Lesson 1 - Corporate Social Responsibility Framework PDF

LESSON 1- CORPORATE SOCIAL RESPONSIBILITY FRAMEWORK OVERVIEW Corporate social responsibility (CSR) is also often referred to as business responsibility and an organization\'s action on environmental, ethical, social and economic issues. You need to think of CSR simply as ensuring that your busin...

LESSON 1- CORPORATE SOCIAL RESPONSIBILITY FRAMEWORK OVERVIEW Corporate social responsibility (CSR) is also often referred to as business responsibility and an organization\'s action on environmental, ethical, social and economic issues. You need to think of CSR simply as ensuring that your business is aware of its impacts, is accountable for its actions, and that it undertakes these actions in a responsible manner. Furthermore, a well-run business is transparent in its decision-making and processes and this makes for good governance. LEARNING OUTCOMES By the end of this lesson, you should be able to: Define corporate social responsibility Explain the key principles of CSR Understand the CSR pyramid Discuss the arguments in support and against CSR COURSE MATERIALS TOPIC 1- CORPORATE SOCIAL RESPONSIBILITY DEFINED Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental. To engage in CSR means that, in the ordinary course of business, a company is operating in ways that enhance society and the environment, instead of contributing negatively to them. Corporate social responsibility is a broad concept that can take many forms depending on the company and industry. Through CSR programs, philanthropy, and volunteer efforts, businesses can benefit society while boosting their brands. As important as CSR is for the community, it is equally valuable for a company. CSR activities can help forge a stronger bond between employees and corporations; boost morale; and help both employees and employers feel more connected with the world around them. Corporate social responsibility is important to both consumers and companies and programs are a great way to raise morale in the workplace. For a company to be socially responsible, it first needs to be accountable to itself and its shareholders. Often, companies that adopt CSR programs have grown their business to the 1 point where they can give back to society. Thus, CSR is primarily a strategy of large corporations. Also, the more visible and successful a corporation is, the more responsibility it has to set standards of ethical behavior for its peers, competition, and industry. TOPIC 2- KEY PRINCIPLES OF CSR Sustainability - This is concerned with the effect which action taken in the present has upon the options available in the future. If resources are utilized in the present then they are no longer available for use in the future, and this is of particular concern if the resources are finite in quantity. Thus raw materials of an extractive nature, such as coal, iron or oil, are finite in quantity and once used are not available for future use. At some point in the future therefore alternatives will be needed to fulfill the functions currently provided by these resources. This may be at some point in the relatively distant future but more immediate concern is the fact that as resources become depleted then the cost of acquiring the remaining resources tends to increase, and hence the operational costs of organization tend to increase. Accountability - This is concerned with an organization recognizing that its actions affect the external environment, and therefore assuming responsibility for the effects of its actions. This concept therefore implies in quantification of the effects of action taken. Transparency - As a principle, means that the external impact of the actions of the organization can be ascertained from the organization's reporting and pertinent facts are not disguised within that reporting. Thus all the effects of the actions of the organization, including external impacts, should be apparent to all from using the information provided by the organization's reporting mechanism. TOPIC 3- CSR PYRAMID Carroll\'s CSR Pyramid is a simple framework that helps argue how and why organizations should meet their social responsibilities. The key features of Carroll\'s CSR Pyramid are that: CSR is built on the foundation of profit -- profit must come first Then comes the need for a business to ensure it complies with all laws & regulations Before a business considers its philanthropic options, it also needs to meet its ethical duties 2 For CSR to be accepted by a conscientious business person, it should be framed in such a way that the entire range of business responsibilities are embraced. It is suggested here that four kinds of social responsibilities constitute total CSR: economic, legal, ethical and philanthropic. Furthermore these four categories or components of CSR might be depicted as a pyramid. Archie Carroll's Pyramid of Corporate Social Responsibility Economic Responsibilities Historically business organizations were created as economic entities designed to provide goods and services to societal members. The profit motive was established as the primary incentive for entrepreneurship. Before it was anything else, business organization was the basic economic unit in our As such, its principal role was to produce goods and services that consumers needed and wanted and to make an acceptable profit in the process. At some point the idea of the profit motive got transformed into a notion of maximum profits, and this has been an enduring value ever since. All other business