Essay style question
Assignment 2: Essay
|Length:||2,500 – 3,000 words (excluding title page and reference list)|
|Presentation:||· Essay-style written assignment that should be presented in a professional way.· Formatting suggestion: font style Calibri or Arial, font size 12, 1.5 line spacing, justified text, margins 2.5cm each, no indents, subheadings are permitted but should not be numbered, add page numbers.|
|Task||The global fast food industry has been the focus of ethics and corporate social responsibility (CSR) discussions due to increasing global health issues like obesity, especially amongst children. Besides nutrition and health aspects, environmental and human resource issues emerged and have added to discussions that question the ethical conduct and corporate social responsibility of the industry.§ The key question is, can fast food corporations be moral agents?As part of your discussion, address the following points:|
|· Identify and discuss briefly some of the key ethical issues within the fast food industry.· Critically discuss the broad and narrow view of CSR in the context of the fast food industry.· Assess these views of CSR using ethical theory to determine whether each perspective can be morally justified.· Identify a global fast food company that provides CSR information on their website and discuss how this company addresses CSR.· How do you feel about the fast food industry as a consumer? Add a personal reflection on CSR and ethics with regards to the fast food industry.In this assessment, you have the opportunity to explore a specific CSR issue(fast food industry) and learn more about ethical perspectives as part of CSR. Within your essay, please address the above points. You should start your discussion with a brief conversation of some of the main CSR and ethics issues that the fast food industry faces; critically discuss the broad and narrow views of CSR and assess them using ethical theory; overall, address the key question on fast food corporations as moral agents; use a global fast food company as an example to discuss how they address CSR by using information available via their website; and finally, add a personal (/your own) reflection from a consumer perspective.Important specifics on essay writingAs this is an academic essay, you are required to research and use appropriate academic journal articles (at least 8) for your discussion and support your text with in-text citations and a reference list. You can use additional credible non-academic sources (e.g. government websites, CSR reports, credible news articles) to support your discussion. Furthermore, the textbook and other academic sources can be used as a reference, however, your research and focus of discussion should be based on academic journal articles.Make sure all sources are relevant and current (preferably within the last five years; however, seminal work can be older). The general structure of an essay includes an introduction (what is the essay about; what can the reader expect), the main body (your discussion of the essay task), and a conclusion (what did the essay try to discuss; what were the main aspects/findings). The reference list should follow on a new page, formatted in the Harvard Referencing style.Please note, keep electronic or physical copies of sources you used as you may be asked to provide them.|
|Assessment criteria||Main ethical issues (10%)Identified and discussed the main ethical issues that exist in the fast food industry based on relevant academic literature and suitable additional credible non-academic resources.Fast food corporations as moral agents (20%)Overall critical discussion of fast food corporations as moral agents that demonstrates research skills and understanding of the key aspects.Demonstrates an ability to interpret, evaluate and formulate arguments and a logical conclusion. Discussion is supported with relevant academic literature and suitable additional credible non-academic resources.CSR views and ethical theory (30%)Critically discussed the broad and narrow view of CSR in the context of the fast food industry. Includes an assessment of these views using ethical theory and discussion of a moral justification. Discussion is based on relevant academic literature and suitable additional credible non-academic resources.Company example (10%)Researched an existing global fast food company and discussed their CSR approaches based on information available on the company’s website. Discussion has been linked back to the general CSR and ethics discussion.Personal reflection (10%)Provided an overall personal reflection on CSR and ethics with regards to the fast food industry from a consumer perspective.Written essay (10%)Written and presented in a professional way with correct spelling and grammar. Structure and flow supports the discussion and readability.Referencing (10%)Used appropriate academic journal articles, and other credible academic and non-academic resources, and referenced correctly in-text and in the reference list (Harvard Referencing style + page number and link).|
Running head: CORPORATE SOCIAL RESPONSIBILITY 1
The Corporate Social Responsibility Debate
A Senior Thesis submitted in partial fulfillment
of the requirements for graduation in the Honors Program
Liberty University Spring 2011
CORPORATE SOCIAL RESPONSIBILITY 2
Acceptance of Senior Honors Thesis
This Senior Honors Thesis is accepted in partial
fulfillment of the requirements for graduation from the Honors Program of Liberty University.
______________________________ Stephen Preacher, D.B.A.
David Duby, Ph.D. Committee Member
______________________________ Thomas Provenzola, Ph.D.
James H. Nutter, D.A. Honors Director
CORPORATE SOCIAL RESPONSIBILITY 3
The purpose of this study is to evaluate the arguments concerning corporate social
responsibility (CSR). The two sides of the debate are stakeholder theory and shareholder
theory. Proponents of stakeholder theory support providing for the discretionary
expectations of society. On the other hand, advocates of shareholder theory maintain that
businesses should simply obey the law and maximize shareholder wealth. Although CSR
is enthusiastically espoused by many social progressives, it is not a panacea for society’s
ills. The conclusion of this study is that corporations should focus on legally maximizing
shareholder wealth based on ethical principles. CSR should only be pursued if doing so
accomplishes this function.
CORPORATE SOCIAL RESPONSIBILITY 4
The Corporate Social Responsibility Debate
Corporate Social Responsibility (CSR) has recently become a strongly debated
topic. What is the business of business? Should businesses attempt to solve societal ills?
