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Corporate Social Responsibility

Corporate scandals show that maximizing shareholders’ value cannot be the sole purpose of a business. High-profile examples include Enron and the recent Volkswagen emissions test scandal where it was revealed the company wrongly showed that some vehicles met US standards during regulatory testing, while they actually emitted up to 40 times more than the standard in real-world driving. Attention to corporate social responsibility (CSR) among business leaders, investors, and consumers has risen sharply, and nearly all of the world’s largest companies now report on their CSR-related endeavors.

The practice of CSR can be seen across a variety of organizations and can be codified in a business’s culture in many ways. The International Finance Corporation (IFC), the lending arm of the World Bank, for example, mandates that its loan recipients meet specified labor and environmental standards if they are to remain eligible for loans (Senser, 2007). The clothing retailer Patagonia has gained renown as an eco-conscious company that commits the higher of 1 percent of their sales or 10 percent of their profit to environmental groups through the One Percent for the Planet organization. Other organizations sponsor programs or initiatives that work on issues affecting the general public. Often, activist investors, unions, mutual funds, and social organizations can promote CSR by pushing for change from within a corporation.

Countries are increasingly legislating on disclosures by companies that go beyond their finances. EU rules require large companies to publish regular reports on the social and environmental impacts of their activities. In India, the Companies Act mandates CSR spending, whereby corporations meeting certain criteria must spend 2 percent of their net income on CSR activities.

Broadly speaking, CSR refers to a business’s duty to have a positive impact on society beyond increasing economic performance. The principle encourages ethical and transparent business practices and additional voluntary measures that promote social health and welfare. Common examples include a corporation or nongovernmental organization’s (NGO) involvement in labor and environmental issues, the institution of antidiscrimination standards, or engagement with another social cause the company wishes to pursue.

CSR can be viewed through four lenses:

· stakeholder theory

· corporate citizenship

· corporate social performance

· legal, economic, moral, and social responsibilities

Stakeholder Theory

Under stakeholder theory, managers are agents of all stakeholders and have the responsibility to ensure that the ethical rights of stakeholder are not violated. They must balance profit maximization with the long-term stability of the company. Stakeholders are all those who contribute, directly or indirectly, to the company’s value-creation activities. They include shareholders, customers, employees, suppliers, and the local community.

Corporate Citizenship

Corporate citizenship involves a commitment to ethical behavior by creating a balance between the needs of shareholders and the needs of the environment. It includes social, cultural, and environmental responsibilities to the community in which it operates, in addition to the economic and financial responsibility to the company’s shareholders.

Corporate Social Performance

Corporate social performance refers to stakeholders’ assessment of a company's social responses. A three-stage process is typically associated with effective corporate social performance: (1) social obligations are recognized and policies developed; (2) staff specialists are hired and education about the problems is implemented; and (3) line managers assume responsibility for social policy implementation, usually accompanied by changes in resource allocations and rewards.

Legal, Economic, Moral, and Social Responsibilities

Legal, economic, moral, and social responsibilities serve as principles for managers deciding how to meet their social responsibility regarding a specific issue. Social responsibilities should coexist with moral responsibilities. They are often framed as ethical responsibilities or moral obligations.

Even when socially responsible actions don’t produce higher profits, companies still benefit from positive media exposure and the improved relations with consumers that result. Since many customers want to feel that they are making responsible decisions with their purchases, companies are likely to publicize their CSR initiatives in press releases and other announcements. Additionally, CSR activities have been viewed as a way to attract and retain top employees, limit government regulation, and enhance the social bonds that promote business success.