pol3). By contrast, integrative theories do not
assume any responsibility for improving the role of women in society (Soc3) nor for the
promotion of values and attitudes encouraging sustainable consumption standards world-wide
(Eth2) or a global ethic (Eth3).

Figure 7: Compatibility of integrative theories with proposed responsibilities for sustainable

development.

3.4 Political approach to CSR — Corporate citizenship

Figure 8 depicts the suggested compatibility of the political theories with the proposed
responsibilities for sustainable development. It becomes clear that political theories are
strongly consistent with the economic responsibilities (Econ1, Econ2 and Econ3) and social
responsibilities (Soc1, Soc2 and Soc3), a voluntary commitment to a broader sense of social
and environmental responsibilities (Eth1), a closer cooperation with political institutions
(Pol1) and the integration of a broader stakeholder discourse (Pol2). They are partly
consistent with a global ethic (Eth3) and the establishment of international codes of conduct
(Pol3). By contrast, political theories do not assume any responsibility for the promotion of
values and attitudes encouraging sustainable consumption standards world-wide (Eth2).

42
Figure 8: Compatibility of political theories with proposed responsibilities for sustainable
development.

3.5 Ethical approach to CSR — Universal rights

Figure 9 depicts the suggested compatibility of the ethical theories with the proposed
responsibilities for sustainable development. It becomes clear that ethical theories are strongly
consistent with the ethical responsibilities (Eth1, Eth2 and Eth3), the political responsibilities
(Pol1, Pol2 and Pol3), the transfer of technology, knowledge and managerial skills to make
the best use of technology (Econ2) and the innovation and diffusion of new, environmentally
sound technologies (Econ3), the provision of employment opportunities (Soc1) and the
responsibility for improving the role of women in society (Soc3). By contrast, ethical theories
do not assume any responsibility for the use of FDI as driver of economic growth and
increasing prosperity (Econ1) and for the provision of public goods (Soc2).

43
Figure 9: Compatibility of ethical theories with proposed responsibilities for sustainable
development.

These findings suggest that each theoretical approach to business ethics has its deficiencies
with regard to the responsibilities for sustainable development with no theory assuming all
responsibilities. Indeed, these weaknesses have been subject to widespread criticism, which
are discussed in the following.

44
4 DISCUSSION AND CONCLUSIONS

Based on the analysis of the responsibilities of business for sustainable development and the
subsequent comparison with instrumental, integrative, political and ethical theories on
business ethics, the presented results suggest that none of the outlined theories is completely
consistent with the assumed responsibilities in the Brundtland Report (WCED, 1987). These
shortcomings have been the basis for widespread criticism and intense academic discourse. In
the following, some criticism and counter-arguments are discussed for each of the outlined
theories, beginning with the most heavily criticized theory of shareholder value maximization.

4.1 Instrumental approach to CSR — Shareholder Perspective

Although the shareholder perspective is widely spread among corporate executives, especially
in the US (Deresky, 2008), a growing number of scholars challenge the one-sided orientation
on profit and shareholder value maximization. For example, Lepak et al. (2007, p. 191) raise
the question whether “value creation activities [can] survive in the long term if only one target
is satisfied, or do [corporations] have to meet some minimum level of [shared] value for all
parties to maximize [social welfare]?” Indeed, the sole focus on profit maximization is most
likely to have adverse effects on society and the environment, with some of them stated in the
Brundtland Report (WCED, 1987). Porter and Kramer (2011, p. 64) note that nowadays
“companies are widely perceived to be prospering at the expense of the broader community.”
Corporations do increasingly maximize and claim the profits if things go well, but expect
society to subsidize the losses if things go poorly (French et al., 2010). Recent examples of
privatized gains and socialized losses include the government bailouts of financial service
providers despite excessive executive compensation in years previous to the crisis, or the
sinking of the oil platform Deepwater Horizon and the consequent marine pollution in the
Gulf of Mexico and loss of income for fishers. The latter example illustrates the difficulties
arising from neoclassical thinking, which is inherent in instrumental theories. According to
neoclassical theory, firms maximize their profits. Then, any requirements for improvement,
such as for example increased safety arrangements related to the risky deep-sea drilling for oil
reserves, impose a constraint on the firm, which will inevitably result in increased costs, a
competitive disadvantage and reduced profits (Hirshleifer et al., 2005; see also Friedman,
1970). If firms disregard such improvements, this can lead to negative externalities. In
economics, negative externalities are a market failure and refer to situations when firms create
social costs without having to bear them. Firms have thus traditionally excluded social and

