In their 2003 book, Business and Society: Ethics and Stake-holder Management, Carrol and Bucholtz describe corporate social responsibility (CSR) as the “economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time.” The concept of
corporate social responsibility means that organizations have moral, ethical, and philanthropic responsibilities in addition to their responsibilities to earn a fair return for investors and comply with the law. A traditional view of the corporation suggests that its primary, if not sole, responsibility is to its owners, or stockholders. However, CSR requires organizations to adopt a broader view of its responsibilities that includes not only stockholders, but many other constituencies as well, including employees, suppliers, customers, the local community, local, state, and federal governments, environmental groups, and other special interest groups. Collectively, the various groups affected by the actions of an organization are called “stakeholders.” The stakeholder concept is discussed more fully in a later section.
Corporate social responsibility is related to, but not identical with, business ethics. While CSR encompasses the economic, legal, ethical, and discretionary responsibilities of organizations, business ethics usually focuses on the moral judgments and behavior of individuals and groups within organizations. Thus, the study of business ethics may be regarded as a component of the larger study of corporate social responsibility.
Carroll and Buchholtz's four-part definition of CSR makes explicit the multi-faceted nature of social responsibility. The economic responsibilities cited in the definition refer to society's expectation that organizations will produce goods and services that are needed and desired by customers and sell those goods and services at a reasonable price. Organizations are expected to be efficient, profitable, and to keep shareholder interests in mind. The legal responsibilities relate to the expectation that organizations will comply with the laws set down by society to govern competition in the marketplace. Organizations have thousands of legal responsibilities governing almost every aspect of their operations, including consumer and product laws, environmental laws, and employment laws. The ethical responsibilities concern societal expectations that go beyond the law, such as the expectation that organizations will conduct their affairs in a fair and just way. This means that organizations are expected to do more than just comply with the law, but also make proactive efforts to anticipate and meet the norms of society even if those norms are not formally enacted in law. Finally, the discretionary responsibilities of corporations refer to society's expectation that organizations be good citizens. This may involve such things as philanthropic support of programs benefiting a community or the nation. It may also involve donating employee expertise and time to worthy causes.
Wilhelm Autischer, the CSR project manager for an Austrian business, divides corporate social responsibility into three different dimensions. The first dimension is economic. CSR practices help not only the company, but the industry the company is in, by raising the bar of expected behavior overall. Investors, seeing one company adopt CSR policies will be naturally inclined to invest in that company, having seen it demonstrate responsibility. Other companies in the same field, seeing the benefits to CSR, will adopt similar policies as an act of competition, and the attitude of the industry will gradually change. This saves economies from suffering declines through fraudulent business practices.
The second dimension is social. By this Autischer does not necessarily mean creating a better society through specific initiatives by the business, but rather refers to a more internal change. As a company integrates CSR practices into its structure, the way it treats employees will inevitably change. Individual interests are treated with more respect in CSR-conscious companies, and concerns such as employee health and family relations are considered. Employees, benefiting from increased care from the company (in whatever form it takes), carry the positive influence home, influencing their families and society as well.
The third and last dimension is ecological. Companies take ecological responsibility primarily in two ways. First, they adopt precautionary practices, or practices that attempt to secure a healthy and productive ecological environment for future generations and the future of the company. This forward-looking action can include research into alternative technologies and waste management in production processes. The second action of the ecological dimension is eco-efficiency, or the increase in economic efficiency through better ecological practices. These sort of actions reduce unhealthy emissions, replace unsafe chemicals with harmless versions, and market more natural products. Many eco-efficent policies are also precautionary, but the main difference is that companies are looking for better profits through eco-efficiency, while precautionary actions are taken primarily on ethical grounds.
The three dimensions of CSR are practiced in a number of ways. Some of the more common policies, seen often in companies' social information sections, include:
Companies have taken an increased interest in CSR for a combination of reasons. The role government has played in legislations requiring certain social behaviors has decreased, giving businesses more freedom to decide their social responsibilities themselves. Investors and customers alike have begun to demand stricter policies on the part of companies regarding not only their attitudes toward the environment and the people they interact with, but also how much information they reveal. Faced with more open inspection encouraged by such acts as Sarbanes-Oxley, companies are beginning to pay more attention to what their financial records prove they are doing. Many investors, realizing that ethical issues play a large part in how much they know and how successful their investments become, are forcing companies to show that ethical practices are being established.
Many companies have applied their CSR guidelines to the hiring process as well, seeking out employees who have ethical credentials or who agree with the company's moral standards. To keep such employees, businesses are paying more attention to the way they treat their work force, including the incentives they provide for performance and working conditions. Externally, many of the same policies are being applied up and down the supply chain, as companies look for suppliers and distributors who share their ethical concerns. Partnerships are formed with social responsibility as a factor in the contracts.
