[9.] Corporate Social Responsibility.
[9.1.] Walmart: “Everyday Low Prices.”
Walmart, the world’s largest retailer, achieves low prices by “leveraging its buying power as the world’s largest retailer” and “controlling labor costs.” (47) The following points update the statistics supplied by DesJardin’s statistics…
· Its annual revenue in the fiscal year ending January 31, 2010, was $405 billion. Comparing this to statistics for 2009 provided by the International Monetary Fund, if Walmart were a country, it would, in terms of GDP (gross domestic product) rank between Sweden (22nd largest economy, $406 billion GDP) and Austria (23rd largest economy, $382 billion GDP).
· The company has 8300 “facilities” worldwide (4300 in the United States, 4000 in other countries).
· Walmart employs 2.1 million people worldwide, including more than 1.4 million people in the United States. They are the largest private employer in Mexico and one of the largest in the US and in Canada.
The company’s core values [see lecture notes 8.3, Friday November 5] are captured in what Sam Walton, the company’s founder, called his “basic beliefs”: “respect for individuals, service to customers, and striving for excellence.”
But what is the actual moral value of the company’s activities? How might be evaluate the company from a normative ethical perspective?
· for stockholders: financial benefits (profits).
· for consumers: financial benefits (lower prices).
· for other businesses: providing goods and services to those businesses at lower prices, and purchasing goods from those businesses to sell to consumers.
· for employees: jobs, and thus income and benefits, including medical benefits.
· for communities: taxes.
· for charities: “Walmart regularly contributes to community and social causes. The Walmart Foundation, a philanthropic arm of Walmart, is the largest corporate cash contributor in the United States. For fiscal year 2009, Walmart donated more than $378 million in cash and in-kind gifts to charitable organizations. Walmart contributed more than $45 million to charities outside the United States, and its in-store contribution programs added another $100 million to local charities. Walmart has focused its charitable giving in areas such as disaster relief, food and huger programs, and education.”
Negative considerations. According to some critics, Walmart should be criticized for each of the following:
1. Walmart’s Treatment of Its Employees
· insufficient wages and benefits.
· labor practices:
· forced overtime & off-the-clock labor.
· anti-union activities.
· sexual discrimination against women.
· use of illegal workers through third-party contractors.
2. Walmart’s Effects on Small Business and Small Towns
· local businesses find it hard to compete and eventually fail.
· other local businesses and services (banks, accountants, lawyers) lose clients and customers when those small businesses fail.
· giant stores in rural and suburban locations…
· encourage sprawl.
· place excess burden on roads and transportation.
3. Walmart’s Effects on Suppliers
We will consider the case of Walmart by looking at three different models or theories of Corporate Social Responsibility (CSR), i.e., the moral responsibility corporations have to society.
The question of CSR is, do businesses have a moral obligation to go beyond profit-making and promote certain social goods? In other words, are they obligated to behave philanthropically, and if so to what degree?
philanthropy (df.): humanitarian behavior, i.e., behavior that aims to promote human well-being and social reform, including by way of donations and other charitable aid. [From the Greek philo-, love, and anthropos, mankind.]
The three models or theories we will examine are:
1. The Classical Model (a.k.a. Free Market Theory) [Adam Smith; Milton Friedman]
2. The Neo-Classical Model (a.k.a. the Moral Minimum) [Norman Bowie]
3. Stakeholder Theory [William Evan and Edward Freeman]
Each of these models will provide an answer to the question, what is the moral responsibility of business managers, including corporate executives, towards society in general?
[9.2.] The Classical Model (a.k.a. Free Market Theory).
[See the quotation from Milton Friedman’s (1912-2006) Capitalism and Freedom at 51 / 54.]
This model maintains all of the following:
· The most important moral responsibility of business managers is to act so as to maximize profits for a business’s owners.
· The only constraints on profit maximization are that they act within the law and avoid coercion (use of threats or undue force) and fraud.
· It is the responsibility of the government to protect individuals’ and corporations’ free interactions with one another.
· But the government should otherwise stay out of economic issues. So, markets should be free “from outside interference, both from other individuals and from government regulation.”
Free Market Theory might be defended either from the point of view of utilitarianism or from a deontological, rights-based point of view.
[9.3.] Utilitarianism Defenses of the Free Market.
The general utilitarian defense of the free market is that overall utility (commonly understood within this context, not as happiness or well-being, but instead as preference satisfaction) will be maximized if individuals are allowed to engage in unrestrained economic exchanges, trading whatever amount they are willing to pay in exchange for goods and services.
If businesses attempt to maximize profits, this will ensure that the people who want the goods the most will get them, and thus preference satisfaction will be maximized.
A simple example:
· Suppose I have an item (a rare copy of “Hand in Glove,” the first single by 80s alternative rock band the Smiths) that I want to sell; I have decided that I would prefer to have money more than I would prefer to keep the record. So I offer it for sale at an initial cost of $1000.
· I find two people, Brown and Jones, each of whom wants to buy it. At first both are willing to pay $1000, and so I raise the price to $1100. Brown will happily pay the higher cost, as will Jones. So, I raise the price again, to $1200. Brown offers to pay $1200, but Jones declines to pay more than $1100, and so I sell it to Brown.
· As a result of this exchange, my preference is satisfied to a higher degree, since what I want is to get the most money I can for the item I’m selling.
