10/10/2024
UNDERSTANDING CORPORATE SOCIAL RESPONSIBILITIES
Corporate social responsibility (CSR) is an integral component of corporate governance, particularly when there is a conflict between the social goal of benefiting society and the corporate goal of maximizing profits. The existence and persistence of such a conflict requires corporations to establish CSR policies and programs to ensure that their boards of directors and senior executives set an appropriate tone at the top, taking social interests seriously. Currently, corporate leaders face the challenge of operating responsibly according to certain moral standards. CSR is becoming an inseparable part of business as more investors worldwide prefer to invest in socially responsible companies. Although the term ‘corporate social responsibility’ seems to be new, the business literature indicates that the concept has evolved over recent decades, along with social, political, and environmental developments. CSR demands that various local, national, and international organizations compile standards for nonfinancial reports. There is an unprecedented move toward disclosing both financial and nonfinancial information on key performance indicators of economic, social, and environmental activities. The Organisation for Economic Co-operation and Development (OECD) defines the purpose of a CSR program as “to encourage the positive contributions that multinational enterprises can make to economics, environmental and social progress and to minimize the difficulties to which their various operations may give rise” (OECD, 2003). This definition focuses on two important aspects of a CSR program, namely the creation of social value through corporate activities (social value-added activities) and the avoidance of conflicts between corporate goals and societal goals (societal consensus).
Evolution of Social Responsibility in the Business Literature
There has been growing international interest in corporate social responsibilities, including environmental, social, and governance (ESG) issues (United Nations Environment Progamme Finance Initiative and the UN Global Compact (UNEP FI), 2006). ESG issues can affect the company’s performance, supply chain management, and investment portfolios, and thus should be considered in assessing operating and investment decisions. To address this important global issue, in 2005 the United Nations Secretary-General invited a group of representatives from 20 investment organizations in 12 countries to establish a set of global best practice principles for responsible investment (UNEP FI, 2006; United Nations Principles for Responsible Investment (PRI), n.d.). The PRI are voluntary and aspirational rather than prescriptive, providing a framework for incorporating ESG issues into investment decision making and ownership practices (UNEP FI, 2006). Compliance with the PRI is expected to lead not only to a more sustainable financial return but also to a close alignment of the interests of investors with those of global society at large. The PRI, which provide a common framework for the integration of ESG issues, consist of:
i. Integration of ESG issues into the investment analysis and decision-making process
ii. Incorporation of ESG issues into investment ownership policies and practices
iii. Promotion of appropriate disclosure on ESG issues by the entities in which institutional investors invest
iv. Promotion of acceptance and implementation of the principles within the investment industry
v. Collaboration among institutional investors to enhance the effectiveness of implementing the principles
vi. Reporting on initiatives, activities, and progress toward implementing these principles (PRI, n.d.). CSR requires business organizations to take initiatives to advance some social good beyond their own interests and compliance with applicable regulations. Simply put, CSR means enhancing corporations’ positive impacts and minimizing their negative effects on society, minimizing harm to society and the environment and creating positive impacts on the community, environment, employees, customers, and suppliers. The true measure of success for corporations should be determined not only by reported earnings, but also by their governance, social responsibility, ethical behavior, and environmental initiatives. Organizations are required not only to maximize profit and economic output but also to include all environmental aspects and social services. Therefore, all socially responsible organizations must fulfill four types of social responsibilities:
i. Voluntary or philanthropic responsibilities: advantages and benefits a business provides to society, including support for projects aimed at improving the life of the local community.
ii. Moral responsibilities: corporate activities expected to be done for society without any direct legal conditions or limitations.
iii. Legal responsibilities: regulations corporations must obey that were established to protect society.
iv. Economic responsibilities: both supplying required services and goods for society and offering these services and goods at an affordable price and making profit for investors (Rahahleh & Sharairi, 2008).
Advantages of CSR are:
i. CSR reduces direct costs (energy, material, time loss, etc.).
ii. CSR increases employee productivity (increasing motivation and reducing absenteeism).
iii. CSR can diminish managerial risks.
iv. CSR promotes corporate competitiveness (Pettenella, 2010).
Gray, Owen, & Maunders (1987) discussed the role of conventional accounting in result reports and asserted that instead of basing accountability on possession it is better to consider beneficiaries. Rubenstein (1992) went further, expressing that a new social contract is required between an organization and its beneficiaries.
Evolution of Social Responsibility in the Business Literature Although CSR seems to be a new concept in the business world, the literature shows that the concept has been around for decades. Terminology has changed over the years; this concept has evolved along with social, economic, and business developments. Global extended communication, global trends, and regulation changes have influenced the concept at the international level. We summarize the evolution of CSR from 1920 up to the current decade in the following sections.
1920 through the 1950s
Since 1920, business managers have paid more attention to some definitions of responsibility and responsible performance (Windsor, 2001). Bowen (1953) conceptualized CSR as reflecting decisions and approaches that are desirable for society according to social values and goals. Carroll named Bowen “Father of corporate social responsibility” and considered his attempts as the initiation of a new and novel period of CSR (Carroll, 1999). Bowen had a wide view of business responsibility that included responsibility, stewardship, social auditing, and corporate citizenship (Windsor, 2001).
