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NORTHEASTERN CEBU COLLEGES, INC.

Senior High School Department
P.G. Almendras St., Danao City, Cebu
Tel #: 233 – 9660/ 233 – 9637

QUARTER 4

Module 2
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BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

UNIT III

The social responsibility OF business

LESSON 9: The Concept of Social Responsibility

NAME: ______________________________________________________________
GRADE & SECTION: ___________________________________________________
DATE: ______________________________________________________________

PREPARED BY: RESHEAL MEDIO

Subject Teacher

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UNIT III
_____________________________________________________________________________________
The Social Responsibility of Business

The Johnson & Johnson Tylenol Crisis

In 1982, many persons died after consuming Johnson and Johnson’s Tylenol
capsules contaminated with cyanide (a poison). As it deals with a sensitive issue
and the protection of the public was a must, the managers recalled all capsules
from all the places worldwide. This crisis incident worked as a catalyst that
boosted J& J’S image in the eyes of customers worldwide. One sees that an ethical
commitment to health and safety of consumers is deeply rooted in Johnson &
Johnson.

INTRODUCTION
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In the last few years, the corporate world has come under increasing
pressure to behave in an ethically responsible manner. In particular, recent
accountability failures have led to bankruptcies and restatements of financial
statements that have harmed countless shareholders, employees, pensioners, and
other stakeholders. These failures have created gigantic financial and economic
crises of a magnitude that has never been seen before. Without a doubt, one of the
causes of such accountability failures is the failure to practice genuine corporate
social responsibility, which is understood to mean at least two things: (1) that
profit maximization is not the sole purpose of the firm, and (2) that a firm’s
shareholders are not the only stakeholder group for whom managers bear some
responsibility (Davidson, 2009). The economic system seems to be in urgent need
of a moral compass, that is to say, values other than the ubiquitous profit margin
need ti inform business practice. This concept, in the language of Socially
Responsible Investment (SRI) and Corporate Social Performance (CSP), has come
to be subsumed within the term sustainable development, which is “development
that meets the needs of the present without sacrificing the right of the future
generations to fulfill their needs” (World Commission on Environment and
Development, 1987:43). Achieving sustainability has become a central issue of our
time. In building sustainable communities, just as in the challenge of poverty
alleviation or eradication, the field of business and economics is called to account:
a call for a re – thinking of the role of business, especially in the design and
implementation of sustainability practices, seems to be in order. This responsibility
becomes all the keener in Asia, most especially in the so – called “bottom – of –
the – pyramid” (BOP) countries, where people living under $2 per capita income
per day can hardly get hold of even the barest necessities (Racelis, 2012). But what
is this social responsibility of businesses all about?

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Lesson 9: The Concept of Corporate Social Responsibility

Lesson Objectives:

At the end of this lesson, the students should be able to:

1. Define corporate social responsibility;
2. Distinguish between CSR and business ethics;
3. Give some simple business illustrations of CSR; and
4. Explain the business case of CSR.

I. Pre – Test

1. What is the most important responsibility of business?

2. Define corporate social responsibility.

II. Discussion

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Corporate Social Responsibility (CSR) and Its Difference from Business Ethics