45
environmental concerns from their economic considerations (Porter & Kramer, 2011).
Excessive pollution of the environment is a classic example of a negative externality. In
theory, governments play an important role in solving the problems and mitigating the
consequences arising from negative externalities. By designing and implementing policies
that rely on taxes, regulations and penalties, the internalization of negative externalities can be
partially enforced. These government interventions are consistent with Friedman’s
perspective on CSR if they are embodied in the law and thus defining the rules of the game
(1970). Consequently, stakeholders other than shareholders “have protection (or can seek
remedies) through contracts and the legal system” (Sundaram & Inkpen, 2004, p. 353).
However, as the discussion about the corporation outlines (see 2.1), the scope of legal systems
is generally considered too narrowly from an ethical point of view (Crane & Matten, 2010)
and existing legislations vary greatly in scope and enforcement between various nations.
Corporate governance structures are particularly weak and thus hardly protecting stakeholders
in emerging and developing countries (Tricker, 2009), thus allowing MNCs to unrestrictedly
exploit national resources and cheap labor in these countries and maximizing their profits at
the costs of society. At the same time, neoclassical economists persist on their viewpoint that
the primacy of profit maximization in free markets remains the world’s indispensable engine
for economic progress in both rich and poor countries. Moreover, globalization has not
brought with it any negative consequences as Henderson (2005) notes:

Globalisation … has chiefly resulted from deliberate decisions taken

by governments, with good reason, to make international trade and
investment flows freer. It has not brought with it ‘social exclusion’. It
has not ‘marginalised’ poor countries. It has not conferred on
businesses undue benefits or new powers to determine events. The
idea that corporations now have to take on new and wider national and
international responsibilities, because they have become more
powerful while governments have lost control, has no basis
(Henderson, 2005, p. 31).

In contrast, Porter and Kramer (2006, p. 83) argue that “any business that pursues its ends at
the expense of the society in which it operates will find its success to be illusory and
ultimately temporary.” Because of growing opposition among broad social classes, the pursuit
of a shareholder value approach, if not Western capitalism, must prove that it can solve the
world’s most pressing problems and really contribute to sustainability.

46
4.2 Integrative approach to CSR — Philanthropy and Stakeholder management

It has been shown that Carroll (1979, 1991) understands CSR mainly as the need for
companies to engage in corporate philanthropy on top of their economic, legal, and ethical
responsibilities. Claydon (2011) notes that this philanthropic approach to CSR is widely used
in practice. On the other side, Carroll’s framework has also been criticized since it explicitly
acknowledges the profit maximization principle at the bottom of the CSR pyramid (see
Figure 4). Since a firm’s responsibility is primarily to its shareholders comparable with
instrumental theories, the firm may not be acting socially responsibly in all cases. For
example, economically weak companies do not have excess resources and are thus less likely
to invest time, effort and money into discretionary responsibilities (Campbell, 2007).
Therefore, companies that fail to accumulate excess resources are unlikely to meet the
expected ethical and desired philanthropic responsibilities. Further, if a firm suffers from
financial losses in the short-term, the fulfillment of these responsibilities is further
complicated.
On the other side, neoclassical economists argue that profit-maximizing firms may in
principle not accumulate excess resources. In theory, if the firm were to maximize its profits,
and if it had the opportunity to create profits from deploying existing excess resources, it
would already have exploited this opportunity (Zinn & Flood, 2009). Consequently, the
existence of excess resources indicates that the firm is using its resources inefficiently, and is
therefore not maximizing its profits. This inevitably harms the shareholder value proposition
underlying the instrumental theories on business ethics. Besides the inefficiency aspect,
excess resources pose another problem for organizations from an agency perspective. In a
classical principal-agent relationship, the owners of the firm (the principals) and the
management (the agents) run inevitable into conflicts of interest (Tricker, 2009). Agency
theory studies the problem of motivating the management to act on behalf of the owners’
interests (Ross, 1973). Jensen (1986) argues that managers can no longer be assumed to
automatically act to maximize profits and firm value, but are likely to pursue their own
interests in the presence of excess resources, and in particular cash reserves. For example,
management might support their children’s local soccer club. While this would be a desirable
act of philanthropy according to Carroll (1979), management would be illegitimately
spending their owners’ money from a shareholder perspective (Friedman, 1970). Porter and
Kramer (2011, p. 64) argue, therefore, “the most powerful force for addressing the pressing
issues we face [are] businesses acting as business, not as charitable donors.”

