Title: Core characteristics of CSR
Course: Corporate Social Responsibility online > Section: Part 2: Corporate Social Responsibility

/30 minutes/

Introduction

As you probably realize, both the literature and practice provide many definitions of the concept of Corporate Social Responsibility (CSR).  Why is it important to understand an organization's CSR approach? Because the definitions emphasize the benevolent application of the practices and actions undertaken in the area of the ecology, society and economy.

We can identify some core characteristics of CSR that are essential features of the concept and are emphasized in both academic and practitioner definitions of CSR:

Reproduced from Crane, A., Matten, D., and Spence, L.J. (2014), Corporate social responsibility: in a global context. In: A. Crane, D. Matten, and L.J. Spence,  (eds), Corporate social responsibility: readings and cases in a global context, Abingdon: Routledge (p. 9).

References:

- Crane, A., Matten, D. and Spence, L. J. (2013), Corporate Social Responsibility in a Global Context. Chapter in: A. Crane, D. Matten, and L.J. Spence, Corporate Social Responsibility: Readings and Cases in a Global Context, 2/e. Abingdon: Routledge, pp. 3-26 . Available at SSRN: https://ssrn.com/abstract=2322817

Further readings:

- Crane and Matten blog (not developed further since 2017, but still worth reading) http://craneandmatten.blogspot.com/2013/09/corporate-social-responsibility-in.html

Voluntary action

Many characterizations of CSR typically see it as being about voluntary activities that go beyond those prescribed by the law. Critics of CSR, therefore, tend to see the element of voluntarism as CSR’s major flaw, arguing that legally mandated accountability is where attention should really be focused (Crane, Mattern and Spence 2013).

When we look again at the CSR definitions proposed by the European Commission, there is a slight difference between the definitions from 2001 and 2011. In 2001, CSR was defined as:

At this point, the European Commission also acknowledged the role that the legislative environment can have in enabling CSR. In turn, in 2011 the European Commission defined CSR as:

Since August 29, 2013, when the Indian government implement an Act on Provision of mandatory 2% CSR spending of Net Profit through companies, the discussion on voluntary vs. obligatory CSR became more intense (Karnani 2013).

The crucial question is: should CSR be adopted by firms as a corporate strategy for voluntary use or should CSR be a legally binding legislation?

Some researchers argue that there is a strong argument for mandatory approach to CSR and governments use a combination of both voluntary and mandatory laws to achieve their public policy goals.

On the other hand the group of voluntary CSR enthusiasts claim that voluntary CSR initiatives are connected with values, not with laws. Values cannot be forced, they can be promoted, taught or awaken. They also call for soft power as the very soul of corporate sustainability. In their opinion soft CSR approach (voluntary CSR plus public promotion) is a far more effective than a hard CSR approach (mandatory regulation).

Do you want to read more and deepen into this discussion, please find below important links:

- Villamayor J. (2010) Voluntary Corporate Social Responsibility: The Power of Convictions, https://juanvillamayor.wordpress.com/2010/09/29/csr-mandatory-or-voluntary/ (Accessed 4.06.2020)
- Li-Wen Li (2019) Mandatory Corporate Social Responsibility? Legislative Innovation and Judicial Application in China, Forthcoming in American Journal of Comparative Law, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3361448
- Karnani A. (2013) Mandatory CSR in India: A Bad Proposal. Standford Social Innovation Review, Retrieved from: https://ssir.org/articles/entry/mandatory_csr_in_india_a_bad_proposal#

References:

- Crane, A., Matten, D. and Spence, L. J. (2013), Corporate Social Responsibility in a Global Context. Chapter in: A. Crane, D. Matten, and L.J. Spence, Corporate Social Responsibility: Readings and Cases in a Global Context, 2/e. Abingdon: Routledge, pp. 3-26 . Available at SSRN: https://ssrn.com/abstract=2322817
- Commission of the European Communities (2001), Green Paper for Promoting Framework for Corporate Social Responsibility, Brussels 2001, ec.europa.eu/
- European Commission (2011) Communication from the Commission 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)
- Karnani A. (2013) Mandatory CSR in India: A Bad Proposal. Standford Social Innovation Review, Retrieved from: https://ssir.org/articles/entry/mandatory_csr_in_india_a_bad_proposal#  (Accessed 9.06.2020)

Internalizing or managing externalities

I hope you remember what externalities are. Just to remind you:

Externalities are the positive and negative side-effects of economic behaviour that are borne by others, but are not taken into account in a firm’s decision-making process, and are not included in the market price for goods and services (eg. pollution).

