Corporate Social Responsibility

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立 政 治 大 學

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2. Literature Review

2.1. An Overview of Using Business as a Force for Good

In recent years there has been an important change in consumer’s point of view regarding branding and attention to the type of product purchased. Since the Enron scandal, in 2002, consumers have been more attentive to corporations’ operations and unethical behavior.

Because of such a scandal the change in consumers’ mentality was accentuated. This lead to the growth of new types of business models: “using business as a force for good”.

This thesis focuses on the case of B Corporations, which have one mission, “using business as a force for good”. In today’s world there are many ways to qualify what we call “business for good”: Social Enterprise, Corporate Social Responsibility, Socially Responsible, sustainable companies…. It is easy to get confused between one and another and misunderstand the differences. Companies using business as a force for good can be simply defined as more than regular for-profit companies. However, in this first section of the thesis we will focus on defining more in depth what are business for good.

We are first going to focus on CSR and Social Enterprise, which are the most important regarding the topic. We will define and go through the history and important changes of those two business for good models. Later, we will enter the subject of B Corporations. And finally, we will explain how this concept of using business as a force for good relates to employees.

2.1.1. Corporate Social Responsibility History

According to Finch 2005 Corporate Social Responsibility (CSR, also called Corporate

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Conscience, Corporate Citizenship or responsible business) is defined as “operating a business on a reliable, sustainable, desirable basis that respects ethical values, people, communities and the environment” (Finch, 2005, p.2). Even though the CSR movement has been increasingly important over the last 20 years, the debate of CSR goes further back.

The first real debate regarding Corporate Social Responsibility occurred in the years 1931 and 1932, between A.A. Berle and E. Merrick Dodd. The same debate is still going on in the twenty-first century. Through all this years it has evolved and changed forms however the core ideologies have remained the same; “Each debate was the product of its time, but each also closely resembled its predecessor” (Wells, 2002, p.79). The main question of the debate surrounding CSR is knowing what is the role of corporations. More precisely, whether or not corporations are too powerful and should their impact on the community and society be regulated. The earlier debate in the 30’s between A.A. Berle and E. Merrick Dodd revolved around the large corporations in the USA. Their increasing power in the political arena and their impact on the direct community and their closer stakeholders. Today’s debate goes further and includes all companies and all their stakeholders. Moreover, it asks more important and deeper questions such as: what does corporations owe to its shareholders, its workers, the larger community…? (Wells, 2002).

In all the debates about CSR there is one that is considered to be the most important one. For many, this is the start of the movement that changes mentalities. It is the debate, in the 1970’s, between Edward Freeman and Milton Friedman, also called the stakeholder vs shareholder theory (respectively). Even though they are not the only two players of the debate, they are often considered to be the most important voices. Friedman believes in the shareholder theory.

He argues that the goal of companies is too maximize shareholder value. The shareholder theory

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is based on the principal-agent theory, and states that the role of managers, executives, is to bring wealth to the business’s owners. In that sense, according to Friedman, being engaged in CSR activities is unethical because it is using the companies’ resources for other reasons than maximizing shareholder wealth. Which leads to production inefficiency (Friedman, 1970).

Therefore, he argues that being engaged in CSR is wrong from a moral point of view, because it is not acting in the best interest of the shareholders. And from an economic point of view, because it is not using resources efficiently.

On the other hand, Edward Freeman argues that a firm’s responsibility is not only to its shareholder but to its stakeholders as well. This theory emerged in the mid 1980’s, a decade after the stakeholder theory. In 1984 Freeman defined shareholders as “any group or individual who is affected by or can affect the achievement of an organization’s objectives”. (Freeman, 1984/2001). The primary stakeholders are the shareholders, investors, employees, customers, suppliers, the government and the community where the company is located. However, it doesn’t stop there, the secondary stakeholders include the media, the future generation, the environment... The lack of attention to a primary stakeholder or its non-recognition can generate the failure of the organization (Clarkson, 1995). In that sense it is morally responsible to dedicate resources and change operating processes to have a positive impact on employees, communities, the environment. Overall, the stakeholder theory states that companies should act in an ethical way.

Later on, the literature on the stakeholder theory stated that the economic reasoning of Friedman was outdated. Being engaged in CSR would make sense economically in the long run. Indeed, at the beginning, starting CSR activities is time consuming and costly. However, in the long run it is worth it. Some example from the operation’s point of view are that by reducing a company

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footprint, one might reduce its use of electricity, water which leads to costs savings. The other example is from the brand image perspective. Being engage in CSR would prevent scandals which are extremely costly to firms in terms of reputation, brand loyalty. Moreover, being involved with the community can also be helpful when the company its support for a project (Asemah, Okpanachi & Edegoh, 2013). Even though this approach to CSR is true and was very useful in attracting companies to join the movement we can have some reserves on this aspect of CSR. Indeed, it is economically beneficial in the long run to use CSR. However, we can be reluctant to use this argument to convince companies to become socially responsible. Some believe you should be socially responsible because it is the right thing to do, the best for the society. It should be part of your mission and values as a corporation. Moreover, we think talking about CSR in terms of cost saving is the instigation of the negative aspect of CSR nowadays that we will comment on later on (greenwashing).

What it means to be a firm engaged in CSR

Another definition of CSR than Finch’s is: "Continued commitment by the companies to maintain ethical behavior and contribute to economic development while improving the quality of life for its staff and their families, the community in which they work and society in general.”

(The World Business Council for Sustainable Development –WBCSD1). Therefore, businesses engaged in CSR try to operate in a sustainable way. They do not think only about short-term decision but of the impact of each decision on the long term. They should also ask their self is it the ethical thing to do? for each decision they take. In the day to day business this could be translated by the impact on the environment: reducing the carbon footprint (use less electricity, think about 0 waste cycle), the impact on the community (support local NGOs, volunteering…), the impact internationally (try to engage in faire trade for instance) and the impact on workers

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(trying to increase the well-being of staffs, be vigilant about issues such as discrimination of race or sex, have equal and fair pay…). However, measuring the impact of this changes is difficult. Therefore, like thinking of all stakeholders and not only the shareholders, when talking about CSR you do not think only about the one bottom line but of the triple bottom line.

The triple bottom line is a concept first introduced by John Elkington in 1994, it means that instead of looking at the performance of a company only in terms of profit we should look at it in terms or Profit, People, Planet, the three Ps. This means that companies should also measure their social impact (People) and environmental (Planet), to know if they are performing well.

Elkington also explains that the only way to be completely socially responsible is also to be completely transparent (Elkington, 1997). However, even though this introduced a new way to look at companies, it is still difficult to measure social and environmental impacts as they are not as quantitative as profit. Therefore, recent years have seen the emergence of many standards and guidelines to report on CSR. The most commonly used is GRI Global Reporting Initiative.

It helps companies to have a structured way to measure CSR initiatives and allows benchmarking.