Or should businesses merely maximize shareholder wealth? Both sides of the CSR
debate have been forcefully attacked and vigorously defended. Have the warnings
concerning CSR from the accomplished economists Theodore Levitt and Milton
Friedman become irrelevant in the modern era? Until recently, there was hardly any
disagreement that the objective of a business was to maximize long-term shareholder
During the past century, CSR has been defined in a multitude of ways (Dahlsrud,
2008). These definitions range from performing standard ethical practices to enhancing
the welfare of society. Some even propose that the concept of CSR has become void of
meaning. Others claim that the varying definitions of CSR are congruent, with each of
the definitions relating to the effects of a business on its stakeholders. Nevertheless, one
of the most complete and frequently cited definitions comes from Archie Carroll (1979),
a business management professor at the University of Georgia: “The social responsibility
of business encompasses the economic, legal, ethical, and discretionary expectations that
society has of organizations at a given point in time” (p. 500). Even though it is popular,
Carroll’s definition is too broad. A better definition is posited by the Commission of the
European Communities (2006):
[CR] is a concept whereby companies integrate social and environmental
concerns in their business operations and in their interaction with their
CORPORATE SOCIAL RESPONSIBILITY 5
stakeholders on a voluntary basis. It is about enterprises deciding to go beyond
minimum legal requirements and obligations stemming from collective
agreements in order to address societal needs. (p. 2)
For the purposes of this thesis, CSR is defined as corporations engaging in voluntary
social efforts that transcend legal regulations (Davis, 1973; Piacentini, MacFadyen, &
Eadie, 2000; Van Marrewijk, 2003; McWilliams & Siegel, 2001). These voluntary social
efforts include charitable giving, environmental activism, and community service.
History of CSR
After being attacked and rejected by business leaders for decades, the notion of
CSR has suddenly become a central facet of the modern corporation: “Corporate social
responsibility (CSR) has been transformed from an irrelevant and often frowned-upon
idea to one of the most orthodox and widely accepted concepts in the business world
during the last twenty years or so” (Lee, 2008, p. 53).
Dodge v. Ford Motor Company
The CSR debate entered the courtroom in 1919 with the Dodge v. Ford Motor
Company court case, which concerned the proper role of business. The majority opinion
of the case had a distinctively conservative view of CSR. The case centered on the
proper use of shareholder funds. Henry Ford, Ford’s founder, strongly believed in
providing a Ford vehicle for everyone. Therefore, he planned to reduce the price of a
Ford from $440 to $360. However, shareholders complained that this action would prove
to be detrimental because the primary responsibility of Ford Motor Company was to
provide them with a profit. The case concluded:
CORPORATE SOCIAL RESPONSIBILITY 6
A business corporation is organized and carried on primarily for the profit of the
stockholders. The power of the directors is to be employed for that end. The
discretion of directors is to be exercised in the choice of means to attain that end
and does not extend to a change in the end itself, to the reduction of profits or to
the nondistribution of profits among stockholders in order to devote them to other
purposes. (Ostrander, 2002, p. 259)
This decision presented the view of most people concerning the role of business until the
middle of the 20th century; businesses were created to enhance shareholder wealth, not
Historical CSR Figures
The first key statement to specifically mention the social responsibility of
business emanated from Harvard University. The business school dean, Donald David
urged the incoming MBA class to perceive the responsibilities that were to be assumed
by business leaders. These responsibilities consisted of going beyond the financial
interests of shareholders and supporting social causes (Spector, 2008).
Some other historical leaders in the CSR discussion were Levitt and Friedman.
Levitt, in 1958, exhorted businessmen to take heed of the dangers of social responsibility.
Likewise, in the 1960s, Friedman warned about the negative consequences of social
responsibility. Friedman offered a conservative, economic view of CSR. In a New York
Times article, Friedman (1970/2002) asserted, “There is one and only one social
responsibility of business – to use its resources and engage in activities designed to
increase its profits so long as it stays within the rules of the game” (p. 230).
CORPORATE SOCIAL RESPONSIBILITY 7
Today, textbooks, magazines, journals, newspapers, websites, and books
consistently mention CSR. An emphasis on CSR permeates higher education. One
cannot open many business textbooks that do not flaunt the benefits of this exalted
concept. CSR has become popular throughout the world. For instance, the Asia-Pacific
CSR group was founded in July 2004. This group was founded to promote favorable
environmental and human resource regulations across the region (Gautam & Singh,
Businesses are increasingly implementing CSR policies. For example, many
firms in the airline industry have incorporated CSR into their business structures. In
recent decades the airline industry has been pressured into reducing their negative
environmental effects. Consequently, airline firms are focusing on reducing emissions
and aircraft noise (Cowper-Smith & de Grosbois, 2011).
Reasons for firms implementing CSR include strategy, defense, and altruism.
