CORPORATE SOCIAL RESPONSIBILITY
I
I
Corporate social responsibility (CSR) and corporate sustainability represent the way companies achieve enhanced ethical standards and a balance of economic, environmental and social imperatives addressing the concerns and expectations of their stakeholders. Corporate governance reflects the way companies address legal responsibilities, and therefore provides the foundations upon which CSR and corporate sustainability practices can be built to enhance responsible business operations.
Operational uncertainties and difficulties are compounded by recent observations of ‘company anxiety’ regarding CSR communications. Over-promising or declarations of rightness and good intentions could cause the mistrust of consumers and stakeholders, creating the opposite effects from those expected. Companies are recognizing that corporate responsibility communications should be low tone and straightforward, reflected in the actual behaviour of every member of the company, which is extremely difficult to achieve before CSR is integrated into the company’s bloodstream.
In market economies, the primary purpose of companies is to maximize shareholder value (for example, economic profit, share price and dividends) bound by legal/regulatory obligations which address specific social and environmental issues. For this, companies pursue competitive strategies which rely upon and develop relationships between the corporation and its stakeholders.
Since the early 1990s, corporate responsibility issues, including the social obligations of corporations, have attained prominence in political and business debate. This is mainly in response to corporate scandals but also due to the realization that development centred only on economic growth paradigms is unsustainable and therefore, there is a need for a more proactive role by states, companies and communities in a development process aimed at balancing economic growth with environmental sustainability and social cohesion.
This debate has motivated the following three interlinked movements in the corporate world:
1. corporate social responsibility (CSR);
2. corporate sustainability; and
3. worldwide reforms on corporate governance.
Corporate social responsibility and corporate sustainability represent the way companies achieve enhanced ethical standards and a balance of economic, environmental and social imperatives addressing the concerns and expectations of their stakeholders. Corporate governance reflects the way companies address legal responsibilities, and therefore provides the foundations upon which CSR and corporate sustainability practices can be built to enhance responsible business operations.
We distinguish between two interrelated dimensions for CSR and corporate sustainability:
1. corporate responsibility and sustainability as part of a new vision for the world based on a global
partnership for sustainable development; and
2. corporate responsibility and sustainability as a business management approach that should provide,
in the long run, better value for shareholders as well as for other stakeholders.
Early roots of CSR can be found in the actual business practices of successful companies, and early theoretical views in the 1950s and the 1960s linked corporate social obligation to the power that business holds in society. Theoretical developments are currently broadly subdivided into the ethical and accountability issues and the stakeholder approaches to strategic management.
Operational uncertainties and difficulties are compounded by recent observations of ‘company anxiety’ regarding CSR communications. Over-promising or declarations of rightness and good intentions could cause the mistrust of consumers and stakeholders, creating the opposite effects from those expected. Companies are recognizing that corporate responsibility communications should be low tone and straightforward, reflected in the actual behaviour of every member of the company, which is extremely difficult to achieve before CSR is integrated into the company’s bloodstream.
In market economies, the primary purpose of companies is to maximize shareholder value (for example, economic profit, share price and dividends) bound by legal/regulatory obligations which address specific social and environmental issues. For this, companies pursue competitive strategies which rely upon and develop relationships between the corporation and its stakeholders.
Since the early 1990s, corporate responsibility issues, including the social obligations of corporations, have attained prominence in political and business debate. This is mainly in response to corporate scandals but also due to the realization that development centred only on economic growth paradigms is unsustainable and therefore, there is a need for a more proactive role by states, companies and communities in a development process aimed at balancing economic growth with environmental sustainability and social cohesion.
This debate has motivated the following three interlinked movements in the corporate world:
1. corporate social responsibility (CSR);
2. corporate sustainability; and
3. worldwide reforms on corporate governance.
Corporate social responsibility and corporate sustainability represent the way companies achieve enhanced ethical standards and a balance of economic, environmental and social imperatives addressing the concerns and expectations of their stakeholders. Corporate governance reflects the way companies address legal responsibilities, and therefore provides the foundations upon which CSR and corporate sustainability practices can be built to enhance responsible business operations.
