Corporate Social Responsibility
Corporate Social Responsibility (CSR) refers to the voluntary actions taken by businesses to address social, environmental, and economic impacts of their operations, beyond mere profit generation. This concept has gained traction over the years, particularly as public awareness and expectations around corporate accountability have increased. CSR encompasses a range of activities, including philanthropic contributions, ethical labor practices, and sustainable environmental policies.
Organizations worldwide, including the United Nations and various intergovernmental bodies, advocate for CSR principles, which have led to numerous initiatives and frameworks, such as ISO 26000. Despite the growing emphasis on CSR, opinions differ on its effectiveness, with some critics arguing that corporations should primarily focus on maximizing shareholder value rather than engaging in social initiatives.
Shareholder activism has also emerged as a significant force, encouraging companies to adopt responsible practices through proposals and resolutions. However, CSR efforts are not universally successful; challenges such as public skepticism and conflicting local and global goals can hinder their impact. Overall, CSR represents a complex interplay between business practices and societal expectations, reflecting the evolving role of corporations in fostering social good.
Corporate Social Responsibility
Abstract
This article examines the evolution of corporate social responsibility (CSR). The driving forces behind the corporate shift toward responsibility are examined including regulatory issues, social and political activism, marketing, and consumer pressure. The role and activities of several organizations that focus on corporate social responsibility are reviewed. The process of shareholder activism in pushing for corporate social responsibility is explained along with how the shareholder processes work. Reasons for failure in corporate social responsibility campaigns are also reviewed and issues with global efforts clashing with local efforts are explained.
Overview
Corporate Social Responsibility (CSR) is a subject of much interest within the managerial world. CSR is also frequently described as social responsibility or community relations (Verschoor, 2003). Though it drew increasing scrutiny moving into the twenty-first century, CSR has been under discussion for decades. Influential twentieth century management consultant Peter Drucker commented that corporate management has three tasks (cited in Phillips, 2006, p. 69):
- Increase economic performance.
- Make the worker productive and efficient.
- Manage social impacts and responsibilities.
CSR has the attention of the business community, investors, customers, and the business media. Prominent business-focused publications such as the Harvard Business Review, the Economist, and the Wall Street Journal have all run a significant number of articles focused on corporate social responsibility. Over the years, corporations have voluntary contributed billion of dollars to various social endeavors.
Official tracking of CSR efforts has grown over the years. In 1999, only 35 percent of the 250 largest companies in the world reported on corporate responsibility. By 2017, 93 percent did, an indication of the importance that major companies and their leaders place on the issue of corporate social responsibility (KPMG, 2017).
CSR, like ethics, has no universal definition. Approaches include "a manager's duty or obligation to make decisions that nurture, protect, enhance and promote the welfare and well-being of stakeholders and society as a whole" (Jones, George & Hill, 2000, cited in Phillips, 2006, p. 69). But CSR efforts are global, and in 2010, the International Standards Organization (ISO) launched an ISO standard for CSR: ISO 26000. The ISO Bulletin states that “ISO 26000 provides guidance on how businesses and organizations can operate in a socially responsible way. This means acting in an ethical and transparent way that contributes to the health and welfare of society (ISO, n.d.). Phillips (2006) defines CSR as "Both the philosophy and practice of for-profit organizations voluntarily acting to positively assist society in ways beyond that required to obtain profit objectives" (p. 69). The finance-focused website Investopedia states that "Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public." (Fernando, 2021).
Intergovernmental Organizations & CSR. There is a growing acceptance of CSR principles among intergovernmental organizations. One international organization, the UN Global Compact, is a corporate citizenship project that has had more than 7,000 companies from 145 countries participate in the program since its inception in 2000. The International Finance Corporation (IFC), which is the World Bank's private lending division, not only accepted CSR principles but worked to perpetuate CSR in general. The IFC implemented a comprehensive set of labor and environmental standards for all of its loan recipients in order to be eligible for loans (Senser, 2007).