Many corporate executives believe that CSR creates a competitive advantage for firms,
thus leading to greater market share. CSR can differentiate a company from its
competitors by engendering consumer and employee goodwill (McWilliams & Siegel,
2001). CSR may also be used to preempt competitors from gaining an advantage. Once
a firm in an industry has implemented CSR policies successfully, rival firms may be
forced to engage in CSR as well. If they do not exercise CSR, these rival firms are in
danger of losing consumer loyalty. On the other hand, some firms are involved in CSR
simply because they believe it is the right thing to do. Regardless of the underlying
reasons, CSR has become a commonly used term in the business arena (Lindgreen,
CORPORATE SOCIAL RESPONSIBILITY 8
Swaen, & Maon, 2009). N. Craig Smith (2003b), a former professor at Harvard Business
School, argued that “The impression created overall is that the debate about CSR has
shifted: it is no longer about whether to make substantial commitments to CSR, but how”
On one side of the argument are those who believe in providing for society’s
discretionary expectations. In addition to making a profit and obeying the law, a
company should attempt to alleviate or solve social problems. This view is commonly
advocated through stakeholder theory. This theory maintains that corporations should
consider the effects of their actions upon the customers, suppliers, general public,
employees, and others who have a stake or interest in the corporation (Jensen, 2002;
Smith, 2003a; Freeman, Wicks, & Parmar, 2004; Lee, 2008; Schaefer, 2008). Supporters
reason that by providing for the needs of stakeholders, corporations ensure their
continued success. A renowned company that exhibits the stakeholder view is Johnson
and Johnson. Their credo lists the corporation’s responsibilities in the following order:
customers, employees, management, communities, and stockholders (Seglin, 2000/2002).
Proponents of stakeholder theory maintain that increasing shareholder wealth is too
myopic a view. According to stakeholder theory, increased CSR makes firms more
attractive to consumers. Therefore, CSR should be undertaken by all firms.
In a more extreme version of stakeholder theory, legitimacy theory claims that
corporations have implicit contracts with stakeholders to provide for their long-term
needs and wants. By providing for the desires of stakeholders, the corporation
CORPORATE SOCIAL RESPONSIBILITY 9
legitimizes its existence (Guthrie & Parker, 1989). Because society provides important
benefits to the corporation, the corporation is obligated to promote society’s interests in
return. The theory in effect claims that because corporations have the resources, they
should engage in social ventures. In addition, legitimacy theory maintains that larger
firms have a greater responsibility than smaller firms.
Let Business Try
An argument voiced for stakeholder theory is that society should let business
attempt to solve society’s problems because other institutions have clearly failed to do so
(Davis, 2001). In order for business as an institution to retain its social authority,
business must meet the needs of society. Proponents of the argument, which is also
known as the Iron Law of Responsibility, contend that, “society ultimately acts to reduce
the power of those who have not used it responsibly” (Davis, 2001, p. 314). However,
opponents of stakeholder theory disagree. How can businesses that are not specialized or
elected to serve in social areas do a better job than political institutions?
Problems with Stakeholder Theory
Denies Fiduciary Responsibility
Stakeholder theory has some significant disadvantages. For instance, stakeholder
theory runs directly counter to corporate governance. Since shareholders are owners of
the firm, the firm should be operated to maximize their returns. Stakeholder theory
transfers the corporation’s focus from shareholders to the needs of stakeholders. By
implementing unprofitable CSR programs, firms are denying their fiduciary
responsibility to shareholders.
CORPORATE SOCIAL RESPONSIBILITY 10
Society has numerous problems that have existed for many years such as poverty
and pollution. If these problems were as simple to solve as stakeholder theory advocates
maintain, they would have been remedied long ago by profit-seeking firms focused on
benefiting society (Karnani, 2010). Many businesses have discovered, however, that the
pursuit of society’s welfare often leads to a reduction in profits. If managers pursued
CSR activities that hampered profits they would likely be out of a job. The owners of a
firm desire a return on their investment, and would likely fire a manager that purposely
opposed this objective. Social problems are more complex than stakeholder theorists
Another critical argument voiced against stakeholder theory is the overregulation
argument. This argument maintains that the pursuit of CSR would lead to more rigorous
environmental and social regulations for businesses across the world. These regulations
would then make it more difficult for undeveloped nations to keep pace with developed
nations. David Henderson (2009), a Visiting Professor at the Westminster Business
School and the London School of Economics asserted, “When conditions differ widely
between countries, as they do, prescribing and enforcing such common standards . . .
restricts the scope for mutually beneficial trade and investment flows. It holds back the
development of poor countries by suppressing employment opportunities within them”
(pp. 13-14). The potential for overregulation strikes a formidable blow to stakeholder
CORPORATE SOCIAL RESPONSIBILITY 11
One of the core problems of stakeholder theory is the presence of competing
interests within and outside a firm. Supporters of stakeholder theory argue for a multi-
fiduciary relationship between managers of a corporation and all of a firm’s stakeholders.
By definition a fiduciary relationship involves promoting the interests of one group above
others; however, “as most everyone recognizes, the interests of shareholders, customers,
suppliers, employees, and communities in the management of a firm’s assets are
conflicting” (Marcoux, 2003, p. 4). Shareholders want the highest return possible
through capital gains and/or dividends at the lowest possible risk. Customers desire
quality products, low prices, and excellent service. Employees crave high wages,
excellent working conditions, and a handsome benefits package. These competing
demands from stakeholders make stakeholder theory untenable. It would be difficult to
balance these desires in practice. Some stakeholders would be satisfied while others
would be disgruntled (Jensen, 2002).
The implementation of CSR would likely cause significant disagreement among
shareholders as well. Some of the shareholders would promote CSR. On the other hand,
some shareholders would support the sole pursuit of profit. Even if shareholders agreed
that CSR were beneficial, they may differ as to where it should be directed. Furthermore,
the stakeholders would be competing for the implementation of various CSR programs.