responsibilities are predicated upon the economic responsibility of the firm, because without it the others become moot considerations. Legal Responsibilities Society has not only sanctioned business to operate according to the profit motive; at the same time business is expected to comply with the laws and regulations promulgated by federal, state, and local governments as the ground rules under which business must operate. As a partial fulfillment of the \"social contract\" between business and society firms are expected to pursue their economic missions within the framework of the law. Legal responsibilities reflect a view of \"codified ethics\" in the sense that they embody basic notions of fair operations as 3 established by our lawmakers. They are depicted as the next layer on the pyramid to portray their historical development, but they are appropriately seen as coexisting with economic responsibilities as fundamental precepts of the free enterprise system. Ethical Responsibilities Although economic and legal responsibilities embody ethical norms about fairness and justice, ethical responsibilities embrace those activities and practices that are expected or prohibited by societal members even though they are not codified into law. Ethical responsibilities embody those standards, norms, or expectations that reflect a concern for what consumers, employees, shareholders, and the community regard as fair, just, or in keeping with the respect or protection of stakeholders\' moral rights. In one sense, changing ethics or values precede the establishment of law because they become the driving force behind the very creation of laws or regulations. For example, the environmental, civil rights, and consumer movements reflected basic alterations in societal values and thus may be seen as ethical bellwethers foreshadowing and resulting in the later legislation. In another sense, ethical responsibilities may be seen as embracing newly emerging values and norms society expects business to meet, even though such values and norms may reflect a higher standard of performance than that currently required by law. Ethical responsibilities in this sense are often ill-defined or continually under public debate as to their legitimacy, and thus are frequently difficult for business to deal with. Superimposed on these ethical expectations emanating from societal groups are the implied levels of ethical performance suggested by a consideration of the great ethical principles of moral philosophy. This would include such principles as justice, rights, and utilitarianism. The business ethics movement of the past decade has firmly established an ethical responsibility as a legitimate CSR component. Though it is depicted as the next layer of the CSR pyramid, it must be constantly recognized that it is in dynamic interplay with the legal responsibility category. That is, it is constantly pushing the legal responsibility category to broaden or expand while at the same time placing ever higher expectations on business persons to operate at levels above that required by law. Philanthropic Responsibilities Philanthropy encompasses those corporate actions that are in response to society's expectation that businesses be good corporate citizens. This includes actively engaging in acts or programs to promote human welfare or goodwill. Examples of philanthropy include business contributions to financial resources or executive time, such as contributions to the arts, education, or the community. A loaned-executive program that provides leadership for a community's United Way campaign is one illustration of philanthropy. The distinguishing feature between philanthropy and ethical responsibilities is that the former are not expected in an ethical or moral sense. Communities desire firms to contribute their money, facilities, and employee time to humanitarian programs or purposes, but they do not regard the firms as unethical if they do not provide the desired level. Therefore, philanthropy is more discretionary or voluntary on the part of businesses even though there is always the societal expectation that businesses provide it. 4 One notable reason for making the distinction between philanthropic and ethical responsibilities is that some firms feel they are being socially responsible if they are just good citizens in the community. This distinction brings home the vital point that CSR includes philanthropic contributions but is not limited to them. In fact, it would be argued here that philanthropy is highly desired and prized but actually less important than the other three categories of social responsibility, In a sense, philanthropy is icing on the cake---or on the pyramid, using our metaphor. It portrays the four components of CSR, beginning with the basic building block notion that economic performance undergirds all else. At the same time, business is expected to obey the law because the law is society\'s codification of acceptable and unacceptable behavior. Next is business\'s responsibility to be ethical. At its most fundamental level, this is the obligation to do what is right, just, and fair, and to avoid or minimize harm to stakeholders (employees, consumers, the environment, and others). Finally, business is expected to be a good corporate citizen. This is captured in the philanthropic responsibility, wherein business is expected to contribute financial and human resources to the community and to improve the quality of life. No metaphor is perfect, and the CSR pyramid is no exception. It is intended