Regulation can force firms to internalize the cost of externalities, such as pollution fines, but CSR would represent a more voluntary approach to managing externalities, for example by a firm investing in clean technologies that prevent pollution in the first place (Crane, Matten & Spence, 2013).

Internalizing and managing externalities simply means that firms take responsibility for their impact on society and environment.

If you need to refresh your knowledge on externalities you can read more in the section "How do we take ethical decisions?".

References:

- Crane, A., Matten, D. and Spence, L. J. (2013), Corporate Social Responsibility in a Global Context. In: A. Crane, D. Matten, and L.J. Spence (eds.), Corporate Social Responsibility: Readings and Cases in a Global Context, 2/e. Abingdon: Routledge, pp. 3-26 . Available at SSRN: https://ssrn.com/abstract=2322817

Multiple stakeholder orientation

CSR involves considering a range of interests and impacts among a variety of different stakeholders other than just shareholders. The assumption that firms have responsibilities to shareholders is usually not contested, but the point is that because corporations rely on various other constituencies such as consumers, employees, suppliers, and local communities in order to survive and prosper, they do not only have responsibilities to shareholders (Crane, Matten & Spence, 2013).

Yet, if managers accept the notion that they are responsible not only towards shareholders but also many other stakeholder groups, they need to learn how to identify stakeholder groups and how to manage them.

Please watch two videos that show in a nutshell how managers can easily learn to identify their stakeholders and manage them:

https://www.youtube.com/watch?v=eqZfiTp1HZw

Source: More than Metrics, How to create a stakeholder map (2020) (3:05 min)  [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=eqZfiTp1HZw

https://www.youtube.com/watch?v=bOIT1GKVMd8

Source: LearnLoads, Introduction to stakeholder maps (4:55 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=bOIT1GKVMd8

References:

- Crane, A., Matten, D. and Spence, L. J. (2013), Corporate Social Responsibility in a Global Context. In: A. Crane, D. Matten, and L.J. Spence (eds.), Corporate Social Responsibility: Readings and Cases in a Global Context, 2/e. Abingdon: Routledge, pp. 3-26 . Available at SSRN: https://ssrn.com/abstract=2322817

Alignment of social and economic responsibilities

This balancing of different stakeholder interests leads to the next facet. While CSR may be about going beyond a narrow focus on shareholders and profitability, many also believe that it should not, however, conflict with profitability (Crane, Matten & Spence 2013).

So the crucial problem here is if we can make a profit with CSR. If yes - managers probably wouldn't have  problems going for it. However, what if CSR conflicts with profitability?
The answer to the question about the relationship between CSR and profit isn't easy for several reasons:

It depends on how we define CSR and how we are going to measure it (we will discuss this concern in the very last part of this course).

It depends on how we define profit. If we define profit in terms of economic, social and environmental returns, we are likely to receive a posititve answer to our question. Yet, if we only look at financial profits, the case stays unresolved, mainly because of the 1st reason mentioned above.

We also need to differentiate between short- and long-term profits. In terms of long-term profits, we are more likely to receive a positive answer. However, concentrate on a short-term perspective, CSR may not seem very efficient.

Scientific studies on this topic often give mixed results (for the reasons mentioned above). However, if we look at one very comprehensive study, i.e. a meta-analysis of CSR and its links to profits, authored by Marc Orlitzky, Frank L. Schmidt and Sara L. Rynes (2003), “Corporate Social and Financial Performance: A Meta-Analysis”, it suggests a positive relationship between CSR and increased profits.

Summing up, the researchers say:
“we conduct[ed] a meta-analysis of 52 studies (which represent the population of prior quantitative inquiry) yielding a total sample size of 33,878 observations. The meta-analytic findings suggest that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility, is likely to pay off… CSP [corporate social performance] appears to be more highly correlated with accounting-based measures of CFP [corporate financial performance] than with market-based indicators, and CSP reputation indices are more highly correlated with CFP than are other indicators of CSP. This meta-analysis establishes a greater degree of certainty with respect to the CSP-CFP relationship than is currently assumed to exist by many business scholars.” (Orlitzky, Schmidt & Rynes 2003)

Reading about these findings, we may ask a simple question: Do high profits enable greater spending on CSR, or is it the case that CSR itself creates higher profits? And this problem remains unresolved here.