How could a business manager discern which program(s) would be the best to pursue?
Shareholder theory (as discussed later) overcomes this weakness of stakeholder
theory by focusing corporate efforts on a single objective, maximizing shareholder
wealth. For example, a firm with a store operating in one region becomes unprofitable.
CORPORATE SOCIAL RESPONSIBILITY 12
The firm considers closing the store to avoid harming shareholders. Stakeholder theory
may suggest that the company leave the store open to continue to provide for the store’s
employees and community. Shareholder theory proponents would propose that unless
leaving the store open would maximize long-term shareholder wealth, it should be closed.
Although stakeholder theory sounds reasonable, it may introduce more problems
than it solves. It is practically impossible to serve the interests of each of the stakeholder
Another argument against stakeholder theory is the competitive disadvantage
argument. This argument is that “because social action will have a price for the firm it
also entails a competitive disadvantage” (Smith, 2002, p. 232). Therefore, advocates of
this argument deem that social actions should not be initiated by businesses. The
problem with this argument is that social actions may actually foster public support of a
corporation. The ethical action of Johnson and Johnson executive David Collins serves
as a prominent example. In 1982, Collins recalled the entire Tylenol product line after
cyanide-laced capsules of the brand had caused several deaths in Chicago. As an article
in Workforce, a popular human resource magazine, proclaimed, “To this day, Collins’
response is cited as the textbook example of how decisive action, grounded in sound
ethical values, can avert a crisis, and even bolster a company’s support over the long run”
(Fandray, 2000, pp. 75-76).
Contrary to the argument, social responsibility may actually provide a competitive
advantage. Even if social responsibility results in short-term losses; it can engender loyal
employees and communities and consequently reap long-term dividends: “CSR is also
CORPORATE SOCIAL RESPONSIBILITY 13
proving to benefit companies. The most commonly identified corporate advantages
include maintaining and improving reputation or brand image, government relations,
brand differentiation, customer loyalty and employee recruitment and retention” (Walton,
2010, p. 10). However, proponents of stakeholder theory go too far in their support of
discretionary social expenditures. The benefits of profitable CSR initiatives must be
balanced with the fact that unprofitable CSR initiatives may put a firm at a competitive
Another problem with stakeholder theory is that it is reactive instead of proactive.
Some corporations engage in CSR solely in response to crises. In other cases, the
primary CSR action for firms is merely reporting. This reporting is usually in the form of
feel-good stories with a lack of concrete social action: “The content of CR very often is
misleadingly substantial: the reports are thick and seemingly contain much information,
but the actual extent of what is done beyond legal requirements remains limited (Fougere
& Solitander, 2009, pp. 221-224).
Although many companies advocate CSR in theory, they would not in practice
increase stakeholder welfare at the expense of shareholder wealth (Karnani, 2010). These
firms may promote their reputation in the community through rhetoric and
advertisements related to their CSR efforts. However, they do this to shift the focus from
their flaws or to increase business. This is a practice known as “greenwashing.” These
firms are not pursuing CSR to benefit society. They are pursuing CSR to take advantage
of consumers who are sold out to the concept of CSR.
CORPORATE SOCIAL RESPONSIBILITY 14
Friedman and Levitt feared the usurping of the authority of political institutions
by businesses as a result of CSR. Such a combination of governmental and corporate
authority would result in a fusing of the two institutions into a powerful, unified entity.
Friedman and Levitt were concerned about the potential socialistic consequences of this
fusing. They firmly believed in the concept of pluralism. Pluralism requires the
separation of power between the various institutions of society. Friedman and Levitt did
not desire to see an oppressive centralized government. As Levitt (1958/1979) stated in
his article “The Dangers of Social Responsibility,” “Government’s job is not business,
and business’s job is not government. And unless these functions are absolutely
separated in all respects, they are eventually combined in every respect” (p. 139).
On the other side of the debate, shareholder theory proposes that the corporation
should legally maximize long-term shareholder wealth (Jensen, 2002; Smith, 2003a;
Schaefer, 2008). By providing a necessary product or service at a reasonable price, a
business is benefiting society. In financial language, shareholder theory advocates that a
firm should maximize the present value of all future cash flows (Danielson, Heck, &
Shaffer, 2008). It is unnecessary and unwise to spend shareholder money for
unprofitable social causes. The shareholders have made an investment and are dependent
on the firm to provide them with a return. Steve Milloy, a mutual fund manager and
critic of CSR, proclaimed the following: “Shareholders do not hire CEOs to be the U.N.,
to act like a government or to be a charity. They were hired to make money for
shareholders. Business is society’s wealth-creation machine” (as quoted in Weiss,
CORPORATE SOCIAL RESPONSIBILITY 15
Kirdahy, & Kneale, 2008, para. 5). Milloy’s argument is similar to the reasoning of
Adam Smith and Milton Friedman. The business of business is to make money. By
serving the needs of shareholders, businesses generate wealth that benefits society. If
CSR initiatives increase the bottom line, then shareholder theory advocates recommend
implementing such initiatives. However, using shareholder money in an unprofitable
manner is wrong. No matter how noble the cause, it is inappropriate to be generous with
On the extreme end of shareholder theory are some scholars who believe that
CSR should be abandoned altogether. Although they concede that CSR has increased
global awareness of business ethics, the concept is no longer practical. For example,
Freeman and Liedtka, professors at the University of Virginia’s Darden School of
Business, argued that CSR has failed and should be forsaken. They claimed that CSR has
not delivered on its promise to create the good society. Furthermore, they asserted that
the concept of CSR promotes incompetence by prodding business managers to improve
society’s shortcomings. According to Freeman and Liedtka, businessmen do not have
sufficient expertise regarding individuals and communities to alleviate social problems
(Freeman & Liedtka, 1991).
