| For the better part of 30 years now, corporate executives have struggled with the issue of the firm's responsibility to its society. Early on it was argued by some that the corporation's sole responsibility was to provide a maximum financial return to shareholders. It became quickly apparent to everyone, however, that this pursuit of financial gain had to rake place within the laws of the land. Though social activist groups and others throughout the 1960s advocated a broader notion of corporate responsibility, it was not until the significant social legislation of the early 1970s that this message became indelibly clear as a result of the creation of the Environmental Protection Agency (EPA), the Equal Employment Opportunity Commission (EEOC). The Occupational Safety and Health Administration (OSHA), and the Consumer Product Safety" Commission (CPSC).
These new governmental bodies established that national public policy now officially recognized the environment. employees, and consumers to be significant and legitimate stakeholders of business. From that time on, corporate executives have had to wrestle with how they balance their commitments to the corporation's owners with their obligations to an ever-broadening group of stakeholders who claim both legal and ethical rights.
This article will explore the nature of corporate social responsibility (CSR) with an eye toward understanding its component parts. The intention will be to characterize the firm's CSR in ways that might be useful to executives who wish to reconcile their obligations to their shareholders with those to other competing groups claiming legitimacy. This discussion will be framed by a pyramid of corporate social responsibility. Next, we plan to relate this concept to the idea of stakeholders. Finally, our goal will be to isolate the ethical or moral component of CSR and relate it to perspectives that reflect three major ethical approaches to management-immoral, amoral, and moral. The principal goal in this final section will be to flesh out what it means to manage stakeholders in an ethical or moral fashion.
In 1971 the Committee for Economic Development used a "three concentric circles" approach to depicting CSR. The inner circle included basic economic functions-growth, products, jobs. The intermediate circle suggested that the economic functions must be exercised with a sensitive awareness of changing social values and priorities. The outer circle outlined newly emerging and still amorphous responsibilities that business should assume to become more actively involved in improving the social environment.
The attention was shifted from social responsibility to social responsiveness by several other writers. Their basic argument was that the emphasis on responsibility focused exclusively on the notion of business obligation and motivation and that action or performance were being overlooked. The social responsiveness movement, therefore. emphasized corporate action, proaction, and implementation of a social role. This was indeed a necessary reorientation.
The question still remained, however, of reconciling the firm's economic orientation with its social orientation. A step in this direction was taken when a comprehensive definition of CSR was set forth. In this view, a four-part conceptualization of CSR included the idea that the corporation has not only economic and legal obligations, but ethical and discretionary (philanthropic) responsibilities as well (Carroll 1979). The point here was that CSR, to be accepted as legitimate, had to address the entire spectrum of obligations business has to society, including the most fundamental-economic. It is upon this four-part perspective that our pyramid is based.
In recent years, the term corporate social performance (CSP) has emerged as an inclusive and global concept to embrace corporate social responsibility, responsiveness, and the entire spectrum of socially beneficial activities of businesses. The focus on social performance emphasizes the concern for corporate action and accomplishment in the social sphere. With a performance perspective, it is clear that firms must formulate and implement social goals and programs as well as integrate ethical sensitivity into all decision making, policies, and actions. With a results focus, CSP suggests an all-encompassing orientation towards normal criteria by which we assess business performance to include quantity, quality, effectiveness, and efficiency. While we recognize the vitality of the performance concept, we have chosen to adhere to the CSR terminology for our present discussion. With just a slight change of focus, however, we could easily be discussing a CSP rather than a CSR pyramid. In any event, the long-term concern is what managers do with these ideas in terms of implementation.
The pyramid of Corporate Social Responsibility
For CSR to be accepted by a conscientious business person, it should be framed in such a way that the entire range of business responsibilities are embraced. It is suggested here that four kinds of social responsibilities constitute total CSR: economic, legal, ethical. and philanthropic. Furthermore. these four categories or components of CSR might be depicted as a pyramid. To be sure. ail of these kinds of responsibilities have always existed to some extent. but it has only been in recent years that ethical and philanthropic functions have taken a significant place. Each of these four categories deserves closer consideration.
