HRMN 495- Risk Management Audit

Corporate Social Responsibility

What you’ll learn to do: Explain the concept of corporate social responsibility

Corporate social responsibility (CSR) is a recent, proactive form of

practicing business ethics that is playing an increasingly significant role in

corporate missions and strategies.

Learning Resource

Corporate Social Responsibility

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UMGC (n.d.). Corporate Social Responsibility. Retrieved from https://leocontent.umgc.edu/content/umuc/tus/hrmn/hrmn495/2225/learning- resource-list/corporate-social-responsibility.html

For many people, pollution is an everyday reality.

Learning Outcomes

• Define corporate social responsibility (CSR)

• Describe the impact of CSR on direct and indirect stakeholders

• Give examples of CSR

• Discuss controversies surrounding CSR

The Origins of Corporate Social Responsibility

President Calvin Coolidge declared in the roaring 1920s that “the chief

business of the American people is business.” It was a popular observation

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in a time of great economic prosperity, when issues such as energy

security and climate change were practically nonexistent.

Almost a century later, things are very different. Now more than ever,

environmental concerns are paramount, and citizens are calling on private

companies to take responsibility for their roles in generating pollution and

other actions that endanger the environment. A growing number of

people believe that companies ought to do more than simply follow the

letter of the law and meet the bare minimum of regulatory requirements.

The notion of CSR has arrived and is growing across the globe.

President Coolidge, like many American presidents before and since,

worked to keep government out of business affairs. But starting in the

1960s and 1970s, the environmental impact of an ever‐expanding

economy was growing, pouring waste into oceans and the landscape,

generating more and more citizen protest. The result was a wave of

legislation designed to reduce the pollution that was a product of many

industrial operations. Those laws effectively decreased pollution

emissions, and they now constitute a large part of the backbone of the

the American regulatory framework. But despite these regulations, excess

pollution continues to be a challenge. And there are even larger problems

on the horizon.

Even though today’s businesses are more efficient and use fewer

resources to manufacture goods—thanks to technological advances—

many natural ecosystems continue to suffer. This is the result of a

continual rise in economic activity to meet the demands of expanding,

increasingly wealthy populations worldwide.

In recent years, a growing number of citizens in the US and around the

world have called on private enterprise to take more action to address

their environmental footprint—action that goes beyond simply complying

with regulations. The result has been a new movement known as

corporate social responsibility, or CSR.

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CSR Defined

CSR can be simply and broadly defined as the ethical role corporations

play in the societies in which they operate. The aim of CSR is to increase

a company’s long‐term profits and shareholder trust by upholding and

adhering to high ethical standards. By taking responsibility for the

consequences of their actions, companies can reduce their business and

legal risks, and promote their public image.

A company’s stakeholders—including its employees, unions, investors,

suppliers, consumers, local and national governments, and communities—

all have an interest in limiting the negative environmental consequences

of corporate activities such as construction and manufacturing. For many

companies, CSR means manufacturing products in a way that doesn’t

harm the environment and protects the consumer from potentially

hazardous materials. One such company that has staked its reputation on

ethical manufacturing is LUSH Cosmetics.

https://youtu.be/yoGMEX1ZLoc (https://youtu.be/yoGMEX1ZLoc)

Demand for CSR

There are at least three drivers pushing businesses to practice CSR

include:

• Increased pressure from sonsumers. They are demanding more from

the businesses that get their hard‐earned money. Businesses that are

perceived as valuing more than their bottom line are gaining favor

with consumers, particularly in North America. Citizens there are

more likely to vote with their wallets and refuse to purchase from

companies whose social and environmental practices they disagree

with. In fact, 42 percent of North American consumers report having

punished socially irresponsible companies by not buying their

products (International Institute for Sustainable Development).

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As the following video shows, the company has been forced to react to

increasing consumer pressure.

https://youtu.be/_Z9es2kXLlY (https://youtu.be/_Z9es2kXLlY)

• Pressure from Shareholders and Investors. In the US, where 61

percent of people own shares in private companies, more than a

quarter say they have bought or sold their shares on the basis of a

company’s social performance. As the table below illustrates, a

similar trend has emerged in Canada, Japan, Britain, and Italy.

Percentage of share‐owners who have bought or sold shares because of

a company's social performance, by country

Country %

Italy 33%

USA 28%

Canada 26%

Japan 22%

Britain 21%

France 18%

Source: International Institute for Sustainable Development

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Country %

Source: International Institute for Sustainable Development

Germany 18%

• Supply Chain Pressure. As consumers pay closer attention to the

social responsibility of retailers and service providers, they are also

scrutinizing the details of their supply chains. For example, Apple has

come under scrutiny and criticism for the poor working conditions

and environmental hazards in their assembly facilities in China. Even

though these facilities are outside of the United States and are

separate corporate entities, Apple has spent considerable resources

defending its reliance on such suppliers. Other companies such as

IKEA, the Swedish international retailer of furniture and household

goods, takes a proactive approach to CSR both internally and within

its supply chain. IKEA’s website invites consumers and interested

parties to read the company’s sustainability reports and its policy

statement on “People and Planet.”