The nature and scope of corporate social responsibility has changed over time. The concept of CSR is a relatively new one—the phrase has only been in wide use since the 1960s. But, while the economic, legal, ethical, and discretionary expectations placed on organizations may differ, it is probably accurate to say that all societies at all points in time have had some degree of expectation that organizations would act responsibly, by some definition.
In the 1960s and 1970s the civil rights movement, consumerism, and environmentalism affected society's expectations of business. Based on the general idea that those with great power have great responsibility, many called for the business world to be more proactive in(1) ceasing to cause societal problems and (2) starting to participate in solving societal problems. Many legal mandates were placed on business related to equal employment opportunity, product safety, worker safety, and the environment. Furthermore, society began to expect business to voluntarily participate in solving societal problems whether they had caused the problems or not. This was based on the view that corporations should go beyond their economic and legal responsibilities and accept responsibilities related to the betterment of society. This view of corporate social responsibility is the prevailing view in much of the world today.
The sections that follow provide additional details related to the corporate social responsibility construct. First, arguments for and against the CSR concept are reviewed. Then, the stakeholder concept, which is central to the CSR construct, is discussed. Finally, several of the major social issues with which organizations must deal are reviewed.
The major arguments for and against corporate social responsibility are shown in Exhibit 1. The “economic” argument against CSR is perhaps most closely associated with the American economist Milton Friedman, who has argued that the primary responsibility of business is to make a profit for its owners, albeit while complying with the law. According to this view, the self-interested actions of millions of participants in free markets will, from a utilitarian perspective, lead to positive outcomes for society. If the operation of the free market cannot solve a social problem, it becomes the responsibility of government, not business, to address the issue.
The “competitive” argument recognizes the fact that addressing social issues comes at a cost to business. To the extent that businesses internalize the costs of socially responsible actions, they hurt their competitive position relative to other businesses. This argument is particularly
Arguments For and Against CSR
|The rise of the modern corporation created and continues to create many social problems. Therefore, the corporate world should assume responsibility for addressing these problems.||Taking on social and moral issues is not economically feasible. Corporations should focus on earning a profit for their shareholders and leave social issues to others.|
|In the long run, it is in corporations' best interest to assume social responsibilities. It will increase the chances that they will have a future and reduce the chances of increased governmental regulation.||Assuming social responsibilities places those corporations doing so at a competitive disadvantage relative to those who do not.|
|Large corporations have huge reserves of human and financial capital. They should devote at least some of their resources to addressing social issues.||Those who are most capable should address social issues. Those in the corporate world are not equipped to deal with social problems.|
relevant in a globally competitive environment if businesses in one country expend assets to address social issues, but those in another country do not. According to Carroll and Buchholtz, since CSR is increasingly becoming a global concern, the differences in societal expectations around the world can be expected to lessen in the coming years.
Finally, some argue that those in business are ill-equipped to address social problems. This “capability” argument suggests that business executives and managers are typically well trained in the ways of finance, marketing, and operations management, but not well versed in dealing with complex societal problems. Thus, they do not have the knowledge or skills needed to deal with social issues. This view suggests that corporate involvement in social issues may actually make the situation worse. Part of the capability argument also suggests that corporations can best serve societal interests by sticking to what they do best, which is providing quality goods and services and selling them at an affordable price to people who desire them.
There are several arguments in favor of corporate social responsibility. One view, held by critics of the corporate world, is that since large corporations create many social problems, they should attempt to address and solve them. Those holding this view criticize the production, marketing, accounting, and environmental practices of corporations. They suggest that corporations can do a better job of producing quality, safe products, and in conducting their operations in an open and honest manner.
Finally, some suggest that businesses should assume social responsibilities because they are among the few private entities that have the resources to do so. The corporate world has some of the brightest minds in the world, and it possesses tremendous financial resources. (Wal-Mart, for example, has annual revenues that exceed the annual GNP of some countries.) Thus, businesses should utilize some of their human and financial capital in order to “make the world a better place.”
The BSD, or Business and Sustainable Development, organization separates CSR benefits into three categories. The first category is company benefits. These positive effects are the most pertinent to the companies themselves and include lower operating costs, increased sales and customer loyalty, greater productivity, more ability to attract and keep skilled employees, access to more capital through more willing investors, decreased liability through better product safety, and reduced regulatory oversight. Many companies enhance their brand image and better their reputation through CSR actions, as previously discussed.
The second category includes all benefits to the community the business is connected to through its products and policies. Charitable contributions fall under this category, whether local or national, along with any social initiatives on the part of the company, such as education programs and homeless care activities. Employee volunteering is also included in community benefits.