47
Other arguments against Carroll’s framework include the fact that corporate philanthropy is
not a desirable activity per se, since it does not challenge the sources of the funds for the
charitable donations (Ulrich, 2008). Indeed, if a firm earned its profits in a morally
questionable way, such as the maintenance of poor working conditions or the use of child
labor, and gave parts thereof to charity, it would assume its ethical and discretionary
responsibilities. However, critics argue that there is no point in corporate philanthropy if it
obscures morally wrong behavior in the first place (Crane & Matten, 2010).
Claydon (2011) concludes, therefore, “the traditional ‘Pyramid of CSR’ model is not
sufficient as a comprehensive understanding of the ways in which CSR and sustainability
should be achieved.”

Stakeholder theory is the other integrative theory outlined. According to Freeman (1984),
stakeholder theory does help a firm to analyze its environment, identify interest groups and
facilitate a broader stakeholder discourse than the neoclassical shareholder approach. Lepak et
al. (2007) support such an important long-term perspective on the relationships of the firm,
since it makes clear that firms are likely to face different and perhaps competing opinions
among stakeholders on what are desirable outcomes of corporate activities. It is, therefore,
essential that companies “direct time and effort toward recognizing and, to some degree,
reconciling these differences” (ibid., p. 185).
Yet, stakeholder theory has also been criticized since it focuses solely on the identification of
stakeholders in the firm and potential conflicts of interest among them. While a stakeholder
analysis ends here, it does not specify how a firm should make the inevitable tradeoffs among
these conflicts of interest. Jensen (2002, p. 241) suggests that a useful theory tells decision-
makers “how to choose among multiple competing and inconsistent constituent interests.” If a
stakeholder management approach were a useful alternative to the shareholder perspective, it
would have to set the order of priority for a set of conflicting viewpoints. For example,
financial investors may favor short-term profits at the cost of budget and job cutbacks, while
employees may favor secured long-term employment and high salaries, and environmentalists
may prefer only activities that do not harm the environment (Lepak et al., 2007). Yet, Jensen
(2002, p. 242) argues that a stakeholder management perspective “leaves boards of directors
and executives in firms with no principled criterion for problem solving.” But if theories on
business ethics are to contribute to “the enhancement of ethical decision-making” in situations
of moral uncertainty (Crane & Matten, 2007, p. 9), Freeman’s stakeholder management is not

48
a sufficient framework for corporations to comprehensively understand CSR and achieve
sustainability.
Further, Porter and Kramer (2006) question the premise that stakeholders have better
knowledge on the firm’s environment. Although they accept that stakeholders’ viewpoints are
important, they argue:

Stakeholders ... can never fully understand a corporation’s

capabilities, competitive positioning, or the trade-offs it must make.
Nor does the vehemence of a stakeholder group necessarily signify the
importance of an issue—either to the company or to the world. A firm
that views CSR as a way to placate pressure groups often finds that its
approach devolves into a series of short-term defensive reactions—a
never-ending public relations palliative with minimal value to society
and no strategic benefit for the business (Porter & Kramer, 2006, p.
82).

Companies, therefore, are better off if they refrain from adopting a stakeholder approach to
CSR. Instead, firms should focus on creating value, which is shared among many stakeholders
in the firm (Porter & Kramer, 2011).