Economic Responsibilities
Historically. business organizations were created as economic entities designed to provide goods and services to societal members. The profit motive was established as the primary incentive for entrepreneurship. Before it was anything else, business organization was the basic economic unit in our society. As such, its principal role was to produce goods and services that consumers needed and wanted and to make an acceptable profit in the process. At some point the idea of the profit motive got transformed into a notion of maximum profits, and this has been an enduring value ever since. All other business responsibilities are predicated upon the economic responsibility of the firm, because without it the others become moot considerations. Figure 1 summarizes some important statements characterizing economic responsibilities. Legal responsibilities are also depicted in Figure 1, and we will consider them next.
Legal Responsibilities
Society has not only sanctioned business to operate according to the profit motive; at the same time business is expected to comply with the laws and regulations promulgated by federal, state, and local governments as the ground rules under which business must operate. As a partial fulfillment of the "social contract" between business and society firms are expected to pursue their economic missions within the framework of the law. Legal responsibilities reflect a view of "codified ethics" in the sense that they embody basic notions of fair operations as established by our lawmakers. They are depicted as the next layer on the pyramid to portray their historical development, but they are appropriately seen as coexisting with economic responsibilities as fundamental precepts of the free enterprise system.
Evolution of Corporate Social Responsibility
What does it mean for a corporation to be socially responsible? Academics and practitioners have been striving to establish an agreed-upon definition of this concept for 30 years. In 1960, Keith Davis suggested that social responsibility refers to businesses' "decisions and actions taken for reasons at least partially beyond the firm's direct economic or technical interest." At about the same time, Eells and Walton (1961) argued that CSR refers to the "problems that arise when corporate enterprise casts its shadow on the social scene, and the ethical principles that ought to govern the relationship between the corporation and society."
Corporate social responsibility (CSR, also called corporate responsibility, corporate citizenship, and responsible business) is a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities and other stakeholders, as well as the environment. 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.
The practice of CSR is subject to much debate and criticism. Proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate, short-term profits. Critics argue that CSR distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing; still others argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations.
Business ethics is a form of the art of applied ethics that examines ethical principles and moral or ethical problems that can arise in a business environment. In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e.g. higher UK road tax for higher-emission vehicles).
Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia, descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined their core values in the light of business ethical considerations (e.g. BP's "beyond petroleum" environmental tilt).
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.
An approach for CSR that is becoming more widely accepted is community-based development projects, such as the Shell Foundation's involvement in the Flower Valley, South Africa. Here they have set up an Early Learning Centre to help educate the community's children, as well as develop new skills for the adults. Marks and Spencer is also active in this community through the building of a trade network with the community - guaranteeing regular fair-trade purchases. Often alternative approaches to this is the establishment of education facilities for adults, as well as HIV/AIDS education programmes. The majority of these CSR projects are established in Africa. A more common approach of CSR is through the giving of aid to local organizations and impoverished communities in developing countries. Some organizations do not like this approach as it does not help build on the skills of the local people, whereas community-based development generally leads to more sustainable development
Business Benefits
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 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 organization 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 public relations departments of an organization,[5] 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 program.
The business case for CSR within a company will likely rest on one or more of these arguments:
Human Resources
A CSR program can be seen as an aid to recruitment and retention,[6] 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.
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.[8] Several major brands, such as The Co-operative Group and The Body Shop are built on ethical values. Business service organizations 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 issues such as 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 labor standards and impacts on the environment.
Critical Analysis
CSR is entwined in the strategic planning process of many multinational organizations. The reasons or drive behind social responsibility towards human and environmental responsibility whether driven by ulterior motives, enlightened self-interest, or interests beyond the enterprise, is subject to much debate and criticism.
Some critics argue that corporations are fundamentally entities responsible for generating a product and/or service to gain profits to satisfy shareholders. Milton Friedman and others argue that there is no place for social responsibility as a business function. These critics point to the rule of corporate law that prohibits a corporation's directors from any activity that would reduce profits.
Other critics argue that the practice cherry-picks the good activities a company is involved with and ignores the others, thus 'greenwashing' their image as a socially or environmentally responsible company. Still other critics argue that it inhibits free markets or seeks to pre-empt the role of governments in controlling the socially or environmentally damaging effects of corporations' pursuit of self-interest.