The third category gathers all the environmental benefits, some of which have already been discussed. In addition to material recyclability, companies can also develop better product durability and functionality through ecologically thoughtful practices, use more renewable resources at lesser costs, and create several new analysis tools, such as life-cycle assessment and eco-efficiency.
According to Post, Lawrence, and Weber, stakeholders are individuals and groups that are affected by an organization's policies, procedures, and actions. A “stake” implies that one has an interest or share in the organization and its operations, per Carroll and Buchholtz. Some stake-holders, such as employees and owners, may have specific legal rights and expectations in regard to the organization's operations. Other stakeholders may not have specific rights granted by law, but may perceive that they have moral rights related to the organization's operations. For example, an environmental group may not have a legal right in regard to a company's use of natural resources, but may believe that they have a moral right to question the firm's environmental policies and to lobby the organization to develop environmentally friendly policies.
All companies, especially large corporations, have multiple stakeholders. One way of classifying stakeholder groups is to classify them as primary or secondary stake-holders. Primary stakeholders have some direct interest or stake in the organization. Secondary stakeholders, in contrast, are public or special interest groups that do not have a direct stake in the organization but are still affected by its operations. Exhibit 2 classifies some major stakeholder groups into primary and secondary categories.
The owners of a firm are among the primary stake-holders of the firm. An organization has legal and moral obligations to its owners. These obligations include, but are not limited to, attempting to ensure that owners receive an adequate return on their investment. Employees are also primary stakeholders who have both legal and moral claims on the organization. Organizations also have specific responsibilities to their customers in terms of producing and marketing goods and services that offer functionality, safety, and value; to local communities, which can be greatly affected by the actions of resident
Categories of Stakeholder Groups
|Primary Stakeholders||Shareholders (Owners)|
|The Natural Environment|
|Secondary Stakeholders||Local, State, and Federal Government|
|Civic Institutions and Groups|
|Special Interest Groups|
|Trade and Industry Groups|
|Table based on Carroll and Buchholtz, 2003: p. 71|
organizations and thus have a direct stake in their operations; and to the other companies with whom they do business. Many social commentators also suggest that companies have a direct responsibility to future generations and to the natural environment.
An organization's responsibilities are not limited to primary stakeholders. Although governmental bodies and regulatory agencies do not usually have ownership stakes in companies in free-market economies, they do play an active role in trying to ensure that organizations accept and meet their responsibilities to primary stakeholder groups. Organizations are accountable to these secondary stakeholders. Organizations must also contend with civic and special interest groups that purport to act on behalf of a wide variety of constituencies. Trade associations and industry groups are also affected by an organization's actions and its reputation. The media reports on and investigates the actions of many companies, particularly large organizations, and most companies accept that they must contend with and effectively “manage” their relationship with the media. Finally, even an organization's competitors can be considered secondary stakeholders, as they are obviously affected by organizational actions. For example, one might argue that organizations have a social responsibility to compete in the marketplace in a manner that is consistent with the law and with the best practices of their industry, so that all competitors will have a fair chance to succeed.
Corporations increasingly operate in a global environment. The globalization of business appears to be an irreversible trend, but there are many opponents to it. Critics suggest that globalization leads to the exploitation of developing nations and workers, destruction of the environment, and increased human rights abuses. They also argue that globalization primarily benefits the wealthy and widens the gap between the rich and the poor. Proponents of globalization argue that open markets lead to increased standards of living for everyone, higher wages for workers worldwide, and economic development in impoverished nations. Many large corporations are multinational in scope and will continue to face legal, social, and ethical issues brought on by the increasing globalization of business.
Whether one is an opponent or proponent of globalization, however, does not change the fact that corporations operating globally face daunting social issues. Perhaps the most pressing issue is that of labor standards in different countries around the world. Many corporations have been stung by revelations that their plants around the world were “sweatshops” and/or employed very young children. This problem is complex because societal standards and expectations regarding working conditions and the employment of children vary significantly around the world. Corporations must decide which is the responsible option: adopting the standards of the countries in which they are operating or imposing a common standard worldwide. A related issue is that of safety conditions in plants around the world.
Another issue in global business is the issue of marketing goods and services in the international marketplace. Some U.S. companies, for example, have marketed products in other countries after the products were banned in the United States.
In their 2006 book, Developing Corporate Social Responsibility: a European Perspective, authors Perrini, Pogutz, and Tencati give several specific CSR practices by business that are worth a close look, as most can be applied to and adopted by any organization as an extra form of analysis or a new marketing/mission concept.
Capital valuation is the practice of defining and publishing the various types of capital a company has. This refers not only to financial assets, but social, environmental, human, moral, and intellectual capital as well. Defining the types of capital a company has not only shows investors and customers that the company is aware of the connections it has to the people and communities around it, but it also gives the company several starting places to begin CSR initiatives.