to portray that the total CSR of business comprises distinct components that, taken together, constitute the whole. Though the components have been treated as separate concepts for discussion purposes, they are not mutually exclusive and are not intended to juxtapose a firm's economic responsibilities with its other responsibilities. At the same time, a consideration of the separate components helps the manager see that the different types of obligations are in a constant but dynamic tension with one another. The most critical tensions, of course, would be between economic and legal, economic and ethical, and economic and philanthropic. The traditionalist might see this as a conflict between a firm's \"concern for profits versus its \"concern for society,\" but it is suggested here that this is an oversimplification. A CSR or stakeholder perspective would recognize these tensions as organizational realities, but focus on the total pyramid as a unified whole and how the firm might engage in decisions, actions, and programs that substantially fulfill all its component parts. In summary, the total corporate social responsibility of business entails the simultaneous fulfillment of the firm\'s economic, legal, ethical, and philanthropic responsibilities. Stated in more pragmatic and managerial terms, the CSR firm should strive to make a profit, obey the law, be ethical, and be a good corporate citizen. Upon first glance, this array of responsibilities may seem broad. They seem to be in striking contrast to the classical economic argument that management has one responsibility: to maximize the profits of its owners or shareholders. Economist Milton Friedman, the most outspoken proponent of this view, has argued that social matters are not the concern of business people and that these problems should be resolved by the unfettered workings of the free market system. Friedman\'s argument loses some of its punch, however, when you consider his assertion in its totality. Friedman posited that management is \"to make as much money as possible while conforming to the basic rules of society, both those embodied in the law and those embodied in ethical custom\" (Friedman 1970). Most people focus on the first part of Friedman\'s quote but not the second part. It seems clear from this statement that profits, conformity to the law, and ethical custom embrace three components of the CSR pyramid- economic, legal, and ethical. That only leaves the philanthropic component for Friedman to reject. Although it may be appropriate for an economist to take this view, one would not encounter many business executives today who exclude philanthropic programs from their firms\' range of activities. It seems the role of corporate citizenship is one that business has no 5 significant problem embracing. Undoubtedly this perspective is rationalized under the rubric of enlightened self-interest. TOPIC 4- ARGUMENTS IN SUPPORT AND AGAINST CSR Arguments in Support Convinced that the corporation should be more than simply a profit machine, proponents of social responsibility have offered the following arguments: Business is unavoidably involved in social issues. - As social activists like to say, business is either part of the solution or part of the problem. There is no denying that private business shares responsibility for societal problems including unemployment, inflation, and pollution. Like everyone else, corporate citizens must balance their rights and responsibilities. Business has the resources to tackle today's complex societal problems. - With its rich stock of technical, financial and managerial resources, the private business sector can tip the scale in favor of solving society's more troublesome problems. After all, it is argued, without the support of society, business could not have built its resource base in the first place A better society means a better environment for doing business. - Business can enhance its long-run profitability by making an investment in society today. In other words, today's problems can turn into tomorrow's profits Corporate social action will prevent government intervention. - As evidenced by waves of antitrust, equal employment opportunity and pollution control legislation, the government will force business to do what it fails to do voluntarily. Arguments Against These arguments are based on the assumption that business should stick to what it does best, that is, pursuing profit by producing marketable goods and services. Social goals should be handled by other institutions such as family, school, church and government. Profit maximization ensures the efficient use of society's resources. - By buying goods and services, consumers collectively dictate where assets should be deployed. Social expenditures amount to theft if stock holders equity. As an economic institution, business lacks the ability to pursue social goals. - Gross inefficiencies can be expected if managers are forced to divert their attention from their pursuit of economic goals. 6 Business already has enough power. - Considering that business exercises powerful influence over where and how we work and live, what we buy, and what we value, additional concentration of social power in the hands of business is undesirable. Since managers are not elected, they are not directly accountable to the people. - Corporate social programs can easily become misguided. The market system effectively controls business's economic performance, but it is a poor mechanism for controlling business's social performance.