Evaluating Corporate Social Performance

A model for evaluating corporate social performance is presented in Exhibit. The model indicates that total corporate social responsibility can be subdivided into four primary criteria — economic, legal, ethical and discretionary responsibilities. These four criteria fit together to form the whole of a company’s social responsiveness. Managers and organizations are typically involved in several issues at the same time and a company’s ethical and discretionary responsibilities are increasingly considered as important as economic and legal issues. Social responsibility has become an important topic on the corporate agenda in the light of corporate scandals, concerns about globalization and a growing mistrust of business.

Note the similarity between the categories in exhibit and those in Exhibit. In both cases ethical issues are located between the areas of legal and freely discretionary responsibilities. Exhibit also has an economic category because profits are a major reason for a corporation’s existence.

Economic Responsibilities:

The first criterion of social responsibility is economic responsibility. The business institution is above all the basic economic unit of society. Its responsibility is to produce the goods and services that society wants and to maximize profits for its owners and shareholders. Economic responsibility carried to the extreme, called the profit maximizing view, advocated by Nobel economists Milton Friedman. This view argues that the corporation should be operated on a profit oriented basis, with its sole mission to increase its profits so long as it stays within the rules of the game.

The purely profit maximizing view is no longer considered an adequate criterion of performance in Canada, the United States and Europe. This approach means that economic gain is the only social responsibility and can lead companies into trouble.

Legal Responsibilities:

All modern societies lay down ground rules, laws and regulations that businesses are expected to follow. Legal responsibility defines what society deems as important with respect to appropriate corporate behavior. Businesses are expected to fulfill their economic goals within the legal framework. Legal requirements are imposed by local town councils, state legislators and federal regulatory agencies.

Organizations that knowingly break the law are poor performers in this category. Intentionally manufacturing defective good or billing a client for work not done is illegal. Tenet healthcare paid $ 54 million to settle a federal lawsuit charging that one of these hospitals was cheating Medicare by performing unnecessary Cardiac procedures. Managers to numerous other companies have also learned that organizations ultimately pay for ignoring their legal responsibilities. An example of the punishment given to one company that broke the law is described in the press release shown.

Ethical Responsibilities:

Ethical responsibility includes behaviors that are not necessarily codified into law and may not serve the corporation’s direct economic interests. As described earlier in this article to be an ethical organization decision makers should act with equity fairness, and impartiality respect the rights of individuals and provide different treatment to individuals only when relevant to the organization’s goals and tasks. Unethical behavior occurs when decisions enable an individual or a company to gain at the expense of other people or society as a whole. For example at The New York Times, there are indications that managers suspected star reporter Jayson Blair was fabricating research on top news stories but they ignored the signals partly to protect the paper’s reputation and partly because they were concerned about questioning rising young African American reporter. Their head in the sand approach ultimately back, fired when the deception became known and the paper published a lengthy story admitting how Blair has systematically fabricated or plagiarized as many as three dozen stories.

Source: New Era Management