We distinguish between two interrelated dimensions for CSR and corporate sustainability:
1. corporate responsibility and sustainability as part of a new vision for the world based on a global
partnership for sustainable development; and
2. corporate responsibility and sustainability as a business management approach that should provide,
in the long run, better value for shareholders as well as for other stakeholders.
Early roots of CSR can be found in the actual business practices of successful companies, and early theoretical views in the 1950s and the 1960s linked corporate social obligation to the power that business holds in society. Theoretical developments are currently broadly subdivided into the ethical and accountability issues and the stakeholder approaches to strategic management.
The corporate responsibility movement is backed by United Nations (UN) initiatives such as the ‘Global Compact’ and the ‘Millennium Goals’, which have defined the goal and principles for responsible corporate behaviour in the following areas: human rights; labour standards; environment; health; anti-corruption; and economic responsibility.
Key driving forces include investor and consumer demands and governmental and public pressure. Particularly important is the support from socially responsible investing (SRI). The corporate responsibility movement is now entering a mainstreaming phase aided by standardization activities such as the Global Reporting Initiative (GRI), the AA1000 series and the ISO2600 guide.Corporate social responsibility, corporate sustainability and corporate governance collectively are shaping the identity of organizations and are therefore increasingly integrated into the business strategy of successful corporations. Consequently, the field of responsible business strategy and practice is becoming one of the most dynamic and challenging subjects corporate leaders are facing today, and possibly one of the most important ones for shaping the future of our world.
The 4CR Multidimensional Corporate Responsibility Perspective
The 4CR multidimensional corporate responsibility perspective is aimed at establishing a coherent approach to addressing the various concepts of corporate responsibility and their integration with strategic management.
The 4CR taxonomy highlights four corporate responsibility areas: corporate competitiveness (CC); corporate governance (CG); CSR; and corporate sustainability (CS).
At the centre of the 4CR corporate responsibilities map is stakeholder management which provides the common link between corporate competitiveness and corporate responsibility and sustainability. The
key issues in each of the four corporate responsibilities are as follows:
1. Corporate competitiveness addressed by strategic management is a subject rarely discussed in the context of corporate responsibility. However, unless all strands of corporate responsibility are brought together under a common management framework, CSR and sustainability will remain peripheral activities and their impact is likely to remain well below required levels to achieve the millennium and related goals.
2. Corporate governance sets the legal framework to protect a company’s shareholders and stakeholders; the relative emphasis being dependent on national approaches.
3. The CSR is aimed at extending the legal requirements promoting ethics, philanthropy and social reporting to satisfy stakeholder concerns.
4. Corporate sustainability focuses on long-term economic and social stakeholder expectations both by optimizing their sustainability performance and by participating in networks with governments, non-governmental organizations (NGOs) and other stakeholders that can provide the capacity for
the world’s sustainable development.
Corporate Responsibility Practice: The Overall Picture
The CSR and corporate sustainability movements are building an impressive momentum with the support from governments and the investment community through SRI and associated corporate sustainability indices. It is generally accepted that businesses are doing far more than ever before in guarding against ethical compromises, recognizing their social and environmental responsibilities, creating enhanced governance transparency and becoming more accountable to their stakeholders.
However, today, despite the progress achieved, corporate responsibility and sustainability is primarily about a handful of companies that have made corporate sustainability their business philosophy; some following the principles of their founders established centuries ago, others in response to crises that threatened their survival and a few simply because they recognized the long-term value of doing so. There are also many companies that have adopted, in name only, corporate responsibility strategies either because they feel obliged to follow their peers or because they see some marketing-related benefits.
In these cases, responsible behaviour may be skin deep but…it could grow deeper.
Overall, the large majority of companies that have not adopted CSR or related approaches view such programmes as costly exercises only affordable by large companies. Consequently, despite various attempts to clarify the business benefits and the business case, CSR remains a low priority for the vast majority of small and medium enterprises (SMEs). The CSR and corporate sustainability, as business practice approaches, are at the infancy stage with relatively few adopters and questionable impact.
Evidently, it could take some time before corporate responsibility and sustainability becomes part of
mainstream business practice.