The Role of Political and Social Institutions
A common argument voiced in support of shareholder theory is that social actions
are the role of political and social institutions, not businesses. Bill Shaw (1988), former
chair of the Philosophy Department at San Jose State University, asserted, “Friedman will
not be dislodged until it can be shown that the social and political institutions of this
CORPORATE SOCIAL RESPONSIBILITY 16
nation . . . are inadequate to promote the common good and social justice” (p. 538).
Shaw insisted that the government through its regulations determines the moral
responsibilities of a corporation. This argument has been challenged on several levels.
First of all, the government would be hard pressed to have a law regulating every possible
decision that a corporate executive may face. As a result, there would inevitably be
loopholes that would allow immoral corporate actions. Additionally, the government
would likely be influenced by lobbying and financial support from political action
committees. If the government were to approve a lower standard of morality than a
corporation formerly held, should that company reform to conform to that lower
standard? Likewise, the government could pass laws that blatantly contradict the
corporation’s ethical standards. Ethical imposition by the government would most likely
result in subjective morality, dependent on the views of those holding political authority
and the cultural norms of society.
Business should make decisions based on an objective ethical code in addition to
the laws of society. Thomas Mulligan (1990), assistant professor of management at
Brock University, emphasized, “Ethics is more fundamental than law. It is more
appropriate to use moral principles to test the validity of laws than to invoke laws to test
the validity of moral principles” (p. 99).
Although the government is an imperfect mediator of moral responsibilities, it
does provide a baseline for morality. Nonetheless, corporations should aspire to go
beyond the legal minimum in their actions by following an objective ethical code of
CORPORATE SOCIAL RESPONSIBILITY 17
Adam Smith and Self-Interest
An historical figure who supported the concept of shareholder wealth
maximization was the Scottish philosopher, Adam Smith. Smith argued that the pursuit
of profit ultimately promotes social welfare through the “invisible hand.” Smith posited
that human nature made it far more likely for individuals to act out of self-interest than
out of pure benevolence, and that self-interested actions ultimately benefit society. For
example, one would not expect to receive food from the butcher or baker on the basis of
their benevolence, but due to their own self-interest. Smith (1776/1981) stated in his
book, An Inquiry into the Nature and Causes of the Wealth of Nations:
As every individual, therefore, endeavors as much as he can to employ his capital
in the support of domestick industry, and so to direct that industry that its produce
may be of the greatest value; every individual necessarily labours to render the
annual revenue of the society as great as he can. He generally, indeed, neither
intends to promote the publick interest, nor knows how much he is promoting it.
By preferring the support of domestick to that of foreign industry, he intends only
his own security; and by directing that industry in such a manner as its produce
may be of the greatest value, he intends only his own gain, and he is in this, as in
many other cases, led by an invisible hand to promote an end which was no part
of his intention. Nor is it always the worse for the society that it was no part of it.
By pursuing his own interest he frequently promotes that of the society more
effectually than when he really intends to promote it. (p. 456)
Thus, Smith reasoned that the firm helps society more when they further their own
interest (profit) than when they deliberately seek society’s benefit.
CORPORATE SOCIAL RESPONSIBILITY 18
Milton Friedman and CSR
In addition, Nobel Prize-winning economist Milton Friedman was a more modern
proponent of shareholder theory. In an article entitled, “The Social Responsibility of
Business Is to Increase Its Profits,” Friedman outlined the concept of shareholder wealth
maximization. Friedman believed that a focus on discretionary social investments was
improper for corporations. The goal of the corporation is to provide a return to
shareholders. By focusing on external social responsibilities, the corporation is distracted
from its sole purpose. Friedman asserted that corporations do not know how to properly
invest in social causes (This argument is commonly cited as the inept custodian
argument) (Friedman, 1970/2002). Therefore, such decisions should be in the hands of
individuals, not corporations. Brian Schaefer (2008), in the Journal of Business Ethics,
countered Friedman by stating that firms could solve the inept custodian argument by
seeking to hire executives who are experts in social responsibility: “The ability to
distribute funds effectively for social purposes, and perhaps also some experience in
doing so, could become highly desired traits on a corporate executive’s resume” (p. 302).
Yet, hiring more employees would increase costs which may not be justified if profitable
CSR activities are not available.
Throughout his article, Friedman is clear with regard to his emphasis on
shareholder wealth maximization as an imperative of the corporation. Friedman did not
support the funding discretionary social activities: “Friedman is adamant that unless a
clear mandate from the company’s owners is provided, ‘philanthropic’ activities which do
not serve to improve a firm’s profitability . . . should not be funded by firms” (Stratling,
2007, p. 67). When an individual businessman asserts social responsibility through the
CORPORATE SOCIAL RESPONSIBILITY 19
use of corporate cash, he is spending stockholder money. Friedman deemed this as a tax
upon stockholders of which they have no decision regarding how it is spent.
