In this chapter we will explore the literature of CSR, its definition, adaptation and supporting and opposing arguments are then discussed. We further discuss the literature of CSR and its relations to performance. We will also try to explore different examples of CSR, its increasing popularity. In the last part we will look at literature discussing UN Global Compact.
CSR – The Definition
Modern, globalize companies nowadays to be successful have to apply a broader market approach that extends outside its traditional realm to better serve firm objectives (Kang, 2009; López, Garcia, & Rodriguez, 2007). Customers are with modern technologies more informed and better organized, that creates demanding environment (Appiah-Adu &
Singh, 1998).
First definition of CSR in management is generally attributed to Brown (1953), but in other fields this issue was under scrutiny for example Adam Smith in his work The Theory of Moral Sentiments (1759) defends honesty in market place and need of “social responsibility.” There is no one specific definition of CSR, but most common literature is using definition: “firm actions designed to improve social or environmental conditions”
(Mackey, Mackey, & Barney, 2007, p. 818; McWilliams & Siegel, 2001; S. A. Waddock &
Graves, 1997). Some other scholars use definition where CSR is “a commitment to improve societal well-being through discretionary business practices and contributions of corporate resources” (Du et al., 2010, p. 8; Kotler & Lee, 2005). CSR typically have some norms that stakeholders see as just and fair and company cover activities that promote some aspect of human welfare (A. B. Carroll, 1991; KPMG, 2011). As stakeholders we can define as any group or individual who can affect or be affected by the achievement of a firm’s purpose (Freeman, 1984).
Four Part Model of CSR published by A. Carroll in 1991 is one of the most mentioned models of CSR. Carroll views CSR as a multi-layered concept that can be distinguished into four aspects – economic, legal, ethical and philanthropic responsibilities.
He presents the different responsibilities within a pyramid and the following definition (Crane & Matten, 2007, p. 49). The concept of CSR “encompasses the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point in
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time“ (Carroll & Shabana, 2010, p. 35). According to Carroll this four levels are long standing, but the ethical and philanthropic responsibilities are getting more impact over the last few years.
Later discussion of definition entail that outcome of CSR is not only target for societal well-being, but organization should design business practices to achieve it (Mackey et al., 2007; McWilliams & Siegel, 2001; Waddock & Graves, 1997). This implies that ethical meaning of CSR has shifted more to be a strategic role and unit of analysis is more organization (instead of society). Hill, Ainscough, Shank, & Manullang (2007) in their work reflect that CSR has become strategic is “actions that enhance a firm’s competitiveness and reputation” (p. 6).
Table 2.1
Key Terms Related to Corporate Social Responsibility
Concept Name Definition Source
Corporate Social Responsibility
Business approach where economic, social, environmental and ethical reasons have impact on company. Business is tackling this approach for mitigating risk, decreasing costs, and improving brand image and competitiveness. This approach can have a wide range of practices, including: corporate governance, employee relations, supply chain relationships, customer relationships, environmental management, philanthropy and community involvement.
Mercer, 2007
Corporate Social Performance
A business organization’s configuration of principles of social responsibility processes of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm’s societal relationships.
Wood, 1991, p. 693
Corporate Financial Performance
A term widely used within academia to refer to the financial or economic performance of a company. In general, academic studies have tended to focus on either financial accounting measures (for example, Return on Assets or Return on Equity) or economic measures
(usually a company’s stock performance) to measure, rank and compare the CFP of different companies.
DB Climate Change Advisors, 2012, p.22
13 Table 2.1 (continued)
Concept Name Definition Source
Stakeholder Individuals or organizations with an interest in the actions and impacts of an organization. That can be customers, suppliers, shareholders, employees, communities, members of special interest groups, non-governmental organizations, or regulators.
Mercer, 2007
Sustainability Sustainability or sustainable development refers to the concept of meeting present needs without compromising the ability of future generations to meet their needs. It encompasses social welfare, protection of the environment, efficient use of natural resources and economic well-being.
Mercer, 2007
CSR and Strategic Management
CSR has become widely popular research topic and the today literature is much more broader and include studies from corporate citizenship (Hemphill, 2004), volunteer work (Almeida, Lins, & Oliveira, 2005; Freitas & Ventura, 2004), the interaction between corporations and the community (Fonseca, Moori, & Alves, 2005; Sousa Filho, Wanderley, Gómez, & Farache, 2010), models of social and environmental management (Abreu, 2001;
Pasa, 2004), corporate giving and philanthropy (Amato & Amato, 2007; Bruch & Walter, 2005), the institutionalization of CSR and the dissemination of information on CSR actions (Pollach, 2003; Wanderley, Lucian, Farache, & Sousa Filho, 2008). CSR in academics is part of the strategic management field (Drucker, 1984; Mintzberg, 1983; Porter, 2008). Strategic management supports the alignment of firm level policies and strategic priorities as result are interrelated to CSR. The strategic management concept supports the design of optimal management practices and involves a systematic analysis of internal and external factors associated with customers and the organization itself. The company in order to be efficient should look for promoting corporate changes with deep strategic implications that must be associated with business strategies (Coutinho & Macedo-Soares, 2002).
