Corporate Social Responsibility

Definition, Core Issues, and Recent Developments

Brent D. Beal

• Publisher: SAGE Publications, Inc
• Year: 2013
• Print ISBN: 9781452291567
• eBook ISBN: 9781483324982
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This unique supplemental text offers a well-structured and thorough introduction to corporate social responsibility (CSR). Author Brent D. Beal introduces the basic concept of CSR, briefly discusses the challenges of defining it, and summarizes important conceptual models. CSR is examined in the context of the perfect competition market model, market failure, and social dilemmas. Three different types of CSR—systemic, strategic, and philanthropic—are highlighted. Finally, arguments both for and against CSR are outlined and several conceptual frames are proposed.  Readers are encouraged to think about what businesses should be responsible for in society and how a society's economic system should be structured, bounded, and ultimately, controlled. This text is appropriate for any business course in which the introduction of CSR would complement other course content.

1

What is CSR?

Although the role of business in society has been debated for hundreds of years, if not longer, the concept of corporate social responsibility (or CSR) in its current form first emerged in the 1950s.ⁱ A convenient marker for the start of the modern CSR era is the publication, in 1953, of Howard R. Bowen’s book, Social Responsibilities of the Businessman.

The same questions that motivated Bowen remain relevant today. What responsibilities do businesses have to contribute in positive ways to society? What benefits might be derived from a more enthusiastic assumption of these responsibilities? What practical steps could be taken to encourage businesses to give greater weight to these responsibilities in their decision making?

Here’s another way to think of CSR.

One of the defining characteristics of properly functioning economic markets is the alignment of individual and collective interests. If individual and collective interests are aligned, then there is no need for participants—either suppliers (i.e. companies) or buyers (often individuals)—to consider the impact of their actions on market outcomes. For example, in properly functioning economic markets, it is assumed that self-interested behavior by both buyers and sellers will produce desirable outcomes, such as efficient utilization and optimal allocation of resources. Adam Smith referred to this alignment as an “invisible hand” when he observed that individuals, focusing only on their own self-interest, and without giving any consideration to the broader impact of their actions, seem to behave as if guided by an unseen force to promote societal interests.

In other words, in properly functioning markets, participants can, in a sense, outsource their concern for societal interests to the invisible hand. Participants can simply shrug their shoulders, assume that the market will sort it out, and go about pursuing their own interests. Remarkably, as Adam Smith observed, by focusing on their own interests, market participants often end up promoting societal interests more effectively than if they had intentionally set out to do so.

In this respect, CSR runs counter to market logic. Because markets do not always function properly, there is no guarantee that the pursuit of individual interests will further societal interests. Businesses, therefore, are expected to actively assess the effect of their actions on the broader economic and social systems in which they are embedded. From a CSR perspective, therefore, businesses should be aware of societal expectations, and they should intentionally regulate their behavior in order to contribute to outcomes that meet those expectations.

Consider this. What if participants in the housing and mortgage markets prior to the global financial crisis of 2007–2008 had more carefully considered the potential impact of their actions on the broader economy? What if some of the key players had allowed these broader considerations to constrain their self-interested behavior? Might the crisis have been less severe, or have been avoided altogether?

The general idea of CSR, therefore, is that businesses have a responsibility to contribute to economic outcomes that meet societal expectations. Although this general statement is relatively uncontroversial, it is surprisingly difficult to provide a more precise definition.

DEFINITIONS

The CEO of ExxonMobil, Rex Tillerson, recently commented that “there is a wide diversity of views on the role of a company such as ExxonMobil in today’s society. We know that we will never satisfy everyone.”ⁱⁱ

In the sixty years since Bowen’s landmark book, numerous definitions of CSR have been offered by academics, practitioners, councils, and groups. The five definitions included below are arranged in chronological order and illustrate a few of the different ways CSR has been conceptualized and defined. As you read these definitions, look for both commonalities and differences.

The term social responsibilities of businessmen will be used frequently. It refers to the obligations of businessmen [and businesswomen] to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society. This definition does not imply that businessmen as members of society lack the rights to criticize the values. . . . It is assumed, however, that as servants of society, they must not disregard socially accepted values or place their own values above those of society.–Howard R. Bowen, 1953ⁱⁱⁱ

All of this suggests that when we invoke the phrase “the social responsibilities of the businessman [or businesswoman],” we mean that businessmen [or businesswomen] should oversee the operation of an economic system that fulfills the expectations of the public. And this means in turn that the economy’s means of production should be employed in such a way that production and distribution should enhance total socio-economic welfare. Social responsibility in the final analysis implies a public posture toward society’s economic and human resources and a willingness to see that those resources are utilized for broad social ends and not simply for the narrowly circumscribed interests of private persons and firms.–William C. Frederick, 1960^iv