CSR & Civil Society Engagement. Civil society participation in evolving CSR issues has grown immensely over the last several decades. There are numerous nongovernmental organizations (NGOs) and networks of cooperating organizations spread around the world now deeply involved in CSR. There is also a long list of consumer groups and trade unions that are also mobilized, many focusing on the elimination of child labor and sweatshops. Other groups have focused their attention on issues such as fair trade and the rights of indigenous peoples.
Bear in mind that the NGO sector is still growing and for NGOs to succeed they need two things. First they need money to finance their mission. Then, they need to convince enough people that the mission is worthwhile in order to successfully solicit enough money through contributions to support the organization. Many of those contributors feel that government programs have failed when it comes to addressing social issues and the needs of people. Those people that feel this way have often been ready to support an alternative and NGOs stepped in to fill the gap.
The diversity in the nature of NGOs is also rather broad. Some focus on human issues while others may focus on environmental issues. This has contributed to the growth of watchdog activism which is a process where an organization becomes specialized in an issue and then takes political as well as social positions about their issue. This appeals to many contributors because it provides an opportunity to support a cause that they believe in and on which they would like to see action and change (Utting, 2005).
CSR also constitutes a development of a new element in corporations' advertising strategy; a new signifier. Corporations make big news out of their ethical actions and socially responsible policies. They issue press releases and prominently display their activities and accolades on their websites. Many feel this contributes to high levels of affinity with their customer base who strongly desire to do right by doing business with those companies that do right (Manokha, 2004).
Applications
CSR Via Stockholder Action. When there is a strong business case for CSR both the sponsoring company of a program or initiative and society as a whole can benefit. If socially responsible actions can lead to higher profits the company is more financially viable and shareholders as well as all stakeholders in the company benefit. In many cases, however, a direct profit or benefit may not be realized. However, the secondary benefits such as building goodwill and gaining from positive media coverage also have value.
Another force in the CSR movement has been the rise of the activist investor. CSR activist investors often see corporations as a tool or a means of achieving social change. There have been many such activists who are willing to sacrifice financial gains in order to achieve social goals. These activists have an arsenal of strategies to use in their attempts to influence the actions of corporations even if some of them may not be stockholders. For example, People for the Ethical Treatment of Animals (PETA) actively utilizes publicity seeking tactics including advertising, public outreach campaigns, and even public demonstrations to call attention to their cause. Other activists have become stockholders in companies which they would like to see change and use the shareholder proposal (or a shareholder-sponsored resolution) to push for change and to raise awareness of the importance of their proposed changes.
The shareholder-sponsored resolution can be viewed as an effort to lobby corporate management to implement CSR reforms which range from improving environmental controls to instituting antidiscrimination policies (Tkac, 2006). Shareholder activism has also taken the form of ethical investing where mutual funds, retirement funds, or individuals purchase shares in a company and use the Annual General Meeting of shareholders to propose changes to corporate policy (Utting, 2005).
Shareholder-Sponsored Resolution. Securities and Exchange Commission (SEC) Rule 14a-8 establishes the process for submitting a shareholder proposal to be included on a proxy statement. Basically, a shareholder is eligible to submit one proposal providing they have continuously held shares in a company for one year that were worth at least $2,000, or 1 percent of firm value. The proposal needs to be 500 words or less and is submitted at the annual stockholders meeting.
Corporate managers are also allowed to petition the SEC to exclude a proposal and will likely have their request granted if the proposal reflects a personal grievance or requires the firm to violate laws. The exclusionary rights are often granted to deter repetitive frivolous proposals that can cost the company unnecessary money without any reasonable outcome being possible. In addition, the proposals submitted by shareholder activists are nonbinding on corporate management.
Types of Shareholders. The shareholder activists that have sponsored CSR resolutions generally fall into one of several different types of groups:
- Individuals—Investors who meet the ownership requirements with their individual stockholdings in a particular firm and that pursue agendas based on personal preferences.
- Pension funds and endowments—mostly public pension funds that are often seeking greater financial returns for their beneficiaries.
- Unions—Labor unions that manage multiemployer defined benefit pension funds which also may be seeking economic benefits for their members.
- Religious organizations—that are pursing changes based on religious values.
- Social organizations—that are pursuing specific changes such as improvements to environmental protection.
