Theories of corporate social responsibility

Introduction

There is a belief that organisations should have some corporate social responsibility.

• With social responsibility there is social accountability - organisations must account for their actions.
• The belief means that there may be a difference between how the world is now and how it should be.

An introduction to the subject can be found here. This page looks at some of the theories concerning defining CSR and the different attitudes firms can have towards it.

Defining CSR

Carroll

Carroll devised a four-part model of CSR: economic responsibility, legal responsibility, ethical responsibility and philanthropic responsibility.

True CSR requires satisfying all four parts consecutively.

From this, Carroll offers the following definition of CSR:

'CSR encompasses the economic, legal, ethical and philanthropic expectations placed on organisations by society at a given point in time.'

Economic responsibility

• Shareholders demand a reasonable return.
• Employees want safe and fairly paid jobs.
• Customers demand quality at a fair price.

Legal responsibility

• The law is a base line for operating within society.
• It is an accepted rule book for company operations.

Ethical responsibility

• This relates to doing what is right, just and fair.
• Actions taken in this area provide a reaffirmation of social legitimacy.
• This is naturally beyond the previous two levels.

Philanthropic responsibility

• Relates to discretionary behaviour to improve the lives of others.
• Charitable donations and recreational facilities.
• Sponsoring the arts and sports events.

How firms respond to CSR

Milton Friedman

A corporation:

• Is an artificial person in law. It has the same rights and responsibilities as human beings.
• Is notionally owned by shareholders but exists independently of them. The shareholder has a right to vote and be paid a dividend but the company owns its assets.
• Managers have a fiduciary right to protect shareholder investment.

Milton Friedman argued that, in relation to this definition, a corporation has no responsibility outside of making profit for shareholders:

• Only human beings have moral responsibility for their actions.
• It is the managers' duty to act solely in the interest of shareholders - this is a point of law. Any other action is shareholder betrayal.
• Social issue are the province of the state and not corporations.

The argument against this viewpoint needs to provide the organisation with an alternative view that leads to the same outcome of profit.

Enlightened self-interest

Corporations perceived as ethically sound are rewarded with extra customers.

• Corporations which are ethically unsound are boycotted.
• Employees are more attracted to work for, and are more committed to, socially responsible companies.
• Voluntarily committing to social actions and programmes may forestall legislation and promote independence from government.
• Positive contribution to society may be a long-term investment in a safer, better educated and more equitable community creating a more stable context in which to do business.

Social responsiveness (Carroll)

This refers to the capacity of the corporation to respond to social pressure, and the manner in which it does so.

Carroll suggests four possible strategies: reaction, defence, accommodation and proaction.

Reaction

The corporation denies any responsibility for social issues.

Defence

The corporation admits responsibility but fights it, doing the very least that seems to be required.

Accommodation

The corporation accepts responsibility and does what is demanded of it by relevant groups.

Proaction

The corporation seeks to go beyond industry norms.

Gray, Owens and Adams

Gray, Owens and Adams provide seven positions on social responsibility as alternative views on this difference.

Pristine capitalist:

• underpinning value is shareholder wealth maximisation.
• anything that reduces shareholder wealth (such as acting in a socially responsible way) is theft from shareholders.

Expedients:

• recognise some social responsibility expenditure may be necessary to strategically position an organisation so as to maximise profits.
• this is back to the concept of 'enlightened self-interest'.

Proponents of social contract:

• businesses enjoy a licence to operate granted by society so long as the business acts in an appropriate way.

Social ecologist:

• recognises that a business has a social and environmental footprint and therefore bears responsibility for minimising that footprint.

Socialist:

• actions of business are those of the capitalist class oppressing other classes of people.
• business should be conducted so as to redress imbalances in society.

Radical feminist:

• society and business should be based on feminine characteristics such as equity, dialogue, compassion and fairness.

Deep ecologist:

• humans have no more intrinsic right to exist than any other species.

CSR and culture

There is a wider cultural context in which ethics and socially responsible behaviour exist.

The variables determining the cultural context of ethics and CSR include:

• Economic - focus on profitability.
• Legal - focus on compliance with the law.
• Ethical - focus on doing 'what is right'.
• Philanthropic - focus on doing 'what is desired'.

Cultural differences:

The extent of ethics and CSR varies according to culture. For example, the four responsibilities have different connotations in a European context as opposed to a US context.

• The European context focuses on ethics and philanthropic actions being enforced legally
• The US system tends to focus on the discretionary actions of companies and individuals (economic factors).

Impact of CSR on corporate governance

A key area of impact is in relation to the increased need for, and existence of, social accounting. There are various forms of social accounting produced for inclusion in the Business Review as part of annual accounting reports.

• Ethical accounting: tends to focus on internal management systems or codes of practice at an individual level and how the company audits and complies with this.
• Environmental accounting: tends to focus exclusively on the organisation's impact on the natural environment.
• Social accounting: has a broader remit to incorporate employee conditions, health and safety, equal opportunities, human rights, charity work.
• Sustainability accounting: is a grand title that incorporates the triple bottom line of the first three with possible emphasis on environmentalism.

Government v Organisation

The demands for organisations to be more accountable and step up to their new role as valid members of society comes from two main sources: government failure and corporate power.

Government failure

One consequence of a modern society with an abundance of products and services is the failure of governments to deal with risks that  accompany these rapid changes.

• Sometimes the risks are beyond the control of a single government.
• Sometimes electoral impact dampens political will.
• Sometimes they are part of the problem.
• Sometimes it is simply too difficult to change lifestyles.
• Sometimes sub-political activism such as Greenpeace impedes political will.

Corporate power

Corporations can shape lives in many ways:

• Liberalisation and deregulation of markets increase market power and restrict the ability of governments to intervene.
• Privatisation of many previous state monopolies places greater power in the corporate hand.
• Countries struggle with unemployment and yet the decision to locate and support societies is often not theirs but that of corporations.
• The pressure on low-wage economies to maintain low wages (and hence low costs to attract customers) is vast.
• Complex cross-border legal agreement is very difficult and so corporations are encouraged to self-regulate.

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