CHAPTER - 2 CORPORATE SOCIAL
RESPONSIBILITY
Corporate social responsibility (CSR), also known as corporate
responsibility, corporate citizenship, responsible business,
sustainable responsible business (SRB), or corporate social
performance, is a form of corporate self-regulation integrated
into a business model. Ideally, CSR policy would function as a
built-in, self-regulating mechanism whereby business would
monitor and ensure its support to law, ethical standards, and
international norms. Consequently, business would embrace
responsibility for the impact of 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. Essentially, CSR
is the deliberate inclusion of public interest into corporate
decision-making, and the honoring of a triple bottom line
People, Planet, Profit. The practice of CSR is subject to much
debate and criticism. Proponents argue that there is a strong
business case for CSR, in that corporations benefit in multiple
ways by operating with a perspective broader and longer than
their own immediate, short-term profits. Critics argue that
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CSR distracts from the fundamental economic role of
businesses others argue that it is nothing more than
superficial window-dressing; others yet argue that it is an
attempt to pre-empt the role of governments as a watchdog
over powerful multinational corporations. Corporate Social
Responsibility has been redefined throughout the years.
However, it essentially is titled to aid to an organization's
mission as well as a guide to what the company stands for and
will uphold to its consumers. Development Business ethics is
one of the forms of applied ethics that examines ethical
principles and moral or ethical problems that can arise in a
business environment. In the increasingly conscience-focused
marketplaces of the 21st century, the demand for more ethical
business processes and actions known as ethicism is
increasing. Simultaneously, pressure is applied on industry to
improve business ethics through new public initiatives and
laws e.g. higher UK road tax for higher-emission vehicles.
Business ethics can be both a normative and a descriptive
discipline. As a corporate practice and a career specialization,
the field is primarily normative. In academia, descriptive
approaches are also taken. The range and quantity of business
ethical issues reflects the degree to which business is
perceived to be at odds with non-economic social values.
Historically, interest in business ethics accelerated
dramatically during the 1980s and 1990s, both within major
corporations and within academia. For example, today most
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major corporate websites lay emphasis on commitment to
promoting non-economic social values under a variety of
headings e.g. ethics codes, social responsibility charters. In
some cases, corporations have re-branded their core values in
the light of business ethical considerations e.g. BP's "beyond
petroleum" environmental tilt. The term CSR came in to
common use in the early 1970s, after many multinational
corporations formed, although it was seldom abbreviated. The
term stakeholder, meaning those on whom an organization's
activities have an impact, was used to describe corporate
owners beyond shareholders as a result of an influential book
by R Freeman in 1984. 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.
Often activities companies participate in are establishing
education facilities for adults and HIV/AIDS education
programmes. The majority of these CSR projects are
established in Africa. JIDF for You is an attempt to promote
these activities in India. A more common approach of CSR is
philanthropy. This includes monetary donations and aid given
to local organizations and impoverished communities in
developing countries. Some organizations do not like this
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approach as it does not help build on the skills of the local
people, whereas community-based development generally
leads to more sustainable development. Another approach to
CSR is to incorporate the CSR strategy directly into the
business strategy of an organization. For instance,
procurement of Fair Trade tea and coffee has been adopted by
various businesses including KPMG. Its CSR manager
commented, "Fair-trade fits very strongly into our commitment
to our communities." Another approach is garnering
increasing corporate responsibility interest. This is called
Creating Shared Value, or CSV. The shared value model is
based on the idea that corporate success and social welfare
are interdependent. A business needs a healthy, educated
workforce, sustainable resources and adept government to
compete effectively. For society to thrive, profitable and
competitive businesses must be developed and supported to
create income, wealth, tax revenues, and opportunities for
philanthropy. CSV received global attention in the Harvard
Business Review article Strategy & Society The Link between
Competitive Advantage and Corporate Social Responsibility by
Michael E. Porter, a leading authority on competitive strategy
and head of the Institute for Strategy and Competitiveness at
Harvard Business School and Mark R. Kramer, Senior Fellow
at the Kennedy School at Harvard University and co-founder of
FSG Social Impact Advisors. Many approaches to CSR pit
businesses against society, emphasizing the costs and
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limitations of compliance with externally imposed social and
environmental standards. CSV acknowledges trade-offs
between short-term profitability and social or environmental
goals, but focuses more on the opportunities for competitive
advantage from building a social value proposition into
corporate strategy.
