business social responsibility 2004
TRANSCRIPT
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TWO TOPICS
ECONOMIC THEORY ANDBUSINESS SOCIAL
RESPONSIBILITY ROLE OF BUSINESS SOCIAL
RESPONSIBILITY IN
DEVELOPMENT
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THE MANY DIMENSIONS OF BUSINESSSOCIAL RESPONSIBILITY
1. One can do well by doing good- Acting in a responsible manner can be good for profits
2. Good business goes beyond maximizingshareholder value - There are multiplestakeholdersworkers, customers,communities- A broader view of corporate governance
- Reflected in many European countries legislation
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KEY QUESTION
Why cant we simply rely on firmsmaximizing market value
Adam Smiths Invisible Hand suggeststhat doing so will lead to efficiency
Modern economic theory helps explainwhy maximizing shareholder valuedoes not lead to economicefficiency
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ADAM SMITHS INVISIBLE HAND
Adam Smiths Invisible Hand said that pursuing self-
interest leads to economic efficiency
- But does not ensure either social justice, thepreservation of the environment, or human rights
Many market failures involve externalitiesincludingenvironmental failures
- When there are these market failures,
maximizing shareholder value does not let toefficiency or societal well being
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NEW UNDERSTANDING OFMARKET FAILURES
Far more extensive--when information isimperfect and markets incomplete, the reasonthat the invisible hand often seems invisiblebecause its not there
- Corporate greed in the 90s did not leadeven to maximization of long-termshareholder value, let alone interests ofothers, including the economy in general
- Often took advantage of imperfect and asymmetricinformation Scandals involving investment banks, accountants,
mutual funds, etc.
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Recognizing that self-interest in animperfect guide restores the need formorality in economic behavior ofbusinesses Market Failures provide important
rationale for Regulation-Environment
-Conflict of interest Self-regulation, morality may be moreflexible than regulation
MORALITY AND REGULATION
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BUSINESS SOCIAL RESPONSIBILITY:DEVELOPING COUNTRY CONTEXT
Important role for business social responsibility indeveloping countries
- Especially since regulatory structures highly
imperfect- And moral values often stop at national borders
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PARTICULAR AREAS OF CORPORATERESPONSIBILITY RELEVANT TO
DEVELOPING COUNTRIES
a. Promoting development:Through training
Supporting affirmative actionprogramsSupporting government efforts to
increase efficiency and efficacy ofpublic services
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b. Competition, corporategovernance, securities markets:
General principle: Do not takeadvantage of lack of adequateregulation (e.g. for environment,
consumer protection, anti-trust)
PARTICULAR AREAS OF CORPORATERESPONSIBILITY RELEVANT TO
DEVELOPING COUNTRIES
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c. Environment:
Even when corporations can getaway with spoiling environment,they shouldnt do it
PARTICULAR AREAS OF CORPORATERESPONSIBILITY RELEVANT TO
DEVELOPING COUNTRIES
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d. Transparency, corruption, conflict: Do not take advantage of opportunities for bribery and
corruption Take active stance to reduce corruption Secret bank accounts Extractive industries transparency initiative Support policies like Conflict Diamonds
e. Human rights: Especially important in period in which human rights are
being attacked on many fronts
Liability laws (Alien Torts Act) may help aligncorporate interests with general interests
PARTICULAR AREAS OF CORPORATERESPONSIBILITY RELEVANT TO
DEVELOPING COUNTRIES
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Markets are at the center ofsuccessful development
- But confidence in markets willdepend on how responsiblybusinesses behave
BUSINESS SOCIAL RESPONSIBILITY:DEVELOPING COUNTRY CONTEXT