- Socially responsible mutual funds—that are pursuing the performance and social criteria that their investors are seeking.
Shareholder Targets. The success that shareholder activists have may influence their choice of target companies. If a firm already has a high profile then a shareholder proposal may attract more media attention. This in turn may further an activist's causes even if the proposal at the annual meeting is a failure. In addition, if a corporation already has a track record of being a good corporate citizen, upper management may be more interested and willing to act on the concerns of social activist investors to further the company's reputation as a good citizen. The most common themes of shareholder proposals involve some form of international conduct, addressing environmental issues, and those related to anti-discrimination (Tkac, 2006).
Issues
Opponents to CSR. Not everyone agrees that a CSR agenda benefits society. A notable example of this viewpoint is Nobel Prize–winning economist Milton Friedman, who argued that it is not the role of corporations to provide such services. Those opposed to CSR often argue that any human services should only be supported by individuals, not corporations, and those services should only be offered through charities and churches. They also contend that private companies should focus on making profits or increasing shareholder wealth (Tkac, 2006).
But regardless of the arguments for or against CSR, it has become a viable industry in itself. Sponsorships or contributions made by corporations can create very positive and highly visible press coverage and help establish the company as a good corporate citizen (Ingham, 2006).
When CSR Efforts Fail. When corporations want to create a positive public image and be on a list of favorite companies of consumers they often engage in CSR activities. As corporate scandals often attract significant media attention, it is increasingly important for corporations to maintain a positive image. Even those companies that are in less than socially respectable activities, such as the tobacco and oil companies, may attempt to change their negative images by implementing a socially appealing CSR campaign. However, such efforts are not always successful.
Theories for CSR Activity Failure. For the most part, research into CSR and the results of CSR programs for sponsoring corporations still only provides a theory-based examination into the circumstances in which CSR activities may improve a corporation's image. Many analysts feel that CSR activities are based in a rather naïve business theory with a root assumption that customers and consumers in general will accept the activity as legitimate and feel that the sponsoring company is doing good and is worthy of business.
This proposition is rather consistent with a far reaching body of research and published articles in various media on attribution. Further, it demonstrates a pervasive bias in the articles and the research. In general, there is an underlying assumption that consumers view those companies that do bad things as bad companies and that they perceive those companies that do good things as good companies.
Suspicious Perceivers. Many people are skeptical by nature and have learned over time not to trust advertising, political statements, or the motivations of people that may claim that they are doing good things. Trust in society is often considered to be on the decline. Thus most consumers may be generally skeptical of a corporation's actions unless they have more in-depth knowledge of those actions or unless those actions are very consistent with their personal beliefs and desires about social change. For example, when tobacco company Philip Morris started to support a youth smoking prevention campaign, both critics and consumers criticized this CSR campaign. This was certainly contrary to what the company had hoped to achieve (Yoon, Gürhan-Canli & Schwarz, 2006).
Accountability. The concept of accountability has become a mainstream issue within international development policy and research. The primary focus of this work has been on a lack of accountability of government agencies in various countries. The issue that arises again and again is how poorly government programs are managed and how economic development money may be spent which often results in maldevelopment (Bendell, 2005).
Examples of poorly managed economic policy and negative outcomes include extractive industries which often take more from a developing country than they give back. Political and bureaucratic leaders in many countries that need money either do not know how to manage extractive industries or do not care what they do. However, there remains a strong trend in the CSR movement to hold companies responsible for the outcomes of their extractive business models regardless of where they are doing business (Frame, 2005).
NGOs have played a role in bringing maldevelopment problems to the discussion table for over a decade. As a result many companies have worked with the NGOs to develop policies and processes to address their impact on local societies. These efforts have spawned a long list of partnerships and collaborative efforts between NGOs and private companies as well as local governments. The creation of these multi-stakeholder initiatives (MSIs), have become a mainstay in many international development efforts.
Worldwide Responsible Apparel Production. A good example of an MSI is the initiative of the American Apparel Manufacturers Association (AAMA)—the Worldwide Responsible Apparel Production (WRAP). The apparel industry had received considerable bad press and negative publicity about sweatshop manufacturing and child labor. In response, the AAMA developed the Worldwide Responsible Apparel Production (WRAP) principles.
