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Corporate Social Responsibility: Nature, History, Trends

Introduction
In the last few years, the corporate world has come under increasing
pressure to behave in an ethically responsible manner. In particular, recent
accountability failures have led to bankruptcies and restatements of financial
statements that have harmed countless shareholders, employees, pensioners, and
other stakeholders. These failures have created gigantic financial and economic
crises of a magnitude that has never been seen before. Without a doubt, one of the
causes of such accountability failures is the failure to practice genuine corporate
social responsibility, which is understood to mean at least two things: (1) that profit
maximization is not the sole purpose of the firm, and (2) that a firms shareholders
are not the only stakeholder group for whom managers bear some responsibility
(Davidson, 2009). The economic system seems to be in urgent need of a moral
compass, that is to say, values other than the ubiquitous profit margin need to
inform business practice. This concept, in the language of Socially Responsible
Investment (SRI) and Corporate Social Performance (CSP), has come to be
subsumed within the term sustainable development, which is development that
meets the needs of the present without sacrificing the right of future generations to
fulfill their needs (World Commission on Environment and Development, 1987: 43).
Achieving sustainability has become a central issue of our time. In building
sustainable communities, just as in the challenge of poverty alleviation or
eradication, the field of business and economics is called to account: a call for a rethinking of the role of business in society, especially in the design and
implementation of sustainability practices, seems to be in order. This responsibility
becomes all the keener in Asia, most especially in the so-called bottom-of-thepyramid (BOP) countries, where people living under $2 per capita income per day
can hardly get hold of even the barest necessities (Racelis, 2012). But what is this
social responsibility of businesses all about?
1. The Concept of Corporate Social Responsibility
Business ethics is sometimes confused with corporate social responsibility or
CSR. Although the two are related, they are not quite the same. It is important to
understand how they are different from as well as how they are related to each
other. We will begin by clarifying what corporate social responsibility is because this
will help us understand how business ethics and corporate social responsibility are
related.
The phrase corporate social responsibility refers to a corporations
responsibilities or obligations toward society. CSR, as defined by the World Business
Council for Sustainable Development (WBCSD), is a continuing commitment by
business to behave ethically and contribute to economic development while
improving the quality of life of the workforce and their families, the local
community, and society at large.There is some disagreement about what those
obligations include. Do companies have a responsibility to donate to charities or to
give their employees higher wages and customers safer products? Or are they
obligated to maximize profits for their shareholders or stockholders?
At one extreme is the view of the late economist Milton Friedman who
famously said that the only social responsibility of business is to increase its profits.

He argued that corporate executives work for the owners of the company, and
today these owners are the companys shareholders. As their employee, the
executive has a direct responsibility to run the company in accordance with their
desires and in their best interest, which generally will be to make as much money
as possible while conforming to the basic rules of the society. On Friedmans view a
companys only responsibility is to legally and ethically make as much money as
possible for its owners, i.e., to maximize shareholder returns. We can call his view
the shareholder view of corporate social responsibility. The main reason why
Friedman holds this theory is that, in his view, shareholders own the company.
Since the company is theirs and only theirs, property, only they have the moral
right to decide what it should be used for. These owners hire executives to run the
business for them, so the executives have a moral obligation to do what the
stockholders want, which, he claims, is to make them as much money as possible.
Friedman does not say, however, that there are no limits to what executives can do
to make stockholders as much money as possible. Executives, he explicitly says,
must operate within the rules of society including both the rules of the law and the
rules of ethical custom (Ferrero, et al., 2014; Mulligan, 1986).
According to Friedmans shareholder view of corporate social responsibility, a
manager has no right to give company money to social causes when doing so will
reduce shareholders profits because that money does not belong to the manager
but to the shareholders. Friedman argues that the exercise of social responsibility
by a corporate executive is: (1) unfair, because it constitutes taxation without
representation; (2) undemocratic, because it invests governmental power in a
person who has no general mandate to govern; (3) unwise, because there are no
checks and balances in the broad range of governmental power thereby turned
over to his discretion; (4) a violation of trust, because the executive is employed by
the owners as an agent serving the interests of his principal; (5) futile, both
because the executive is unlikely to be able to anticipate the social consequences
of his actions and because, as he imposes costs on his stockholders, customers, or
employees, he is likely to lose their support and thereby lose his power (Mulligan,
1986).
Although Friedman does not think managers should use company resources
to benefit others at the expense of shareholders, he does think that companies
ultimately provide great benefits for society. He argues that when a company tries
to maximize stockholders profits in a free-enterprise economy, competition will
force it to use resources more efficiently than competitors, to pay employees a
competitive wage, and to provide customers with products that are better, cheaper,
and safer than those of competitors. So when managers aim at maximizing profits
for stockholders in competitive markets, the companies they run will end up
benefiting society.
Friedman has had many critics. Some object to his claim that the manager or
executive is the employee of shareholders. Legally, these critics point out that the
executive is the employee of the corporation and so the executive is legally
required to serve the interests of the corporationhis true employernot of its
shareholders. Others have criticized Friedmans claim that stockholders are the
owners of the corporation and that the corporation is their property. Critics
point out that shareholders only own stock and this gives them a few limited rights,
such as the right to elect the board of directors, the right to vote on major company
decisions, and the right to whatever remains after the corporation goes bankrupt
and pays off its creditors. But shareholders do not have all the other rights that true
owners would have and so they are not really owners of the corporation. A third
objection criticizes his claim that the executives core responsibility is to run the

