Corporate Social Responsibility (CSR): Importance in recent years and explanation of various concepts
As per economist Milton Friedman, the main social responsibility of a business is to increase profits for its owners/ shareholders. Any diversion of company profits towards social programmes, charity and other not-for-profit generating activities represented a tax on consumers and investors.
Edward Freeman (professor at the University of Virginia) on the other hand suggests that shareholders are just one of the many stakeholders in a business. As per his theory, stakeholders include all those invested and involved in, or affected by, the company, such as employees, consumers, local communities, financiers, vendors, governmental agencies, and more. Freeman’s theory suggests that a company’s real success lies in satisfying all its stakeholders, and not just the shareholders who might profit from its stock.
What is Corporate Social Responsibility (CSR)?
Corporate social responsibility (CSR), also known as corporate responsibility (CR) or business sustainability, is a form of corporate self-regulation integrated into a stakeholder type business model.
CSR focuses on achieving business sustainability through the delivery of economic and social value to its stakeholders, as it recognises that an organisation’s activities impacts the workforce, environment, economy and the society.
CSR initiatives focus on four main areas
- Workplace: Focuses on the rights and well-being of employees and other workers in the value chain.
- Marketplace: Is concerned with the impact of its products or services, supply chain issues, as well as fair trading, corporate taxes and anti-bribery.
- Environment: Is concerned with the organisation’s environmental impact.
- Community: Focuses on how the organisation’s activities positively or negatively affect the societies in which they operate.
Related: Carroll’s CSR Pyramid
CSR Definitions & Characteristics
Here are the various definitions of CSR.
Griseri and Seppala (2010, p.7) provide the following broad definition for Corporate Social Responsibility (CSR):
“the accommodation of corporate behaviour to society’s values and expectations” They note there is a wide variety of meaning included within the term.
“Corporate responsibility (CR), also known as corporate social responsibility (CSR) or business sustainability, addresses the ethics of an organisation’s activities and how it operates in a way that is viable over the long term. These two factors are intrinsically linked, as a business that damages the systems on which it depends will ultimately be unsustainable.”
“Companies’ integrating social and environmental concerns in their daily business operations and in their interactions with their stakeholders on a daily basis.” (European Commission, 2001 in Robinson and Dowson, 2010)
“the only social responsibility of business is to maximise profits.” (Friedman, 1970 in Crane and Matten, 2010).
Organizational definitions of CSR
UK government, (governmental organization), www.csr.gov.uk ‘The voluntary actions that business can take, over and above compliance with minimum legal requirements, to address both its own competitive interests and the interests of wider society.’
European Commission (governmental organization) EC Green paper 2001, Promoting a European Framework for Corporate Social Responsibility ‘A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’
Chinese Ministry of Commerce (governmental organization) Ethical Corporation, 2005, ‘Politics: A Chinese Definition of CSR’, 15 September2005: www.ethical corp.com ‘A concrete action taken by Chinese companies to implement the political aspiration of the new Communist leadership – putting people first to create a harmonious society.’
Confederation of British Industry (business association) WBSCD, 1999, ‘CSR: Meeting Changing Expectations’ ‘The acknowledgement by companies that they should be accountable not only for their financial performance, but for the impact of their activities on society and/or the environment’
World Council for Sustainable Development (business association) WBSCD, 1999 ‘CSR: Meeting Changing Expectations’ ‘The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.’
Characteristics & Justifications for CSR
Core characteristics of CSR
Voluntary Activities beyond the law, sometimes done to prevent ‘additional regulation through compliance with societal moral norms.’
Internalizing or managing externalities. Externalities are the positive and negative sides of economic behaviour that are borne by others, but are not taken into account in a firm’s decision making process, and are not included in the market price for goods and services’. Examples include pollution and human rights violations in the workforce.
Alignment of social and economic responsibilities CSR should not conflict with profitability.
Practices and values: A philosophy or set of values that underpin business practices.
