Corporate Social Responsibility

‘Just pious words with little or no action!’ was the comment made by a senior consulting partner leading the Human Resources practice for one of the big four international consulting firms, referring to Corporate Social Responsibility (CSR), a topic which he considered to be undeservedly capturing the headlines.

Assume that the CEO of Firm A is asked the following: ‘Well, I know that your company makes products that consumers like, and that those products make their lives better. And I know that suppliers want to do business with your company because they benefit from this business relationship. I also know that employees really want to work for your company, and are satisfied with their remuneration and professional development. And, let’s not forget that you’re a good citizen in the communities where you are located;² among other things, you pay taxes on the profits you make. You compete hard but fairly. You also make an attractive return on capital for shareholders and other financiers. However, are you socially responsible?’

Once a fringe idea, corporate social responsibility (CSR) is now part of the business mainstream. Most major companies have CSR policies and leading CEOs regularly acknowledge their wider responsibilities to society and the environment. Lacking precise definition, CSR has thrived as a general ‘motherhood’ concept but has suffered because it encompasses such a wide range of business activity from supporting good causes and investment in community projects to employment practices and environmental and human rights impact management. CSR has always attracted its fair share of critics. Detractors have dismissed it as corporate philanthropy¹ by another name or worse, as meaningless froth. Now, two more serious criticisms of CSR have emerged from separate ends of the political spectrum. This is not about philanthropy or giving something back to society as some kind of conscience-easer for taking so much out. It is levelled at the heart of the purpose of business and what companies, particularly large companies,² are responsible for. It is about whether companies should take account of social and environmental concerns beyond those that clearly affect a company’s operating capabilities.

Both Corporate Governance (CG) and Corporate Social Responsibility (CSR) have become important topics in recent years, but there is some confusion as to the relationship between the two concepts.

Human beings often believe they occupy a particular position in the hierarchy of nature, at the top of the scale. This held belief has a critical implication for the way humans perceive their surroundings. Actually, we often tend to believe that the world we are living in is extensively global and borderless and is our sole and apparent property. The world we are living in is referred to as ‘the environment’ or the natural world, as affected by human activity.

One of the main governance issues that boards have to face is what to measure and, in particular, how to set appropriate performance goals for operating managers. If governance is about the ‘the relationship among various participants in determining the direction and performance of corporations’ (Monks and Minow, 2004), then we need to address who the participants are, how to choose a direction and what constitutes performance. It is precisely this inter-relationship which causes the problem. For many managers the achievement of a single objective — maximisation of shareholder wealth — to a single actor, the shareholder provided enough complexity. Indeed many (e.g. Jensen, 2001) argue that this is all it should be. However, there are other participants — customers, employees, governments who also make claims on the firm and its resources and who also seek ‘performance’. In a traditional shareholder value model, the key decision tool would be based around net present value and ultimate measures of ‘value’. This focus has led boards to think about financial measures such as earnings per share and share price growth. Yet recent financial scandals reflect unethical behaviours whilst societal pressures have also led to risks which can impact on firm value. In a more complex setting, the interplay between firm value and societal value changes the traditional approach. For the senior management of a firm the problem then is how to determine performance in such as way as to satisfy these multiple stakeholders (Freeman, 1984) whilst still meeting the economic objectives.

A company — that can be defined as an economic and social institution, which aims to produce goods and services (Pivato and Gilardoni, 1997: 387) — pursues the creation of wealth, namely, value. In order to achieve this purpose, the firm cannot ignore the context in which it operates. In fact, a network of relationships connects the company to a great number of interrelated individuals and constituencies, called stakeholders (Ulrich and Krieg, 1973; Freeman, 1984; Donaldson and Preston, 1995; Clarkson, 1995). These relationships influence the way a company is governed and, in turn, are influenced by the company’s behaviour.

The purpose of this paper² is to analyse differences in the approaches of European government policies in the light of their ideals, and four different models of government action are put forward. Our proposal’s theoretical coherence stems from the fact that CSR is not a new and isolated item for inclusion on the political agenda. On the contrary, it forms part of the current debate on the role of companies in society, clearly shaping the current challenges to the welfare state and its governance, and the socio-economic development of each country. This initial hypothesis has been given a relational reading that emphasises the strategy of dialogue and collaboration between company, government and the organs of civil society.

