Advanced Readings in Management

Muhammad Atiq (PhD)

Corporate Social Responsibility (CSR)

The basic questions before discussing CSR

What do we mean by business?

Do businesses have any social responsibilities?

If yes, what are the social responsibilities of businesses?

CSR: Evolution and Definition In modern times, the seminal work of Howard R.

Bowen ‘Social Responsibilities of the Businessman’ (1953)

‘It refers to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society’ (Bowen, 1953, p. 6)

‘Businessmen apply social responsibility when they consider the needs and interest of others who may be affected by business actions. In so doing, they look beyond their firm’s narrow economic and technical interests’ (Davis and Blomstrom, 1966, p. 12)

CSR: Evolution and Definition Friedman (1962, 1970) argued that business

has no social responsibility other than generation of profits and obeying the law

The most widely adopted and debated definition of CSR is given by Archie B. Carroll who defines CSR as:

‘The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time’ (Carroll, 1979, p. 500)

CSR: Evolution and Definition Economic: generating employment and profits Legal: obeying the law (e.g. minimum wage) Ethical: Doing what is fair, just and right (e.g.

respecting people, providing good quality products etc.)

Discretionary: mainly philanthropic contributions like building schools, cash donations to hospitals etc.

Most controversial of all is discretionary responsibility as its limits are vague

CSR: Evolution and Definition In 1984, Freeman published his seminal work

‘Strategic Management: A Stakeholder Approach’

In 1990s, the publications on CSR increased and it started gaining momentum

Primarily, stakeholder theory remained the focus of CSR publications

The late 1990s saw a great shift in the policies of corporate managers

The adoption of CSR started with a belief that businesses were having a negative impact on the natural environment

CSR: Evolution and Definition In 2002, Michael Porter and Mark Kramer

introduced the notion of ‘Strategic Philanthropy’ In 2006, they introduced the concept of

‘Strategic CSR’

Despite its significance, there is no single commonly agreed upon definition of CSR (Turker, 2009)

‘CSR clearly means different things to different people in different countries’ (Frynas, 2009, p. 4)

CSR: Evolution and Definition Dahlsrud (2008) analyzed 37 definitions of CSR

and concludes that CSR has five dimensions:Environmental dimension, social dimension, economic dimension, stakeholder dimension and voluntariness dimension

In 2013, Atiq and Karatas-Ozkan introduced the term ‘SCSR’ in place of strategic CSR

SCSR entails linking opportunity-centred approach to CSR in order to extract both corporate and social value simultaneously

CSR: Evolution and Definition

Atiq (2014) defines CSR in the context of Pakistan as:

‘Such corporate initiatives that educate stakeholders on important aspects of personal and business well-being, focus on the quality of product, provide relief and assistance to employees in time of need and contribute towards the development and uplift of society in general, can be termed as CSR’.

Critique of CSR CSR critics claim that the corporate sector is

involved in ‘green washing’ rather than CSR (Hess and Warren, 2008)

Green washing: The practice of highlighting good eco-friendly and social aspects of operations in order to green wash significantly worse social and non eco-friendly aspects of CSR

Rather than focusing on key societal issues, corporations attempt to define CSR simply in terms of philanthropic activities and voluntary community involvement projects (Shamir, 2004; 2005)

Rationale for CSR

Businesses have to engage in CSR because government, activists, and the media are closely scrutinizing the social and environmental consequences of business activities (Porter and Kramer, 2006)

CSR produces reputational gains that ultimately lead to the creation of competitive advantage (Fombrun et al., 2000)

Reputational gain = the market value of the company in excess of its liquidation value and intellectual capital

Rationale for CSR CSR acts as an opportunity platform as well as helps

tone down the risks faced by the corporation (Fombrun et al., 2000)

CSR can be a vehicle for differentiation and thus competitive advantage (Gelbmann, 2010)

Pivato et al. (2008) maintain that consumer trust, improved reputation, increased customer satisfaction, and clear differentiation from competitors are the benefits of engaging in socially responsible practices

Stakeholder Theory

Stakeholder theory is the most widely used theory of explaining corporate responses to social problems (Frynas, 2009; Atiq and Karatas-Ozkan, 2013)

Donaldson and Preston (1995, p. 67) define stakeholders as ‘persons or groups with legitimate interests in procedural and/or substantive aspects of corporate activity’

Clarkson (1995) defines stakeholders as ‘persons or groups that have, or claim, ownership, rights, or interests in a corporation and its activities, past, present, or future’ (p. 106)

Stakeholder Theory Clarkson (1995) classifies stakeholders as primary

and secondary stakeholders

Those stakeholders are primary stakeholders on whom the corporation depends for its survival and without whose support it cannot continue its operations

