Chapter 5

Corporate Social Responsibility

 Objectives
• explain and define corporate social responsibility (CSR)
• explain why a company would consider implementing CSR programmes
• define corporate governance
• explain corporate governance compliance requirements
• define the concept ‘sustainable development’
• explain who the stakeholders of a company are
• give reasons why a company should engage with its stakeholders
• describe how a company would go about engaging with its stakeholders
• describe the contribution of CSR to sustainable development.
 Introduction

In South Africa, corporate social responsibility (CSR) is a tangible effort by

many businesses to combat social imbalances and create equal access to
goods and services.

The commitment and attitudes of corporate leaders differ from those who
consider CSR as a distraction from profit maximisation, to those who argue
that businesses derive enormous benefits from participating in social
transformation.
Introducing corporate social responsibility
• Corporate social responsibility (CSR) deals with how business
organisations can meet essential needs without dishonouring
community values.
• Corporations have power – the financial wealth and economic impact
allow them to use their power and influence to contribute to the
common good of markets.
• They can do so through partnerships with government, business,
communities or by themselves, providing equitable and safe job
opportunities, investing in small and medium enterprises (SMMEs)
through their supply chains, and building infrastructure
CSR can be broken into four categories based on
different practical orientations of corporations
towards their responsibilities
Environmental responsibility

Ethical responsibility

Philanthropic responsibility
Economic responsibility
Corporate citizenship and corporate social
investment

• Recognition that the organisation is an integral part of the

broader society in which it operates, affording the organisation
Corporate citizenship
standing as a juristic person in the society with the rights but also
the responsibilities and obligations

• Means that corporates are granted constitutions rights and these

rights and responsibilities include the right to govern internal
Corporate personhood
affairs, the right to enter into contracts, the right to hold assets,
the right to hire, and the right to sue and be sued

Corporate social • Focuses on the responsibilities of corporations beyond the letter

responsibility of the law, is therefore a preferred term to corporate citizenship
Cannibals with forks: the triple bottom line

Elkington made a compelling argument that businesses

could expand their life expectancy by using sustainability’s
‘three-pronged fork’, or the triple bottom line.

He argues that future market success often depends on a

business’s ability to satisfy not just the traditional bottom
line of profitability, but that companies are also required to
focus on environmental quality and social justice.
 Judge Mervyn King states that ‘… the duty of
care has become both more complex and more
necessary. No governing body today can say it is
not aware of the changed world in which it is
directing an organisation. Consequently, a
business judgement call that does not take
account of the impacts of an organisation’s
business model on the triple context could lead
to a decrease in the organisation’s value’.
 TBL

People Profit Planet

CSR in contemporary business management
The continuation of virtual community engagement
Measuring CSR impact
Role model behaviour
A focus on sustainability
The necessity of equity and diversity
Employee volunteer programmes
Social drivers
• Some consumers prefer socially responsible products
and services, and employees increasingly choose to
work for companies with a reputation for being socially
responsible.
Governmental drivers
• In CSR, compliance stretches beyond the letter of the
law to the spirit of the law.
Market drivers
• Companies can also increase revenue through CSR as follows:
➢Developing new products or services
➢Growing markets for services through
➢General programmes such as job creation and social development
➢Improving access to markets
➢Avoiding boycotts
➢Exploiting the CSR premium.
Ethical drivers
• The ethical responsibility of a business does not only apply to external
damage. It also applies to responsible business dealings.
 • The system by which companies are managed and
Corporate
controlled; the relationship between those who govern and
governance
those who are governed

• Group of people assembled to lead and control the company

Board of directors
so that it functions in the best interests of its shareholders

• Stands in a fiduciary relationship to the company and is

Director
bound by fiduciary responsibilities

• Executive directors are members of the management team

who are appointed to the board
Boards • Non-executive directors are not involved in the day-to-day
operation of the business of the company and do not
receive any remuneration other than their director’s fees
Figure 5.1 Primary roles and responsibilities of governing bodies
 Corporate governance compliance

• Voluntary governance codes → the King IV report recommends leading

practices of governance.
• Adherence is voluntary, it may trigger legal consequences as courts
would consider all relevant circumstances to determine appropriate
standards for conduct for those charged with governance duties.
• Provisions contained in widely adopted codes become part of the
common law and adherence, albeit not legislated, and may invoke
liability.
Primary principles of good governance
1. Lead ethically and effectively.
2. Govern the ethics of the organisation in a way that supports the establishment of an ethical
culture.
3. Ensure that the organisation is and is seen to be a responsible corporate citizen.
4. Appreciate that the organisation’s core purpose, its risks and opportunities, strategy, business
model, performance and sustainable development are all inseparable elements of the value
creation process.
5. Ensure that reports issued by the organisation enable stakeholders to make informed assessments
of the organisation’s performance and its short-, medium- and long-term prospects.
6. Serve as the focal point and custodian of corporate governance in the organisation.
7. Comprise the appropriate balance of knowledge, skills, experience, diversity and independence
for it to discharge its governance role and responsibilities objectively and effectively.
8. Ensure that its arrangements for delegation within its own structures promote independent
judgment and assist with balance of power and the effective discharge of its duties.
9. Ensure that the evaluation of its own performance and that of its committees, its chair and its
individual members, support continued improvement in its performance and effectiveness.
10. Ensure that the appointment of, and delegation to, management contribute to role clarity and
effective exercise of authority and responsibilities.
11. Govern risk in a way that supports the organisation in setting and achieving its strategic objectives.
12. Govern technology and information in a way that supports the organisation setting and achieving
its strategic objectives.
13. Govern compliance with applicable laws and adopt non-binding rules, codes and standards in a
way that supports the organisation being ethical and a good corporate citizen.
14. Ensure that the organisation remunerates fairly, responsibly and transparently so as to promote
the achievement of strategic objectives and positive outcomes in the short, medium and long
term.
15. Ensure that assurance services and functions enable an effective control environment, and that
these support the integrity of information for internal decision-making and of the organisation’s
external reports.
16. Adopt a stakeholder-inclusive approach in the execution of its governance role and responsibilities
that balances the needs, interests and expectations of material stakeholders in the best interest of
the organisation over time.
17. Ensure that responsible investment is practiced by the organisation to promote the good
governance and the creation of value by the companies in which it invests.
How does corporate governance relate to CSR?