Consequently, he believed that the individual is free to pursue social responsibility, while
the corporate executive lacks the ability to properly perform such actions (Friedman,
1970/2002). To this day, Milton Friedman’s ideas remain a crucial part of the CSR
Problems with Shareholder Theory
Shareholder theory is not without its shortcomings. In normal business
transactions, externalities may occur. These externalities are costs or benefits to third
parties in a business transaction. For example, an industrial firm is considering opening a
plant in the United States. The proposed plant is known to emit a vast amount of
pollutants that would seriously harm the environment and the health of citizens in close
proximity. Although building the plant would provide benefits in the form of greater
profitability, the construction would also result in negative externalities to the
community. Therefore, increasing shareholder wealth does not always increase
Focus on Short-Term Profit Maximization
Another argument voiced against shareholder theorists is that a focus on
shareholder wealth encourages businesses to focus on short-term profit maximization
(Smith, 2003a). This is a misguided assumption. As mentioned earlier, the shareholder
model is focused on long-term profit maximization (Danielson, Heck, & Shaffer, 2008).
CORPORATE SOCIAL RESPONSIBILITY 20
Just Treatment of Stakeholders
Likewise, some claim that shareholder theory does not encourage businesses to
treat their employees and other stakeholders justly. This argument has a simple
counterargument. Just treatment of a company’s stakeholders is prerequisite for a
successful business. The company that treats its employees poorly is probably going to
have an uncommitted, weak workforce. As a result, such a company’s profits would
suffer. Shareholder theory would not prevent firms from investing in financially
beneficial activities (Smith, 2003a).
Recent Corporate Scandals
Opponents of shareholder theory assert that recent corporate scandals including
Enron, Tyco, and Worldcom expose the inefficiencies of shareholder theory (Freeman,
Wicks, & Parmar, 2004). However, these companies were focused on maximizing short-
term not long-term shareholder value. Additionally, the managers of these organizations
were engaging in clearly fraudulent activities by promoting their personal welfare above
the shareholder’s welfare (Smith, 2003a). Advocates of shareholder theory proclaim:
“The shareholder model—when viewed from a long term perspective—still provides the
best framework in which to balance the competing interests of various stakeholders
(including both current and future stakeholders) when making business decisions”
(Danielson, Heck, & Shaffer, 2008, p. 65).
The Normative Case for CSR
Two common justifications for CSR activities are the normative case and the
business case. The normative case follows the reasoning of stakeholder theory, while the
business case is in line with shareholder theory.
CORPORATE SOCIAL RESPONSIBILITY 21
The normative case for CSR proposes that corporations should engage in CSR
because it is valiant and good to do so. The failure of government to address society’s
needs has led to a plea for the corporate sector to address these needs (Smith, 2003b). A
prominent example of the normative case for CSR is Merck’s treatment of river
blindness. Even though there was no market for the drug except in the world’s poorest
regions, Merck spent tens of millions of dollars developing a drug that cured the disease
There are dissenters to the normative case for CSR. They proclaim that if these
extraneous projects do not contribute to shareholder value, the firm is failing in their
obligations to investors. Solely having the means to engage in socially responsible
actions does not justify them. If social actions provide a profitable return and
competitive advantage to the firm in the long term, the corporation should pursue such
actions. Nevertheless, investing in causes contrary to some of the shareholder’s values is
wrong. Using another’s money, even for charity, is misappropriation. Although a firm
may desire to do well, only if CSR benefits the business should it be undertaken.
The Business (Strategic) Case for CSR
The business or strategic case for CSR (doing good in order to make a profit) has
recently become more pronounced. Proponents of the business case affirm that engaging
in CSR can set a company apart from its competitors. As the preferences of employees,
consumers, and shareholders are changing, the economic value of CSR has increased:
“Consumers are demanding more than ‘product’ from their favorite brands. Employees
are choosing to work for companies with strong values. Shareholders are more inclined to
invest in businesses with outstanding corporate reputations” (Starbucks, 2001, p. 3).
CORPORATE SOCIAL RESPONSIBILITY 22
As a result of the increasing importance of CSR, many companies including Starbuck’s
have set up reporting systems to measure their CSR. There are now many stock market
indices measured according to CSR standards. This focus on CSR has pressured many
firms to more closely scrutinize their social responsibility efforts.
A sound description of the business case for CSR is posited by business
professors John Martin, William Petty, and James Wallace. They claimed that CSR
investments are critical in helping companies maintain positive stakeholder reputations.
Without positive stakeholder reputations, firms would most likely suffer from lost sales,
negative publicity, and a discontented workforce. Therefore, the trio reasoned that CSR
programs are a valuable means of increasing shareholder wealth. Yet, Martin, Petty, and
Wallace (2009) emphasized that the returns of the proposed CSR investments must be
evaluated: “As with any corporate investment, each dollar of investment in a corporate
stakeholder group should be justified by at least a dollar of expected return over a finite
time horizon” (p. 117).