Moratis & Cochius (2011) in their his study found out that managers have three core problems with CSR: they have: too little knowledge about the overall concept (38.6% of respondents), too little knowledge of the CSR implementation process (43.2% of respondents) and that 56.8% of the responding managers don’t have a clear action plan.
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Husted & Allen (2001) formulate new models of social strategy with use of business strategy tools and concepts. This new social corporate strategy is linked with four corporate elements: (a) structure of industry (Porter, 1986); (b) internal resources of the firm (Barney, 1991); (c) corporation ideologies and values; and (d) the relationship with stakeholders. All of these social objectives are closely related to corporate social performance, which has been defined as “the satisfaction of stakeholders’ expectations regarding the firm’s behavior as it relates to the firm’s societal relationships with those stakeholders” (Husted, 2000, p. 13)
Carroll's CSR (1991) model can connect CSR strategy with overall responsibilities of organization from economic, legal, ethical and philanthropic point of view. Where legal responsibilities contains the engagement of civil and regulative part of responsibilities such as societal lobbying or voluntary regulations. Business is therefore expected to comply with the laws and regulations by which the measure can be set in short time relief operations or long-term co-operations (Mayerhofer, Grusch, & Mertzbach, 2008, p. 10). Companies engage in CSR in order to prevent potential disadvantages such as regulation from government, corporate consider governmental influence as a higher level of stakeholders (Roberts, 1992).
Ethical responsibility according to Carroll “consists of society ́s general expectations over and above economic and legal expectations” (Carroll, 1991, p. 42). Ethical responsibilities include those activities and practices that are expected or prohibited by society even though they are not codified into law. Also organizations are required to take society ́s wider ethical expectations into account (Hennigfeld, Pohl, & Tolhurst, 2006, p. 7). The four components are discussed separately for illustration purposes, but they are not mutually exclusive. Carroll separate them so managers could get an idea of different types of responsibilities and to see the conflicts between components, such as a conflict between economic and the other three responsibilities as ―concern for profit versus ―concern for society (Carroll, 1991).
Researchers claim that unplanned and insincere CSR could be counterproductive and risk negative connotations for their stakeholders (Carroll & Shabana, 2010; Ramchander et al., 2012; Wagner, Lutz, & Weitz, 2009). That’s why company should take a strategic approach if they want to benefit from their CSR efforts (Kelly & White, 2009; Luo &
Bhattacharya, 2009) and they are advised to use the same decision framework as they do for any other strategic management decision (Porter & Kramer, 2006). For implementing these strategies CSR activities should be structured into observable social programs (targeting firm specific goals or needs), social impact (now popular energy saving programs) or in terms of social policies which act to guide organizational decision-making. Carroll and Shabana (2010) suggest categorizing CSR activities and their scope into one or more of the following:
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2. Strengthening legitimacy and reputation 3. Shaping competitive advantages
4. Creating win–win situations through mutual value creation
We can distinguish firms CSR activities into:
A, CSR internal – for example workplace have on-site child-care provision for employees, is re-cycling and implement internal environmental improvement programs, developing non-animal testing procedures (McWilliams & Siegel, 2001)
B, CSR external - where workplace can be the support of local businesses, fighting deforestation and global heating, supporting minorities, implementing external environmental improvement programs or provides disaster relief.
Strategic CSR activities that creates true value for the beneficiaries (support good cause for society) as well as enhance company’s business performance is seen as sustainable in the long run (Bruch & Walter, 2005). Also a strong commitment to social responsibility provides a set of values that is not easily imitable by competitors (Barney, 1991; O’Reilly &
Pfeffer, 2000). Managerial interpretations of social and environmental issues affect the selection of social strategies (Bansal & Roth, 2000; Sharma, Pablo, & Vredenburg, 1999;
Sharma, 2000). CSR have many opportunities for better performance of firms, but not only in outcome but also within organization. For example, improved human resources performance for the firm (Wieseke, Ahearne, Lam, & Dick, 2009). Research however point out that firms struggle to comprehend and implement CSR (Hill et al., 2007). The more firms integrate CSR into their corporate strategy the more they will be able to satisfy the demands of stakeholders (Ven & Jeurissen, 2005). Generally speaking the use of social strategy should have a positive impact on corporate social performance by reducing expectation gaps between the firm and its stakeholders, therefore increasing stakeholder satisfaction (Husted &
Allen, 2001).