This seemed to help the industry's image in the United States but was less successful to many observers the southern hemisphere. For one thing, most of the board members of the organizations were US citizens. The AAMA put together the principles without much input from the workers in the south and without coordinating with activist organizations located in countries were clothing was being manufactured.
When WRAP started working in El Salvador it ended up competing directly with a local initiative headed by a non-profit Salvadoran group working to protect workers' rights. The Salvadoran Independent Monitoring Group (GMIES), established in 1996, was the first group to launch a program of external monitoring and assessment of labor conditions perpetuated by contractors that produced apparel for companies based in the United States and Europe. While WRAP was taking a distant and soft approach to protecting workers GMIES wanted more everyday involvement and monitoring and to advocate for workers. Apparel manufacturers gravitated toward the WRAP approach and were reluctant to cooperate, if not totally uncooperative, with GMIES (Bendell, 2005).
CSR Concerns for NGOs. There are several concerns about the participation of NGOs who participate in voluntary MSIs on CSR. Foremost is that NGOs need to recognize the strong possibilities of co-optation. If an NGO becomes dependent on funding or comes under the influence of a contributing industry, for example, the objectivity of the NGO may be diminished as they court their funding sources by modifying their agenda and principles of CSR. Even though collaboration with industry or even individual companies may end up being very beneficial it is important to bear in mind that CSR is a tool used by corporations to leverage their position in a community or even a country.
On the other hand, corporate executives should also be concerned about involvement with NGOs who often have very limited accountability for the actions and the outcomes of their CSR initiatives. As corporations work to improve their image they do not want a public relations disaster on their hands because of mismanagement in an NGO or if an MSI ends up doing more harm than good. The same issues can impact socially responsible investment funds. There are also questions of corruption. When MSIs involve local governments there is a chance that corruption at the local level can turn MSIs into public relations nightmare (Bendell, 2005).
Conclusion
There has been a growing acceptance of CSR principles among intergovernmental organizations. The United Nations and the World Bank are both involved with CSR initiatives as well as other NGOs around the world (Senser, 2007).
However, there is not a universal consensus on CSR or the role of corporations in social change and some people still feel that a CSR agenda does not necessarily benefit society. Those opposed to CSR often argue that any human services should only be supported by individuals, not corporations, and those services should only be offered through charities and churches. They also contend that private companies should focus on making profits or increasing shareholder wealth (Tkac, 2006).
Many analysts feel that CSR activities are based in a rather naïve business theory that has a root assumption that customers and consumers in general will accept the activity as legitimate and feel that the sponsoring company is doing good and is worthy of business. Even without the consensus CSR, it has become a viable industry in itself. Sponsorships or contributions made by corporations can create very positive and highly visible press coverage and help establish the company as a good corporate citizen (Ingham, 2006).
CSR has become part of a corporations' arsenal of public relations and advertising strategies. Many corporations make big news out of their ethical actions and socially responsible policies. They issue press releases and prominently display their activities and accolades on their web sites. Many feel this contributes to high levels of affinity with their customer base who strongly desire to do right by doing business with those companies that do right (Manokha, 2004).
Terms & Concepts
Attributional Processing: The psychological process through which individuals attribute reasons for behavior or causes of actions and activities.
Maldevelopmental Outcomes: Conditions that are contradictory to the development of sustainable communities or countries caused by interference from or mismanagement of CSR activity.
Marginalize: The neutralization or diminishing of impact of organizational efforts to impact change.
Multi-Stakeholder Initiatives (MSIs): Organized CSR efforts that impact or are of interest to several related groups or people, companies, or governments.
Shareholder-Sponsored Resolution: A resolution submitted to the board or a publicly traded company under the Securities and Exchange Commission (SEC) Rule 14a-8 to change the behavior of a company or prompt CSR action.
Shareholder Activism: The process in which investment funds or individuals buy shares in companies and use the SEC allowed proposal format to propose changes in how the company is managed.
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Suggested Reading
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