Objectives and Motivations of CSR Companies:-
For the large companies that have adopted CSR, we can distinguish a number of common objectives:
1. increased transparency and improved governance aimed at rebuilding public trust and investor confidence;
2. delivering wider societal value, including support for health and human rights improvements, and environmental protection;
3. contributing to regional development and global partnerships for sustainable development; and
4. addressing in a balanced way the concerns of their key stakeholders.
These objectives express company expectations/wishes for the future development of their corporate
responsibility and sustainability programmes but do not always reflect current practices.
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Success stories from responsible companies, for example, the leading companies in SRI indices, confirm that outstanding financial performance is not incompatible with good sustainability performance.
However, the motivation of companies to address corporate responsibly and sustainability varies widely from instrumental approaches using responsible practices as a means of maximizing profits to intrinsic
approaches committing the company to upholding its values and principles irrespective of the impact on financial performance.
KPMG’s 2005 survey of corporate responsibility highlights the diverse motivations for corporate responsibility (74 per cent economic and 53 per cent ethical) and the following important business drivers: (i) to have a good brand and reputation; (ii) to be an employer of choice; (iii) to have and maintain a strong market position; (iv) to have the trust of the financial markets and increase shareholder value; and (v) to be innovative in developing new products and services and creating new markets.
approaches committing the company to upholding its values and principles irrespective of the impact on financial performance.
KPMG’s 2005 survey of corporate responsibility highlights the diverse motivations for corporate responsibility (74 per cent economic and 53 per cent ethical) and the following important business drivers: (i) to have a good brand and reputation; (ii) to be an employer of choice; (iii) to have and maintain a strong market position; (iv) to have the trust of the financial markets and increase shareholder value; and (v) to be innovative in developing new products and services and creating new markets.
CSR Investment Patterns and Implementation Features
Lack of economic indicators and analytical methods to evaluate the contribution of CSR investments ina company’s performance restrains management from embarking on CSR investments. This situation is likely to deteriorate in recessionary periods when non-essential investments are cut back.
In general, large companies appear to be happier to invest in establishing a foundation dedicated to supporting good causes rather than investing to integrate corporate responsibility in their strategies and operational processes, or to invest in developing appropriate support infrastructure, further confirming the early stage of CSR industrialization.
CSR implementation type Horizon Features
Opportunistic Short term Few activities; questionable substance; no continuity; no dedicated team; and no development plans.
Stable Long term Dedicated team; coherent programme; historic evidence of responsible performance; advantages/disadvantages of specific actions evaluated; and appropriateness for sector and size and benchmarking considered.
In examining the actual CSR operation in various companies, it would appear that there is some confusion in many employees as to what CSR is, which activities constitute CSR, what the boundaries are and how CSR can be integrated in mainstream business operations. The traditional activities of sponsoring, donations, charities, etc., have to be extended by advanced forms of responsible behaviour affecting all company decisions, functions and processes through programmes on human potential development,
contribution to the social welfare, environmental protection, etc. As a result, each company has to discover,
to a large extend, its own unique way to manage corporate responsibility and sustainability which, given the complexity of the change and management challenges, entails high costs and performance penalties.
Operational uncertainties and difficulties are compounded by recent observations of ‘company anxiety’ regarding CSR communications. Over-promising or declarations of rightness and good intentions could cause the mistrust of consumers and stakeholders creating the opposite effects from those expected.
Companies are recognizing that corporate responsibility communications should be low tone and straightforward reflected in the actual behaviour of every member of the company which is extremely difficult to achieve before CSR is integrated into the company’s bloodstream.
The Role of Associations and Collaboration Networks
A way of overcoming the uncertainties of how to develop efficient ways of implementing CSR is through collaboration with other companies with similar objectives which can be facilitated by CSR associations or collaboration networks.
This, together with the initial political pressure to progress a CSR agenda, has led to the emergence of a relatively large number of associations which helped enormously in setting the initial momentum and helped to create business communities with stable implementations. The downside is that each association promotes its own brand of social responsibility whilst some of the standards such as GRI are not followed widely. This coupled with the fact that SMEs are not as yet seriously involved in the CSR and
sustainability movement poses risks to the wider take up of corporate responsibility practices by the business world.
