Corporate Social

Responsibility
(CSR)
 What is Corporate Social Responsibility?

• Corporate social responsibility is the duty of a

corporation to create wealth in ways that avoid harm to,
protect, or enhance societal assets.

• The fundamental idea is that corporations have duties

that go beyond lawful execution of their economic
function. Here is the reasoning. The overall performance
of a firm must benefit society. Because of market
imperfections, the firm will not fulfill all its duties, and
may breach some, if it responds only to market forces.
Advocates of social responsibility, who occupy a very broad
middle band of the political spectrum, justify it with three
basic arguments.
• First, it is an ethical duty to promote social justice. A timeless
principle is that power should be used fairly. If it harms or fails
society, it is badly used.
• Second, social responsibility is practical. It has concrete
benefits. It motivates employees and creates loyal customers.
It leads to innovative products and strategies. It strengthens
surrounding communities. It protects reputations and avoids
regulation. In short, there is a “business case” beyond ethical
duty.
• Third, it is necessary because other forces do not force full
responsibility on corporations, particularly multinational
corporations that operate across borders in a global arena of
weak governance.
• In 1971 the Committee for Economic Development, a prestigious
voice of business, published a bold statement of the case for
expansive social responsibility. Society, it said, has broadened its
expectations outward over “three concentric circles of
responsibilities.”
• An inner circle of clear-cut responsibility for efficient execution of the
economic function resulting in products, jobs, and economic growth.
• An intermediate circle encompassing responsibility to exercise this
economic function with a sensitive awareness of changing values
and priorities.

• An outer circle that outlines newly emerging and still amorphous

responsibilities that business should assume to improve the social
environment, even if they are not directly related to specific
business processes.
 BASIC ELEMENTS OF SOCIAL RESPONSIBILITY

• Market actions
• Mandated actions
• Voluntary actions

• Market actions are responses to competitive

forces in markets. Such actions have always
dominated and this will continue. When a
corporation responds to markets, it fulfills its
first and most important social responsibility.
All else pales before its economic impact.
• Mandated actions are those required either by
government regulation or civil regulation.
Government, or public, regulation is rooted in the
authority of the state and its mandates are
enforceable by law. Government mandates have
multiplied rapidly in developed countries. Civil
regulation is regulation by non state actors based on
social norms or standards enforced by social or
market sanctions. Civil regulation, sometimes called
private regulation, has many faces. It is imposed
when activists, consumers, investors, lenders,
shareholders, or employees make demands on a
company and failure to comply will lead to
reputational or financial damage.
• Voluntary actions go beyond those compelled
by law or regulation. Some voluntary actions
can be called “legal plus” because they exceed
required mandates.
 GENERAL PRINCIPLES OF CORPORATE SOCIAL RESPONSIBILITY
• Corporations are economic institutions run for profit.
• All firms must follow multiple bodies of law , including (1) corporation
laws and chartering provisions, (2) the civil and criminal laws of
nations, (3) legislated regulations that protect stakeholders, and (4)
international laws, including treaties and trade agreements.
• Managers must act ethically .
• Corporations have a duty to correct adverse social impacts they cause
.
• Social responsibility varies with company characteristics.
• Managers should try to meet legitimate needs of multiple
stakeholders .
• Corporate behavior must comply with an underlying social contract.
• Corporations should be transparent and accountable.
 THE PROBLEM OF CROSS-BORDER
CORPORATE POWER
• First, international law, as found in treaties, conventions, and
trade agreements, is weak in addressing social impacts of
business. It strongly protects commercial rights, but norms
protecting labor, human rights, nature, indigenous cultures, and
other social resources are far less codified.

• Second, transnational corporations are subject to uneven

regulation in developing nations, where institutions may be
rudimentary and enforcement feeble. Some governments have
overly bureaucratic agencies riddled with corruption. And some
are undemocratic, run by elites that siphon off the economic
benefits of foreign investment and neglect public needs.
• Third, in adapting to global economic growth, corporations
use strategies of joint venture, outsourcing, and supply
chain extension that create efficiencies, but sometimes also
distance them from direct accountability for social harms.

• And fourth, significantly more government regulation of

transnational firms is unlikely. No global government exists
and no nation-state has the power (or the wish) to regulate
international commerce. Developing nations fear, correctly,
that stricter rules will deter foreign investment.
 Implementing
Corporate Social
Responsibility
 Business model
• A business model is the underlying idea or
theory of how a business will create value by
making and selling something in the market.
The theory is validated if the business makes a
profit. In the universe of business models,
there are two distinct types as they relate to
corporate responsibility, the progressive
model and the traditional model.
• A traditional business model is one in which
the central strategy for creating value is based
on meeting market demands while complying
with the law.
• A progressive business model differs. It creates
value by meeting market demands and, in the
process, mitigating social problems or
improving society in some way. The value
proposition is based on actions that would be
considered voluntary responsibilities in more
traditional companies.
Sources of Pressure for Social Responsibility
A Spectrum of Responses to Social Demands
A Model Process of CSR Implementation
 CSR Review
• Discovering Core Values
Core values, the central beliefs that guide decisions,
reside deep in the company’s culture. Once formed they
are very persistent. There are many ways to find them.