Regardless of where the pressure originates, companies are finding that

ignoring their social and environmental impact is ultimately bad for

business.

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Nike sponsored a campaign to address the effects of HIV in Africa.

Common Approaches to CSR

Not all companies approach CSR the same way. It depends on their

resources, available assets, and corporate culture. Some companies

perceive more benefit from one approach to CSR than another. The

personal beliefs and priorities of senior management and ownership also

influence the company’s approach to social responsibility. Below are some

different approaches to CSR.

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Corporate Philanthropy

Corporate philanthropy refers to a corporation’s gifts to charitable

organizations. Despite claims that the that such donations have no strings

attached, that is not always the truth. At minimum, most corporations

expect their donations to be publicly acknowledged, which generally

generates positive press. When corporations make large cash gifts to

universities or museums, they are also usually rewarded with a plaque or

with the naming of a building in their honor. This further burnishes the

corporation’s public image. These cases have little to do with corporate

philanthropy and are more the product of marketing or public relations.

Cause‐Related Marketing

Cause‐related marketing occurs when a company aligns its sales with a

charitable campaign. One example, the “Red Campaign,” in which

companies such as Nike and Gap pledge to contribute profits from the

sale of certain red products to a program for African development and the

relief of AIDS‐related social problems. Cause‐related marketing enables

companies to promote their brands while also promoting awareness

about a social cause.

Another example is images of the pink ribbon, used to promote breast

cancer awareness and the search for a cure. The pink ribbon has been

broadly used in a wide variety of programs whose ultimate aim is to

promote a product. For example, companies such as Estée Lauder, Avon,

New Balance, and Self all use the pink ribbon to advertise their

contributions to breast cancer research. Estée Lauder has made support

for breast cancer awareness one of the defining features of its corporate

philanthropy. Thus, the company frequently refers to its charitable

contributions in its corporate communications and public relations

materials.

Sustainability

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The concept of sustainability has become nearly synonymous with the

goal of environmentalism in corporate America: for companies to operate

without compromising the natural world. Becoming truly sustainable is a

challenging goal for any company, and many environmentalists maintain

that no corporation operates fully sustainably, since all use energy and all

produce waste products such as garbage and industrial chemicals.

Whether or not true sustainability is attainable anytime in the near

future, the development and promotion of sustainability strategies have

become paramount to most of today’s large corporations, whose websites

advertise their commitment to sustainability and responsible

environmental practices. No corporation or corporate executive today is

overheard saying they don’t care about the environment. Nevertheless,

their actions can betray their words.

Social Entrepreneurship

Social entrepreneurship (or social enterprise) refers to using the proceeds

of a business to attain laudable social goals. For example, Blake Mycoskie

created TOMS Shoes largely in reaction to his travels in Argentina, which

had exposed him to devastating poverty that left many school‐age

children without shoes. An important part of TOMS shoes’ corporate

mission is its pledge to provide a free pair of shoes for every pair

purchased. This business model has been adopted by others, including the

popular online eyewear brand, Warby Parker.

The difference between social entrepreneurship and CSR is that a

company’s commitment to having a positive social impact is built into the

mission of the company at its founding. Other examples of companies

founded on social entrepreneurship include The Body Shop, Ben & Jerry’s

ice cream, and Newman’s Own:

• The Body Shop was founded by noted activist Anita Roddick who

insisted all her products be derived from ingredients that were

natural, organic, and responsibly sourced. Her employment policies

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allow each employee to take one workday off a month to participate

in social or community projects.

• Ben & Jerry’s was founded to promote the use of organic, locally

produced food. The company’s founders implemented a policy that

stipulated company executives earn no more than seven times the

salary of factory line workers (although this policy was eventually

relaxed when it became difficult to recruit a competent CEO at those

wages). Over the years, Ben & Jerry’s has engaged in high‐profile

political activism in which they also encourage their employees to

participate, such as protesting the building of the Seabrook nuclear

power plant in Vermont.

• Newman’s Own was founded by film actor Paul Newman and his

friend A. E. Hotchner with the goal of selling wholesome products

and donating 100 percent of their profits to charitable ventures. To

date, Newman’s Own has given away more than $200 million.

Social Marketing

Social marketing refers to the use of business marketing techniques to

pursue goals for the common good. Often, governments and nonprofit

organizations make use of social marketing to communicate and

emphasize their messages to a wide audience. Classic examples are

powerful TV commercials warning of the dangers of unsafe driving or

failing to wear seat belts. Cinematic techniques are typically employed in

these commercials to portray dramatic, arresting images of crumpled cars

and bodies, and children and mothers crying.