To turn the initial strength of the CSR-related associations into long-term success for sustainable development, greater convergence of CSR-related approaches and greater collaboration between associations would be beneficial.
Non Governmental Organizations (NGOs)
The key ‘broker’ in collaborative responsibility alliances is often represented by the NGOs. The World Bank defines NGOs as, ‘private organisations that pursue activities to relieve suffering, promote the interests of the poor, protect the environment, provide basic social services, or undertake community support’. Organizations like Oxfam, Greenpeace, World Wildlife Fund (WWF), Amnesty International
and thousands of others serve the public on a national and international scale. Today, an estimated 35,000 organizations qualify as international NGOs (with programmes and affiliates in a number of countries).
Many recent polls place NGOs as the most trusted organizations by the public, invariably far more trusted than national governments.
The NGOs could therefore play a central role in strengthening and maintaining the momentum of the corporate responsibility and sustainability movement by promoting and facilitating collaboration networks
for sustainable development. The common CSR and corporate sustainability approach adopted by business organizations involves assessing their economic, social and environmental impact; taking steps to improve it taking into account the requirements of their stakeholders; and reporting on relevant measurements. In this context, corporate responsibility means managing, in a transparent manner, the economic, social and environmental impact of the systemic organizational activity. This means defining
performance targets, for example, on revenue growth and carbon dioxide (CO2) emissions, and reporting on actual results for the specified period without reference to related business processes.
The management process involves developing CSR or sustainability policies and strategies reflecting stakeholder needs which are implemented through a CSR/sustainability programme and then, annual reports are produced to inform stakeholders of the actual progress achieved. Policy development and
implementation programmes are normally carried out in a company-specific way as a no methodologies have been established to guide these processes.
On the other hand, CSR-related standardization has focused on reporting standards. Further, various CSR associations have produced reporting guidelines, and even SRI assessment criteria and assessment.
methods provide useful references for the annual reports. It follows that the production of the annual ‘corporate responsibility report’ has emerged as the central activity in CSR or corporate sustainability management. As the quality of the annual corporate responsibility reports increases (explained further later) and the report contents become integrated with the traditional annual financial reports, first, the important dimension of responsible behaviour, namely, enhanced transparency, is addressed; and second, company’s social and environmental impacts receive increased attention and are slowly considered within a single
framework with financial issues.
It should be highlighted that companies operating in high-impact sectors such as power generation, oil companies, transport and heavy industries have the burden to invest heavily on reducing their impact on environment.
First, the companies identify their key stakeholders and their primary interests. This is used to select the responsibility areas they wish to focus on (responsibilities classification).
Formulating strategies and the CSR programme typically starts with impact analysis facilitating the specification of improvement targets in line with the specified policies. Quantifiable improvement targets and indicators are crucial to a successful corporate responsibility programme. Strategies, which should also be aligned with the overall business strategy, are then developed following evaluation of alternatives to achieve the improvement targets. Strategies are transformed into an action plan, the CSR programme, which is implemented by operational units through extensions of existing processes or through specific projects.
The CSR programme is monitored against the indicators set in strategy stage and the results are reported through CSR, sustainability or related reports. These reports which represent the central component of CSR management are often made public for transparency purposes, and frequently provide an
input into the assessment process undertaken by SRI evaluations or other benchmarking exercises.
Key Stakeholders Responsibilities Classification (Focus areas selected by each company reflecting priorities of key stakeholders) Policies Strategies Programme Measurement Reporting Identification of key stakeholders and their primary needs/ concerns.
1. Economic responsibility and
governance (products, customers,
suppliers, ethical standards).
2. Human rights and labour standards.
3. Health promotion and communities
support.
4. Environmental responsibility.
What are the company’s values and objectives in each responsibility area.
1. Impact assessment.
2. Improvement targets
and strategies.
