Corporate Social Responsibility - Part 3 - Fannie Mae

Fannie Mae is one example that can be used to assess Corporate Social Responsibility and has been studied by many when looking ethical business behavior.  In 2004, Fannie Mae was named the most ethical company in the United States by Business Ethics Magazine (Jennings, 2012, p. 121). 

At that time, no one would have predicted that they would be at the center of a financial crisis that threatened the entire United States economy.  Daniel Mudd, who was the chief operating officer during this time period said that he was “as shocked as anyone” about the financial practices within Fannie Mae (Jennings, 2012, p. 126).

That is, unless you want to talk about Roger Barnes, an employee in the Controller’s Office at the company.  He left his job before the investigation because he could not get a response from the Office of Auditing.  No one, not even the Ethics and Compliance Office, took any steps to follow up on his detailed concerns about accounting policies (Jennings, 2012, p. 127). 

In fact, interviews revealed that, not only had many employees expressed concerns that were never investigated, Daniel Mudd listened to these concerns in 2003 but also made no effort to resolve or investigate them (Jennings, 2012, p. 127).  Maybe Mr. Mudd was not quite as shocked as he seemed when he testified at those congressional hearings.

Fannie Mae was recognized as an ethical company because it scored well in areas that indicated that it was treating a variety of stakeholder’s well (Jennings, 2012, p. 121).  By scoring well with minority and women’s groups, putting low-income families in homes and having a diverse board of directors, they appeared to be behaving in a social responsible way (Jennings, 2012, p. 122).

However, having Corporate Social Responsibility is more, as we discussed in Part 2.  When it came time to ask the questions that Entine and Jennings posed, such as examining whether the company has a sense of propriety, being forthcoming with information and how they react when faced with negative disclosure, it is clear that Fannie Mae falls short (Jennings, 2012, p. 104). 

Ironically, Franklin Raines, the CEO of Fannie Mae in 2002, testified before Congress about the passage of Sarbanes-Oxley and said, “It is wholly irresponsible and unacceptable for corporate leaders to say they did not know – or suggest that it was not their duty to know – about the operations and activities of their company.”  He went on to talk about how the responsibility of management is to know how the company is making the money and to ensure that it is operating in an ethical fashion (Jennings, 2012, p. 128). 

Corporate Social Responsibility - Part 2 - Looking into the Soul of the Corporation - Entine & Jennings

In Part 1, it was noted that Milton Friedman felt that only people can have responsibility, not corporations (Jennings, 2012, p 91).  Still, in modern media and marketing campaigns, companies go to great lengths to have what business press has coined “Rain-forest chic.”  This has become a popular and profitable branding strategy for many businesses in a wide variety of markets (Jennings, 2012, p. 101). 

Studies support this strategy, finding that there is a popular relationship between social performance and financial performance within a firm (Ubias & Alles, 2012, p. 311).  By integrating financial accountability and viewing social responsible behavior as an opportunity for innovation, they can incorporate this into their strategic management plan (Ubias & Alles, 2012, p. 315).

In Entine and Jennings work, they asked eight questions that are relevant to determining the character of a corporation.  Among them are questions related to compliance with the law, having a sense of propriety, transparency and treatment of employees (Jennings, 2012, p. 104). 

All of these questions, are a good start to assessing the corporate character, but in a climate where compliance with the law is the often not enough, we must look to who is making these corporate decisions.

A study that looked at CEO’s and how their values affected Corporate Responsibility found that personal values did play a role in the decisions that they made in those contexts. 

Despite the fact that executives for public companies are charged with doing what the owners would prefer, still they tended to seek out the course of action that was congruent with their own personal philosophy. This was a direct influence on the decision making process.  There are also the indirect influence of perceptual filtering that occurs when a person perceives and interprets information in a way that conforms to their values (Chin, Hambrick & Trevino, 2013, p. 199).

This implies that a consumer cannot merely rely on the projected image of the firm, but in order to actually assess the corporate social responsibility of a firm, they must look at what is going on behind the scenes of the claims, whether they are actually doing the things that they project and to look at the ethical values and history of the corporation’s leadership. 

Corporate Social Responsibility Part 1 - Friedman & Freeman

Corporate Social Responsibility (CSR) is a buzzword that is associated with many companies today.  Companies like Patagonia, Ben & Jerry’s, and Starbucks coffee have developed corporate branding that has made their names almost synonymous with the concept (Jennings, 2012, p. 102).  Corporate social responsibility is a concept that has many scholars with different schools of thought weighing in.

Milton Friedman is one such scholar.  He believes that only people can have responsibilities, not businesses (Jennings, 2012, p.91). By this interpretation, one has to look deeper, to the people running the business and assess their obligation to social responsibility.  Friedman writes that the only obligations that they have is to make profits for the benefit of the employees and shareholders (Jennings, 2012, p. 91). 

To imply that he must act in a way that is ‘socially responsible” is to imply that it is in conflict with the best business interest of the company, to whom he has his primary responsibility (Jennings, 2012, p. 92). The business executive is one that makes decisions that are in the best interest of those stockholders who selected him, not to be an agent for civil service that distributes money that is not his is accordance with a perceived social responsibility (Jennings, 2012, p. 93). 

R. Edward Freeman takes a view of the modern corporation that is similar, but defined somewhat differently.  While he agrees that the duty of managers is to promote the interest of the stockholders (Jennings, 2012, p. 97), he believes that they have other stakeholders to which they have a duty as well.  These stakeholders include groups like suppliers, customers, employees, and the community (Jennings, 2012, p. 96). 

Freeman believes that in its purest concept, capitalism is about maximizing the interest of the stockholders, which is maximizing profits, (Jennings, 2012, p. 98).  Therefore, there is not much incentive to behave is a socially responsible manner, unless you view it from the stakeholder perspective. 

Freeman talks about primary and secondary stakeholders.  Primary stakeholders are those that the firm could not function without, like customers and employees.  Secondary stakeholders, like community groups and nonprofit organizations, can affect the performance of the corporation through community influence, but are not directly involved in business with the company (Homberg, Stierl, & Bornemann, 2012, p. 57).  This provides a broader definition that allows the executive to balance the needs of stakeholders, without completely discounting social responsibility in the name of the almighty dollar. 

Stakeholders to a Corporation