Social accounting, auditing, and reporting
Taking responsibility for its impact on society means first and
foremost that a company must account for its actions. Social
accounting, a concept describing the communication of social
and environmental effects of a company's economic actions to
particular interest groups within society and to society at
large, is thus an important element of CSR. Social accounting
emphasizes the notion of corporate accountability. D.
Crowther defines social accounting in this sense as "an
approach to reporting a firm’s activities which stresses the
need for the identification of socially relevant behavior, the
determination of those to whom the company is accountable
for its social performance and the development of appropriate
measures and reporting techniques." A number of reporting
guidelines or standards have been developed to serve as
frameworks for social accounting, auditing and reporting
including
• Account Ability's AA1000 standard, based on John
Elkington's triple bottom line (3BL) reporting
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• Accounting for Sustainability's Connected Reporting
Framework
• The Fair Labor Association conducts audits based on its
Workplace Code of Conduct and posts audit results on
the FLA website.
• The Fair Wear Foundation takes a unique approach to
verifying labor conditions in companies' supply chains,
using interdisciplinary auditing teams.
• Global Reporting Initiative's Sustainability Reporting
Guidelines
• Good Corporation's Standard developed in association
with the Institute of Business Ethics
• Earth check Certification / Standard
• Social Accountability International's SA8000 standard
• The ISO 14000 environmental management standard
• The United Nations Global Compact promotes companies
reporting in the format of a Communication on Progress
(COP). A COP report describes the company's
implementation of the Compact's ten universal
principles.
• The United Nations Intergovernmental Working Group of
Experts on International Standards of Accounting and
Reporting (ISAR) provides voluntary technical guidance
on eco-efficiency indicators, corporate responsibility
reporting, and corporate governance disclosure.
• Verities’ Monitoring Guidelines
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In some nations legal requirements for social accounting,
auditing and reporting exist e.g. in the French bilan social,
though international or national agreement on meaningful
measurements of social and environmental performance is
difficult. Many companies now produce externally audited
annual reports that cover Sustainable Development and CSR
issues "Triple Bottom Line Reports", but the reports vary
widely in format, style, and evaluation methodology even
within the same industry. Critics dismiss these reports as lip
service, citing examples such as Enron's yearly "Corporate
Responsibility Annual Report" and tobacco corporations' social
reports.
Potential business benefits
The scale and nature of the benefits of CSR for an organization
can vary depending on the nature of the enterprise, and are
difficult to quantify, though there is a large body of literature
exhorting business to adopt measures beyond financial ones
e.g., Deming's Fourteen Points, balanced scorecards. Orlitzky,
Schmidt, and Rynes found a correlation between
social/environmental performance and financial performance.
However, businesses may not be looking at short-run financial
returns when developing their CSR strategy. The definition of
CSR used within an organization can vary from the strict
"stakeholder impacts" definition used by many CSR advocates
and will often include charitable efforts and volunteering. CSR
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may be based within the human resources, business
development or public relations departments of an
organization, or may be given a separate unit reporting to the
CEO or in some cases directly to the board. Some companies
may implement CSR-type values without a clearly defined
team or programme. The business case for CSR with in a
company will likely rest on one or more of these arguments.
Human resources
A CSR programme can be an aid to recruitment and retention,
particularly within the competitive graduate student market.
Potential recruits often ask about a firm's CSR policy during
an interview, and having a comprehensive policy can give an
advantage. CSR can also help improve the perception of a
company among its staff, particularly when staff can become
involved through payroll giving, fundraising activities or
community volunteering. See also Corporate Social
Entrepreneurship, whereby CSR can also be driven by
employees' personal values, in addition to the more obvious
economic and governmental drivers.
Risk management
Managing risk is a central part of many corporate strategies.
Reputations that take decades to build up can be ruined in
hours through incidents such as corruption scandals or
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environmental accidents. These can also draw unwanted
attention from regulators, courts, governments and media.
Building a genuine culture of 'doing the right thing' within a
corporation can offset these risks.