3. Action programme.
1. Achievements.
2. Performance indicators.
3. Progressbenchmarking.
4. Independent reviews.
5. Feedback.
Corporate social responsibilities were defined by Bowen as ‘the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society’ (Bowen, 1953). At the time, corporate social obligation was linked to the power that business holds in society. This point was stressed by Davis (1962), who described business social responsibilities as ‘the businessman’s decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest…which need to be commensurate with the company’s social power’.
The earliest reference addressing specifically social auditing was around the early 1960s in a book by Goyder, called The Responsible Company. Goyder referred to various activities in the mid- and late
1950s and suggested that social audit could provide a management tool and could offer stakeholders a platform for challenging and influencing companies.
A balanced view of CSR is expressed by Vogel (2005) in The Market for Virtue: The Potential and Limits of Corporate Social Responsibility, suggesting that CSR is not a precondition for business success but a dimension of corporate strategy: Just as fi rms that spend more on marketing are not necessarily more profi table than those that spend less, there is no reason to expect more responsible fi rms to outperform less responsible ones. In other words, the risks associated with CSR are not different from those associated with any other business strategy; sometimes investments in CSR make business sense and sometimes they do not.
Vogel also highlights that ‘Surveys of the world’s top brands rarely cite CSR as an issue associated with a given brand. And companies that make most-admired lists do so by virtue of other factors—financial performance, customer satisfaction, innovation, and so on.’
Early Social Responsibility Models
Early theoretical work specifically addressing corporate social responsibilities is represented by Sethi (1975) who developed a three-tier model for classifying corporate behaviour which he labelled ‘corporate social performance’. The three states of corporate behaviour are based on:
1. Impact assessment.
2. Improvement targets
and strategies.
3. Action programme.
1. Achievements.
2. Performance indicators.
3. Progressbenchmarking.
4. Independent reviews.
5. Feedback.
Corporate social responsibilities were defined by Bowen as ‘the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society’ (Bowen, 1953). At the time, corporate social obligation was linked to the power that business holds in society. This point was stressed by Davis (1962), who described business social responsibilities as ‘the businessman’s decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest…which need to be commensurate with the company’s social power’.
The earliest reference addressing specifically social auditing was around the early 1960s in a book by Goyder, called The Responsible Company. Goyder referred to various activities in the mid- and late
1950s and suggested that social audit could provide a management tool and could offer stakeholders a platform for challenging and influencing companies.
A balanced view of CSR is expressed by Vogel (2005) in The Market for Virtue: The Potential and Limits of Corporate Social Responsibility, suggesting that CSR is not a precondition for business success but a dimension of corporate strategy: Just as fi rms that spend more on marketing are not necessarily more profi table than those that spend less, there is no reason to expect more responsible fi rms to outperform less responsible ones. In other words, the risks associated with CSR are not different from those associated with any other business strategy; sometimes investments in CSR make business sense and sometimes they do not.
Vogel also highlights that ‘Surveys of the world’s top brands rarely cite CSR as an issue associated with a given brand. And companies that make most-admired lists do so by virtue of other factors—financial performance, customer satisfaction, innovation, and so on.’
Early Social Responsibility Models
Early theoretical work specifically addressing corporate social responsibilities is represented by Sethi (1975) who developed a three-tier model for classifying corporate behaviour which he labelled ‘corporate social performance’. The three states of corporate behaviour are based on:
1. social obligation (response to legal and market constraints);
2. social responsibility (addressing societal norms, values and expectations of performance); and
3. social responsiveness (anticipatory and preventive adaptation to social needs).
Sethi’s second tier requires that a company moves beyond compliance and recognizes and addresses societal expectations. The third tier requires that a company develops the competence to engage effectively with stakeholders and take proactive measures on their issues and concerns. Sethi also emphasized the cultural and temporal dependencies of corporate responsibilities and the importance of stable management
systems and standard classifications to facilitate measurement of progress and comparative analysis.
Building on Sethi’s model, Carroll (1979) proposed a model that contains the following four categories
of corporate responsibility in decreasing order of importance:
1. economic—be profitable;
2. legal—obey the law;
3. ethical—do what is right and fair and avoid harm; and
4. discretional/philanthropic—be a good corporate citizen.