Furthermore unrelated CSR activities undertaken by firms could be ineffective and inefficient (Drucker, 2001). These strategic CSR activities can help company to accomplish strategic business goals and organization should adopt this philosophy of integrating CSR into firm’s strategic perspective and operations (Werther & Chandler, 2006). Company with this in mind implement CSR into core businesses like eco-friendly performance, adherence of labour norms, prevention of human rights, abandonment of corruption in the own business
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and for suppliers etc. Businesses are implementing these practices also because its now part of risk management, among other traditional risks as technological, economic and political risks (Kytle & Ruggie, 2005). Social risk contains areas of human rights, labor standards and environmental standard and sustainability. Reporting CSR practices have become a key management tool in risk management due to the growing complexity of global business (Kytle & Ruggie, 2005). On global level, these social risks can significantly affect cost, marketability, public and reputation perceptions, operations and supply.
According to Du et al. (2010) CSR activities help firms to reduce operational costs, secure purchased inputs, smooth inbound / outbound logistics and/or contribute to the Marketing and sales function of the value chain. These CSR activities also helped in value addition of the support activities (like in procurement, manpower development etc). CSR activities could be done in such a way that the CSR activity formed part of the firm value chain by supporting either the primary activities or the support activities (Porter & Kramer, 2006). Companies participate in CSR in order to gain the several benefits as increased sales and market share - there is strong evidence that when customers make decisions of which product to buy they consider factors such as companies participation in CSR (Kotler & Lee, 2005). Others benefits are: improved brand positioning increased ability to attract, motivate and retain employees. This may occur only when product differentiation is under conditions where customers are willing to pay for social products, credible information about social products exists, and protection against imitators is available (McWilliams & Siegel, 2001).
The availability of a product differentiation social strategy depends upon the existence of consumers sensitive to environmental and social issues and whose purchasing decisions are affected by corporate behavior in these areas (Paul, Zalka, Downes, Perry, & Friday, 1997).
There is considerable evidence that firms innovate in response to social opportunities and threats (Kanter, 1999). Companies that adopt the CSR principles are more transparent and have less risk of bribery and corruption. They also have less risk of negative communication events, which damage their reputation and cost millions of dollars in information and advertising campaigns.
However CSR adjustment, responsibilities, reporting can be a real challenge for firms (Kang, 2009). Idowu & Papasolomou (2007) sees as main motivation for companies for reporting the requirement from stakeholders. CSR reporting companies perceiving the practice as a process of legitimacy, on the other hand non-reporting companies tend to avoid this practice due to public skepticism from CSR reporting ( O’Dwyer , 2002).
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Barney (1991) states that the creation of competitive advantage occurs through the implementation of strategies that add value and create benefits for one company when another company fails to do so. Competitive advantage can be achieved through internal resources or a group of internal resources from the firm. Firms seeking to have competitive advantage now engage in CSR more and they consider CSR as a long term investment benefit (Carroll & Shabana, 2010; Kang, 2009; KPMG, 2011). For example organizational values are accepted as intangible resources that can result in competitive advantage (Barney, 1991).
Ihlen, Bartlett, & May (2011) argues that some form of communication is needed and cannot be avoided, since silence on the matter of CSR is also a form of communication. With modern communication channels stakeholders wants to know more about the CSR effort done by companies and yet become skeptical if the companies commit too much time for communicating their CSR. Coombs & Holladay (2011) refer to it as “the CSR promotional communication dilemma.” Still, if companies communicate their CSR activities, they more likely attract critical stakeholder attention, because stakeholder expectations regarding CSR are a moving target and must be considered carefully on a frequent basis” (Morsing &
Schultz, 2006, p. 323). Now firm’s CSR communication emphasis organization’s contribution in different social, environmental and economic activities (Du et al., 2010). This represents a strategy to alter the public’s perception about the legitimacy of the organization (Hooghiemstra, 2000). One of the established ways of communication organization’s activities is CSR reporting. CSR reports are more permanent feature of the business landscape (Perrini, 2005). Many of the environmental initiatives addressed in the CSR reports are designed to reduce energy use and waste generation and also reduced cost at the operational level (Gutiérrez & Jones, 2007). When it comes to environmental issues, CSR reporting are most active in polluting sectors such as electronics, pharmaceuticals, automotive, utilities, chemicals and gas and oil (Kolk, 2004), because environmental issues are considered to be crucial. Therefore companies are now greatly aware of external pressure toward environmental events such as pollutions or environmental disasters (O’Dwyer , 2002).