Examples of Strategic CSR
Examples of the business case for CSR abound. In recent years, there have been
numerous business breakthroughs that have resulted in profits and the enhancement of
society. One of these breakthroughs is the production of fuel-efficient vehicles. For
example, Toyota released the hybrid Prius. This resulted in significant profits for the
company. However, German and American automakers that did not react to the hybrid
trend were left at a competitive disadvantage. Likewise, many companies have
committed to buying fair-trade goods, such as Starbuck’s. This initiative involves paying
small suppliers more for goods that are sold at premium prices, such as chocolate and
CORPORATE SOCIAL RESPONSIBILITY 23
coffee. Consumers are becoming more conscious of fair trade practices: “Like consumer
awareness of organic products a decade ago, fair trade awareness is growing” (Downie,
2007, para. 8). Additionally, many fast-food chains have expanded their menus to
include healthier items. These items have also resulted in increased profits.
Some may argue that the adoption of these changes is the result of an increased
emphasis on social welfare. Aneel Karnani (2010), Professor of Strategy at the
University of Michigan’s School of Business, begs to differ: “Social welfare isn’t the
driving force behind these trends. Healthier foods and more fuel-efficient vehicles didn’t
become so common until they became profitable for their makers” (para. 11). Each of
these programs is ultimately founded on the enhancement of shareholder wealth. If these
projects were not potentially profitable, then businesses would not have pursued them.
The strategic or business case for CSR seems to be logical and consistent. CSR
efforts are strategic in nature when they lead to increased revenues. CSR may produce
cost reductions by attracting more qualified and loyal employees. CSR can increase the
revenues of firms by differentiating their products from competitors. If consumers see
CSR as a valuable part of a company’s brand, they may be willing to pay a premium for
the company’s products and services. By serving the needs of both stockholders and
stakeholders, strategic CSR is a win-win situation (Husted & Salazar, 2006).
Difficulty of Implementing Strategic CSR
Discovering and implementing CSR activities that satisfy both stakeholders and
stockholders is not easy. It takes much research to discern whether a product with a CSR
attribute is purchased because of its CSR association or due to other product features.
For example, many shampoo products have the CSR attribute “not tested on animals” on
CORPORATE SOCIAL RESPONSIBILITY 24
the label. However, the reasons for the ultimate purchase of shampoo may have to do
with its price, quality, ingredients, scent, advertising, or any combination of these factors.
As a result, it is difficult to quantify the financial effects of CSR efforts.
Justifiable Social Responsibility
In addition to the strategic case for CSR, there are other justifiable avenues for
undertaking social responsibility. Individuals, mission-driven firms, sole proprietors, and
partners are not tied by fiduciary duties to shareholders. As a result, these groups can
engage in unprofitable social responsibility activities, if desirable.
Individuals are free to invest in social causes. Individuals can support charities,
churches, or other societal causes with their personal money. Similarly, shareholders can
choose to invest their returns in social causes if they so desire. For instance, individuals
who favor social responsibility efforts may choose to invest in the Portfolio 21 mutual
fund. This mutual fund invests solely in companies with proven track records of
environmental business practices (Portfolio 21 Investments, n.d.).
Firms that are mission-driven and focused on CSR are also tenable. Mission-
driven firms clearly spell out in their mission statements the intent to undertake certain
CSR initiatives. An example of a mission-driven firm is Greyston Bakery, a producer of
gourmet desserts. A few of Greyston Bakery’s social agendas are to provide affordable
housing for homeless and low-income families, and to provide affordable healthcare for
people with HIV (Greyston Bakery, n.d.). Because shareholders know (or should know)
CORPORATE SOCIAL RESPONSIBILITY 25
that a mission-driven firm is supporting social causes, they can make a conscious
decision whether to invest in the firm or not.
Investors may choose to invest in a mission-driven firm for two reasons. The
mission-driven corporation may be more efficient at social responsibility than charitable
organizations. Additionally, corporate giving is tax-advantaged in comparison to private
giving because individuals must pay a dividend tax. As a result of these benefits,
shareholders would be inclined to support corporate philanthropy over personal
philanthropy. However, if corporate giving goes to undesirable social causes, personal
giving would be favored (Baron, 2007).
Additionally, sole proprietors or partners who choose to invest their company’s
money in social causes are free to do so. This is comparable to individuals donating to
Companies have several options regarding social responsibility. They can engage
in strategic CSR, mission-driven CSR, or not engage in CSR and thus allow shareholders
to make private charitable donations. When deciding which CSR strategy to pursue,
firms must consider the benefits and costs to their shareholders: “When corporate social
giving is an imperfect substitute for personal giving, firms that practice CSR have a lower
market value than profit-maximizing firms” (Baron, 2007, p. 685).
Even if a company adopts the shareholder model, it will likely engage in strategic
CSR. Therefore, a discussion of the implementation of CSR is in order. Ultimately, CSR
strategy will be unique for different firms. For the pressures of the market along with the
CORPORATE SOCIAL RESPONSIBILITY 26
characteristics and norms of the particular industry will determine the costs and benefits
of implementing CSR (Smith, 2003b). In some industries, CSR may not be necessary.
However, in other industries CSR may be the norm. Additionally the region or country
in which the firm is located has a significant impact on CSR implementation. A study
from the Journal of Business Ethics concluded that, “the region or country of a company
can condition the level, components and motives of its social behavior” (Sotorrío &
Sánchez, 2008, pp. 388-389). For instance, European and North American firms differ in
their CSR efforts. European firms, on average, exhibit more CSR than North American
firms. This disparity exists because European firms must comply with stronger consumer
desires, media pressure, and governmental regulations concerning CSR.