The objective of this paper is to show how social construction operates as a mode of self-regulation for businesses that voluntarily seek to become corporate citizens. Modes of regulation are of much contemporary interest. As the economic context is changing, new ways of regulating business behaviour are emerging. There is much debate, and little consensus, on appropriate business behaviour and acceptable modes of regulation. Regulation tends to be associated with one of two approaches: positive reinforcement of desirable behaviour, or negative reinforcement of undesirable behaviour. The former uses incentives (i.e., a carrot) to reward businesses for good behaviour. The incentives are often financial rewards (e.g., profit) that are seen as the direct or indirect result of good business behaviour. The aim is to encourage good behaviour. Negative reinforcement of undesirable behaviour comes as a punishment (i.e., a stick) for bad behaviour and takes the form of sanctions that are imposed on actors to prevent them from behaving in undesirable ways. For instance, legal sanctions can make it highly undesirable for businesses to act in certain ways. The objective here is to prevent bad behaviour.

Novo Nordisk defines sustainable development as being about preserving the planet while improving the quality of life for its current and future inhabitants. From a business perspective this involves the inclusion of economic, social and environmental considerations in the business strategy. During the 1990s many companies experienced an enormous pressure from critical stakeholders, governments, media, NGOs and international organisations to demonstrate that they had adopted sustainable business practices.

In a globalising world, companies are exposed to an ever more complex web of stakeholder groups, whose interests and expectations they are expected to manage. This is not all one-way traffic. The long-held belief, recently espoused by The Economist,² that financial performance conflicts with social and environmental performance is being challenged by companies themselves. In addition to being seen as a way to manage costly reputational and regulatory risks, leading companies and entrepreneurs see well managed corporate responsibility as a way to improve performance and create new business opportunities. The traditional ‘externalities’ of economics, usually defined, and often still taught, as outside of business’ remit, are steadily becoming very real factors in corporate decision making. However, despite these developments, integrating corporate responsibility into the mainstream operations of the vast majority of companies is a challenge that remains to be met.

An important avenue toward responsible and sustainable business is social entrepreneurship, although its appearance has been more marked in practice than in academic research. Indeed, there is but a nascent body of academic literature published on the subject, with a smattering of studies across disciplines. In this paper we draw on that literature, as well as popular discussions and contemporary case studies, to explore the development of the concept of social entrepreneurship and its motivations, its promises and its implications. As a working definition of ‘social entrepreneurship,’ we observe that it most generally entails a marriage between the idea of innovative business start-up or oganisational transformation and socially inspired values. At the same time, we stress the diversity of economic, political and social phenomena associated in one way or another with the term ‘social entrepreneurship’ while also emphasising the broad appeal of the term. Thus, social entrepreneurship is a contested term and concept around which there is significant socio-political energy and vigorous debate today.

In 1999, UN secretary-general Kofi Annan set out a vision for the Global Compact² — calling on business leaders ‘to join the United Nations on a journey’. Five years later, the secretary-general commented that at the time, globalisation had appeared like ‘a force of nature’ seeming to ‘lead inexorably in one direction: ever-closer integration of markets, ever-larger economies of scale, ever-bigger opportunities for profits and prosperity’. However, even ten months before the Seattle protests against the World Trade Organisation (WTO), he also felt it necessary to warn that globalisation would only be as sustainable as its social foundations. ‘Global unease about poverty, equity and marginalisation’, he stressed, ‘are beginning to reach critical mass.’

The debate on the ‘appropriate’ nature of the relationship between business and society has a long history. Philosophers of more ancient times such as Plato and Aristotle, pondered on the morality of the relationship between business and society. In recent times attention has focused on the concept of CSR (Klonoski, 1991; Greening and Gray, 1994; Wood, 1991). CSR has provoked numerous debates and definitions, some supportive and others critical. The neoclassical economists and proponents of market liberalisation and profit-maximisation (Friedman, 1962: 133; Arrow, 1997: 143) suggest that the only social responsibility of business it to ‘use its resources and engage in activities designed to increase its profits so long as it … engages in open and free competition without deception or fraud’. In contrast, CSR advocates (Jones, 1980: 59–60; Jones et al., 2002: 21) promote the notion, ‘that corporations have an obligation to constituent groups in society other than stockholders and beyond that prescribed by law or union contract’, and furthermore, the obligation should be ‘voluntarily adopted’. Similarly, McWilliams and Siegal (2001) argue that CSR represents ‘actions that appear to further some social good, beyond the interests of the firm and that which is required by law’.