Brand differentiation
In crowded marketplaces, companies strive for a unique selling
proposition that can separate them from the competition in
the minds of consumers. CSR can play a role in building
customer loyalty based on distinctive ethical values. Several
major brands, such as The Co-operative Group, The Body
Shop are built on ethical values. Business service
organizations can benefit too from building a reputation for
integrity and best practice.
License to operate
Corporations are keen to avoid interference in their business
through taxation or regulations. By taking substantive
voluntary steps, they can persuade governments and the wider
public that they are taking issues such as health and safety,
diversity, or the environment seriously as good corporate
citizens with respect to labor standards and impacts on the
environment.
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Criticisms and concerns
Critics of CSR as well as proponents debate a number of
concerns related to it. These include CSR's relationship to the
fundamental purpose and nature of business and
questionable motives for engaging in CSR, including concerns
about insincerity and hypocrisy.
CSR and the nature of business
Milton Friedman and others have argued that a corporation's
purpose is to maximize returns to its shareholders, and that
since in their view, only people can have social responsibilities;
corporations are only responsible to their shareholders and
not to society as a whole. Although they accept that
corporations should obey the laws of the countries within
which they work, they assert that corporations have no other
obligation to society. Some people perceive CSR as
incongruent with the very nature and purpose of business,
and indeed a hindrance to free trade. Those who assert that
CSR is contrasting with capitalism and are in favor of
neoliberals argue that improvements in health, longevity
and/or infant mortality have been created by economic growth
attributed to free enterprise. Critics of this argument perceive
neoliberals as opposed to the well-being of society and a
hindrance to human freedom. They claim that the type of
capitalism practiced in many developing countries is a form of
economic and cultural imperialism, noting that these
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countries usually have fewer labor protections, and thus their
citizens are at a higher risk of exploitation by multinational
corporations. A wide variety of individuals and organizations
operate in between these poles. For example, the retealership
Alliance asserts that the business of leadership be it corporate
or otherwise is to change the world for the better. Many
religious and cultural traditions hold that the economy exists
to serve human beings, so all economic entities have an
obligation to society e.g., cf. Economic Justice for All.
Moreover, as discussed above, many CSR proponents point
out that CSR can significantly improve long-term corporate
profitability because it reduces risks and inefficiencies while
offering a host of potential benefits such as enhanced brand
reputation and employee engagement.
CSR and questionable motives
Some critics believe that CSR programs are undertaken by
companies such as British American Tobacco (BAT), the
petroleum giant BP well-known for its high-profile advertising
campaigns on environmental aspects of its operations, and
McDonald's see below to distract the public from ethical
questions posed by their core operations. They argue that
some corporations start CSR programs for the commercial
benefit they enjoy through raising their reputation with the
public or with government. They suggest that corporations
which exist solely to maximize profits are unable to advance
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the interests of society as a whole. Another concern is when
companies claim to promote CSR and be committed to
Sustainable Development whilst simultaneously engaging in
harmful business practices. For example, since the 1970s, the
McDonald's Corporation's association with Ronald McDonald
House has been viewed as CSR and relationship marketing.
More recently, as CSR has become mainstream, the company
has beefed up its CSR programs related to its labor,
environmental and other practices All the same, in McDonald's
Restaurants v Morris & Steel, Lord Justices Pill, May and
Keane ruled that it was fair comment to say that McDonald's
employees worldwide 'do badly in terms of pay and conditions'
and true that 'if one eats enough McDonald's food, one's diet
may well become high in fat etc., with the very real risk of
heart disease.' Shell has a much-publicized CSR policy and
was a pioneer in triple bottom line reporting, but this did not
prevent the 2004 scandal concerning its misreporting of oil
reserves, which seriously damaged its reputation and led to
charges of hypocrisy. Since then, the Shell Foundation has
become involved in many projects across the world, including
a partnership with Marks and Spencer in three flower and
fruit growing communities. Critics concerned with corporate
hypocrisy and insincerity generally suggest that better
governmental and international regulation and enforcement,
rather than voluntary measures, are necessary to ensure that
companies behave in a socially responsible manner. Others,
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such as Patricia Werhane argue that CSR should be looked
more upon as a Corporate Moral Responsibility, and limit the
reach of CSR by focusing more on direct impacts of the
organization as viewed through a systems perspective to
identify stakeholders.
