The paper "Corporate Social Responsibility - from Classical to the Stakeholder Approach " is a great example of management coursework. In classical economic theory, corporations have only one motive, that of profit maximization, and their only responsibility is towards the shareholders. In stakeholder theories, on the other hand, companies have responsibilities towards all stakeholders, including employees, customers, government and the community. Hence, companies need to undertake a periodic review of their activities that affect all these stakeholders and perform a continuous program of corporate social responsibility (CSR). In particular, companies need to address issues in environmental reporting and sustainability, transparent and ethical financial behavior and responsibilities towards employees.
In Australia, despite the pressures of economic recession, many companies are continuing with CSR programs that enhance their credibility in the marketplace. Corporate social responsibility is perhaps the most crucial ethical issue in businesses of today. It has been defined variously, from legal obligations and responsibilities to social responsibility in the ethical sense. While some consider it simply in terms of charitable contributions to social causes, others relate it to being aware of social issues.
As a consequence, while some scholars use it as an antonym to being irresponsible, others see it as a means of businesses setting a superior example to the common citizens (Votaw and Sethi, 1973, cited in Coelho et al, 2002). Even though such norms have always existed for companies, a series of events in the corporate sector has forced legislatures to enact laws to safeguard corporate governance. In an increasingly complex world of globalized business activities, CEOs and other executives, under the pressures of achieving winning strategies, are exposed to ethical dilemmas related to finances, products and other business practices.
Particularly in the times of recession, there is increasing pressure on the top executives to save costs as a result of which many companies tend to give a go by to ethical practices. In this paper, I will discuss the theoretical developments in corporate social responsibility (CSR), from the classical to the socio-economic approaches, and show that Australian organizations are recognizing it is necessary for survival and not merely considering it as a legal obligation. Classical economists found the principal, and perhaps the only, responsibility of firms to be that of maximization of profits and shareholders’ value.
The classical economic theory, first proposed by Adam Smith, a business is socially responsible as long as it maximizes profits legally in such a manner that its activities are directed by the “ invisible hand” . The market capitalism theory in western economies of the 19th century was based on this theory that markets essentially work towards social progress. However, this theory from the beginning drew its share of sceptics. Since the early 19th century, as American businesses grew, owners took to charitable contributions even though businesses in the colonial era were small in today’ s comparisons.
However, theories of social Darwinism proposed that the social hierarchies were inherently biased towards the rich and hence this category of the society, who amassed the fortunes, had little social responsibility towards the rest of the citizenry. By the late 19th and the early 20th centuries, however, there were protests from other social sections, primarily the labor, that forced businesses to relook at the social responsibilities. While the threat of socialism was becoming real, those within the businesses began to question social Darwinism and the unhindered laissez-faire economy.
As a result, the Progressive Era of the United States brought about different versions of corporate social responsibility, even though the term had not yet developed. Managers were first considered as trustees of not just stockholders but also of customers, employees and communities. Hence, managers were expected to manage different interests that were essentially based on the service interest that believed that progressing businesses should be in the interest of society (Steiner, 2005).