corporation as stockholders want it to be run. In reality the executive probably has


no idea how stockholders want the company to be run, and legally, anyway, he is
required to run the company in ways that serve many other interests (including
employee interests and consumer interests) besides those of stockholders. Finally,
some have argued against Friedmans view that by seeking to maximize
shareholder returns, the corporation will best serve society. Sometimes competitive
forces fail to steer companies in a socially beneficial way and, instead, lead them to
act in a socially harmful manner. For example, a company might knowingly pollute
a neighborhood with substance that is not yet illegal, in order to save the costs of
reducing its pollution and thereby be more competitive.

2. History and Perspectives on Corporate Social Responsibility


2.a. History of Corporate Social Responsibility
Organizations are being called upon to take responsibility for the ways their
operations impact societies and the natural environment. It is no longer acceptable
for a corporation to experience economic prosperity in isolation from those agents
impacted by its actions. A firm must now focus its attention on both increasing its
bottom line and being a good corporate citizen (DAmato, et al., 2009). The field of
the social responsibility of business has grown significantly and today contains a
great proliferation of theories, approaches, and terminologies. Society and
business, social issues management, public policy and business, stakeholder
management, corporate accountability are just some of the terms used to describe
the phenomena related to corporate responsibility in society. Recently, renewed
interests in the social responsibility of businesses and new alternative concepts
have surged, including corporate citizenship and corporate sustainability (Garriga
and Mel, 2004). Evidence of these, among others, is the proliferation of a new
corporate title such as chief sustainability officer or chief responsibility officer, and
the rapidly spreading socially responsible investment (SRI) movement that aims at
combining investors financial objectives with their concerns about social,
environmental, and ethical issues. In Europe, the demand for socially responsible
actions has been around since before the Industrial Revolution and companies have
responded to them, although the content of corporate social responsibility (CSR)
has evolved over time, depending on historical, cultural, political, and socioeconomic drivers and particular conditions in different countries and also at
different points in time (Choi, et al., 2010; Argandoa and Von WeltzienHoivik,
2009).
2.b. Trends; CSR Reporting
One can say that there are various layers of corporate responsibility: first,
to make a profit; second, to fulfill legal responsibilities; third, fulfilment of ethical
responsibilities; and fourth, discretionary responsibilities (Sauser, 2005).There are
many reasons why some companies choose to behave more responsibly or
virtuously in the absence of legal requirements. Some are strategic, others are
defensive, and still others may be altruistic or public-spirited. The leadership of
many of the businesses spearheading the contemporary CSR movementa group
that includes the Body Shop, Marks & Spencer, Patagonia, Starbucks, Statoil,
Interface, and BPmay be genuinely motivated by a commitment to social or
environmental goals. Nevertheless, it is becoming more and more evident that

