Understanding Corporate Social Responsibility (CSR)

Social Responsibility and Ethics Introduction

• CSR is fundamental to ideas and discussions concerning businesses and their place in society.
• The term CSR has gained popularity recently but may become less significant like other managerial concepts.
• It is useful to look at the beginnings and growth of corporate social responsibility.
• It is important to study where the term came from, its definition, and how it applies to business actions.

Emergence of CSR

• Ancient texts suggest moral responsibilities in trade and commerce.
• In modern times, the first major publications on the role of firms in society dates to the 1930s
• Corporate social responsibility became a general issue for firms in the 1960s.
• Increased corporate pressure to correct the negative effects of their activities emerged.
• Society had traditionally been responsible for the harmful impacts of their operations.

The GAIA Principle

• The GAIA Principle states that life depends on each other.
• Planet Earth and its ecosphere function as a whole, where each part is necessary for a sustaining life.
• Firms are part of this system whose actions result in external consequences.
• Firms must be liable for their societal impact to avoid disruption of life's general scheme.

Emergence of CSR (Continued)

• Corporate social responsibility was viewed as a self-regulation method apart from government rules and managerial ethics.
• Governments had enacted legislation by the 1980s covering many of the issues from the 1960s.
• The main focus had shifted to discussing how to implement corporate social responsibility more than whether or not it should be engaged in at all.
• European corporate social responsibility projects began around this time, marking an increase in activity.

Defining Corporate Social Responsibility

• Corporate social responsibility can be defined as the behaviour of firms adapting to expectations and values of society.
• Howard Bowen defined CSR as an obligation from the impact companies have on the people’s lives.
• CSR involves voluntary responsibilities that go beyond the economic motive and law.
• Davis defines it as the firm thinking and responding to issues that exceed strict economic, technical, and legal needs.
• Forstater et al. (2002) define CSR as a company's actions promoting sustainable development through core activities, investment, and policy debate.
• McWilliams and Siegel (2001) define CSR as "actions that appear to further some social good beyond the interest of the firm and which are required by law."

Approaches to Social Responsibility

• Several approaches have been developed on the responsibilities of companies.
• Including views from Milton Friedman, Archie Caroll, and Andrew Carnegie

Friedman's View

• The social resposibility of business is to increase profit within the requirements of the law, according to Friedman
• Friedman also argued that businesspersons acting "responsibly" to prevent inflation, reduce pollution or hire the unemployed, are spending shareholders money for a general interest

Carroll's View

• Archie Carroll indicates that managers have four responsibilities.
• Economic Responsibilities: Involve generating quality goods and services so that the company can repay debts to creditors and investors.
• Legal Responsibilities: Refer to governance from government through laws.
• Ethical Responsibilities: Refers to firms following generally held beliefs about how one should act in society.
• Discretionary Responsibilities: Refer to voluntary responsibilities like philanthropic work.
• Few people expect organizations to fulfill ethical ones, differentiating it from discretionary responsibilities.

Carnegie’s View

• Andrew Carnegie views corporations’ social responsibility under the charity principle and the stewardship principle.
• The charity principle indicates that fortunate members of society help the less fortunate.
• This includes the unemployed, handicapped, sick and elderly.
• The stewardship principle concerns wealthy individuals seeing themselves as caretakers of property.
• He sees the wealthy as holding money "in trust" and to use it for any purpose society deems legitimate.

The Principles of CSR

• Principles of CSR includes Accountability, Sustainability, Transparency

The Principles of CSR: Sustainability

• Companies need to exploit efficient natural resources, implement efficient waste disposal systems, and maintain environmentally friendly production methods, in order to achieve sustainability.
• Sustainability considers how current activity impacts the future.
• Society should not use more resources than can be generated

The Principles of CSR: Accountability

• Organizations must acknowledge that its actions impact the environment and take responsibility for the effects.
• Organizations report themselves to affected parties and warn potential victims on how they are being affected, possibly averting danger

The Principles of CSR: Transparency

• Transparency in principle means that companies make obvious or communicate all actions.
• Transparency as a principle means clear and accurate reporting on operations with solid facts and figures.

Prominence of CSR Drivers

• Key drivers of CSR engagement:
• Sustainable Development
• Globalization
• Governance (UN, OECD, signing of Compacts)
• Corporate Sector Impact
• Communications(Technological Advancement)
• Ethical Consumerism, Finance(pressure from investors)
• Strategic Business tool, Social Awareness and Education
• Crises management

Arguments For and Against CSR: Profit Maximization

• Milton Friedman and others advanced the idea of shareholder value being in conflict with CSR as they are misusing the resources that are entrusted to them
• Others argue that it is the interest of business and its owners to comply with societal values in order to be in line with the long term interest of business.
• CSR has a positive effect on reputation, potentially netting the company more customers and boosting employee retention rates.