Social marketing typically aims to convince citizens to drive safer, eat

better, report child and domestic abuse, and avoid various forms of

criminality and drug use. As with ordinary advertising, social marketing

can seem overdone or maudlin, and some social marketing ads have been

mocked or considered silly. For example, former First Lady Nancy Reagan

participated in a social marketing campaign that urged young people to

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“Just Say No” to drugs, an approach that was ridiculed by many as

inappropriately simplistic. Activist Abbie Hoffman said that telling drug

users to “just say no” to drugs was like telling manic‐depressives to “just

cheer up.”

CSR: Commercial or Commitment?

From the beginning, CSR has been the subject of debate. CSR’s critics

argue that the main objective of companies is to maximize the return on

shareholders’ investment. They point to the legal system as the more

appropriate place for regulating businesses’ social conduct. Businesses

are already performing a key public service by providing the jobs and

services that society needs.

Other critics assert that many CSR activities are really just publicity stunts

and corporate greenwashing. Greenwashing refers to when companies

exaggerate or misstate the impact of their environmental actions or

promote products as being “eco‐friendly” when they are not.

Supporters of CSR contend that there are significant profit‐related

benefits to socially responsible behavior. They say companies use CSR

activities to establish partnerships with communities to increase company

influence and play a bigger role in local and national legislation.

Trends indicate that CSR is gathering force and is here to stay. More and

more leading companies in America and worldwide are releasing

sustainability reports. And new industries like clean energy are providing

social and economic benefits while also fighting climate change. The

result has been called one of the greatest commercial opportunities in

history.

As the importance and nature of CSR continue to be a topic of ongoing

debate and controversy, consider the following facts and viewpoints

regarding CSR in general, and its implications for specific issues:

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Sincerity or Public Relations?

• Facts: CSR is a rapidly growing object of study in universities and

business schools. Most large corporations have adopted CSR

programs.

• Controversy: Is CSR a good thing or is it corporate window dressing?

• In favor: CSR motivates corporations to address social problems,

energizes and rewards workers, and strengthens ties to the

community while also enhancing a company’s image.

• Against: Surveys show that citizens are more concerned about

corporations treating their workers well and obeying laws than about

engaging in philanthropic activities. People worry that CSR may allow

corporations to distract consumers and legislators from the need to

tightly regulate corporations.

Beneficial or Boasting?

• Facts: There is a scientific consensus that global warming and climate

change represent an enormous threat to mankind.

• Controversy: Can CSR really have a significant impact on climate

change, or is it just a public relations vehicle for companies and a

distraction from the need for stronger government action, such as a

carbon tax?

• In favor: Corporations can have a major impact in the battle against

global warming by reducing their large carbon footprints,

encouraging other corporations to follow suit, and helping discover

and develop alternative sources of energy.

• Against: Companies spend a lot of advertising money to boast about

their small actions against global warming, but many of these

companies are in industries—such as fossil fuels or automobiles—that

produce the most greenhouse gases to begin with. Self‐serving

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claims about concern over climate change are often simply

greenwashing campaigns meant to distract us from the need for

more effective measures through taxation and regulation.

Defining Personhood

• Facts: Most large corporations spend money on lobbying in an effort

to influence legislators and regulators. In the Citizens United

decision, the Supreme Court ruled that companies are “corporate

persons.” Accordingly, they now have the right to the same freedom

of speech protections—and the right to lobby with cash—as do

ordinary citizens. This has significantly increased the flow of

corporate money into Washington.

• Controversy: Many citizens are outraged that the justice system now

gives multinational corporations the same rights as ordinary people

on the grounds that corporations are “persons.” However, others

point out that The New York Times and CNN are also corporations,

and that it could have a chilling effect on freedom of speech if all

corporations were legally constrained from speaking out freely.

• In favor: As major employers and technological innovators,

corporations benefit society. They should be free to oppose

inefficient and cumbersome government regulations and taxation

that can limit the benefits they provide. Freedom of political speech

is so essential to our society, we should be cautious about limiting it

in any way.

• Against: Corporations are not “persons” in the same sense that

humans are, and therefore, they should not enjoy the same freedom

of speech protections. Since corporations can become vastly

wealthier than ordinary citizens, allowing them to participate without

parameters in politics will allow them to bend laws and regulations to

their will.

In each of the debates outlined above, there are intelligent and well‐

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informed people on both sides of the issue. How CSR is defined and

practiced differs for each enterprise. But for all those companies, the

view seems to be that CSR programs are a good investment.

Case Study: Social Entrepreneurship at TOMS' shoes

TOMS' shoes incorporated philanthrophy into its business model.

