Corporate Social Responsibility (Sociology)

Abstract

Corporations have engaging in corporate social responsibility activities that portray them as caring and contributing members of the communities in which they are located. To understand why corporations would be interested in taking such actions, and why the public appears a bit skeptical toward such activities, one needs to have some understanding of how corporations have evolved in American society. This article provides a history of corporations and discusses whether corporations have been more favorably socialized into American culture and communities.

Overview

Today, corporations across the United States are heavily involved in activities promoting corporate social responsibility. Corporate social responsibility is a relatively new concept in which the corporation strives to be fair and responsible to all of its stakeholders. The identified stakeholders typically include shareholders, employees, and the communities in which physical facilities are located (European Commission for Sustainable Development, 2008). Corporate social responsibility is now included as a section in almost every American corporation's annual report to shareholders and espouses the ability of the company to create and maintain sustainable development. Corporations are spending time and money to create codes of conduct that are used to guide them toward fulfilling their identified social responsibilities (Mehta, 2002).

Corporations have engaging in corporate social responsibility activities that portray them as caring and contributing members of the communities in which they are located. To understand why corporations would be interested in taking such actions, and why the public appears a bit skeptical toward such activities, one needs to have some understanding of how corporations have evolved in American society. This article provides a history of corporations and discusses whether corporations have been more favorably socialized into American culture and communities.

History

The Corporation. Early corporations were very different from the corporations of today. They were small companies chartered by the English crown to accomplish specific activities meant to serve the public good. The first acknowledged corporation, the East India Trading Company, was chartered to enable participation in the East Indian spice trade as a capital venture. Incorporating and funding innovative companies became a favored activity of royalty. They were able to dabble in many activities and explorations by chartering new corporations and retaining governance over them (Robins, 2006). If a company displeased their king or queen, their charter would simply be revoked, meaning the entrepreneurs no longer had permission to engage in business.

With the founding of the United States, states assumed the right to charter and govern similar corporations. These corporations were explicitly designed to serve the public in instances when a smaller business would lack the resources to meet public demand. Banks were often created under a corporate charter in order to establish adequate funding. Most Americans were still living in agrarian communities and all corporations were explicitly required to serve the community. Corporations at this time (early 1700s to mid-1800s) were limited in their activities and dealings: they were not allowed to own stock in other corporations; they were limited in the amount of time they could exist; they were not allowed to make political contributions; and their owners were held responsible for criminal acts committed by the corporation (Drutman & Cray, 2004). Governments provided oversight for corporations and did not hesitate to revoke the charter if the corporation failed to serve the public interest. Also, unique to the early corporations, the owner actually ran the corporation and maintained responsibility for the day-to-day happenings of the business. Corporations quickly altered the way people worked and were instrumental in leading America into the industrial revolution.

In 1819, the Supreme Court decided the case of Dartmouth College v. Woodward, providing corporations protections against government takeovers. In the late 1800s, New Jersey was the first state to enact the General Revision Act, which removed time limits on corporate charters as well as requirements that limited a corporation’s size and market share. Other states quickly followed suit, including the state of Delaware. Delaware went one step further and established the Court of Chancery to handle business affairs. This enabled corporations to create cultures in which they could amass wealth and power. As of 2012, nearly half of all US public corporations were incorporated in Delaware.

Corporations quickly became dominant American institutions and the Roosevelt and Wilson administrations, recognizing the potential power of the corporations, enacted antitrust laws and initiated regulations to control the industry. Presidents succeeding Roosevelt and Wilson loosened up on corporate controls and encouraged businesses to grow in size and power. In 1886, corporations won a landmark case, Santa Clara v. Southern Pacific Railroad. This ruling allowed corporations to be viewed as actual individuals under the law, providing them all the protections listed in the Bill of Rights as though each corporation was a real person. In 1919, in Dodge v. Ford Motor Company, the Supreme Court ruled that the unequivocal purpose of the corporation is to serve stockholders. Hence the generation of profits for stockholders became the primary goal and sole purpose of corporations (Kelly, 2001).

Capitalism. During this same time many corporations began merging. Corporations were no longer small, simple entities; they had quickly grown into very private, very large entities with little legislated responsibility or accountability. Their primary mission was to engage in self-interest and accumulate resources that could be utilized to enhance profit-making activities (Green, 2002). It was believed that capitalism would provide essential controls and the free market would curb corporate greed and promote the public good. Corporations were successful in their mission; however, the free market was not allowed to work due to the policy changes promoted and attained by the wealthy corporate owners and shareholders (Bakan, 2004; Kelly, 2001).

Up to that point in time, the owners ran their corporations and invested in the communities in which they were headquartered. But as the corporations grew, gained their own rights to personhood, and amassed greater wealth and power, the owners began to hire managers so they would have time to pursue personal interests and to influence policymaking in ways that would allow their corporations to grow even more (Drutman & Cray, 2004). Managers were not vested in the corporation nor the community, and corporations began to take on the reputation of being cold-hearted and corrupt.