Disputed business motives
Some critics believe that CSR programs are often undertaken in an effort to distract the public from the ethical questions posed by their core operations. Examples of companies that have been accused of this motivation include British American Tobacco (BAT), which produces major CSR reports, and the petroleum giant BP, which is well-known for its high-profile advertising campaigns on environmental aspects of its operations.
Self-interest
Some CSR critics 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 maximize profits, are unable to advance the interests of society as a whole.[12] They 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 claims regarding mistreatment of workers, misleading advertising, and unnecessary cruelty to animals. Similarly Shell has a much-publicized 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. Since this has happened, the Shell Foundation has become involved in many projects across the world, including a partnership with Marks and Spencer (UK) in three flower and fruit growing communities across Africa.
These critics generally suggest that stronger government and international regulation, rather than voluntary measures, are necessary to 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.
Hindrance of free trade
These critics 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. Because of this, moderate critics 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 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.
Drivers/Ethical consumerism
Corporations may be influenced to adopt CSR practices by several drivers. The rise in popularity of ethical consumerism over the last two decades can be linked to the rise of CSR. As global population increases, so does the pressure on limited natural resources required to meet rising consumer demand (Grace and Cohen 2005, 147). Industrialization in many developing countries is booming as a result of technology and globalization. Consumers are becoming more aware of the environmental and social implications of their day-to-day consumer decisions and are beginning to make purchasing decisions related to their environmental and ethical concerns. However, this practice is far from consistent or universal.
Globalization and market forces
As corporations pursue growth through globalization, they have encountered new challenges that impose limits to their growth and potential profits. Government regulations, tariffs, environmental restrictions and varying standards of what constitutes labor exploitation are problems that can cost organizations millions of dollars. Some view ethical issues as simply a costly hindrance. Some companies use CSR methodologies as a strategic tactic to gain public support for their presence in global markets, helping them sustain a competitive advantage by using their social contributions to provide a subconscious level of advertising.(Fry, Keim, Mieners 1986, 105) Global competition places particular pressure on multinational corporations to examine not only their own labor practices, but those of their entire supply chain, from a CSR perspective.
Social awareness and education
The role among corporate stakeholders to work collectively to pressure corporations is changing. Shareholders and investors themselves, through socially responsible investing are exerting pressure on corporations to behave responsibly. Non-governmental organizations are also taking an increasing role, leveraging the power of the media and the Internet to increase their scrutiny and collective activism around corporate behavior. Through education and dialogue, the development of community in holding businesses responsible for their actions is growing (Roux 2007).
Ethics training
The rise of ethics training inside corporations, some of it required by government regulation, is another driver credited with changing the behavior and culture of corporations. The aim of such training is to help employees make ethical decisions when the answers are unclear. Tullberg believes that humans are built with the capacity to cheat and manipulate, a view taken from (Trivers 1971, 1985), hence the need for learning normative values and rules in human behavior (Tullberg 1996). The most direct benefit is reducing the likelihood of "dirty hands" (Grace and Cohen 2005), fines and damaged reputations for breaching laws or moral norms. Organizations also see secondary benefit in increasing employee loyalty and pride in the organization. Caterpillar and Best Buy are examples of organizations that have taken such steps (Thilmany 2007).
Government laws and regulation
Another driver of CSR is the role of independent mediators, particularly the government, in ensuring that corporations are prevented from harming the broader social good, including people and the environment. CSR critics such as Robert Reich argue that governments should set the agenda for social responsibility by the way of laws and regulation that will allow a business to conduct themselves responsibly.