• Engaging Stakeholders
Many companies now engage in formal or informal
dialogue with a range of stakeholders, those entities that
can affect or are affected by their activities. They are
driven less by an ethical duty to be open than by a
desire to avoid disruption of operations.
 CSR Strategy
• A strategy is a basic approach, method, or plan for achieving an
objective. A company with a strategy is like a traveler with a map
showing the city of destination and a plan to reach it by taking
the morning train. Like this traveler, a company defining its CSR
strategy must first find an objective, or a vision of what it will
achieve, then create a method for reaching it.

• To establish its CSR objective a company can consider the profile

it constructed in the CSR review stage, analyzing it to find
strengths and weaknesses in its social response and threats and
opportunities in its environment. Then the company can list a
range of possible social initiatives. At a minimum, these actions
must meet legal requirements.
 Implementation of CSR Strategy
• Organization Structure
An initial step in implementation is to create an effective CSR
decision-making structure. Many companies create elements of
formal structure at top levels to ensure leadership and overall
coordination.

• Action Planning
When a strategy and decision-making structure are in place,
transforming intent into action is still necessary. An action plan
sets forth the multitude of tasks that, together, will bring the
strategy to fruition. Such tasks include revising or creating policies,
budgeting resources, and assigning work.
•Performance Goals and Timelines
A strong action plan sets performance goals and timelines for their
accomplishment. To be effective, goals must be specific and progress toward
them should be measurable. Such goals and measures create a common
language and focus efforts across organizational units.

•Incentives and Accountability

Job descriptions that include sustainability duties encourage accountability.
Incentives further encourage meeting goals. Performance evaluations, pay,
and promotions are linked to targeted actions.
•Alignment of Strategy and Culture
Corporate culture must be aligned with strategic intent. Where the culture
contains deep-seated, informal values that conflict with official CSR policies,
those policies are likely to be ignored. If managers who meet financial goals
but neglect “soft” sustainability goals are promoted, it indicates that formal
policy is inconsistent with underlying beliefs about requirements for career
advancement.
 Reporting and Verification
• To complete the cycle of CSR implementation, companies can assess
and report information about their social performance. Publishing
such reports serves two main purposes.

• First, by informing stakeholders they create transparency; that is,

they lift the veil, revealing the internal strategies, structures, and
processes that explain social performance. The opposite of
transparency is opacity, or an inability to see inside the organization
to know how it works and acts. Openness is increasingly necessary to
protect a firm’s reputation and to establish trust with stakeholders.

• Second, aggregating data in a report allows both managers and

outsiders to appraise the firm’s social performance.
• As time passed and large corporations became more globalized,
these requirements were less and less adequate. An information
gap between companies and stakeholders opened wide. To fill
this gap, the international progressive community created a new
reporting format called the Global Reporting Initiative (GRI).
• The GRI is a set of uniform standards for sustainability reporting,
or the measurement and disclosure of corporate impacts to
inform stakeholders how closely operations conform to the goal
of sustainable development.
• Sustainable development is an ideal of economic growth that can
“meet the needs of the present without compromising the
ability of future generations to meet their own needs.” Using GRI
guidelines, companies show how closely they conform to this
ideal by explaining their performance on a triple bottom line of
economic, social, and environmental results
 A Sample of GRI Core Performance Indicators

• Here is a random, illustrative sample of 15 of

the total of 49 core performance indicators in
the Global Reporting Guidelines, five from
each of the three “bottom lines.”
 ENVIRONMENTAL
• Materials used by weight or volume.

• Total water withdrawn by source.

• Description of significant impacts of activities, products, and

services on biodiversity in protected areas and areas of high
biodiversity value outside protected areas.

• Total direct and indirect greenhouse gas emissions by

weight.

• Percentage of products sold and their packaging materials

that are reclaimed by category.
 SOCIAL
• Total number of incidents of discrimination and actions
taken.
• Percentage of employees covered by collective bargaining
agreements.

• Ratio of basic salary of men to women by employee

category.

• Percentage and total number of business units analyzed for

risks of corruption.
• Public policy position and participation in public policy
development and lobbying.
 ECONOMIC
• Direct economic value generated and distributed, including
revenues, operating costs, employee compensation, donations
and other community investments, retained earnings, and
payments to capital providers and government.

• Financial implications and other risks and opportunities for the

organization’s activities due to climate change.

• Coverage of the organization’s defined benefits plan obligations.

• Significant financial assistance received from government.

• Policy, practices, and proportion of spending on locally-based

suppliers of significant locations of operation.
Four Costly Errors of CSR Implementation
In practice, most companies fall short of the model process for
CSR action set forth in this section because they make one of
these errors.

1. They give no coherent, systematic thought to CSR.

2. They allow CSR strategy to be reactive by not aligning it with

major social impacts, core competencies, or business strategies.

3. They fragment responsibility for CSR initiatives by assigning

them to separate areas without central oversight.

4. They do not issue credible reports of CSR actions for

stakeholders and fail the test of transparency.
HOW EFFECTIVELY IS CSR IMPLEMENTED?

• Philanthropy, meaning literally love of mankind, is charity

carried out by business with gifts of money, property, or
work given to the needy or for social welfare activities.

• Checkbook philanthropy A traditional form of corporate

giving in which donations go to multiple worthy causes
without any link to business strategy.

• Strategic philanthropy A form of corporate philanthropy in

which charitable activities reinforce strategic business goals.
• Cause marketing A form of strategic
philanthropy in which charitable contributions
are based on purchases of a product.
The End