4.3 Political approach to CSR — Corporate citizenship

Although a number of important reasons support a political role of corporations (Baumann &
Scherer, 2010), such a role is also criticized. Dubbink (2005) mentions the legitimacy deficit
of MNCs, Deresky (2008) claims culture imperialism of MNCs, and Scherer et al. (2006)
point out the need for adequate instruments to administer citizens’ rights in practice.
Moreover, Baumann and Scherer (2010) hold that the legitimacy of a corporation is its license
to operate. Indeed, corporations will have to “operate in a way that is perceived as legitimate
in an increasingly heterogeneous environment” if they are to survive in the long-term (ibid., p.
17). The legitimacy of corporations, therefore, depends increasingly on moral legitimacy as
Palazzo and Scherer (2006) argue:

In the current transition from stable industrial society to a globalized

post-industrial society, cognitive legitimacy is eroding (e.g.,
shareholder-value ideology, free and open market narratives,
normative homogeneity) while pragmatic legitimacy (e.g., lobbying,
branding, strategic public relations) provokes growing resistance (e.g.,

49
 anti-globalization movement, no logo movement). Therefore, moral
legitimacy has become the core source of societal acceptance (Palazzo
& Scherer, 2006, p. 78).

According to Palazzo and Scherer (2006), moral legitimacy is a social construct resulting
from conscious moral judgments on a company’s products and services, processes,
organizational structures and leaders. It is in the interest of the corporation to participate in an
“explicit public discussion’’ (Suchman, 1995, p. 585), where it can bring forward arguments
that justify and explain its decision and actions. As a result, a company can only gain moral
legitimacy if it actively engages in these public discussions (Suchman, 1995). Important,
corporations must know how to convince rather than manipulate and persuade opponents
(Palazzo & Scherer, 2006). Moreover, companies are increasingly urged to alter their
“economic, utility-driven, and output-oriented” view of corporate legitimacy in favor of “a
political, communication-driven and input-oriented” approach (Baumann & Scherer, 2010, p.
16), as described by Habermas’ concept of deliberative democracy (for an overview, see
Habermas, 1996). Ultimately, this approach will “lead to better and broader accepted political
decisions and a deeper mutual understanding of the stakeholders involved and thus
contributes to sustaining moral legitimacy” (Palazzo & Scherer, 2006, p. 81).

In neoclassical economics, the government must resolve issues of public interest, such as the
enforcement of human rights, social and environmental standards. According to Friedman
(1962), companies should normally leave social issues to be managed by governments while
supporting their activities with tax payments. This perspective presupposes a sovereign
national state that is capable of fulfilling these tasks. In the globalized world, however,
national states are increasingly losing influence over their territories in industrialized
countries (Beck, 2000), respectively have never or barely been able to build functioning social
and political structures (Matten & Crane, 2005). The framework of CC draws on these
insights and argues in favor of a broader set of social responsibilities for companies. As
opposed to the shareholder value approach, a CC perspective emphasizes the positive
reinforcing effect of a healthy relationship between corporations and society. Porter and
Kramer (2006) suggest that:

Successful corporations need a healthy society. Education, health care,

and equal opportunity are essential to a productive workforce. Safe
products and working conditions not only attract customers but lower

50
 the internal costs of accidents. Efficient utilization of land, water,
energy, and other natural resources makes business more productive
(Porter & Kramer, 2006, p. 83).

These are a number of reasons why corporations indeed should assist failing states in the
provision of basic infrastructural facilities and securing citizens’ rights. Moreover, local
societies can benefit from good government, working legal systems and strong regulatory
standards, since these factors promote efficiency, innovation and protect employees from
exploitation (Porter & Kramer, 2006). Ultimately, a healthy society triggers a virtuous circle
of economic progress, as corporations can meet more human needs.
Yet, Matten and Crane’s (2005) framework on CC is currently purely descriptive. Therefore,
they point out the need for further research about an extended view of CC based on citizens’
rights. For example: Which citizens should corporations consider? How can their expectations
be collected? And how can corporations integrate, prioritize and balance their presumed
rights? Eventually, time will tell whether the outlined framework of an extended view on CC
can be further developed towards a more sophisticated, prescriptive theory on corporations
can contribute to sustainable development.