consumer demand is increasing for responsibly made products, as are actual or


threatened consumer boycotts, challenges to a firms reputation by
nongovernmental organizations (NGOs), and pressure from socially responsible
investors. In fact, stakeholder demands have led many firms to make important
changes in their social and environmental practices, not only in the United States
and Europe but also in the developing world. As John Ruggie, a former United
Nations official active in this field, observes, Although it remains contested, the
principle is taking hold that transnational firms . . . ought to be held accountable
not only to their shareholders, but also to a broader community of stakeholders who
are affected by their decisions and behavior (Vogel, 2005).
It is a reality that CSR reporting has come to the fore of CSR investigation,
particularly in the area of assessment of CSR performance. In fact, this issue had
led to the creation of the United Nations Global Compact (UNGC) in 2000 to
leverage UN prestige and induce corporations to embrace 10 principles
incorporating values of environmental sustainability, protection of human rights,
fair treatment of workers, and elimination of bribery and corruption. However, many
critics have said that UNGC has failed to provide concrete information as to what
may be called progress. As a result, private entities and corporations have chosen
to self-regulate and report independently on their CSR activities and practices. For
example, in a study of over 514 corporate social responsibilitysustainability (CSRS) reports published by large corporations from around the world, it was found that
452 (88%) had created their company-based codes of conduct. The resulting codes
have addressed issues that are important to broad segments of society and aimed
at changing corporate conduct to more adequately address issues collectively
stated as environment, social and governance (ESG) issues (Sethi and Schepers,
2014). In the Philippines, although there are conflicting positions about the success
of CSR initiatives of firmsfor instance, the view that CSR is a myth because of a
lack of ethics in CSR and CSR-related activities, which stems from a conflict
between ensuring profits and the need to do good and establish good community
relationsnevertheless, CSR activities continue to grow. Many successful CSR
casesof institutions of different sizes and structures have been documented
(Kilayko-Gonzalez and Moss, 2007; Lorenzo-Molo, Marina Caterina F. 2009).
2.c. Challenges in CSR
CSR is of pressing importance as it significantly influences the sort of lives
we will lead in the future. Furthermore, the distinctive nature of entrepreneurial
action leads to a distinctive set of ethical problems and ethical obligations. When
the ethics of corporations is not properly and sufficiently discussed, then
sustainability could mean anything from exploit as much as desired without
infringing on future ability to exploit as much as desired to exploit as little as
necessary to maintain a meaningful life. It is widely accepted today that true
sustainability includes valuing ecosystem health, human needs, economic
development, and social justice. Ethics of care and concern for specific aspects of
the common good seem crucial in both large and small to medium-sized firms, as
do personal values, character, and leadership of the manager of the firm (Dunham,
2007; Vucetich and Nelson, 2010; Racelis, 2012: Mel and Von WeltzienHoivik,
2009).
Especially in the global market place, human rights have come to be a crucial
issue in business. In addition, business contributes to the common good in different
ways, such as creating wealth, providing goods and services in an efficient and fair
way, at the same time respecting the dignity and the inalienable and fundamental
rights of the individual. Furthermore, it can contribute to social well-being and a

