Corporate Responsibility

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Description of Corporate Responsibility. Explanation.

 

Corporate (Social) ResponsibilityCorporate Responsibility. Description.

Corporate Social Responsibility ("CSR") is a form of corporate (self-) regulation integrated into a business model.

A CSR policies function as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with these policies, in addition to upholding the (spirit of) the law, ethical standards, and international norms.

 

Purpose of Corporate Responsibility

The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere.

Furthermore, CSR-focused businesses would proactively promote the public interest by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality.

CSR is the deliberate inclusion of public interest into corporate decision-making, and the honoring of a Triple Bottom Line: people, planet, profit.

 

Origin of Corporate Social Responsibility. History

A survey on the history of CSR reveals evidence of CSR as early as the 1800s, mainly in the form of donations by companies (Sethi, 1977), although Barnard. C., (1938) ‘The Functions of the Executive’, Clark. J., (1939) ‘Social Control of Business’, and Kreps. T., (1940) ‘Measurement of the Social Performance of Business’, specifically addressed the subject of CSR, which are quite commonly used foundations for CSR theories

In-depth notion of the CSR concept is found in 1953, where the economist Bowen addressed the topic in his book ‘Social Responsibilities of the Business Men’. Bowen argues that “entrepreneurs have the responsibility to orientate on expectations, aims and values of a society”, creating the bridge to expansion of the corporate purpose beyond economic growth.

Walton, C. (1967) addressed a more detailed CSR concept in which companies needed to voluntarily acknowledge and accept that their responsibilities exceeded the corporate barriers and that cost are involved. These theories find correlation with the Committee for Economic Development (CED) presented ‘code of conduct’ (1971) that outlined a three-leveled model for CSR. This model demonstrates the interdependency of corporations and their community in relation to profit creation.
 

The term "corporate social responsibility" came in to common use in the early 1970s. During this period many multinational corporations (MNC’s) acknowledged the term stakeholders, (signifying those affected by an organization's activities), to describe corporate beneficiaries beyond shareholders. This was partly driven by the influential book by R. Edward Freeman, Strategic Management: a Stakeholder Approach (1984).

 

Proponents argue that corporations make more long term profits by operating with a perspective, while critics argue that CSR distracts from the economic role of businesses.

Others argue CSR is merely window-dressing, or an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations.

 

The latter is imaginable when economies permits companies to have revenues eclipsing various midsize countries GDP’s, leading to assumptions that great forms of (corporate) wealth should shoulder similar responsibilities, hence solving issues not necessarily inherent to these company’s activities.

Often, under-developed or emerging countries, with less influence on large organization, are faced with dilemma’s to enforce social behavior on corporations, as Newell (2000, p. 121) signified that, “… frequently the presence of large transnational corporations appear to wield powers without responsibility, [and that] they are often as powerful as states and yet unaccountable”.

Because of fear to loose these companies, governments become reluctant to irresponsible corporate behavior, “partly due to their fear that such regulations will discourage domestic investment and make their economies less competitive” (Lipschutz, 2005). Hertz, (2002) and Monbiot, (2001) brand these phenomenon’s as ”… the silent take-over of government by corporations, [resulting in the] excessive dependency of governments upon big business”.

Occasionally in such situations, public’s demands, frequently voiced by various groups e.g. NGO’s, stakeholders, governments, etc. are capable to sink a companies reputation, its products, and if not addressed in time, its liveability!
Companies are required to stay within the rules and guidelines opposed upon them through legislation and (self) regulations, nevertheless, society may still prosecute them when they exercise these rules to their own advantage and benefit substantially.

Companies initially did not embraced CSR voluntarily, many did not even realize various public issues as there responsibility, i.e. “Pharmaceutical companies discovered that they were expected to respond to the AIDS pandemic in Africa, even though it was distant from their primary product lines and markets” (Porter & Kramer, 2006).

