Title: What is Corporate Social Responsibility?
Course: Corporate Social Responsibility online > Section: Part 2: Corporate Social Responsibility

/ca. 10 minutes/

History of CSR definition in a nutshell

So what is Corporate Social Responsibility? The concept has evolved over time and has changed. We will take a short historical look at the different definitions and approaches towards the CSR concept  to understand its core features.

As with most management concepts, the story begins not with scientific or academic ideas, but it comes directly from practice. The first well known prompter of the idea of wider understanding of social responsibilities of business people was  Andrew Carnegie (1835 –1919), a Scottish-American industrialist and philanthropist, who  led the expansion of the American steel industry in the late 19th century and became one of the richest Americans in history. He stated that:

We can ask if anything has changed in this matter over 100 years later. In 1889, Carnegie published the article The Gospel of Wealth in North American Review, where he popularized the principles of charity and stewardship. At that time, Carnegie's ideas were an exception rather than the rule. He believed that businesses and wealthy individuals were the caretakers or stewards of their property, holding it in trust for the benefit of society as a whole. This way of understanding one’s responsibility clearly introduces the moral dimension into this discussion.

The discussion about social responsibilities of business people revived just after the Second World War. In 1953, An American economist Howard Bowen (1908-1989) published a book Social Responsibilities of the Businessman, which is considered the foundation for the modern study of corporate social responsibility (CSR). He asked entrepreneurs of his time how they perceived their social responsibility and, based on this survey, he proposed a clear definition (Crane & Matten 2014):

What is important about this definition is that Bowen defines an individual responsibility of a person who runs a business.

Unfortunately, the discussion quickly turned into a reflection on the responsibility of a business or corporation as a whole. Why is this a problem? Because there is no consensus that corporations, as legal persons, have a conscience, or any moral ability according to which they could decide what is right and what is wrong, and act in a morally responsible way.

A strong critique of the concept of Corporate Social Responsibility was exercised by Milton Friedman, Nobel Prize winner in Economic Sciences (1976), who stated clearly that:

According to Friedman, the core driver of business is the profit motive and self-interest of companies, which are responsible only for profit maximization to their shareholders and owners. This is also what managers are trained to – doing business and not taking philanthropic decisions.

The discussion on role of the business in the society has become a widely commented topic in the academic world. Now, the literature provides a docent of different models or frameworks of CSR. The one that is most widespread was developed by Archie Carroll, who proposed the so-called Pyramid Model of CSR. Carroll states that:

The bottom of the Pyramid is founded on economic responsibility: to be profitable is the only way for an organization to survive in the long term.  Companies have shareholders who demand a reasonable return on their investments, they have employees who want secure and fairly paid jobs, they have customers who demand good quality products at a fair price, etc. This is by definition the reason why businesses are set up in society and the first responsibility of business is to be properly functioning economic units and to stay in business. This first layer of CSR is the basis for all the subsequent responsibilities, which rest on this (ideally) solid basis. Therefore, this kind of responsibility is required by society.

At the next stage, the responsibility of corporations in relation to the law demands that they abide by its provisions and 'play by the rules of the game'. Carroll suggests that the satisfaction of legal responsibilities is required of all corporations seeking to be socially responsible.

At the third level, we find ethical responsibility - this responsibility obliges corporations to do what is right, just and fair, even when they are not obliged to by the legal framework. Carroll argues that ethical responsibilities therefore consist of what is generally expected by society over and above economic and legal expectations.

The fourth level of CSR looks at the philantropic responsibilities of corporations. This aspect of CSR addresses a great variety of issues, including things such as charitable donations, the building of recreation facilities for employees and their families, support for local schools, or sponsoring  art and sports events. According to Carroll, philantropic responsibilities are merely desired of corporations.*

And where are we today? Edward R. Freeman developed one very influential theory in management that we call Stakeholder Theory:

Who can be stakeholders? Customers, employees, shareholders, suppliers, local community, environment (which we btw. call a “silent” stakeholder, as it cannot speak for itself), nongovernmental organizations, and many, many others. Freeman perceives CSR as a form of corporate self-regulation integrated into a business model. He defines CSR as a process with the aim to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, shareholders and all other members of the public sphere who may also be considered as stakeholders. Why is this perspective so important? Because it provides a realistic picture of the business world, presents a new role for management , i.e. managers are seen as ‘agents’ of stakeholders, not only shareholders. Therefore, they need to balance different stakeholder’s expectations in order to build competitive advantage. This also explains a new approach to corporate governance: stakeholders hold a legitimate interest, so a company’s strategy should reflect the understanding for values of internal and external stakeholders. (Wulfson 2001)

Sounds interesting, but maybe a bit unreal? We all have heard it: "business is about making money and not serving to all possible interests groups!" Hmm.. this is what most of also us tend to think. However, we may ask if there is any other way of thinking? Why Bowen’s respondents, businessmen in the early 50's, perceived their responsibility as taking decisions and acting in order to satisfy social objectives and values? Is current business so different that we can leave this assumption behind? No, but the way of thinking about business as a whole is slightly different than thinking about the responsibility of individuals in a company. In 2008, Kunal Basu and Guido Palazzo proposed to define CSR as:

This definition presents a direct link between CSR and the decision-making process. At the same time, we can see that the individual role of employees to pursue those line of actions that comply with their own believes and values is crucial for integrating CSR into business.

Building on the stakeholder theory and understanding the need for integrating CSR into business practices, in 2011 the European Commission proposed a simple definition of CSR:

How to do this? There are two strategies:

   Minimizing the adverse impact - identifying, preventing, and mitigating the possible adverse impacts of business activities on society and environment,
   Maximizing the creation of shared value for owners/shareholders and for their other stakeholders and society.

We will exercise both these strategies in the following section of the course.

I hope you liked this short outline of how CSR definitions have changed over time. And we invite you to take part in the next part of our CSR-online course provided by the AGH University of Science and Technology.

References:

- Basu, K., & Palazzo, G. (2008). Corporate Social Responsibility: A Process Model of Sensemaking. The Academy of Management Review, 33(1), 122-136.
- Carroll A. (1989) Business and society. Ethics and stakeholder management. Cincinnati: South Western Publishing Company.
- Crane A., Matten D. (2014), Corporate Social Responsibility. Readings and cases in a global context, ed. L.J. Spence, Routledge
- European Commission (2011) Communication from the Commissin to the European Parliment, the Council, the European Economic and Social Committee and Committee of the Regions, A renewed EU strategy 2011-14 for Corporate Social Responsibility,  https://www.europarl.europa.eu/meetdocs/2009_2014/documents/com/com_com(2011)0681_/com_com(2011)0681_en.pdf (Accesses 9.06.2020)
- Freeman, R.E. (1984) Stakeholder Management: A Strategic Approach, Pitman: New York, NY, USA.
- Friedman M. (1970) The Social Responsibility of Business is to Increase its Profits, The New York Times Magazine September 13.
- Wulfson, M. (2001) The Ethics of Corporate Social Responsibility and Philanthropic Venturesl. Journal of Business Ethics 29, 135–145. https://doi.org/10.1023/A:1006459329221