4.4 Ethical approach to CSR — Universal rights

Even though it is not easy to adapt a universal code of morality and ethics for a set of
individual countries (Deresky, 2008), the UNGC has been established as a set of basic
guidelines that should direct corporate behavior in an increasingly global world. Already at
the time of the publication of the Brundtland Report (WCED, 1987), Bowie (1987) argued in
favor of a desperately needed moral universalism reflecting moral standards accepted by all
cultures. According to Bowie (ibid.), a global ethic is preferable to the more frequently
applied ethnocentric or ethical relativistic approaches. Ethnocentrism implies that a firm
applies its own moral norms no matter what norms the host country might have. By contrast,
ethical relativism implies that the firm simply acts according to the local moral norms in each
respective host country where it operates (Deresky, 2008). From a sustainability perspective,
a firm’s subscription to either one of these approaches is likely to have negative
consequences. If a firm with strong moral norms and ethical values adopts an ethnocentric
approach in a host country with a weak ethical system, the firm might suffer from higher costs
and competitive disadvantages compared to competitors subscribing to ethical relativism.
This additional cost argument is particularly brought forward by neo-liberal economists

51
(Friedman, 1970; Irwin, 2002; Krauss, 1997), and is closely linked to weak legal systems in
emerging and developing countries (Crane & Matten, 2007). Yet, many MNCs in
industrialized countries are increasingly pressured by NGOs to subscribe to an ethnocentric
approach and act in accordance with the very same values used in its home markets (Deresky,
2008; Spar & La Mure, 2003). On the other side, if a firm adopts an ethical relativistic
approach, it knowingly exploits the poor ethical and legal conditions in emerging and
developing countries, gains a competitive advantage over its ethnocentric competitors and
outperforms them finally in a free market economy. Put differently, an ethnocentric approach
pays off in the absence of strong, widespread and enforceable ethical and legal systems, while
acting socially responsibly is not sustainable from an economic point of view.
The aim of the UNGC is to break this cycle and to establish a globally accepted code of basic
ethical values and principles. Although this code is helpful to raise firms awareness for a
global ethic, and can serve as a behavioral guidance system towards CSR and sustainability
for a company’s employees (Bondy et al., 2004), it seems unlikely that universally applicable
moral norms will ever be reality (Bowie, 1987; Wicks, 1990). Arguments against global ethic
include the accusation of cultural imperialism, in particular if mainly Western standards are
imposed on all other cultures (Cavanagh, 2004). Palazzo and Scherer (2006) note that a global
ethic, understood as a set of subconsciously shared values, norms and beliefs among all
societies, neglects the fact that modern societies are increasingly pluralistic. Pluralization
describes “the threefold process of individualization, the devaluation of tradition and the
globalization of society … [that] results in a loss of traditional certainties” (ibid., p. 80). In
light of the pluralization, a global ethic, such as the UNGC proposes, can no longer assume
that values and expectations in a global society will eventually converge. If indeed, these
values and expectations have become heterogeneous (Palazzo & Scherer, 2006) and
diametrically opposed to the aim of the UNGC. Therefore, future will tell whether the UNGC
really can make a difference towards fulfillments of its broadly set goals and the achievement
of sustainability.

4.5 A new approach: The concept of shared value

According to Porter and Kramer (2011), a majority of companies continues to maintain a

reactive approach to business ethics and CSR. In reality, the solution lies in a proactive,
strategic approach. Shared value involves the creation of economic value at the same time as
societal needs and challenges are addressed. Porter and Kramer (2011) suggest:

52
 The concept of shared value … recognizes that social harms or
weaknesses frequently create internal costs for firms—such as wasted
energy or raw materials, costly accidents, and the need for remedial
training to compensate for inadequacies in education. And addressing
societal harms and constraints does not necessarily raise costs for
firms, because they can innovate through using new technologies,
operating methods, and management approaches—and as a result,
increase their productivity and expand their markets (Porter &
Kramer, 2011, 64).

From a shared value perspective, corporations assume a broader set of responsibilities. Yet,
companies do not do this because they feel they have to for some ethical reason. Quite the
opposite, companies adopting a shared value approach act for selfish reasons, simply because
there are huge business opportunities to solve all or part of the societal and environmental
problems of our time. Therefore, “shared value is not social responsibility, philanthropy, or
even sustainability … it is about expanding the total pool of economic and social value”
(Porter & Kramer, 2011, p. 64).