The first company that published a social report was Ben and Jerry’s (1989) followed by Shell as the first major company in 1998 (corporate watch, 2006). Shell followed mainly because of the 1995 ‘Brent Spar’ debacle. The mentioning of Shell marks a remarkable moment, because Shell recognized its mistake in the management of its Corporate Responsibility and incorporated these lessons by CSR throughout its organization and started reporting these. This action helped “institutionalize” (Zadek, 2004, p.12) legislation and self-regulation in its industry.

Today there are various rating agencies which track and report corporations’ social behavior, e.g.; The Dow Jones Sustainability Index, FTSE4Good Index, etc. The rating criteria’s vary widely and have become meaningless since there is no standard. Although, the ‘Global Reporting Initiative’, have a high likeability to become the global standard soon.
 

ISO 26000 is the recognized international standard for CSR (currently a Draft International Standard). Public sector organizations (the United Nations for example) adhere to the triple bottom line (TBL).

It is widely accepted that CSR adheres to similar principles but with no formal act of legislation. The UN has developed the Principles for Responsible Investment as guidelines for investing entities.
 

Advantages of Corporate Social Responsibility. Benefits

  • Discourages government regulation
  • Stimulates long-term orientation and profits for business
  • Balances corporate power with responsibility
  • Improves relationships with stakeholders
  • Improves corporate reputation

Disadvantages of Corporate Social Responsibility. Drawbacks

  • Decreases economic efficiency and financial returns
  • Interferes with equal competition between firms
  • Imposes hidden costs and passes them on to (financial) stakeholders
  • Places responsibility on businesses rather than on individuals
  • Results in non-core activities by firms (better left to others)

Two main visions underlying Corporate Social Responsibility

Supporters of a Regulation-based Approach argue that:

  • Corporations care little for the welfare of workers, and given the opportunity will move production to sweatshops in less well regulated countries.

  • Unchecked, companies will squander scarce resources.

  • Companies do not pay the full costs of their impact. For example the costs of cleaning pollution often fall on society in general. As a result, profits of corporations are enhanced at the expense of social or ecological welfare. Note that recent environmental legislation increases the range of risks and responsibilities for companies. To protect themselves against losses from environmental hazards, companies can consider Environmental Insurance.

  • Regulation is the best way to ensure that companies remain socially responsible.

Supporters of a more Market-based Approach argue that:

  • Free markets and capitalism have been at the centre of economic and social development over the past two hundred years and that improvements in health, longevity or infant mortality (for example) have only been possible because economies (driven by free enterprise) have progressed.

  • In order to attract quality workers, it is necessary for companies to offer better pay and conditions which leads to an overall rise in standards and to wealth creation.

  • Investment in less developed countries contributes to the welfare of those societies, notwithstanding that these countries have fewer protections in place for workers.

  • Failure to invest in these countries decreases the opportunity to increase social welfare.

  • Free markets contribute to the effective management of scarce resources. The prices of many commodities have fallen in recent years. This contradicts the notion of scarcity, and may be attributed to improvements in technology leading to the more efficient use of resources.

  • There may indeed be occasions when externalities, such as the costs of pollution are not built into normal market prices in a free market. In these circumstances, regulatory intervention is possible to redress the balance, to ensure that costs and benefits are correctly aligned.

  • Whilst regulation is necessary in certain circumstances, over regulation creates barriers to entry into a market. These barriers increase the opportunities for excess profits, to the delight of the market participants, but do little to serve the interests of society as a whole.

On balance, the concept is strongly related to other concepts such as Corporate Sustainability, Corporate Transparency, Corporate Accountability, and Corporate Governance.


Also called (Corporate) Social Responsibility, corporate conscience, corporate citizenship, corporate social performance, and sustainable responsible business.


Special Interest Group - Corporate Responsibility


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Compare also: Shareholder Value Perspective  |  Stakeholder Value Perspective  |  Triple Bottom Line  |  Stakeholder Mapping  |  Stakeholder Analysis  |  Public Relations  |  Non-Governmental Organization  |  Whistle Blower  |  Globalization

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Ismael Bena - MBA
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