Corporations often face criticism, especially in today's media landscape, where they boast record profits immediately after highlighting an environmental issue for instance.
Are corporations solely responsible for various challenges, from inflation to global warming and climate disasters, due to their unsustainable practices?
Perhaps to an extent, but it might be overly harsh to place the entire blame on them.
Despite historical disparities and ongoing inequalities, the world is currently experiencing unprecedented levels of prosperity. More people than ever before have access to education, healthcare, and essential amenities, and a significant portion of this progress can be attributed to good corporate citizenship.
However, these lingering disparities cannot be ignored. Throughout centuries, those in positions of power have taken advantage of the vulnerable, claimed already-inhabited lands, exploited local resources, and left indigenous populations with little or nothing. Whether it was governments or corporations, this exploitative model is no longer sustainable nor morally justifiable.
Thankfully this has brought corporate social responsibility (CSR) into the spotlight as a business imperative.
But what is CSR?
While most of us vaguely understand various types of social responsibility as a form of “giving back,” it can be challenging for the average concerned citizen to precisely define corporate social responsibility.
In looking at what is corporate social responsibility, the impact on the following aspects of society is worth noting:
While corporate citizenship principles may make sense, their widespread implementation is certainly a gradual process.
In this article, you will find out how to further define corporate social responsibility and practice different types of social responsibility.
Before Corporate Responsibility
You may recall that the Guardian published an exposé shedding light on the extensive deceit practised by major oil companies. You might have encountered that headline and thought, "Well, what else is new?" Sadly, it is no secret to the public that such corporate malpractices exist.
Half a century ago, corporations never had to question ‘what is CSR?’ Instead, they naturally cared about their public image and engaged in benevolent acts accordingly. Back then, they were more likely to be held accountable if they indulged in unethical conduct, so they largely refrained from it. In the early 1980s however, there was a marked shift in the corporate world, with ethics and community initiatives taking a back seat to what became a relentless pursuit for profit.
Of course, companies are not to blame for seeking profitability; it's a fundamental aspect of their existence. They need to be profitable before they can afford to invest in meaningful types of social responsibility.
However, increasing public backlash against companies that have not shown concern for social and environmental justice revived the need to define corporate social responsibility.
The year 2008 appears to be a turning point. As the world reeled from the unethical practices that occurred on Wall Street, climate change gained prominence, notably through the Climate Change Act. In addition, the trend for labour strikes across various industries became more common.
In 2008, the IBM Institute for Business Value conducted a global survey of business leaders. Over two-thirds (68%) of respondents recognised that CSR could open doors to financing opportunities for sustainable growth. However, less than one-third (31%) admitted to involving employees in achieving their companies' CSR goals. These statistics revealed a significant gap between corporate best practices and actual corporate behaviour.
How to Define Corporate Social Responsibility
During that same year, the Danish Parliament passed legislation that required that the top 1,100 earners in the country incorporate their companies' CSR data into their financial reports. These reports were designed to highlight the CSR and socially responsible investment (SRI) policies of the businesses including their implementation and outcomes. Comparable laws can now be found in various countries worldwide.
Nonetheless, answers to the question: ‘What is corporate social responsibility’ include business and humanitarian, rather than legal motives. Nevertheless, practising corporate citizenship, and all types of social responsibility, also referred to as CSR, elevates companies' awareness of their influence on both individuals and the environment.
In looking to define corporate social responsibility a key component should be for a company to instil a culture that fosters the well-being of society and the environment, as opposed to doing any harm.
Any business can embrace social responsibility. These efforts can range from organising food and clothing drives to coordinating volunteer activities.
For instance, the board of Company XYZ might embark on a project to clean up a certain province’s rivers. They may partner with a financial institution for funding and support to achieve this.
CSR Theory
There are three fundamental theories to form the basis of CSR:
The business ethics theory
The stakeholder theory
The shareholder value theory
A stakeholder includes anyone impacted by a company, including customers, employees and broader community members. In addition, a shareholder always falls within the category of stakeholders, but not all stakeholders are shareholders. A shareholder is an individual who holds shares in a company's stock and anticipates a return on their investment.
The shareholder value theory asserts that the primary responsibility of a business is to continually increase profitability. Corporate activities should never be mistaken for those of non-profit organisations or government agencies. Therefore, their primary focus should be to generate higher revenues.
Conversely, the stakeholder theory emphasises that the pressures exerted by stakeholders on a corporation must be a legitimate operational concern. Factors such as customer boycotts, employee discontent, and adverse media coverage directly impact an organisation’s ability to generate profits. In today's context, the stakeholder theory of CSR holds more weight than the shareholder theory. If stakeholders were to "disappear" – if no one came to work and no one made purchases – the company would cease to exist.
The business ethics theory of CSR forms the pivotal point around which the other two theories revolve. It states that businesses should consider the interests of shareholders while simultaneously upholding their moral obligations to society. It says that they must adapt to evolving social expectations and address societal responsiveness. They should consistently operate with concern for human rights, fairness and a commitment to social justice that ultimately contributes to the well-being of society.
A business that conducts itself in this manner is more likely to gain public acceptance simply because people will want to work for such a company, and consumers will want to choose its products. As their profit margins grow, they can better fulfil their obligations to shareholders. The business ethics theory views CSR as both a philanthropic endeavour and an ethical responsibility.
CSR Examples
Socially responsible businesses often prefer to keep their altruistic efforts low-key, but inevitably, word of their philanthropic efforts spread. An exemplary case of a company that quietly embraced its ethical responsibilities is Ben & Jerry's.
Childhood friends Ben Cohen and Jerry Garfield faced their share of challenges. One was unable to complete medical studies, while the other dropped out of school. Together, they embarked on an ice cream-making course. A year later, they opened their first ice cream parlour in Vermont, USA. In a mere three years, they boasted a devoted and expansive fan base, prompting them to start packaging their products in retail cartons.
Their rapid ascent irked a global ice cream giant, which sought to restrict Ben & Jerry's sales. Sometime later they established the Ben & Jerry's Foundation and dedicated funding to environmental projects.
In stark contrast, Starbucks has weathered its share of negative publicity due to questionable business practices. While they were among the early adopters of corporate social responsibility (CSR), especially regarding Fairtrade, they ended up falling short of their goals. In its inaugural year in 2000, only 6% of the coffee they sold met Fairtrade standards.
These are two major corporations with markedly different approaches to how to define corporate social responsibility. Even after selling their company to Unilever in 2000, Ben and Jerry's remain dedicated to their philanthropic work, continually expanding their list of actionable causes.
Starbucks, on the other hand, having openly positioned itself as an early and exemplary advocate of social responsibility has been criticised for ‘greenwashing’ to bolster its image.
If you have asked: ‘What is CSR’ we hope that this article has enlightened you!
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