Corporate Communications: CSR Reaction Paper

PRAD 564 Corporate Communications CSR Reaction Paper Susan Fleming May 3, 2012

Corporate Communications: CSR Reaction Paper Introduction and Definitions Companies engage in corporate social responsibility (CSR) in order to reap benefits of some kind. It is a self-regulating mechanism that is built into the companys business model. There are two views of CSR. The first, known as the shareholder theory, has a singular focus on maximizing shareholder profit. Under this theory, managers are agents of the shareholders and are morally obligated to serve the interests of shareholders using corporate resources only to increase shareholder wealth.

The converse, stakeholder theory, implies that companies are obligated to integrate social and environmental concerns. Managers are obligated to consider constituents in the decisions they make, with the underlying idea that stakeholders interests are a means toward higher goals, such as survival and growth and ultimately, profit. Position and Arguments In this paper, I will challenge the shareholder theory of corporate social responsibility Central to the theme of shareholder theory is the idea that corporate managers are beholden only to their shareholders from a fiduciary perspective. My argument posits that the shareholder view is irrelevant to the modern company and that without stakeholders, the best interests of shareholders simply cannot be served. In the modern corporation, the shareholders are simply beneficiaries who own stock, none of the legal elements necessary to establish an agency relationship are present (Post, 2003). This renders the shareholder model of CSR inaccurate, as there is no legal ownership or contract. There is no legal foundation for the primacy of shareholder interests.

Corporate Communications: CSR Reaction Paper Moreover, there are many interdependencies within a corporation that didnt exist in yesterdays corporation. In the past, large companies often owned their entire supply and distribution chains. A good example is Ford Motor Company, who not only made the

automobiles, but owned the steel mills that provided the raw materials and literally built an entire ecosystem around making and distributing automobiles. Today, little can be accomplished without significant input from employees, suppliers and members of the communities served. In fact, in my own marketing endeavors, I work with seven various creative and public relations agencies, each serving a specific, specialized role roles that serve to make SXC relevant and compelling to the markets we serve. This example serves to demonstrate that stakeholders are necessary and desirable for maximizing shareholder value. If I did not rely on these agencies, I would be neglecting the interests of shareholders, who depend on the company to use resources toward the very best outcomes. In todays economic environment, it is difficult to switch jobs. This means that employees are heavily invested in making sure the company is successful. Conversely, shareholders, who usually have a diversified portfolio, can easily sell off a poor performer. The same can be said for the rest of the stakeholders, including the community. The community invests in marketing to corporations to build facilities or move their employee base to build a tax base and stimulate the economy. These investments in the community, along with social contributions, helps the community to thrive and produces the clients who pay money for services or goods and suppliers to provide whats needed to produce the goods, determines the quality and the price of the goods and therefore, the profitability of the corporation. SXC has built a very successful business with a unique business model in the industry letting the client define their program and customizing it to meet their needs. To be sure, clients

Corporate Communications: CSR Reaction Paper are the most critical stakeholders for corporations. Without them, there is no shareholder value. By bringing on new clients, new jobs are created, producing more value to the community. Giving people work so they can help themselves and their families is, in itself, an important social contribution. (Strom, 2011). You can begin to see how stakeholders, including the community, are inextricably tied to the interests of corporations. Finally, in todays environment, publics are more educated and concerned about the environment and the health and well-being of the community. Organizations need to consider these views and how they impact their social responsibilities. (Rawlins, 2005). Businesses can

benefit from a better public image by acting responsibly toward its community. Publics begin to view companies as more successful and more responsible. Clearly, there is an established track record by companies who have done the right thing by showing concern for the public over concern for their own businesses (think handling of the Tylenol scare vs. the Vioxx debacle). Clearly, the best interest of the corporation is served by weighing the interests of all stakeholders, including the community. Likewise, the interests of all stakeholders are served if the corporation is successful. This implies that the interests of the different stakeholders have to be reconciled with long-term survival and success of the corporation. The real social value comes from what corporations do through their core business, the skills and supply chain built up around them and ultimately, the revenue that goes back to shareholders, the community and local and federal governments as a result of profitability. (Strom, 2011). The shareholder theory does not work in todays market. All stakeholders are mission critical to the success of the corporation and all stakeholder interests, including the community, must be balanced and served to adequately manage the corporation. Given this, I believe that we

Corporate Communications: CSR Reaction Paper as managers are obligated to serve the interests of stakeholders in order to deliver the greatest possible shareholder value. The stakeholder theory, which serves the interests of all stakeholders, broadens and enhances the quality of management decisions, thereby improving the quality and the success of the corporation.

Corporate Communications: CSR Reaction Paper References

Branco, Manuel Castelo and Rodrigues, Lucia Lima (2007). Positioning Stakeholder Theory within the Debate on Corporate Social Responsibility. Electronic Journal of Business Ethics and Organizational Studies (vol. 12, No. 1, pp. 5-15). Crosby, Lawrence A. (2012). Philanthropic Relationships. Marketing Management (pp. 12-13). Freeman, R. E. (1984). A stakeholder theory of the modern corporation. In R. E. Freeman (Ed.), Stakeholder theory and organizational ethics (pp. 38-48). Boston: Pitman. Friedman, M. (1970, September 13). The social responsibility of business is to increase its profits. The New York Times Magazine. Hsieh, Nien-he (2009). Corporate Social Responsibility and the Priority of Shareholders. Journal of Business Ethics (vol. 88, pp. 553-560). Machan, T. R. (2011, February 12). Profit: The right standard for business. Barrons. Retrieved from http://online.barrons.com/article/SB500014240529702048568045760359038795 44160.html Post, Frederick R. (2003). A Response to The Social Responsibility of Corporate Management: A Classical Critique. Business Law (Vol. 18, No. 1, pp. 13-30). Rawlins, B. L. (2005). Corporate social responsibility. In B. Heath (Ed.), Encyclopedia of Public Relations (vol. 1, pp. 210-214). Thousand Oaks, CA: Sage Reference. Strom, S. (2011, June 14). To be good citizens, report says, companies should just focus on bottom line. The New York Times.