Summary

4.1 Corporate Law and Corporate Responsibility

While some argue that corporations have a primary duty to maximize profits for the benefit of shareholders, others assert that businesses have a duty to the society in which they operate, a duty that serves as the basis of the CSR philosophy. Many court cases have addressed the issue, but it has not been conclusively resolved. Despite the ongoing ethical debate, being a good corporate citizen is a goal toward which most contemporary corporations strive. An effective CSR policy usually means that companies have to commit to both an internal and external approach to ethics. Corporate social responsibility and good corporate governance are in reality just two sides of the very same coin. Social responsibility does not mean lower profitability.

4.2 Sustainability: Business and the Environment

Adopting sustainability as a strategy means protecting the environment. Society has an interest in the long- term survival, indeed the flourishing, of ecological habitats and natural resources, and we ask and expect companies to respect this societal goal in their business activities. When analyzing what a business owes society in return for the freedom to extract our natural resources, we must balance development and preservation. It may be easy to say from afar that a business should cut back on how much it pollutes the air, but what happens when that means cutting back on fossil fuel use and transitioning to electric vehicles, a choice that affects everyone on a personal level?

4.3 Government and the Private Sector

One challenge in a free enterprise system is balancing the need for government regulation and private-sector corporate managers’ need for independence in running their businesses. The Sarbanes-Oxley Act tries to strike this balance by mandating transparency in corporate governance. This debate also includes the question whether businesses operating in the private sector ought to do public good on their own, regardless of whether the government mandates it. For example, many companies make a commitment to keep the environment clean, and to do so by going above and beyond what the law requires.

1 . Corporations that embrace CSR policies consistently produce a lower rate of return on investment for shareholders. a. True b. False 2 . Milton Friedman’s economic philosophy advocates increased government regulation to ensure that corporations are socially responsible. a. True b. False 3 . Which of the following is not true? a. Shareholder primacy is the clear legal precedent in the United States. b. Maximizing shareholder profits is a legitimate goal of management. c. Dividends are paid out of corporate profits. d. Companies that pursue CSR policies can also be profitable. 4 . Industries like to be in control of their own destiny and as a result prefer self-regulation to laws imposed by governments. Self-regulation is often ________. a. based on external codes of conduct b. enforced by the courts c. in conflict with common law