What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. . . . That is why, in my book Capitalism and Freedom, I have called it a “fundamentally subversive doctrine” in a free society, and have said that in such a society, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.–Milton Friedman, 1970^v

With so many conflicting goals and objectives, the definition of CSR is not always clear. Here we define CSR as actions that appear to further some social good, beyond the interests of the firm and that which is required by law. This definition underscores that, to us, CSR means going beyond obeying the law.–Abagail McWilliams & Donald Siegel, 2001^vi

Corporate social responsibility (CSR) is about how businesses align their values and behaviour with the expectations and needs of stakeholders—not just customers and investors, but also employees, suppliers, communities, regulators, special interest groups and society as a whole. CSR describes a company’s commitment to be accountable to its stakeholders. CSR demands that businesses manage the economic, social and environmental impacts of their operations to maximise the benefits and minimise the downsides. Key CSR issues include governance, environmental management, stakeholder engagement, labour standards, employee and community relations, social equity, responsible sourcing and human rights.–Two Tomorrows, 2013^vii

Although these definitions contain similar elements, it should also be clear that there is significant disagreement. It is important to realize that defining CSR is not merely a descriptive exercise. It is not as simple as attaching a label to a particular business practice, as is the case with many other business concepts. It is a normative exercise in the sense that defining CSR requires making the role of business in society explicit by enumerating societal obligations. Taken far enough, defining CSR becomes a political or ideological exercise, because it requires the implementation of a vision of how society’s political economy should be structured, bounded, and ultimately, controlled.^viii It shouldn’t be surprising that there is little agreement on the specifics. CSR is, by its nature, an “essentially contested concept.”^ix

Despite these challenges, this book builds on previous definitions by proposing the following definition of CSR:

CSR, broadly defined, is the moral and practical obligation of market participants to consider the effect of their actions on collective or system-level outcomes and to then regulate their behavior in order to contribute to bringing those outcomes into congruence with societal expectations.^x

Milton Friedman, an economist and recipient of the Nobel Prize in Economic Sciences, is generally perceived to have been hostile to the CSR concept. Did it surprise you to find a quote from him included with the other CSR definitions? Go back and reread the paragraph attributed to him. Note that while criticizing the concept of CSR as he perceives it, he provides his own definition of it: “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” From Friedman’s perspective, the best way for individual companies to contribute to societal welfare is to maximize profits (subject to certain constraints). Friedman’s comments are included with other definitions of CSR because he explicitly links the behavior of individual businesses to societal welfare, albeit in a different way than most CSR advocates. We will discuss Friedman’s position in greater detail in Chapter 3.

REPORTING & MEASUREMENT

Up to this point, CSR has been discussed in relatively abstract terms. A reasonable question to ask, therefore, is what does CSR looks like in practice? What do businesses do that qualifies as CSR?

An early textbook on business society, originally published in 1966, listed the following areas of potential social involvement: ecology and environmental quality (e.g., pollution, aesthetics, noise control), consumerism (e.g., product safety), community needs (e.g., urban renewal), business giving, minorities and disadvantaged persons (e.g., training, utilization in supply chain), and labor relations, among others.^xi

Third parties, like the Global Reporting Initiative (GRI), have developed and promoted different reporting guidelines that involve hundreds of different indicators and data points.^xii The G3.1 framework, the latest version of GRI’s reporting guidelines, for example, involves detailed indicators across three principle areas: economic, environmental, and social. In the social area, GRI guidelines identify four subcategories: labor practices, human rights, society, and product responsibility. Specific performance indicators in the social subcategory include the percentage of operations with local engagement programs, the percentage of business units analyzed for risks related to corruption, and the total number of legal actions for anti-competitive behavior, anti-trust, and monopoly practices, among others.^xiii AccountAbility, another third-party organization promoting sustainability reporting, has developed the AA1000 framework that involves a similarly comprehensive set of indicators.

CSR information was recently added to Bloomberg terminals—a proprietary computer system marketed by Bloomberg L. P. and used by financial service professionals that streams real-time financial data and provides access to the company’s electronic trading platform. Referred to as environmental, social, and governance data (or ESG data), Bloomberg publishes more than two hundred indicators, including the number of board meetings per year, the size of the audit committee, total employee fatalities, whether or not the company is a UN Global Compact signatory, municipal water use, and other s...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Preface
• Introduction
• 1. What is CSR?
• 2. Three Foundational Assumptions
• 3. CSR and Value Creation
• 4. The CSR Debate
• 5. The Future of CSR
• References
• About the Author