Corporate social responsibility

Corporate Social Responsibility (CSR) is a concept which encourages organizations to consider the interests of society by taking responsibility for the impact of the organization's activities on customers, employees, shareholders, communities and the environment in all aspects of its operations. This obligation is seen to extend beyond the statutory obligation to comply with legislation and sees organizations voluntarily taking further steps to improve the quality of life for employees and their families as well as for the local community and society at large.

Development and analysis

While many businesses have always behaved in a responsible manner, the debate about CSR has been said to have began in the early 20th century, amid growing concerns about large corporations and their power^[1]. The ideas of charity and stewardship helped to shape the early thinking about CSR in the US.

Ida Tarbell’s 1904 work The History of the Standard Oil Company helped lead to the US Supreme Court’s decision to break up the company on antitrust grounds. Similarly, Upton Sinclair’s 1906 book The Jungle led to the passage of the Pure Food and Drugs Act and the Meat Inspection Act by the US Congress.

The term CSR itself came in to common use in the early 1970s although it was seldom abbreviated. The term stakeholder, meaning those impacted by an organization's activities, was used to describe corporate owners beyond shareholders from around 1989.^[2]

A widely quoted current definition by the World Business Council for Sustainable Development states that "Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large."^[3].

Approaches to CSR

Some commentators have identified a difference between the Continental European and the Anglo-Saxon approaches to CSR.^[4]

Auditing and reporting

To demonstrate good business citizenship, firms can report compliance with a number of CSR standards, including:

• AccountAbility's AA1000 standard, based on John Elkington's triple bottom line (3BL) reporting
• Global Reporting Initiative's Sustainability Reporting Guidelines
• Verite's Monitoring Guidelines
• Social Accountability International's SA8000 standard
• The ISO 14000 environmental management standard

FTSE Group's FTSE4Good indice is an evalution of CSR performance by assessing companies according to various criterias. [1]

Some nations require CSR reporting, though 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, 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.

The business case for CSR

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). Orlizty, Schmidt, and Rynes^[5] 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 organisation can vary from the strict "stakeholder impacts" definition used by many CSR advocates and will often include charitable efforts and volunteering. CSR may be based within the human resources, business development or PR departments of an organisation^[6], 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 within a company will likely rest on one or more of these arguments:

Human resources

A CSR programme can be seen as an aid to recruitment and retention^[7], 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 to improve the perception of a company among its staff, particularly when staff can become involved through payroll giving, fundraising activities or community volunteering.

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 environmental accidents. These events 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^[8].

Brand differentiation

In crowded marketplaces companies strive for a unique selling proposition which 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^[9]. Several major brands, such as The Co-operative Group and The Body Shop are built on ethical values. Business service organisations 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 current issues like health and safety, diversity or the environment seriously and so avoid intervention. This also applies to firms seeking to justify eye-catching profits and high levels of boardroom pay. Those operating away from their home country can make sure they stay welcome by being good corporate citizens with respect to labour standards and impacts on the environment.

Disputed business motives

Critics of CSR will attribute other business motives, which the companies would dispute. For example, some believe that CSR programmes are often undertaken in an effort to distract the public from the ethical questions posed by their core operations. Some that have been accused of this motivation include British American Tobacco (BAT) ^[10] which produces major CSR reports and the petroleum giant BP which is well known for its high profile advertising campaigns on environmental aspects of their operations.

Criticism

Two broad categories of CSR criticism can be identified:

• CSR hinders the operation of the free market;
• CSR is essentially cynical and selfish.

Criticism from a free market perspective

This group are generally supporters of Milton Friedman who argued that a corporation's principal purpose is to maximize returns to its shareholders, while obeying the laws of the countries within which it works. Friedman argued that only people can have responsibilities^[11].

Because of this, moderate critics would suggest that CSR activity is most effective in achieving social or environmental outcomes when there is a direct link to profit. This approach to CSR requires that the resources applied to CSR activities must have at least as good a return as that that these resources could generate if applied anywhere else. This analysis drastically narrows the possible scope of CSR activities.

Critics who believe that CSR runs against capitalism would go further and say that improvements in health, longevity or infant mortality have been created by economic growth attributed to free enterprise. Investment in less developed countries contributes to the welfare of those societies, notwithstanding that these countries have fewer protections in place for workers. Failure to invest in these countries decreases the opportunity to increase social welfare.

This group may also point to:

• The rule of corporate law that a corporation's directors are prohibited from any activity that would reduce profits
• The burden of the existing social and environmental regulation that companies must comply with. Detractors of CSR point out that organizations pay taxes to government to ensure that society and the environment are not adversely affected by business activities.

Critics who believe that CSR is essentially cynical

This group argue that the only reason corporations put in place social projects is for the commercial benefit they see in raising their reputation with the public or with government. They suggest a number of reasons why self-interested corporations, solely seeking to maximise profits are unable to advance the interests of society as a whole^[12].

They would point to examples where companies have spent a lot of time promoting CSR policies and commitment to Sustainable Development on the one hand, whilst damaging revelations about business practices emerge on the other. For example the McDonald's Corporation has been criticized by CSR campaigners for unethical business practices, and was the subject of a decision by Justice Roger Bell in the McLibel case (which upheld some of these claims, regarding mistreatment of workers, misleading advertising, and unnecessary cruelty to animals). Similarly Shell has a much publicised CSR policy and was a pioneer in triple bottom line reporting, but was involved in 2004 in a scandal over the misreporting of its oil reserves which seriously damaged its reputation and led to charges of hypocrisy.

These critics generally suggest that stronger government and international regulation rather than voluntary measures are necessary ensure that companies behave in a socially responsible manner.

Other views from this perspective include:

• Corporations really care little for the welfare of workers or the environment, and given the opportunity will move production to sweatshops in less well regulated countries.

• Companies do not pay the full costs of their impact. For example the costs of cleaning pollution often fall on society in general. As a result profits of corporations are enhanced at the expense of social or ecological welfare.

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