The issues surrounding government regulation pose several problems. Regulation in itself is unable to cover every aspect in detail of a corporation's operations. This leads to burdensome legal processes bogged down in interpretations of the law and debatable grey areas (Sacconi 2004). General Electric is an example of a corporation that has failed to clean up the Hudson River after contaminating it with organic pollutants. The company continues to argue via the legal process on assignment of liability, while the cleanup remains stagnant. (Sullivan & Schiafo 2005). The second issue is the financial burden that regulation can place on a nation's economy. This view shared by Bulkeley, who cites as an the Australian federal government's actions to avoid compliance with the Kyoto Protocol in 1997, on the concerns of economic loss and national interest. The Australian government took the position that signing the Kyoto Pact would have caused more significant economic losses for Australia than for any other OECD nation (Bulkeley 2001, pg 436). Critics of CSR also point out that organizations pay taxes to government to ensure that society and the environment are not adversely affected by business activities.
Crises and their consequences
Often it takes a crisis to precipitate attention to CSR. One of the most active stands against environmental management is the CERES Principles that resulted after the Exxon Valdez incident in Alaska in 1989 (Grace and Cohen 2006). Other examples include the lead poisoning paint used by toy giant Mattel, which required a recall of millions of toys globally and caused the company to initiate new risk management and quality control processes. In another example, Magellan Metals in the West Australian town of Esperance was responsible for lead contamination killing thousands of birds in the area. The company had to cease business immediately and work with independent regulatory bodies to execute a cleanup.
Moral management and stakeholders
At this juncture we would like to expound upon the link between the firm's ethical responsibilities or perspectives and its major stakeholder groups. Here we are isolating the ethical component of our CSR pyramid and discussing it more thoroughly in the context of stakeholders. One way to do this would be to use major ethical principles such as those of justice, rights, and utilitarianism to identify and describe our ethical responsibilities. We will take another alternative, however, and discuss stakeholders from the context of three major ethical approaches-immoral management, amoral management, and moral management. These three ethical approaches were defined and discussed in an earlier Business Horizons article (Carroll 1987). We will briefly describe and review these three ethical types and then suggest how they might be oriented toward the major stakeholder groups. Our goal is to profile the likely orientation of the three ethical types with a special emphasis upon moral management, our preferred ethical approach.
Three Moral Types
If we accept that the terms ethics and morality are essentially synonymous in the organizational context, we may speak of immoral, amoral, and moral management as descriptive categories of three different kinds of managers. Immoral management is characterized by those managers whose decisions, actions, and behavior suggest an active opposition to what is deemed right or ethical. Decisions by immoral managers are discordant with accepted ethical principles and, indeed, imply an active negation of what is moral. These managers care only about their or their organization's profitability and success. They see legal standards as barriers or impediments management must overcome to accomplish what it wants. Their strategy is to exploit opportunities for personal or corporate gain.
An example might be helpful. Many observers would argue that Charles Keating could be described as an immoral manager. According to the federal government, Keating recklessly and fraudulently ran California's Lincoln Savings into the ground, reaping $34 million for himself and his family. A major accounting firm said about Keating: "Seldom in our experience as accountants have we experienced a more egregious example of the misapplication of generally accepted accounting principles" ("Good Timing, Charlie" 1989).
The second major type of management ethics is amoral management. Amoral managers are neither immoral nor moral but are not sensitive to the fact that their everyday business decisions may have deleterious effects on others. These managers lack ethical perception or awareness. That is, they go through their organizational lives not thinking that their actions have an ethical dimension. Or they may just be careless or inattentive to the implications of their actions on stakeholders. These managers may be well intentioned, but do not see that their business decisions and actions may be hurting those with whom they transact business or interact. Typically their orientation is towards the letter of the law as their ethical guide. We have been describing a sub-category of amorality known as unintentional amoral managers. There is also another group we may call intentional amoral managers. These managers simply think that ethical considerations are for our private lives, not for business. They believe that business activity resides outside the sphere to which moral judgments apply. Though most amoral managers today are unintentional, there may still exist a few who just do not see a role for ethics in business.
Examples of unintentional amorality abound. When police departments stipulated applicants must be 5'10" and weigh 180 pounds to qualify for positions, they just did not think about the adverse impact their policy would have on women and some ethnic groups who, on average, do not attain that height and weight. The liquor, beer, and cigarette industries provide other examples. They did not anticipate that their products would create serious moral issues: alcoholism, drunk driving deaths, lung cancer, deteriorating health, and offensive secondary smoke. Finally, when McDonald's initially decided to use polystyrene containers for food packaging it just did not adequately consider the environmental impact that would be caused. McDonald's surely does not intentionally create a solid waste disposal problem, but one major consequence of its business is just that. Fortunately, the company has responded to complaints by replacing the polystyrene packaging with paper products.