• A CSR programme should be embedded in a specific board-level

structure, such as a CSR committee.
• This committee should have a good understanding of CSR.
• There are three ways in which the board and the CSR committee can
determine how to establish the corporate policy for CSR:
1. A values-based system
2. A stakeholder-engagement process
3. A combination of both values-based and stakeholder-engagement
processes.
Sustainable development

The concept of needs, in particular the

essential needs of the world’s poor, to
which overriding priority should be given
Sustainable development is development
that meets the needs of the present
without compromising the ability of future
generations to meet their own needs.
The idea of limitations imposed by the
state of technology and social organisation
on the environment’s ability to meet
present and future needs
Stakeholder engagement
Reasons why Responsible companies want to understand and respond to
companies society’s expectations of what it means to be, for example, a
engage with responsible manufacturer, marketer and employer.
stakeholders
include the Engagement is a means to help build better relationships with
all parties, resulting in improved business planning and
following: performance.

Engagement helps to provide opportunities to align business

practices with societal needs and expectations, helping to
drive long-term sustainability and shareholder value.
Defining stakeholders

• These are persons or groups who are potentially affected

Stakeholders
by, or affect, a company’s business activity.

• Ongoing support for the company is vital for its survival.

Primary
These are persons or groups who commonly have some
stakeholders
contractual or financial relationship with the company.

• These are secondary stakeholders who could include

Secondary
environmental NGOs or the media. They have less direct
stakeholders
impact on the company.
 Defining engagement
In the context of stakeholder engagement, this term refers to an ongoing and
multifaceted process between the corporation and stakeholders that can include
the following:
• Providing information
• Capacity-building to equip communities and stakeholders to engage effectively
• Listening and responding to community and stakeholder concerns
• Including communities and stakeholders in relevant decision-making processes
• Developing goodwill and a better understanding of objectives and priorities
leading to confidence in decisions
• Establishing a realistic understanding of potential outcomes.
Principles for stakeholder engagement

Remember these five key words throughout the stakeholder-engagement process:

• Involvement. Encourage broad involvement by welcoming interested parties and respecting their
roles. Build existing relationships and find new participants to enrich dialogue.
• Candour. Be comprehensive. Make sure that you consider every issue. Build trust by creating an
environment in which different opinions are welcome. Be candid. Disclose your agenda, assumptions,
goals and boundaries.
• Relevance. Make the process relevant by focusing on the issues of greatest importance. Share
knowledge so that all participants have access to pertinent information. Ensure that the process is
timely and that the process takes place when new information can influence decisions and actions.
• Learning. Uncover new perspectives. Seek mutual understanding and identify mutually beneficial
solutions to problems. Focus on the future. Emphasise what can be done to resolve issues.
• Action. Act on results by applying what has been learnt to improve business planning and decision-
making. Provide stakeholders with evidence of how the results of the process will be used.
The stakeholder engagement process
To allow for inclusivity, the stakeholder participation process needs to
make provision for the following:
• The necessary competencies and resources to enable stakeholder
participation
• The identification and understanding of stakeholders in terms of their
capacity to engage, and their views and expectations
• The planning, development and implementation of appropriate
engagement strategies, plans and modes of engagement for
stakeholders
• Established ways for stakeholders to be involved in relevant decisions.
The contribution of CSR to sustainable
development

The private sector has the finances, management

expertise and technology to contribute to
sustainable development through CSR.
A corporation with an interest in ecological issues
might extend this interest to a business interest in
sustainable development.
Summary
• This chapter began by introducing corporate social responsibility (CSR) and
the related concepts of corporate social investment and corporate citizenship.
It explored CSR by giving a historical overview of its development, followed by
a discussion on the social, governmental, market and ethical drivers of CSR
programmes and the importance of implementing CSR.
• The chapter looked at the people responsible for taking leadership of CSR and
for formulating policies and frameworks, and the people responsible for
legislating policies and frameworks and for implementing programmes.
Corporate governance and its relation to CSR were examined. In a discussion
on stakeholder engagement, the term, as well as its principles and processes,
were defined and explored.
• The chapter concluded by defining sustainable development and looking at
the contribution of CSR to sustainable development.
 Revision questions
1. Define the following terms:
• Corporate governance
• Sustainable development
• Corporate citizenship'
• Corporate social responsibility
2. List any five principles of good governance.
3. Imagine you are part of a team responsible for stakeholder engagement at a
logistics company. Apply each of the five principles to describe how you would
run a stakeholder feedback session for a new delivery policy:
4. Explain the difference between primary and secondary stakeholders and
provide two relevant examples of each
5. List the three components of the Triple Bottom Line (TBL) framework.