harmonic way of living together in just, peaceful, and friendly conditions both in the
present and in the future. A concrete example of disrespect for the dignity and
rights of persons is when an entrepreneur while having a magical way of building
something out of nothingengages in behaviors that negatively impact business,
not to mention the people behind it: partners, investors, employees, and
customers. A lack of empathy might ensue. When entrepreneurs are under
enormous pressure to produce sales, two things generally happen: (1) they
develop tunnel vision and often become extremely forgetful about anything other
than what they are focused on at the moment, and (2) their type-A tendencies go
into overdrive and they bulldoze their way through decisions, forgetting that actual
human beings with thoughts and feelings are on the other end (Garriga & Mel,
2004).
2.d. The Stakeholder Approach
The responsibility principle states that Most people most of the time, want
to and do accept responsibility for the effects of their actions on others. People
engaged in value creation and trade are responsible precisely to those groups and
individuals who can affect or be affected by their actions; that is, the stakeholders.
For most businesses, as we currently understand it today, this means paying
attention at least to customers, employees, suppliers, communities, and financiers
(Freeman et al., 2010). Literature on stakeholders usually distinguishes between
important and unimportant stakeholders. Sometimes, this ranking is refined further
by distinguishing primary stakeholders (whose participation is required for the
companys survival) and secondary stakeholders (whose relationship is not
considered as vital for the company). Secondary stakeholders may have a potential
influence (in the event of boycotts for example) and may emerge rapidly as players
capable of influencing the companys performance. Other works also make a
distinction between voluntary and involuntary stakeholders, which is based
primarily on the notion of risk. Voluntary stakeholders are taking a risk by investing
a form of capital in the business and thereby contributing to the creation of value.
Unlike involuntary stakeholders, they expose themselves to the consequences of
the companys activities in seeking to reduce the negative impact that its actions
may have on its wellbeing. Later in 1997, Carroll and Nasi put forward a
classification that opposed internal stakeholders (owners, directors, employees) to
external stakeholders (competitors, consumers, governments, pressure groups,
media, and the natural environment) (El Abboubi and Cornet, 2012),
Stakeholder theory is fundamentally about how business works at its best
and how it could work. It is descriptive, prescriptive, and instrumental at the same
time, and as Donaldson and Preston (1995) have argued, it is managerial.
Stakeholder theory is about value creation, trade, and managing a business
effectively. Effective can be seen as create as much value as possible. If
stakeholder theory is to solve the problem of value creation and trade, it must show
how business can in fact be described through stakeholder relationships. If it is to
solve the problem of the ethics of capitalism, it must show how a business could be
managed to take full account of its effects on and responsibilities towards
stakeholders. And if it is to solve the problem of managerial mindset, it must adopt
a practical way of putting business and ethics together that is implementable in the
real world.
Stakeholder theory does not mean that representatives of these groups must
sit on governing boards of the firm, nor does it mean that shareholders (we prefer

financiers as a more inclusive term) have no rights. It does imply that the
interests of these groups are joint and that to create value, one must focus on how
value gets created for each and every stakeholder. How value gets created for
stakeholders is just how each is affected by the actions of others as well as
managers. For the most part writers on stakeholder theory have taken an approach
that looks at reasonably large existing businesses. They have tried to use the idea
to address issues such as corporate social responsibility, corporate legitimacy,
theory of the firm, and even macro-societal issues such as building the good
society (Freeman et al., 2010). It is this relationshipbetween stakeholder theory
and corporate social responsibilitythat is discussed in the next section.
2.c. Stakeholder Approach to Corporate Social Responsibility (CSR)
Following the stakeholder theory, a socially responsible firm requires
simultaneous attention to the legitimate interests of all appropriate stakeholders
and has to balance such a multiplicity of interests and not only the interests of the
firms stockholders. Supporters of normative stakeholder theory have attempted to
justify it through arguments taken from Kantian capitalism, modern theories of
property and distributive justice, and also Libertarian theories with its notions of
freedom, rights, and consent. A generic formulation of stakeholder theory is not
sufficient. In order to point out how corporations have to be governed and how
managers ought to act, a normative core of ethical principles is required. To this
end, different scholars have proposed differing normative ethical theories. There is
the theory of justice expounded by John Rawls, for whom it is necessary that each
citizen be assured of an equal claim to a fully adequate scheme of equal basic
rights and liberties. Freeman (1984) proposed the doctrine of fair contracts and
Phillips (1997, 2003) suggested introducing the fairness principle based on six of
Rawls characteristics of the principles of fair play: mutual benefit, justice,
cooperation, sacrifice, free-rider possibility, and voluntary acceptance of the
benefits of cooperative schemes. Freeman explained that the idea behind the
stakeholder theory is that an organization's success is dependent on how well it
manages the relationships with key groups such as customers, employees,
suppliers, communities, financiers, and others that can affect the realization of its
purpose.
In order to make stakeholder theory more aligned with the ideas of justice,
fairness, and human freedom, Freeman and Philips (2002) proposed the Principle of
Stakeholder Responsibility, which says that parties to an agreement must accept
responsibility for the consequences of their action. When third parties are harmed,
they must be compensated, or a new agreement must be negotiated with all of
those parties who are affected. Argandoa (1998) suggested the common good
notion which takes into consideration the common good of society and therefore
can be defined as the sum total of social conditions which allow people, either as
groups or as individuals, to reach their fulfilment more fully and more easily.
Overall, when a company considers all stakeholders interests, it realizes more its
social responsibilities towards them, and is more likely to undertake CSR initiatives.
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