· What’s more, the person who wanted it more, Brown, got the record. Presumably he wanted it more than Jones, since he was willing to pay more for it than Jones. So on that side of the exchange, preference satisfaction was also maximized.
· While it is true that Jones’s preference to have the record was unfulfilled (at least temporarily), since Jones and Brown cannot both have the record, and since Brown wanted the record more, it will increase preference satisfaction more for Brown to get it.
· But Jones’ preference is not necessarily permanently unsatisfied. Assuming that the market is competitive, i.e., that there are other sellers competing with me to sell the same product, it is possible that Jones will eventually get a record for $1100 or less, thus satisfying his preference.
· The claim is not that this sort of market will satisfy all preferences (or make everyone perfectly happy, or make everyone well-off to any specific degree). Rather, the claim is that the free market will result in preferences being satisfied (or happiness being increased, or well-being being increased) to the highest degree that is practically possible.
By allowing rational, self-interested individuals to bargain for themselves, by giving them the freedom to decide what they most want and what they are willing to pay for, we have reached a point where we have optimally satisfied the wants of all parties. There is no way to improve the overall situation or to increase overall happiness. If any alternative exchange would benefit two parties, rational and self-interested people would have agreed to it. Anything we now do to increase [my] happiness—for example, by increasing the price [I am] paid—would decrease [Brown’s] happiness, by requiring him to give up more for the [record]. Thus: we have reached a point of optimal happiness: No one’s happiness can be increased without a loss of other happiness.
[9.3.1.] A Utilitarian Defense of Walmart.
The following can both be seen as ways in which society benefits from Walmart’s free market pursuit of profit:
· “Walmart’s low prices have meant that more consumers have been able to purchase more of what they want. Society benefits when efficient companies sell more products at lower prices.” (52 / 55) So Walmart’s pursuit of maximized stockholder profit within the constraints of the law has resulted in increased preference satisfaction.
· “By pursuing the lowest possible labor and supply costs, Walmart is able to hire more workers and buy more products for the same costs.” (52 / 55-56) So more employees have jobs, and more companies are selling goods to Walmart, thus increasing their preference satisfaction.
So according to this defense, Walmart’s business practices may have some negative consequences, but those are outweighed by their positive social effects, which include a maximization of preference-satisfaction.
[9.4.] The Rights-Based Defense of the Free Market Model.
According to this deontological, rights-based defense, any business is the private property of its owners. As such, the owners of the property/business have the right to do as they please with its resources.
In the ordinary case, what the owners (including stockholders) want is for the company to make a profit. This is what the owners have hired the company’s managers to do, and the managers’ moral obligations flow from their contractual agreement to do so.
Thus, a manager’s sole moral responsibility is to turn a profit, without breaking the law or otherwise engaging in fraud or coercion. So the Classical Model (Free Market Theory) is correct.
DesJardins states the defense as follows:
…managers have an overriding obligation to maximize profits because that is what their employers, the owners of the corporation, want done with corporate resources. Any alternative constitutes an illegitimate restriction on the property rights of those owners. (58 / 61-62, emphasis added)
Consider this analogy. Suppose I hire you to paint my house, and I pay you money so that you can purchase the highest quality brand of paint available. But instead of buying that brand, you buy a less expensive, lower-quality paint and give the difference to a charity.
From one point of view (perhaps from the standpoint of utilitarianism), this might be morally laudable. But from the point of view of property rights, you have done something immoral: you have used my property for your own ends, and you have done so without my permission. [We can think of this as a violation of the second version of the Categorical Imperative: you have used me as a means to one of your ends, instead of explaining your end to me and giving me the chance to make it my own.]
In the cases of Walmart and Malden Mills:
If Aaron Feuerstein, as the owner of Malden Mills, chose to use his property to benefit the workers and community, fine. That is his free choice. But if the managers of Walmart chose to use their stockholder’s property to serve the interests of employees and the local community, they are acting irresponsibly. Pursuing any social objective other than the maximization of profit is spending someone else’s money for your own purposes. According to the defenders of the classical model, this is ethically equivalent to theft. (53 / 56, emphases added)
If a Walmart manager … decided to pay higher health care benefits to employees than was necessary to attract workers in the local labor market, [she] would be misallocating corporate funds. [She] would, in effect, be stealing from the owners of the business [the stockholders]. (58 / 62, emphasis added)
Stopping point for Monday November 8. For next time, read DesJardins pp.53-58.
 Desjardins, 4th ed., p.50.
 In the 4th edition of your textbook, DesJardins begins referring to this model as the “Economic Model of Corporate Social Responsibility” (pp.54 ff.).
 For an overview of various positions on the question of CSR, many of which are not discussed by DesJardins, see section 2.2 of Alexei Marcoux, “Business Ethics,” The Stanford Encyclopedia of Philosophy (Fall 2008 Edition), Edward N. Zalta (ed.), URL = <http://plato.stanford.edu/archives/fall2008/entries/ethics-business/>, retrieved November 8, 2010.
 Joseph DesJardin and John McCall, Contemporary Issues in Business Ethics, 5th ed., Wadsworth, 2005, p.7.
 Adapted from DesJardins and McCall, pp.32-33.
 DesJardins and McCall, pp.32-33, emphasis added.
This page last updated 11/8/2010.
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