Before undertaking any CSR, firms must thoroughly consider the effects of such
actions. Seemingly profitable CSR initiatives may be attacked as self-serving by the
public. For CSR actions that are not beneficial to shareholders, the best option may be to
invoke the help of other corporations, individuals, governments, and NGOs. A study by
Sankar Sen and C. B. Bhattacharya (2001), in the Journal of Marketing Research, found
that “all consumers react negatively to negative CSR information, whereas only those
most supportive of the CSR issues react positively to positive CSR information” (p. 238).
As a result, managers need to avoid consumer perceptions of social irresponsibility.
Managers should only pursue CSR actions that are widely and strongly supported by the
Once CSR programs are initiated, firms should assess their success and utility.
Firms should determine the CSR expectations of the communities in which they operate.
The company’s view of CSR and the community’s view of CSR may be misaligned.
CORPORATE SOCIAL RESPONSIBILITY 27
Susan Walton, associate chair of the department of communications at Brigham Young
University, suggested invoking the support of PR professionals through the use of social
media. For example, by posting CSR reports online, firms can broadcast their efforts.
Finally, it is important for firms to encourage consumer feedback concerning CSR
practices to uncover areas needing improvement and areas in which they are doing well
Results of CSR
With the emphasis on CSR in today’s society, one would expect CSR activities to
provide a positive return to a firm. However, this conclusion has been contested by
business scholars including David Vogel, the chair of business ethics at the University of
California-Berkeley. Consider the socially responsible firm Starbucks. Although they
have benevolent labor policies and have committed to providing coffee growers with fair
profits, the firm has not encountered success in recent years. This failure is largely due to
overexpansion of the company and the reluctance of consumers to pay such a high price
for a cup of coffee. Yet, the case of Starbucks seems to indicate that CSR does not affect
financial performance in a meaningful way (Vogel, 2008).
Effect of CSR on the Purchases of Consumers
While CSR does not seem to significantly affect overall financial performance,
research indicates that CSR activities by companies could affect the purchasing decisions
of consumers. A commonly-cited study by marketing professors Tom Brown and Peter
Dacin (1997) revealed, “When consumers know about such activities, our research
indicates that CSR associations influence the overall evaluation of the company, which in
turn can affect how consumers evaluate products from the company” (p. 80). According
CORPORATE SOCIAL RESPONSIBILITY 28
to Brown and Dacin, negative CSR associations can result in negative consumer product
evaluations, while positive CSR associations can result in positive consumer product
evaluations. Overall, the conclusions of the article are too vague; of course, CSR could
affect consumer evaluations of companies. Brown and Dacin leave much to be desired
regarding the connection between CSR activities and consumer reactions.
Lack of CSR Awareness
Although CSR activities could affect the purchasing decisions of consumers, few
consumers are aware of or concerned about the social responsibility of companies. A
study by Alan Pomering and Sara Dolnicar (2009), marketing professors at the University
of Wollongong in Australia, concluded that consumers in Australia had low awareness of
the CSR practices of banks in the nation. Vogel (2008) argued that consumers are still
more concerned about factors other than CSR in their buying decisions: “‘Ethical’
products are a niche market: Virtually all goods and services continue to be purchased on
the basis of price, convenience and quality” (para. 7). The market for CSR is too small to
have a major impact on the profit margins of firms.
Additionally, many firms are not consistently responsible or irresponsible.
Therefore, consumers would not know which firms to purchase from anyway. For
example, the same company (Merck) that developed a cure for river blindness with the
drug Mectizan also demonstrated irresponsibility. Merck withheld information
concerning the dangerous side effects of its popular drug Vioxx (Werther & Chandler,
2011). Firms that report numerous CSR programs may simply be engaging in
greenwashing. Even in the niche market for ethical products, consumers may find it
difficult to decide which firms to support.
CORPORATE SOCIAL RESPONSIBILITY 29
In reaction to the results, stakeholder theory advocates would argue that CSR is
the right thing to do whether it generates a profit or not. In contrast, shareholder theory
proponents would argue that this lack of CSR awareness impairs the case for CSR. If
firms cannot make profits from engaging in a CSR activity, then that activity is
detrimental to shareholder wealth and should not be implemented.
The entire CSR debate hinges on one’s view of the corporation. Is the
corporation responsible to shareholders to make a profit? Should a firm engage in
initiatives that are not supported by shareholders and/or that do not result in the
maximization of shareholder wealth? The findings of this study indicate that the
stakeholder and shareholder theories are both incomplete. Firms should maximize long-
term shareholder wealth, but not at the expense of stakeholders and ethical guidelines.
They should not deliberately harm stakeholders to make a profit, and they should not go
out of their way to promote stakeholders’ interests if doing so does not increase
shareholder wealth. Firms cannot be profitable in the long term if they have poor
relations with their stakeholders. At the same time, firms cannot meet all the needs of
their stakeholders and remain profitable. Additionally, business decisions should be
based on an objective ethical code of conduct. Government officials should not
Shareholders, as individuals may freely give of their money to benefit society.
Similarly, mission-driven firms, sole proprietorships, and partnerships are free to support
social actions. However, using the money that shareholders have invested in a
corporation to support unprofitable causes is clearly wrong. Therefore, businesses should
CORPORATE SOCIAL RESPONSIBILITY 30
make a profit, obey the law, act according to an ethical standard, and only pursue CSR
activities that improve long-term shareholder wealth.
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