Chapter 7
Theories of Social Responsibility,
The Corporate Social Audit and
Corporate Sustainability
Theories of Social Responsibility

Four Theories for Social Responsibility:
1. Maximizing Profits
2. Moral Minimum
3. Stakeholder Interest
4. Corporate Citizenship
Theories of Social Responsibility
Maximizing
Profits
Corporate
Citizenship
Moral
Minimum
Stakeholder
Interest
1. Maximizing Profits

A theory of social responsibility that says a
corporation has a duty to take actions that
maximize profits for shareholders.

The interests of other stakeholder are not
important.
2. Moral Minimum

A theory of social responsibility that says a
corporation’s duty is to make a profit while
avoiding harm to others.

As long as business avoids or corrects the
social injury, it has met its duty of social
responsibility.
Moral Minimum (continued)

The legislative )‫ )التشريعية‬and judicial branches of
government have established laws that
enforce the moral minimum of social
responsibility on corporations.
e.g., Occupational safety laws.
 e.g., Consumer protection laws for product
safety.

3. Stakeholder Interest
A theory of social responsibility that says a
corporation must consider the interests of all
stakeholders, including stockholders,
employees, customers, suppliers, creditors,
and local community.
 This theory was criticized because it is
difficult to harmonize the conflicting interests
of stakeholders.

Employees
Suppliers
Customers
Creditors
Local
Community
4. Corporate Citizenship
A theory of responsibility that says a
business has a responsibility to do good and
 helping to solve social problems.
 Corporations owe a duty to promote the
same social goals as do individual members
of society.

Corporate Citizenship (continued)

This theory argues that corporations owe a
debt to society to make it a better place.


This duty arises because of the social power
granted on corporations.
A major criticism of this theory is that the
duty of a corporation to “do good” can not be
expanded beyond certain limits.
Theories of Social Responsibility – Summary
Theory
Maximizing profits
Moral minimum
Social Responsibility
To maximize profits for stockholders.
To avoid causing harm and to compensate for
harm caused.
Stakeholder interest To consider the interests of all stakeholders,
including stockholders, employees, customers,
suppliers, creditors, and local community.
Corporate citizenship To do good and solve social problems.
The Corporate Social Audit

Definition of Social Auditing (SA):

SA: is a formal review used to measure the impact
that a corporation has on its clients, staff and
society as a whole.
The purpose of a social responsibility audit is to
ensure that the company is doing all it can to
support non-tangible gains such as employee
satisfaction, community support and customer
loyalty.

What is Social Auditing ?
SA is a management tool and accountability
mechanism which can enhance an organization’s
capacity to:
 Evaluate their impact on stakeholders.
 Determine how well they are living up to the values
they promote.
 Improve their strategic planning process by
identifying potential problems before they come up;
and
 Increase their accountability to the groups they
serve and depend on.
Reasons to conduct a SA:
Know what is happening.
 Understand what people think and want.
 Tell people what you are achieving.
 Strengthen loyalty / commitment.
 Enhance decision-making.
 Improve overall performance.

The Corporate Social Audit :

1.
2.
3.
4.
5.
6.

A social audit looks at factors such as :
a company’s record of charitable giving.
volunteer activity.
energy use.
work environment.
Worker safety.
Consumer protection.
Social audits are optional--companies can choose
whether to perform them and whether to release the
results publicly or only use them internally.
The Corporate Social Audit :

Corporate audits should be extended to
include the moral health of the corporation.

Corporations that conduct social audits will
be more suitable to prevent unethical and
illegal behaviors by managers, employees,
and representatives.
The Corporate Social Audit (continued)

The audit would examine how well:
Employees have followed the company’s
code of ethics; and
 The corporation has met its duty of social
responsibility.

The Corporate Social Audit (continued)
Companies should institute the following
procedures when conducting a social audit:
1. An independent outside firm should be hired
to conduct the audit.

This will ensure autonomy and objectivity.
2. The company’s staff should cooperate fully
with the auditing firm while the audit is being
conducted.
The Corporate Social Audit (continued)
Procedures for conducting the audit (continued):
3. The auditing firm should report its findings
directly to the company’s board of directors.
4. The board of directors should determine
how the company can:
Better meet its duty of social responsibility;
and
 Use the audit to implement a program to
correct any insufficiency it finds.

Corporate Sustainability

Corporate sustainability : involves meeting
the needs of today’s stakeholders in a
manner that protects the environment and
resources needed for future generations,
directed at improving a company’s Triple
Bottom line (TBL).

The TBL is an accounting framework that
includes three dimensions of performance:
social, environmental and economic.
Corporate Sustainability
The Triple Bottom Line (TBL) is made up of:
"Social, Economic and Environmental"
"People, Profit, Planet "
Triple Bottom Line (TBL)
What is triple bottom line reporting?
TBL reporting : “ is a framework for measuring
and reporting corporate performance against
economic, social and environmental factors”
A move from one dimensional economic
reporting to three dimensional economic, social
and environmental reporting.

Economic factors:




Generally accounting principles.
Customers.
Suppliers.
Employees.
Social factors:



Bribery and corruption.
Child labor.
Training and diversity.
Environmental factors:



Energy.
Water.
Emissions, and waste.
Triple Bottom Line (TBL)
TBL reporting enables organizations to:
1.
2.
3.
Measure and manage their financial and nonfinancial performance.
Have their performance and impacts
demonstrated independently.
Communicate effectively with consumers,
governments, investors, employees, other
stakeholders and supervisory groups.
How is TBL reporting achieved?

TBL reporting achieved through the application of
what is called the Global Reporting Initiative “GRI’.

GRI is “a common framework for sustainability
reporting”
https://www.globalreporting.org/Pages/default.aspx

Started in 1997 by the combination for Environmentally
Responsible Economies and the United Nations.
Global Reporting Initiative “GRI”

GRI became independent in 2002, and is an
official collaborating centre of the United
Nations Environment Programme (UNEP) and
works in cooperation with UN Secretary-
General.