The 1960s
Studies from the 1960s were about disclosure of CSR. Carroll (1991) stated that in this decade multiple efforts were made to configure and conceptualize CSR and some of the famous authors emerged in this decade. Davis (1973) pointed out that some socially responsible decisions could be justified as a good chance to make long-term profit. It seems CSR of the 1960s showed that social responsibility reflects the human and economic bases of society. Additionally, it emphasized that resources must be used to increase social disclosure, not to make profit for individuals and companies. Walton (1967) emphasized that CSR is a kind of voluntary behavior.
The 1970s
In this period, CSR included focusing on the minimum in corporate social responsibility, according to Friedman (1970). His famous, controversial ideas are still discussed in current debates about CSR. Walton (1967) discussed the notion that CSR could be considered a dynamic part of issuing social certificates. Sethi (1975) proposed a three-level model for corporate social performance. This model differentiated different behaviors of companies:
i. Social liability (answer to market and legal constraints)
ii. Social responsibility (equivalent to social norms)
iii. Social accountability (social compatibility and participation).
The 1980s
This decade has been described as the period of a “more responsible attitude toward corporate guidelines” (Freeman, Wicks, & Parmar, 2004). Freeman’s idea led to the emergence of stakeholder theory (Windsor, 2001). Meeting the needs of beneficiaries and stakeholders is related to corporate performance. Stakeholder theory was the dominant paradigm of CSR during this decade. Carroll (1991) believed that during the 1980s the main focus was on the development of new definitions, including defining CSR, introducing new routes for future research to replace new concepts in literature, defining corporate social accountability, determining commercial behavior, and stakeholder theory. Tuzzolino and Armandi (1981) reported the development of new trends for evaluating CSR by using novel conceptual frameworks, which are a significant tool to measure corporate social performance. With the emerging global debates about sustainable development during this decade came some favorable reports about the relationship between sustainable development and economic growth. Additionally, researchers identified the direction of future discussion and raised some questions about whether CSR yields profits, which offered support for CSR.
The 1990s
During this decade no special effort was done to develop definitions of CSR, but the concept was central to stakeholder theory, business ethics, and corporate citizenship (Carroll, 1999). Wood (1991) importantly introduced the corporate social performance model and developed CSR content; the main focus of his model was results or performance. Wood’s conceptual framework and Carroll’s responsibility pyramid are among the basic contributions of this period (Windsor, 2001). These conceptual models will be described in the next section. During this decade, the beneficiary theory was more popular than the stakeholder theory, expanding on various concepts of corporate social performance. Also, in the late 1990s stakeholders’ activities related to social and environmental dimensions focused on financial performance and related risks. Good behavior and desirable manners reduce stakeholders’ risks. Global dominance of corporate social performance, along with the role of governments and businesses, were stable during this decade. Solomon (1994, p. 337) pointed out that currently corporations are the most powerful entities in the world, so they are expected to have a wide range of social responsibility. Carroll (1999) recommended that corporate social performance (as the attitude of the new millennium) is fundamental to the approach and language of business. This is the basis of many other theories that take into account growing public expectations of today’s corporations.
The New Millennium (Twenty-First Century) Following on the financial disgrace and collapse of such companies as Enron around 2001, debates about the place of CSR in the world economy, especially international companies, expanded to include social and environmental conditions (Smith, 2003). Along with development of global trade, recent literature focuses on more disclosures at the international level. During the new century, significant international development of CSR occurred, accompanied by global attention to human, social, and environmental rights. Recently, academic researchers in the field of business have paid more attention to CSR. Environmental and social responsibilities are mentioned in some legal and political documents.
Additionally, they are attracting more attention at the international level. Currently, corporate managers have a challenging and dynamic duty to recruit persons with social and moral standards to be responsible for commercial operations. Growing pressure for social responsibility is a significant challenge for companies. Companies, especially those working in global markets, focus on increasing stakeholders’ value, but they must balance social, environmental, and economic elements. In summary, the evolution of CSR started in 1930 when debates about the role of corporations and executives emerged. Bowen (1953) argues that CSR programs initiate and undertake activities that are desirable for society in compliance with social values and goals. Bowen initiated a wide perspective about business responsibility that included responsibility, stewardship, social audit, and corporate citizenship (Windsor, 2001). The business literature of the 1960s promoted the recognition of CSR by business organizations and the disclosure of such responsibility to shareholders (Carroll, 1991). During the 1970s, the idea of focusing on protecting the interests of all stakeholders, including shareholders, was promoted as part of CSR (Friedman, 1970). The 1990s witnessed the era of the development of conceptual frameworks and models for CSR based on Wood’s “conceptual framework” and Carroll’s “responsibility pyramid” (Windsor, 2001), as well as the international acceptance of CSR.
Jick Thomas Azi