Ethical consumerism
The rise in popularity of ethical consumerism over the last two
decades can be linked to the rise of CSR. As global population
increases, so does the pressure on limited natural resources
required to meet rising consumer demand Grace and Cohen
2005, 147. Industrialization, in many developing countries, is
booming as a result of both technology and globalization.
Consumers are becoming more aware of the environmental
and social implications of their day-to-day consumer decisions
and are therefore beginning to make purchasing decisions
related to their environmental and ethical concerns. However,
this practice is far from consistent or universal.
Globalization and market forces
As corporations pursue growth through globalization, they
have encountered new challenges that impose limits to their
growth and potential profits. Government regulations, tariffs,
environmental restrictions and varying standards of what
constitutes "labor exploitation" are problems that can cost
organizations millions of dollars. Some view ethical issues as
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simply a costly hindrance, while some companies use CSR
methodologies as a strategic tactic to gain public support for
their presence in global markets, helping them sustain a
competitive advantage by using their social contributions to
provide a subconscious level of advertising. Fry, Keim,
Meiners, 105 Global competition places a particular pressure
on multinational corporations to examine not only their own
labor practices, but those of their entire supply chain, from a
CSR perspective.
Social awareness and education
The role among corporate stakeholders is to work collectively
to pressure corporations that are changing. Shareholders and
investors themselves, through socially responsible investing
are exerting pressure on corporations to behave responsibly.
Non-governmental organizations are also taking an increasing
role, leveraging the power of the media and the Internet to
increase their scrutiny and collective activism around
corporate behavior. Through education and dialogue, the
development of community in holding businesses responsible
for their actions is growing.
Training
The rise of ethics training inside corporations, some of it
required by government regulation, is another driver credited
with changing the behavior and culture of corporations. The
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aim of such training is to help employees make ethical
decisions when the answers are unclear. Tullberg believes that
humans are built with the capacity to cheat and manipulate, a
view taken from Trivers, hence the need for learning normative
values and rules in human behavior Tullberg. The most direct
benefit is reducing the likelihood of dirty hands Grace and
Cohen, fines and damaged reputations for breaching laws or
moral norms. Organizations also see secondary benefit in
increasing employee loyalty and pride in the organization.
Caterpillar and Best Buy are examples of organizations that
have taken such steps Thilmany. Increasingly, companies are
becoming interested in processes that can add visibility to
their CSR policies and activities. One method that is gaining
increasing popularity is the use of well-grounded training
programs, where CSR is a major issue, and business
simulations can play a part in this. One relevant documentary
is The Corporation, the history of organizations and their
growth in power is discussed. Corporate social responsibility,
what a company does to in trying to benefit society, versus
corporate moral responsibility (CMR), what a company should
morally do, are both important topics to consider when looking
at ethics in CSR. For example, Ray Anderson, in The
Corporation, takes a CMR perspective in order to do what is
moral and he begins to shift his company's focus towards the
biosphere by utilizing carpets in sections so that they will
sustain for longer periods. This is Anderson thinking in terms
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of Garret Hardin's "The Tragedy of the Commons," where if
people do not pay attention to the private ways in which we
use public resources, people will eventually lose those public
resources.
Laws and regulation
Another driver of CSR is the role of independent mediators,
particularly the government, in ensuring that corporations are
prevented from harming the broader social good, including
people and the environment. CSR critics such as Robert Reich
argue that governments should set the agenda for social
responsibility by the way of laws and regulation that will allow
a business to conduct them selves responsibly. The issues
surrounding government regulation pose several problems.
Regulation in itself is unable to cover every aspect in detail of
a corporation's operations. This leads to burdensome legal
processes bogged down in interpretations of the law and
debatable grey areas Sacconi. General Electric is an example
of a corporation that has failed to clean up the Hudson River
after contaminating it with organic pollutants. The company
continues to argue via the legal process on assignment of
liability, while the cleanup remains stagnant. The second issue
is the financial burden that regulation can place on a nation's
economy. This view shared by Bulkeley, Critics of CSR also
point out that organizations pay taxes to government to ensure
that society and the environment are not adversely affected by
business activities. Denmark made a law on CSR. 16
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December 2008, the Danish parliament adopted a bill making
it mandatory for the 1100 largest Danish companies, investors
and state owned companies to include information on
corporate social responsibility (CSR) in their annual financial
reports. The reporting requirements became effective on 1
January 2009.
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