Few decades ago, many corporate executives have struggled with the issue of the firm’s responsibility to society. Some argued that the only “responsibility” of a corporation is to make money and increase the shareholder value. In other words, corporate financial responsibility has been its bottom line driving force.
However, in the last two decades, a movement defining broader corporate responsibilities – for the environment, for local communities, for working conditions, and for ethical practices – has gathered momentum and taken hold.
This new driving force is known as corporate social responsibility (CSR). CSR is oftentimes also described as the corporate “triple bottom line”– the totality of the corporation’s FINANCIAL, SOCIAL, and ENVIRONMENTAL performance in conducting its business.
However, there is no agreed definition of CSR. This raises the question as to what exactly can be considered to be corporate social responsibility. So, what is Corporate Social Responsibility?
According to Sir Geoffrey Chandler, CSR generally refers ”to transparent business practices that are based on ethical values, compliance with legal requirements, and respect for people, communities, and the environment. Thus, beyond making profits, companies are responsible for the totality of their impact on people and the planet.”.
VIEWS ABOUT CORPORATE SOCIAL RESPONSIBILITY
CORPORATIONS ARE PART OF SOCIETY
Archie B. Carroll, one of the early CSR theorists, states that “the social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time.” In 1991, Carroll introduced his Pyramid of CSR:
PROFIT IS ALL THAT MATTER
Equally some people are more cynical in their view of corporate activity.
Peter Drucker had the opinion that: “business turns a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs, and into wealth.CSR IS CONDITIONAL
Lance Moir, an educator and author, states that: “whether or not business should undertake CSR, and the forms that responsibility should take, depends upon economic perspective of the firm that is adopted.”
DRIVING FORCES OF CORPORATE SOCIAL RESPONSIBILITY
INCREASE AFFLUENCE – CSR becomes more relevant as economies grow and stabilize. Therefore, the greatest attention to CSR is found in developed countries. Stable work and security provide the luxury of choice and socially responsible activism. No such luxury exists when basic needs are in question.
ECOLOGICAL SUSTAINABILITY – Perhaps the most obvious and most talked about of the drivers, concerns over pollution, waste, natural resource depletion, climate change and the like continue to fuel the CSR discussion and heighten expectations for proactive corporate action. After all, it is in the best interest of firms to protect for the sustainable future the long-term availability of the resources on which they depend.
GLOBALIZATION – Globalization has had considerable impacts. First, the increased wealth and power of multinational corporations has led to questions on the decreased authority of the nation-state, especially in developing areas. Further, cultural differences have added to the complexity of CSR as expectations of acceptable behavior vary regionally. With increased power comes increased responsibility and globalization has fueled the need to filter all strategic decisions through a CSR lens to ensure optimal outcomes for diverse stakeholders.
FREE FLOW OF INFORMATION – Through the Internet and other electronic mediums the flow of information has shifted back to the stakeholders, especially in the case of three important groups: consumers, NGOs and the general media. Easily accessible and affordable communication technologies have permanently changed the game and only truly authentic and transparent companies will profit in the long term.
POWER OF THE BRAND – Brands are today the focal point of corporate success and much of the health of the brand depends on public perception of the corporation. In other words, reputation is the key and honest CSR is a way to protect that reputation and therefore the brand.
STAGES OF CORPORATE SOCIAL RESPONSIBILITY
In the defensive stage, the company is faced with often unexpected criticism, usually from civil activists and the media but sometimes from direct stakeholders such as customers, employees, and investors. The company’s responses are designed and implemented by legal and communications teams and tend to involve either outright rejections of allegations (“It didn’t happen”) or denials of the links between the company’s practices and the alleged negative outcomes (“It wasn’t our fault”).
At the compliance stage, it’s clear that a corporate policy must be established and observed, usually in ways that can be made visible to critics (“We ensure that we don’t do what we agreed not to do”).
At the managerial stage, the company realizes that it’s facing a long-term problem that cannot be swatted away with attempts at compliance or a public relations strategy. The company will have to give managers of the core business responsibility for the problem and its solution.
A company at the strategic stage learns how realigning its strategy to address responsible business practices can give it a leg up on the competition and contribute to the organization’s long-term success.
Ultimately, many companies recognize the importance of getting other companies to follow their lead. They may promote participation by other firms in their industries, endorsing the principle that the public is best served through collective action.
Note: Originally prepared as a presentation material for GMB 711. GMB 711 is a core subject for Master of Science in Accountancy and Master in Business Administration Programs at University of the East Graduate School (Manila, Philippines)
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