Business ethics is sometimes confused with corporate social responsibility

or CSR. Although the two are related, they are not quite the same. It is important to
understand how they are different from as well as how they are related to each
other. We will begin by clarifying what corporate social responsibility is because
this will help us understand how business ethics and corporate social responsibility
are related.
The phrase corporate social responsibility refers to a corporation’s
responsibilities or obligations toward society. CSR, as defined by the World
Business Council for Sustainable Development (WBCSD), is a “continuing
commitment by business to behave ethically and contribute to economic
development while improving the quality of life of the workforce and their
families, the local community, and society at large.” There is some disagreement
about what those obligations include. Do companies have a responsibility to donate
to charities or to give their employees higher wages and customers safer products?
Or are they obligated to maximize profits for their shareholders?
At one extreme is the view of the late economist Milton Friedman, basing
himself on assumptions of pirate property and the free market, famously said that
the only social responsibility of business is to increase its profits. He argued that
corporate executives work for the “owners” of the company, and today these
“owners” are the company’s stakeholders. As their employee, the executive has a
direct responsibility to sun the company in accordance with their desires and their
best interest, which generally will be to make as much money as possible while
conforming to the basic rules of the society. On Friedman’s view a company’s only
responsibility is to legally and ethically “make as much money as possible” for its
owners (i.e., to maximize shareholder returns). We can call his view the
shareholder view of corporate social responsibility. The main reason why
Friedman hold this theory is that, in his view, shareholders own the company.
Since the company is theirs and only theirs’ property, only they have the moral
right to decide what it should be used for. These “owners” hire executives to run
the business for them, so the executive have a moral obligation to do what the
stockholders want, which, he claims, is to make them as much money as possible.
Friedman does not say, however, that there are no limits to what executives can do
to make stockholders money as possible. Executives, he explicitly says, must
operate within the rules of society including both the rules of the law and the rules
of ethical custom (Ferrero, et al., 2014; Mulligan, 1986).
According to Friedman’s shareholder view of corporate social responsibility,
a manager has no right to give company money to social causes when doing so will
reduce shareholder’s profits because that money does not belong to the manager
but to the shareholders. Friedman argues that the exercise of social responsibility
by a corporate executive is: (1) unfair, because it constitutes taxation without
representation; (2) undemocratic, because it invests governmental power in a
person who has no general mandate to govern; (3) unwise, because there are no
checks and balances in the broad range of governmental power thereby turned over
to his discretion; (4) a violation of trust, because the executives is employed by the
owners as an agent serving the interest of his principal; (5) futile, both because the
executive is unlikely to be able to anticipate the social consequences of his actions

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and because, as he imposes cost on his stockholders, customers or employees, he is
likely to lose their support and thereby lose his power (Mulligan 1986)

Although Friedman does not think managers should use company resources
to benefit others at the expense of shareholders, he does think that companies
ultimately provide great benefits for society. He argues that when a company tries
to maximize stockholder’s profits in a “free – enterprise” economy, competition
will force it to use resources more efficiently than competitors. So when managers
aim at maximizing profits for stockholders in competitive markets, the companies
they run will end up benefiting society.

Friedman had many critics. Some object to his claim that the manager or
executive is the employee of shareholders. Legally, these critics point out that the
executive is the employee of the corporation and so the executive is legally
required to serve the interests of the corporation – his true employer – not of its
shareholders. Others have criticized Friedman’s claim that stockholders are the
“owners” of the corporation and that the corporation is their “property.” Critics
point out that shareholders only own stock and this gives them a few limited rights,
such as the right to elect the board directors, the right to vote on major company
decisions, and the right to whatever remains after the corporation goes bankrupt
and pays off its creditors. But shareholders do not have all the other rights that true
owners would have and so they are not really owners of the corporation.

A third objection criticizes his claim that the executives’s core responsibility
is to run the corporation as stockholders want it to be run. In reality the executive
probably has no idea how stockholders want the company to be run, and legally,
anyway, he is required to run the company in ways that serve many other interests
(including employee interest and consumer interests) besides those of stockholders.
Finally, some have argued against Friedman’s view that by seeking to maximize
shareholder returns, the corporation will best serve society. Sometimes competitive
forces fail to steer companies in a socially beneficial way and, instead lead them to
act in a socially harmful manner. For example, a company might knowingly
pollute a neighborhood with substance that is not yet illegal, in order to save the
costs of reducing its pollution and thereby be more competitive.

CASE STUDY

APEC Schools

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 Ayala Corporation (AC) is one of the top companies of the Philippines. It
has principal business interests in real estate and hotel; financial services and
insurance; telecommunications; water distribution and wastewater services;
electronics; automotive; business process outsourcing; investments in international
or overseas projects and ventures; power generation; transport infrastructure; and
recently in education. AC invests heavily in Corporate Social Responsibility
(CSR). Through its Ayala Education, Inc., AC is committed to helping improve the
quality of education in the country, particularly in the public sector.

APEC Schools is a joint venture between Ayala Corporation and UK’s

Pearson, through the Pearson Affordable Learning Fund.

APEC Schools operates a chain of private high schools offering Grades 7

through 12. The schools follow the Department of Education’s K – 12 Curriculum,
and all the branches have permits to operate.

Their progressive teaching methods encourage active and collaborative

learning. For applicants of Grade 7, entrance tests are not implemented, only
diagnostic assessments to determine the specific development needs of each
student.

The vision of APEC Schools is to transform thousands of Filipino lives by

providing high – quality private education that everyone can afford.

Guide Questions:

1. How important is education for the economic development of a country?

2. Why do you think is Ayala Corporation engaged in CSR investments in

education?

3. What benefits do companies derive from engaging in CSR projects?

4. Do you think CSR is profitable for companies?