Obviously, the concept of shared value draws on the same assumptions as instrumental
theories. Compared to the shareholder value approach, a shared value perspective suggests
that corporations do not deny any social responsibilities, but focus their corporate activities on
providing solutions for present and future societal and environmental problems based on their
capabilities. At the same time, shareholder value maximization becomes legitimate again,
since corporations are no longer seen as the cause of the problems. However, time will
eventually tell whether Porter and Kramer’s (2011) concept can really bring the required
changes for sustainable development.

4.6 Summary of findings

(1) What type of responsibilities for sustainable development does the Brundtland Report
suggest corporations should assume?

The results answering research question 1 are based on the review of the Brundtland Report
(WCED, 1987). It is shown that the Brundtland Report (ibid.) indeed requires corporations to
assume a broad set of economic, social, political, and ethical responsibilities. For a summary
of these responsibilities refer to Table 2.

53
(2) Which contemporary theories of business ethics, if any, are possible to combine with
the notion of sustainable development and the responsibilities for sustainable
development of corporations?

A total of four theories on business ethics and CSR have been studied for the purpose of this
paper. These include an instrumental perspective (shareholder value maximization), an
integrative perspective (corporate philanthropy and stakeholder management), a political
perspective (CC), and an ethical perspective (UNGC). By comparison with the required
responsibilities in Table 2, the findings suggest that instrumental theories have the lowest and
ethical theories the highest compatibility, with integrative and political perspectives lying in
between.

However, as the discussion shows, all four presented approaches are criticized. Yet, while
instrumental theories maintain an economic position, integrative and political theories aim to
assume a broader set of responsibilities. At the top, universal theories aim to provide an all-
embracing solution to sustainable development.

(3) If the theories discussed in (2) are deficient, are there any present contributions to the
business management literature that take into account the responsibilities for sustainable
development of corporations?

The results and conclusions from the discussion show that none of the presented approaches
fully assumes all required responsibilities from the Brundtland Report (WCED, 1987). Porter
and Kramer (2006, 2011) have recently presented a new strategic approach to business and
sustainable development. A shared value perspective takes into account aspects from
instrumental, integrative, and political theories.

4.7 Conclusions

According to Garriga and Melé (2004, p. 51), the field of CSR “presents not only a landscape
of theories but also a proliferation of approaches, which are controversial, complex and
unclear.” On the other side, an all-embracing definition of the CSR would be “too vague to be
useful in academic debate or in corporate implementation” (van Marrewijk, 2003, p. 96). The
variety of theories and approaches to business ethics and CSR poses an immense challenge
for managers to filter out a set of appropriate theories, which take into account a company’s
present situation and can create future value for both the firm and society (Christensen &
Raynor, 2003).

54
But how can sustainable development benefit from business ethics and CSR then? One can
argue that the initial purpose of altering corporate behavior towards ethically and
environmentally responsible behavior at the disposal of the profit maximization principle has
turned out to be illusionary. Yet, the intensifying academic discourse might have helped to
increase public and private awareness for social and environmental and, therefore, increased
the awareness for sustainable development.
However, one crucial factor of a competitive economic system is that any privately owned
company can only survive if customers buy its products or services. Therefore, not only
corporations bear responsibilities but also individual customers. If sustainable development is
to come true, customers must change their consumption patterns towards more responsible,
sustainable products, and companies have to innovate sustainable business models and
contribute to the solutions of problems they have caused by irresponsible activities in the past.
The concept of shared value (Porter & Kramer, 2011) can be leading the way for the future.
At the same time, international politics are required to establish globally accepted rules and
principles that promote competitive conditions that reward socially and environmentally
friendly business practices. In particular, legal systems and enforcing mechanisms in
emerging and developing countries should be enhanced to promote the achievement of
sustainable development as depicted in Figure 10.

Figure 10: Sustainable development requires an expansion and standardization of national

legal systems at the international level.

Finally, sustainable development can only come true if all actors, free of ideology, cooperate
towards a more equitable, more peaceful and greener world.

55
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