While there is no universally accepted definition of social entrepreneur,

the term is typically applied to an individual who uses market‐based ideas

and practices to create social value in the form of the enhanced well‐

being of individuals, communities, and the environment. Unlike ordinary

business entrepreneurs who base their decisions solely on financial

returns, social entrepreneurs incorporate the objective of creating social

value into their business models.

Social entrepreneurship has become exceedingly popular in recent years,

and a number of prestigious business schools have created specific

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academic programs in the field. Social entrepreneurs are lauded for their

ability to effect far‐reaching social change through innovative solutions

that disrupt existing patterns of production, distribution, and

consumption. Prominent social entrepreneurs are celebrated on magazine

covers, praised at the World Economic Forum in Davos, awarded millions

of dollars in seed money from “angel” investors, and applauded as

harbingers of new ways of doing business. But are they actually effecting

positive social change?

Social entrepreneurship can undeniably arouse a striking level of

enthusiasm among consumers. Blake Mycoskie, social entrepreneur and

founder of TOMS shoes, tells the story of a young woman who accosted

him in an airport, pointing at her pair of TOMS while yelling, “This is the

most amazing company in the world!” Founded in 2006, TOMS

immediately attracted a devoted following with its innovative use of the

so‐called One for One business model, in which each purchase of a pair

of shoes triggers the gift of a free pair of shoes to an impoverished child

in a developing country.

Widespread enthusiasm about social entrepreneurship is perhaps

emblematic of increased global social awareness, evidenced by increased

charitable giving worldwide. A 2012 study revealed that

• 83 percent of Americans wish brands would support causes;

• 41 percent have bought a product because it is associated with a

cause (a figure that has doubled since 1993);

• 94 percent say that, given the same price and quality, they would be

likely to switch brands to one that represented a cause; and

• 90 percent think companies should consider giving to the

communities in which they do business.

Does Social Entrepreneurship Live Up to its Promise?

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Despite the eager reception from consumers, critics of social

entrepreneurship have raised concerns about the creation of social value

in a for‐profit context. TOMS is sometimes mistaken for a charity because

it donates shoes to children in developing countries, but it is also in the

business of selling shoes. The company earns an estimated $300 million a

year. While companies are starting to look more like charities, nonprofit

organizations are also increasingly relying on business principles to

survive an uncertain economy in which donors expect to see tangible

results from their charitable contributions.

The difficulty of gauging social outcomes complicates the matter. There is

little concrete statistical data on the impact of social entrepreneurship.

Thus, there is little agreement on its precise definition, making it difficult

to say to what extent any given company is an example of social

entrepreneurship. TOMS’ Chief Giving Officer, Sebastian Fries, recently

told the New York Times that the company is “not in the business of

poverty alleviation.” Does this mean that increased social value is merely a

happy byproduct of the business of selling shoes? If so, what specifically

makes Blake Mycoskie a social entrepreneur?

Some critics go so far as to suggest that social entrepreneurs are merely

using public relations tactics to engage in social or environmental

greenwashing, thus taking advantage of consumers’ desire to do good. In

some cases, it has been argued, social entrepreneurs can even do more

harm than good. Lacking a full understanding of the socioeconomic and

cultural dynamics of the developing countries in which they intervene,

social enterprises can in fact undermine fragile local markets and foster

dependence on foreign assistance.

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Answer the following questions to see how well you

understand the topics covered in this section. This short

quiz does not count toward your grade, and you can retake

it as many times as you wish. Use this quiz to decide

whether to study the section further or move on.

Choose the BEST answer.

Question 1

Companies today are held to higher standards than ever

before. Individuals and groups of consumers consider not

only the quality and price of a company's products, but also

the company’s ________.

marketing accuracy

commitment to environmental and social concerns

production process

Question 2

Consumers wishing to encourage corporate social and

environmental responsibility can

vote with their wallet

encourage their family members to shop local

shop at Walmart

Check Your Knowledge

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Question 3

Examples of approaches to corporate social responsibility

include

Facebook, Twitter, and LinkedIn

product, price, promotion, and placement

corporate philanthropy, cause‐related marketing,

sustainability

References

International Institute for Sustainable Development. Corporate Social

Responsibility Monitor. Retrieved from https://www.iisd.org

/business/issues/sr_csrm.asp

Licenses and Attributions

Introduction to Corporate Social Responsibility

(https://courses.lumenlearning.com/wmopen‐introbusiness/chapter

/outcome‐corporate‐social‐responsibility/) from Introduction to

Business by Linda Williams and Lumen Learning is available under a

Creative Commons Attribution 4.0 International

(https://creativecommons.org/licenses/by/4.0/) license. UMGC has

modified this work and it is available under the original license.

Corporate Social Responsibility (https://courses.lumenlearning.com

/wmopen‐introbusiness/chapter/corporate‐social‐

responsibility/) from Introduction to Business by Linda Williams and

Lumen Learning is available under a Creative Commons Attribution‐

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