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Adaptation and Discussion Regarding the CSR Concept
As mentioned above with CSR concept a large number of firms worldwide is now relocate financial and other resources to undertake CSR activities that extend beyond regulatory requirements (Moon & DeLeon, 2007; Orlitzky et al., 2003). This adaptation is used as strategic response (Carroll & Shabana, 2010; Wood, 2010) to market and customer pressures by improving their ethical (responsible) behavior or environmental performance.
Firms often seek this goal to increase their competitiveness (Moon & DeLeon, 2007) and prioritizing CSR is unavoidable for every business leader in every country (Porter & Kramer, 2006). PriceWaterhouseCooper survey from 2002 claim that “70% of global chief executives believe that CSR is vital to their company’s profitability” (Carroll & Shabana, 2010, p. 8).
Various stakeholders, customers or activists, apply pressure on a firm to engage in a specific matter firm related or not when companies have become aware of potentially problematic issues. For company is important to recognize that certain issues can grow and become a concern to them if the importance escalates over time (Maak, 2008). CSR ideally are of purely external concerns to the firm. But sometimes actions to apply CSR are taken and driven for personal reasons, for example by the CEO (Adams, Licht, & Sagiv, 2011; Luo
& Bhattacharya, 2009; Walls et al., 2012).
One of the most profound economists Milton Friedman (1970) discussed that firms should focus on profit maximization for its shareholders, this classical economic argument against CSR also claims that firms should do so within the framework of the society’s norms.
In his view social or environmental cases should be fulfilled by individuals through donations or by Governments via tax revenue and not by firms unless legislation pushed them. ).
Drucker (1984) partially agreed with Friedman in that firms must first tend to profit, because without profit there are no funds available to engage in any type of CSR. But on the other hand Drucker disagrees that profit shall be the only social responsibility of a firm and stresses that CSR is important and must be addressed. For Drucker CSR activities are more likely turn a social problem into an economic opportunity and benefit to a firm if the CSR activities are long term and experimental (Drucker, 1984). CSR can provide economic wealth for the firm and to the society in form of productive capacity, human competence and job creation these factors can further decrease the risk of problems with third parties, media and government (Nielsen & Thomsen, 2011). Sustainable behavior requires firms to change their values and attitudes towards the use of environmental resources, people inside and outside their operations and perceiving their role in society in general. The explicit values are
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captured by the concept of corporate ideology (Pettigrew, 1979), which is particularly relevant to the formulation of corporate social strategy (via Husted & Allen, 2001). Strategy, performance, and social responsibility is closely related to Corporate ideology because ideology affects the decisions made by managers based on their goals, objectives, and beliefs about how the world works (Simons & Ingram, 1997). These managerial values act as a frame for recognizing and evaluating the importance of social issues (Sharfman, Pinkston, &
Sigerstad, 2000) and the salience of stakeholders (Agle, Mitchell, & Sonnenfeld, 1999).
Corporations are expected to establish corporate code of conducts, which reflect these values and control corporate behavior at firm level (UN, 1987). Firms willing “to survive and prosper in a world of change will need to have strong ethical values and standards ...
Successful global business will be those that integrate sustainable development, including social responsibility, into their business strategies.” (Ruston, 2002, p. 139 via Witt, 2012).
Organizations are gaining organizational legitimacy through CSR. Suchman (1995) define legitimacy as “a generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (p. 574). Suchman also argue that legitimacy and institutionalization are synonymous and phenomena to ensure that the existence of an organization is seen as natural and meaningful. It is essentially something what is coming within society, but its not unusual because organizations are embedded and operates in society.
Sandra A. Waddock, Bodwell, & B. Graves (2002) suggested that total responsibility management is now getting higher; there has been significant increase in the appearance of rankings and certifications for CSR. CSR have been increasing in regulatory sector. For example all of world TOP 500 firms (and numerous others) have substantial CSR programs and they listed on their respective website. Firm specific examples are IKEA (retail), Ford (automobile industry), IBM (business software), Vodafone (telecommunications), Carlsberg (beverages) and Samsung (consumer electronics). For measuring CSR researchers used various methodologies to measure level of corporate social responsibility of the firms. They used pollution index (Fogler & Nutt, 1975), reputation index (Cochran & Wood, 1984), surveys (Aupperle et al., 1985) and content analysis (Abbott & Monsen, 1979).
For survival of the organization, firms have to incorporate the practices and procedures that are institutionalized in the society. Meyer & Rowan (1977) in their work argues that by incorporating such practices, organizations improve the possibility to find themselves in zone of legitimacy for audience. Organizations are trying to include stakeholders to have and interest in the activities of firm, if they are in “zone of legitimacy”