No one really gave a thought to how to socialize these new, powerful entities that had been granted personhood. No one could conceptualize how these new institutions would amass wealth and power greater than small nations. No one seemed concerned that the only goal these corporations had was to continue to acquire more and more profits for their shareholders. And corporations continued to enrich their shareholders at the expense of their employees and the communities in which they located their factories. Minus socialization efforts, corporations were akin to spoiled children unfettered by self-discipline or notions of ethical behavior and unaccountable to the society in which they existed.

The Great Depression brought some new checks and balances to corporate systems as government created their own national work programs, began to exert limited control over corporations, and supported the unprecedented growth of labor unions. However, no one really understood or appeared to recognize the need to socialize corporations to meet the needs of anyone except their shareholders. Profit maximization continued to be the standard goal and all else was considered secondary to that goal or was not considered at all.

When a new employee begins a job, companies take great pains to ensure the employee is properly socialized to the organization. They work to align the interests and activities of the new employee with those of the existing environment (i.e., the workplace) in the hopes that each employee will make decisions and take actions that are in the interests of the group at large (Van Manaan & Schein, 1979). When a child is being socialized, the parents and community work to teach the child self-restraint, values shared within the community, and how to align or subsume their personal desires in ways that do not destroy or usurp the interests of the common good (Anyon, 1980; Harrah & Friedman, 1990). But no one had thought of a corporation as a person in need of socialization (despite their hard-won rights to personhood). Indeed, corporations grew in power and monetary value so quickly that no one really recognized the control they would potentially exert over workers, governments, cultures, and the environment. Corporations came to be seen as greedy, unethical oppressors in life as well as in literature such as The Jungle (Sinclair, 1906) and The Octopus (Norris, 1901). They were held in both awe and contempt as they enriched and empowered individual shareholders and yoked the common worker.

Applications

Trickle-Down Theory. During the 1980s, President Ronald Reagan promoted trickle- down theory to justify his policymaking decisions that favored corporations and the wealthy (Frank, 2007). President Reagan effected rules and laws supporting deregulation, cutting taxes for corporations and the wealthy, and eliminated key public controls over corporations. Additionally, he weakened the countervailing forces created by labor unions when he chose to fire the striking members of the Professional Air Traffic Controllers Organization (Drutman & Cray, 2004). Outsourcing became yet another corporate activity that increased shareholder profits and served to weaken existing checks and balances on corporations. Contemporary corporations are complex, powerful, and supported by wealthy shareholders who exercise enormous influence over US Congress and the entire political process.

Corporations are generally held in distrust by the public whose competing interests are often ignored because they cannot wield the influence that tends to come with wealth (Green, 2002). A 2007 poll indicates fewer than 25 percent of people had faith in the integrity of big business (Flynn, 2007), a number that likely declined following the global financial crisis that of 2008. And yet, much of the public depends on corporations to provide them paid work and access to health care (Drutman & Cray, 2004). Contemporary corporations and the people whom they enrich have not been socialized to align their values and activities with their employees, their communities, or the world in general.

Many economists have predicted America's corporate structure cannot be sustained in the long term, and their arguments were bolstered by the global financial crisis of 2008 that began due to widespread mismanagement of US corporate investments. The wealthy are increasingly the only candidates elected into congressional seats, rendering the citizens' needs (e.g., reasonable wages, affordable health care, public services, etc.) virtually invisible (Green, 2002). In 2007, the median net worth of American families was $120,000, whereas the media net worth of Congress members was $912,000. According to 2009 congressional data, the top one-hundredth of the top 1 percent of earners made an average of $27 million per household, whereas the average income from the remaining 90 percent of Americans was $31,244. Between 2007 and 2009, Wall Street profits increased 720 percent, while the unemployment rate soared 102 percent and Americans’ home equity dropped 35 percent. Corporations have been socialized to cater to the needs of the very wealthy. Political money has been used to further enrich corporations as they attain loophole tax exemptions, lax regulatory and law enforcement, and tax breaks. And yet, the corporate system continues to insist on more and greater profits. The widespread mismanagement of corporate investments that created the global financial crisis resulted in losses and economic hardships for the general public and an ensuing lack of accountability for the responsible corporate leaders. Corporations encouraged the federal government to create a buyout plan to bail out companies who were failing due to subprime mortgage schemes: a buyout plan that left taxpayers further in debt without imposing any substantive sanctions on the corporate executives who chose to participate in such reckless behavior (Appel, 2008). Yet in the past decade, corporations have been espousing their interest in assuming corporate social responsibility.