Customers, employees, suppliers, shareholders, the Government, and the community

Secondary stakeholders are those on whom the corporation does not depend for its survival

Media and special interest groups

Stakeholder Theory

Freeman’s work is considered the most influential work on stakeholder theory

Freeman (1984) contends that organizations should operate by taking into account the often conflicting needs and demands of stakeholders and attempt to balance the conflicting interests of stakeholders

Creation of value for stakeholders will lead to the creation of value for shareholders

Stakeholder Saliency

Stakeholders possessing three attributes, namely power, legitimacy and urgency are considered more important by managers than other stakeholders (Mitchell et al., 1997)

Power means the ability to bring about change that one desires

Legitimacy refers to ‘socially accepted and expected structures or behaviours’ (ibid, p. 866)

Stakeholder Saliency Urgency can be described as ‘the degree to which

stakeholder claims call for immediate attention’ (ibid, p. 867)

Power and legitimacy combine to create authority and urgency brings dynamism to the stakeholder-manager relationship

Government is the most salient stakeholder followed by owners and customers out of 10 relevant environmental stakeholders in Spain’s manufacturing sector(Gago and Antolin, 2004)

Balancing Stakeholder Interests

To examine and address the issue of distributing corporate resources among the stakeholders (Reynolds et al., 2006)

Resources are not easily divisible and managers give relatively unequal importance to stakeholders(Mitchell et al., 1997)

Corporations accord attention to only a few stakeholders because of impractability of balancing interests, corporate priorities, focus on short-term objectives, limited resources and competitive pressures (Jamali, 2008)

Critique of Stakeholder Theory

Balancing stakeholder interests is impractical because the number of those who affect or are affected by the corporation is infinite (Sternberg, 1997)

Sternberg (1997) contends that there might be difference of opinion among the members of the same stakeholder group as to what constitutes benefit for them

Stakeholder theory violates the agency theory of the firm by requiring that the assets of the firm be used for the benefit of all stakeholders (ibid)

Critique of Stakeholder Theory By gaining the confidence of stakeholders, managers

may indulge in pursuing items of self-interest, which may go un-noticed (Cennamo et al., 2009)

Managers may over-invest in social initiatives, which may lead to a deterioration in the competitive positioning of the firm (ibid)

On these grounds, Cennamo et al. (2009) claim that engaging in stakeholder management can have invisible costs

Stakeholder theory focuses on stakeholder pressures and prescribes a reactive behaviour for corporations (Frynas, 2009)

Theory of Strategic CSR (SCSR)

Corporations should take a pro-active stance to the needs of society because of:

Increased CompetitionIncreased globalization enabled by rapid

changes in technologyChanging customer preferences

Corporations need to have an entrepreneurial focus on their social responsibility initiatives

The goal of SCSR is to create ‘shared value’

SCSR Strategic CSR approach originally developed by

Burke and Logsdon (1996) ‘Corporate social responsibility (policy, programme

or process) is strategic when it yields substantial business-related benefits to the firm, in particular by supporting core business activities and thus contributing to the firm’s effectiveness in accomplishing its mission’ (Burke and Logsdon, 1996, p. 496)

SCSR has five dimensions: Central to the firm’s mission, specific to the firm,

makes the firm positively visible, is pro-active and voluntary

SCSR CSR initiatives should be aligned with the strategic

goals and resources of the corporation, in order to achieve both corporate and social benefits (McAlister and Ferrell, 2002)

Theory of SCSR further developed by Porter and Kramer (2002; 2006; 2011)

Shared value is an outcome of engaging in SCSR practices

Stakeholders cannot understand business complexities, the trade-offs it has to make, the competitive context and business capabilities

CSR initiatives should be highly relevant to the operations and strategies of the corporation

SCSR

SCSR can have benefits for the corporation in terms of good reputation, cost reduction, increased sales, product differentiation and attracting highly qualified employees (Husted and Salazar, 2006)

Jamali (2007) finds that two out of the eight companies examined n Lebanon are engaged in ‘Strategic philanthropy’ only

She limits her conceptualization of SCSR to strategic philanthropy only

SCSR

Atiq and Karatas-Ozkan (2013) link opportunity-centred approach of entrepreneurship to CSR

SCSR comprises of not only strategic philanthropy but also meeting the unmet needs of society in an entrepreneurial manner

Bryon’s Thyrazol product, Nestle’s Nesvita, Nestle Pure Life, PSO’s fuel cards and green fuels (Atiq, 2014)

Moreover, Atiq (2014) reports education of stakeholders, providing right quality of product and concern for employees as SCSR initiatives