Assignment #3: Corporate Social Responsibility
Corporate Social Responsibility
Please read: BEF Freeman, R. Edward, “Managing for Stakeholders”, pp3 93-
There is a popular view about how corporations should be managed: In its simplest terms, according to this view, corporations have a fiduciary responsibility to their shareholders to maximize those shareholders’ profits. You can read a classic account of this view in Milton Friedman’s article, “The Social Responsibility of Business is to Increase Its Profits” on p. 74 of your text. THIS IS NOT ASSIGNED READING. But it’s interesting background if you have time.
But remember the conclusion Sen came to in “Does Business Ethics Make Economic Sense?”. He argued that there were at least two ways that values do and ought to enter the business world. First, a business might see the improvement of society in which it functions as a reward in itself; in various ways independent of its bottom line, it might see itself having a responsibility to improve stuff like a just distribution of goods.
Or, second, even if a business sees bottom line as its only goal, still seeing its responsibility to its workers will be part of what it must do, if only as an instrumental means to its bottom line success – and that can be seen as an ethical responsibility,
Well, in the article you read for this week, R. Edward Freeman further develops Sen’s alternative view concerning corporate responsibility and the place of ethics in business. We want, in your reading of Freeman’s article and in our discussion together, to make sure we understand his version of this alternative.
Be warned: getting the general and interesting idea Freeman wants to offer is pretty easy. But really understanding the details is going to be a challenge. He is not naïve. He offers a subtle and sophisticated picture, and he supports it with several kinds of argument. There is a lot of work this week in mining the article, and we will have a challenging task in class to lay everything out and then think about how we evaluate his ideas and the support he offers.
Some guiding questions for our discussion next week. Answers to these are what you should work on:
) Freeman is quite good at laying out in his introduction, exactly what he will be arguing in the paper. Think of using this as a model when you write your upcoming essay and final exam for the course!
List the steps he says he is going to take.
) His first step: Section II – The Dominant Story: Managerial Capitalism With Shareholders at the Center
] Know his history and definition of ‘managerial’ or ‘laissez faire’ or ‘shareholder’ capitalism.
] What was the ‘divisionalized’ firm?
] In the last paragraph of column one on p. 94, Freeman gives what seems to be a causal account of how ‘increase in shareholder value’ became the guiding goal for businesses, and why it can no longer be that goal.
Write a paraphrase of that difficult paragraph in order to make sure you understand where he is going.
He then lays out a series of arguments supporting his claim that the model is no longer workable. These are brief, but important, and have to do with change, the law, and what Freeman calls ‘basic ethics’. Sketch each.
) Step #2: Section III – Managing for stakeholders
] At the bottom of p. 97, Freeman states the ‘basic idea’ of his ‘managing for stakeholders’ Put that paragraph in your own words.
] How, according to Freeman, might the ‘stakes of financiers’ differ?
] How about the second circle of employees, customers, etc.: How does Freeman describe their roles?
) Step #3: Section IV – The Responsibility of the Executive in Managing for Stakeholders
] Freeman differentiates, at the top of p. 100, between ‘secondary issues’ and what is ‘first and foremost’. What is the distinction here?
] At the top of p. 100’s second column, Freeman talks about not ‘resorting to tradeoffs’. What is the issue here?
] How does Freeman stand to the assumption of ‘narrow self-interest’?
) Step #4: Section V – SomeArguments in support of Managing for Stakeholders
Know Freeman’s four arguments here, and the summary he offers, presenting his view about what capitalism actually is.