CSR is about how the entire operations of the firm (production, marketing, procurement) affect society. It is much more than philanthropy. Philanthropy, which is about giving funds or practical help to ‘good causes’ (e.g. after a natural disaster such as an earthquake; or to civilians in war-torn countries) is costly and may not always be linked to major stakeholders.
Justifications for CSR (Porter, Dec 2006 Harvard Business Review):
- Moral obligations: ‘doing the right thing’
- Sustainability: community ‘stewardship’
- Reputation: may be related to marketing
- License to operate: companies need tacit or explicit approval from governments, local communities etc. to do business
- Legitimacy and security from attack or takeover. Some firms may be particularly at risk due to their product or national origins
Business/Commercial advantages of CSR
Here’s how CSR helps a business achieve a competitive advantage.
Increased customer loyalty, brand awareness> and reputation, often leading to better financial benefits.
Studies suggest that more consumers are drawn to brands and companies with good reputations in CSR related issues (Tsoutsoura, 2004). Also, companies that are seen as socially responsible are good at attracting capital.
Corporate social activities create the perception of businesses operating from within communities which leads to the offsetting of any unfavourable publicity, and the creation of opportunities for collaboration and innovation (Frederick, 1998).
Reduced operating costs
By adopting CSR principles, a firm starts thinking about reducing resource usage, waste and emissions, which leads to more efficient ways of operating. For example, by reducing packaging materials and optimising deliveries (in outbound logistics and distribution), a firm is able to deliver both environmental and cost benefits which enhances both its reputations as well as bottom lines.
Attracting and retaining talent
As per the 2017 Millennial Impact report, millennials were more engaged in philanthropic causes compared to previous years. By having a strong CSR agenda, businesses can attract and retain younger talent. Studies indicate a strong link between businesses that demonstrated a strong commitment to CSR, with their capabilities in retaining talent and reduced recruitment and training costs (Turban and Greening, 1997).
Market for virtue [Book by David Vogel]
If firms can clearly distinguish themselves as good employers, environmentally responsible, and/or helpful to communities then consumers can knowingly choose to buy their goods and services even paying a premium price in some cases.
Can help become and “employer of choice” which can attract better applicants.
Socially responsible firms may be favoured in getting investor funds if ‘ethical funds’ are available for savers to select (Marks and Spencer’s ‘Plan A’).
So the advantages of CSR include:
- Increased sales, brand identity & customer loyalty
- Reduced operating costs & productivity gains
- Improved new product development
A good reputation leads to:
- Company advantage
- Stimulation of customer confidence and loyalty
- Enhancement of stakeholder relationships
- Improvement of staff retention and recruitment
- Reduction of waste and wasteful practice
Related: Triple bottom line (TBL)
Supply/Demand of CSR
Supply can depend on various factors:
- Aim of firms: values, ethics of top managers, shareholders/investors
- Pressure on them to make a quick profit – CSR activities can be seen as a long term investment
- Technical capabilities and knowledge that enable them to develop alternative products and processes e.g. more sustainable ones
- Expectations of government action perhaps especially if they do nothing e.g. sugar tax on fizzy drinks
Buyers’ demand can also depend on various factors:
- Attitudes + values: how green they are
- Knowledge and understanding of social and environmental issues. Science, education and the media have helped
- Income levels: ability to pay top prices
Governments may also require firms to provide more information that makes it possible for buyers to discriminate between firms on social grounds favouring the more responsible ones.
Corporate Social Responsibility. Readings and cases in a global context (2008) ed CRANE A MATTTEN D and SPENCE L London Routledge .
Frederick, W. C. (1998) Moving to CSR4. Business and Society 37(1), 40–60.
Tsoutsoura, M. (2004). Corporate Social Responsibility and Financial Performance. Applied Financial Project Haas School of Business, University of California, Berkeley.
Turban, D. B. and Greening, D. W. (1997). Corporate social performance and organizational attractiveness to prospective employees. Academy of Management Journal, 40, 658-763.
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