Corporate Social Responsibility. Corporate social responsibility has been presented as the preferred method of socializing corporations in response to the public outcry against the corporate control and corruption exposed in the early 2000s. Corporate social responsibility appears to be simply the newest national and international trend. Such programs are designed to aid corporations in identifying stakeholder interests and aligning themselves with the values held in their communities. Corporations now report annually on their efforts to effect social responsibility. For example, the Starbucks website boasts a page that asks, "What is the role and responsibility of a for-profit, public company?," followed by a statement that:

Companies voice their commitment not only to ensuring returns to stakeholders but to consider the wages of employees, the quality of products and services to customers, and the sustainability of activities impacting society and the environment (OECD, 2001). Each corporation appears to utilize a similar blueprint onto which they superimpose their individual goals in relation to the above activities. However, the primary questions remain. Is it realistic to believe corporations will use corporate social responsibility programs to properly socialize themselves? Is corporate social responsibility the appropriate way to socialize corporations? Can corporations truly strive to meet the needs of their various stakeholders while continuing to hold profit maximization for shareholders as their primary goal?

Viewpoints

Some corporate watchdogs dismiss corporate social responsibility activities as a superficial attempt to polish the corporate image. They believe corporations have initiated these programs as a public relations spin in an effort to keep outsiders from controlling their personal agendas and regulating their behaviors. Skeptics of corporate social responsibility raise concerns about corporations, using Fannie Mae as an example. Fannie Mae was ranked first on Business Ethics 2004 list of the 100 Best Corporate Citizens due to its corporate social responsibility activities. However, that same year, an audit report noted that Fannie Mae purposely deferred $200 million of estimated expenses in order to allow six corporate officers to receive full bonuses totaling more than $5.9 million. In other words, Fannie Mae created a smoke screen using corporate social responsibility activities to divert attention away from unethical and dishonest business practices ("Fannie Mae's Problems," 2004).

Some organizations applaud the efforts of corporate social responsibility. They believe corporations can actually increase their profits by becoming socially responsible. They believe that incorporating the precepts of corporate social responsibility will not only embed integrity into corporations but will attract investors who will choose to invest with socially responsible corporations. It is important to note that most of the sources indicating fully positive regard for corporate social responsibility were consulting business that may have a vested interest in its success (Flynn, 2007).

Some entities believe it is easy to create corporate social responsibility programs and very difficult to evaluate the effectiveness and efficacy of a corporation's actual practices to ensure stakeholder issues are addressed. They do not think corporate social responsibility activities are valid unless some type of social audit has also been put into place to ensure compliance and, so far, social audits are not being conducted in most companies (Mehta, 2002).

Other critics of corporate social responsibility programs believe corporations are delving into territories in which they have no business, under the name of philanthropy. Corporations tell the public they are giving back to the community when, in truth, they are often trying to affect social outcomes and ensure their own moral vision is enforced in society (Bianco & Zellner, 2003).

Terms & Concepts

Agrarian: A community in which most people own a small portion of land that they farm for a living.

Capital Venture: An adventure or activity pursued by a person or persons who wish to expand their presence in a market but do not have adequate funding. They will form a corporation, partnering with people who are able to fund the activity privately.

Capitalism: The economic system in which individuals or organizations own and use wealth to earn income and to sell and purchase labor for wages with little or no government control. Market forces regulate the economy, thus, prices and profit determine where and how resources are used and allocated.

Countervailing: To act against with equal force or influence.

Deregulation: Removing government restrictions from an industry or sector to allow for a free marketplace. Deregulation assumes the market place is structured as a free market, often ignoring the protections corporations have created to favor themselves (and destroying the ability of the free market to function as such).

Outsourcing: A business arrangement in which one company provides services for another company that could also be or usually have been provided in-house. Most services are outsourced to foreign companies where the employees are paid lower wages due to their country's lower economic status.

Public Good: A product or service that provides non-excludable and non-rival benefits to all people in the population.

Sustainable Development: To meet the needs of the present without compromising the ability of future generations to meet their needs (Brundtland, 1987).

Trickle-Down Theory: Also known as supply-side economic theory. This is an economic theory that states that increases to the rich are good for the poor because the rich will spend more money, thereby energizing the economy; the idea is that the wealth will eventually trickle down to benefit the poor.

Bibliography

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Suggested Reading

Aldous, R. (2007). The lion and the unicorn. London, UK: Pimlico.

Beal, B. D. (2014). Corporate social responsibility: Definition, core issues, and recent developments. Thousand Oaks, CA: Sage Publications.

Friedman, T. L. (1999). The lexus and the olive tree. New York, NY: Farrar, Straus, Giroux.

Vazquez-Carrasco, R., & Lopez-Perez, M. (2013). Small- and medium-sized enterprises and corporate social responsibility: a systemic review of the literature. Quality and Quantity, 47, 3205–3218. Retrieved November 4, 2013 from EBSCO online database SocINDEX with Full Text. http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=90016118

Webley, S., & Werner, A. (2008, October). Corporate codes of ethics: Necessary but not sufficient. Business Ethics: A European Review, 17. 405-415.