Arguments For and Against CSR: Resource Fit

• It is argued that businesses should manage social problems to help with management of operational performance, as they possess valuable resources
• It is argued in opposition that while companies hold competencies, they lack specific knowledge, skills and experience to deal with societal problems with highly disadvantaged clients.

Arguments For and Against CSR: Lack Of Accountability

• Because of their structure, companies are mainly accountable to their shareholders rather than to society at large.
• Some argue companies should focus on economic profit rather than social activities that may not be in line with the companies purpose
• Proponents argue CSR undermines democracy since in unethical situations government should solve the prevailing issue
• According to the critics view, CSR diverts attention away from government, which is the body that should control the market for the benefit of society.

Criticisms / Arguments Against CSR

• Friedman (1962) indicates that business' only social responsibility is to make profit within the law.
• Arguments against CSR:
• The business of business is business
• Useless PR exercise
• The idea of theft
• Lack of Regulation of CSR
• Imposes unequal cost to organizations

Criticisms/Arguments for CSR

• Arguments in favour of firm CSR engagements:
• Interdependence of firms and the society
• Stakeholder interest may transcend financial benefits
• Benefits of CSR:
  • Helps attract qualified staff
  • Minimizes government intervention
  • Improves Corporate Image – Goodwill
  • Leads to improved financial performance

Forms of CSR Issues: Concern for Consumers

• Social responsibility areas of concern for consumer:
• Are products safe and well designed?
• Are Products priced fairly?
• Are Advertisements clear and not deceptive?
• Are Credit terms clear?
• Is Adequate product information available?
• Are customers treated fairly by salespeople

Forms of CSR Issues: Concern for Employees

• Social responsibility areas of concern for employees:
• Are employees paid fair wages?
• Are employees provided safe work environment?
• Are workers hired, promoted and treated fairly without regard to sex, race, colour or creed?
• Are employees given special training and educational opportunities?
• Are handicapped people given employment opportunities?
• Does the firm rehabilitate employees with physical, mental, or emotional issues.

Forms of CSR Issues: Concern for the Environment

• Adequate protection from unclean air, excessive noise, or other pollution?
• Are goods and packaging biodegradable?
• By-products safely handled?

Forms of CSR Issues: Concern for Society in General

• Is the firm supporting minority/community enterprises through subcontracting?
• Are donations made to help art, education, health, community?
• Does management consider social impact of relocation/ construction?

External / Internal stakeholders

• Internal
• owner
• manager
• employees
• External
• customers
• shareholders
• creditors
• government
• society
• suppliers

Stakeholder Management: Stakeholders

• Stakeholder Thinking, Corporate Behaviour
• Social Responsibility and its Role
• Corporate Benefits
• Importance in Stakeholder relations

What are Stakeholders

• Stakeholder includes any group affected by the corporation’s objective.
• Internal Stakeholders
• External Stakeholders
• Individuals / Groups
  • Employees, Customers, and Suppliers
  • Shareholders (adequate returns on investment)
• Interests in an organization, classified in clusters.

Stakeholder Importance

• Power of stakeholders influence
• Resources and relations
• Legal / contractual arrangements
• Government relations
• Economic power over corporate performance
• Stakeholders’ express and put forward company interests
• Legitimacy of Stakeholder Relationship with Company
• Perception that goals / activities are in line within society value/norm Urgency in Stakeholder Claims
• Time sensitivity
• Criticality

Stakeholder Theory Importance

• Relationships influence between company and diverse actors.
• One to One
• Coalitions
• Stakeholder interests

Business Responsibilities to Stakeholders

• Responsibilities For Communities

  • Volunteer opportunities
  • strategic charities
  • community involvement

• Responsibilities for the Environments

  • save natural energy: recycle-reuse
  • reduce negatives
  • public welfare

• Responsibilities For Employees

  • child labor
  • unions and healthcare
  • proper training

• Responsibilities For Consumers

  • quality and customer safety
  • protect consumer information
  • relationship management

Corporate Social Initiatives

• Corporate initiative defined by major movements undertaken by a corporation that will support / fulfill commitments to corporate social responsibility
• Initiatives defined by programs or practice undertaken by business’ for society’s benefit Six Major Initiatives
• promotions, related market, social marketing, philanthropy, volunteering, business practice

Corporate Social Initiatives

• Types of Corporate Initiatives
  • Cause Promotions
  • Cause Related Marketing
  • Corporate Social Marketing
  • Corporate Philanthropy
  • Community Volunteering
  • Socially Responsible Business Practices

Corporate Cause Promotions

• A corporation uses funds/resources to support social causes or fundraising, participation or volunteer recruitment support
• Aids awareness about issues (HIV or anti-drug campaigns)
• The corporation may initiate its own promotion
• May be part of an effort

Explore the evolution, definitions, and differing perspectives on Corporate Social Responsibility (CSR). The lesson covers Bowen's basis for CSR, sustainable development contributions, and Friedman's contrasting viewpoints on spending shareholders' money.