Corporate community involvement reporting is the practice of assembling periodic reports concerning community outreach and activities, such as financial aid and
employee volunteer movements. The reports usually contain the activities, descriptions of the effects produced, and future plans. Some form of measurement is often included, whether by how much time or money was spent in community involvement, or how much involvement the company has compared to competitors.
Ethical accounting statements are reports made directly to the investors concerning the ethics of the company's financial controls and practices. Since ethical activity can be debatable, EASs should be the result of a continuing dialogue between the investors and the company as to what ethical matters are important to both, and how the company can meet its ethical standards. The EAS is used primarily as a planning tool, documenting the company's intentions for future practices.
Ethical auditing is the practice of hiring an outside firm to conduct an audit of the company's policies, focused on ethical standards that the investors and the company have previously developed. The auditing process examines primarily the company's performance in social and environmental settings.
Social auditing is similar to ethical auditing but focuses only on the social performance of the company, and is more common.
Social balance is an accounting practice designed to assemble all CSR financial activity from across the company and combine it in one report. This report usually classifies the financial data in forms that are useful to CSR regulators in the company, showing where funds where allocated regarding social activities, how much separate departments have spent, and where the company stands as a whole in terms of social aid.
Value-added statements are created in order to show the investors the added benefits certain company activities have. Investors may not be aware of CSR practices by the company, and this statement allows the company to show its social activity in succinct form. Other investors may not understand how certain company policies are socially responsible or lead to added value. This report is designed to summarize and show the effects of the company's CSR activity.
Statements of principles and values are created by the company to give focus and enthusiasm to CSR policies. Akin to a mission statement, a statement of principles and values clearly states what the company's social, environmental, and financial responsibilities are, and how it intends to fulfill those responsibilities. Such responsibility statements are becoming a more common tool, and are useful for companies beginning CSR movements. Statements of principles and value should be easily accessible by customers, so that the public can see what the company's social goals are at any time.
Sustainability reporting involves a company's goals of sustainability, and the policies it has in place to meet them. Production companies often have goals of creating more recyclable products with renewable energy sources. Others may have a goal of becoming a paperless business by a certain date, or of adopting a new technology. Whatever the sustainability goal may be, sustainability reporting is a periodic assessment of the company's current endeavors to reach the goal, and its success in attaining sustainability.
There are many organizations that support or mandate CSR activity in businesses. An international example is the United Nations, which produced the Global Compact initiative in 1999. The Global Compact asks for signatures from major businesses across the world agreeing to nine specific principles of social and environmental activity. These nine principles include:
Another important international organization is the OECD, or the Organization for Economic Cooperation and Development. This organization puts together a set of social guidelines for international companies to follow, created with the help of over thirty different nations. It was updated in 2000 to include new CSR concerns.
In 2004, the International Standards Organization began a process to create a set of guidelines of their own, the ISO 26000. In 2005, more than 225 CSR specialists from forty-three countries and twenty-four other organizations attended the initial meeting. Their goal was to devise a practical guide to international CSR that would, as they say, “aim to encourage voluntary commitment to social responsibility and … lead to common guidance on concepts, definitions and methods of evaluation.” The original date for the publication of ISO 26000 was 2008, but has since been moved to 2010.
SEE ALSO Ethics
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Autischer, Wilhelm. “Corporate Social Responsibility: A Challenge for Companies.” ABCSD. Available from:dyn.boku.ac.at/oin/_artikel/csr_in_austria.pdf.
BSD Global. “Corporate Social Responsibility.” Business and Sustainable Development, 2007. Available from: http://www.bsdglobal.com/issues/wr.asp.
Brown, Christopher. The Sustainable Enterprise: Profiting from the Best Practice. Kogan Page Publishers, 2005.
Carroll, A.B., and A.K. Buchholtz. Business and Society: Ethics and Stakeholder Management. 5th ed. Australia: Thomson South-Western, 2003.
“Corporate Social Responsibility.” As You Sow Foundation, 2006. Available from: http://www.asyousow.org/csr/.
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Harrison, Andrew, Paul Wheeler, and Carolyn Whitehead. The Distributed Workplace: Sustainable Work Environments. Oxford: Taylor and Francis, 2004.
Marquez, A., and C.J. Fombrun. “Measuring Corporate Social Responsibility.” Corporate Reputation Review 7 (2005): 304–308.
Perrini, Francesco, Stefano Pogutz, and Antonio. Tencati. Developing Corporate Social Responsibility: A European Perspective. Northampton, MA: Edward Elgar Publishing, 2006.
Post, J.E., A.T. Lawrence, and J. Weber. Business and Society. 10th ed. Boston: McGraw-Hill, 2002.
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