Moral management is our third ethical approach, one that should provide a striking contrast. In moral management, ethical norms that adhere to a high standard of right behavior are employed. Moral managers not only conform to accepted and high levels of professional conduct, they also commonly exemplify leadership on ethical issues. Moral managers want to be profitable, but only within the confines of sound legal and ethical precepts, such as fairness, justice, and due process. Under this approach, the orientation is toward both the letter and the spirit of the law. Law is seen as minimal ethical behavior and the preference and goal is to operate well above what the law mandates. Moral managers seek out and use sound ethical principles such as justice, rights, utilitarianism, and the Golden Rule to guide their decisions. When ethical dilemmas arise, moral managers assume a leadership position for their companies and industries.
There are numerous examples of moral management. When IBM took the lead and developed its Open Door policy to provide a mechanism through which employees might pursue their due process rights, this could be considered moral management. Similarly, when IBM initiated its Four Principles of Privacy to protect privacy rights of employees, this was moral management. When McCullough Corporation withdrew from the Chain Saw Manufacturers Association because the association fought mandatory safety standards for the industry, this was moral management. McCullough knew its product was potentially dangerous and had used chain brakes on its own saws for years, even though it was not required by law to do so. Another example of moral management was when Maguire Thomas Partners, a Los Angeles commercial developer, helped solve urban problems by saving and refurbishing historic sites, putting up structures that matched old ones, limiting building heights to less than the law allowed, and using only two-thirds of the allowable building density so that open spaces could be provided.
It has often been said that leadership by example is the most effective way to improve business ethics. If that is true, moral management provides a model leadership perspective or orientation that managers may wish to emulate. One great fear is that managers may think they are providing ethical leadership just by rejecting immoral management. However, amoral management, particularly the unintentional variety, may unconsciously prevail if managers are not aware of what it is and of its dangers. At best, amorality represents ethical neutrality, and this notion is not tenable in the society of the 1990s. The standard must be set high, and moral management provides the best exemplar of what that lofty standard might embrace. Further, moral management, to be fully appreciated, needs to be seen within the context of organization-stakeholder relationships. It is toward this singular goal that our entire discussion has focused. If the "good society" is to become a realization, such a high expectation only naturally becomes the aspiration and preoccupation of management.
Orientation Toward Stakeholders
Now that we have a basic understanding of me three ethical types or approaches, we will propose profiles of what the likely stakeholder orientation might be toward the major stakeholder groups using each of the three ethical approaches. Our goal is to accentuate the moral management approach by contrasting it with the other two types.
Basically, there are five major stakeholder groups that are recognized as priorities by most firms, across industry lines and in spite of size or location: owners (shareholders), employees, customers, local communities, and the society-at-large. Although the general ethical obligation to each of these groups is essentially identical (protect their rights, treat them with respect and fairness), specific behaviors and orientations arise because of the differing nature of the groups. In an attempt to flesh out the character and salient features of the three ethical types and their stakeholder orientations, Figures 5 and 6 summarize the orientations these three types might assume with respect to four of the major stakeholder groups. Because of space constraints and the general nature of the society-at-large category, it has been omitted.
Though the concept of corporate social responsibility may from time to time be supplanted by various other focuses such as social responsiveness, social performance, public policy, ethics, or stakeholder management, an underlying challenge for all is to define the kinds of responsibilities management and businesses have to the constituency groups with which they transact and interact most frequently. The pyramid of corporate social responsibility gives us a framework for understanding the evolving nature of the firm's economic, legal, ethical, and philanthropic performance. The implementation of these responsibilities may vary depending upon the firm's size, management's philosophy, corporate strategy, industry characteristics, the state of the economy, and other such mitigating conditions, but the four component parts provide management with a skeletal outline of the nature and kinds of their CSR. In frank, action-oriented terms, business is called upon to: be profitable, obey the law, be ethical, and be a good corporate citizen.
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