The four classes of responsibility are seen to reflect the evolution of business and society interaction in the United States (US). According to Carroll, ‘the history of business suggests an early emphasis on the economic and then legal aspects and a later concern for the ethical and discretionary aspects’.
Economic obligations are therefore seen to be tempered by ethical responsibilities or social expectations and norms. Discretionary responsibilities go beyond ethical responsibilities and include philanthropic
measures such as corporate-sponsored programmes for disadvantaged workers.
In 1991,
The stakeholder theory, emphasizing a broad set of social responsibilities for business, was established by Freeman in 1984 through the groundbreaking work published in his book, Strategic Management: A Stakeholder Approach, which effectively established the field of ‘business and society’. Freeman defined stakeholders as ‘any group or individual who is affected by or can affect the achievement of an organisation’s objectives’. According to Freeman, the use of the term stakeholder grew out of the pioneering ideas at Stanford Research Institute (now SRI International) in the 1960s, which were further developed through the work of Igor Ansoff and others. The basic SRI concept was that: managers needed to understand the concerns of shareholders, employees, customers, suppliers, lenders and society, in order to develop objectives that stakeholders would support. This support was necessary for long term success.
Therefore, management should actively explore its relationships with all stakeholders in order to develop business strategies.
Stakeholder management approaches can be very different in practice, spanning from instrumental
approaches which use stakeholder relationships strictly as an instrument to maximize profit to intrinsic approaches, where fundamental principles guide how a company does business, particularly with respect to how stakeholders are treated (Donaldson and Preston, 1995)..
The two main streams represent the CSR perspective emphasizing ethical issues and social audit and the stakeholder approach representing the social dimension of strategic management. It should be noted
that sustainability did not feature in corporate responsibilities issues but is essentially related to environmental economics for ensuring that the costs and the benefits of environmental measures are well balanced.
References
- Ansoff, H.I. (1979). The changing shape of the strategic problem. In D. Schendel & C. Hofer (Eds), Strategic management(pp. 30–44). Boston: Little Brown.
- Aupperle, K.E., Hatfield, J.D., & Carroll, A.B. (1983). Instrument development and application in corporate social responsibility. Academy of Management Proceedings, p. 369–373.
- Aupperle, K.E., Carroll, A.B., & Hatfield, J.D. (1985). An empirical examination of the relationship between corporate social responsibility and profitability. Academy of Management Journal, 28(2), 446–463.
- Bowen, H. (1953). Social responsibilities of the businessman. New York: Harper and Row.
- Carroll, A. B. (1983). Corporate social responsibility: Will industry respond to cut-backs in social program funding? Vital Speeches of the Day, 49, 604–608.
- ———. (1979). A three-dimensional conceptual model of corporate social performance. Academy of Management Review, 4(4), 497–505.
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- Davis, K. (1960). Can business afford to ignore social responsibilities? California Management Review, 2(Spring), 70–76.
- Donaldson, T., & Preston, L.E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implication Academy of Management Review, 20(1), 65–91.
- Freeman, E.R. (1984). Strategic management: A stakeholder approach. Boston: Pitman.
- Friedman, M. (1962). Capitalism and freedom. Chicago: University of Chicago Press.
- KPMG’s 2005 Survey of Corporate Responsibility. (2005). Retrieved from http://www.kpmg.com.au/Portals/0/
- KPMG%20Survey%202005_3.pdf
- Pinkston, T.S., & Carroll, A.B. (1994). Corporate citizenship perpectives and foreign direct investment in the US. Journal of Business Ethics, 13(3), 157–169.
- ———. (1996). A Retrospective Examination of CSR Orientations: Have They Changed? Journal of Business Ethics, 15(2), 119–206.
- Sethi, S.P. (1975). Dimensions of corporate social performance: An analytic framework. California Management Review, 17(3), 58–64.
- Vogel, D. (2005). The market for virtue: The potential and limits of corporate social responsibility. Washington, DC: Brookings Institution Press.
- A Multi Dimensional View of Corporate Responsibility: Dr. P. Katsoulakos, and Prof Y. Katsoulakos, 4CR working Paper; 12th July, 2006.