On balance, surveys and the research literature suggest what most executives believe intuitively, that the assumption that CSR can improve profits is possible. And almost no large public company today would want to be seen unengaged in CSR. That is clear admission of how important CSR might be to their bottom line, no matter how difficult it may be to define CSR and link it to profits (Robins 2005)

References:

- Crane, A., Matten, D. and Spence, L. J. (2013), Corporate Social Responsibility in a Global Context. In: A. Crane, D. Matten, and L.J. Spence (eds.), Corporate Social Responsibility: Readings and Cases in a Global Context, 2/e. Abingdon: Routledge, pp. 3-26 . Available at SSRN: https://ssrn.com/abstract=2322817
- Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate Social and Financial Performance: A Meta-Analysis. Organization Studies, 24(3), 403–441.
- Robins R. (2015) Does Corporate Social Responsibility increase profits? Business Ethics. The Magazine for Corporate Responsibility, no. 5 retrieved from  https://business-ethics.com/2015/05/05/does-corporate-social-responsibility-increase-profits/ (Accessed 4.06.2020)

Want to read more on the relationship between CSR and profit? We recommend:

- Rodriguez-Fernandez M. (2016) Social responsibility and financial performance: The role of good corporate governance, BRQ Business Research Quarterly, Vol. 19, Issue 2, pp. 137-151, full text: https://www.sciencedirect.com/science/article/pii/S2340943615000791 (Accessed 4.06.2020)

Or maybe you are more interested in the question how companies can actually align the social and economic interests?

- Porter M.E. and Kramer M.K. (2006) Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review no. 12, https://hbr.org/2006/12/strategy-and-society-the-link-between-competitive-advantage-and-corporate-social-responsibility (Accessed 4.06.2020)
- Kasturi Rangan, V. Chase L. &, Karim S. (2015) The Truth about CSR. Harvard Business Review, no. 1, https://hbr.org/2015/01/the-truth-about-csr (Accessed 4.06.2020)

Practices and values

CSR is clearly about a particular set of business practices and strategies that deal with social issues, but for many people it is also about something more than that – namely a philosophy or set of values that underpins these practices. (Crane, Matten & Spence 2013)

Hard to belive? We are going to deepen this topic in the next section, so don't worry - you'll get familiar with different CSR practices. Maybe only to illustrate how firms combine values and practices into a successul business strategy, we invite you to explore the following resources:

 Website of Innocent: https://www.innocentdrinks.co.uk/ (Accessed 4.06.2020)
 Innocent sustainability corner: https://www.innocentdrinks.co.uk/us/sustainability (Accessed 4.06.2020)
 Watch short advertisement where Innocent shows its good practices:

https://www.youtube.com/watch?v=LeXgxN24loc

Source: innocent drinks, innocent drinks chain of good advert - tastes good does good (1:00 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=LeXgxN24loc

References:

- Crane, A., Matten, D. and Spence, L. J. (2013), Corporate Social Responsibility in a Global Context. In: A. Crane, D. Matten, and L.J. Spence (eds.), Corporate Social Responsibility: Readings and Cases in a Global Context, 2/e. Abingdon: Routledge, pp. 3-26 . Available at SSRN: https://ssrn.com/abstract=2322817

Beyond philanthropy

In some regions of the world, CSR is mainly about philanthropy. But the current debate on CSR has tended to emphatically claim that ‘real’ CSR is about more than just philanthropy and community giving, but about how the entire operations of the firm – i.e. its core business functions – impact upon society. Core business functions include production, marketing, procurement, human resource management, logistics, finance, etc. This debate rests on the assumption that CSR needs to be integrated into normal business practice rather than being left simply to discretionary activity (Crane, Matten & Spence 2013).

Let's revisit the Innocent company to get more information:

How Innocent ensures sustainability through the whole value chain? https://www.innocentdrinks.co.uk/us/sustainability/good-to-the-core (Accessed 4.06.2020)
How Innocent face the challenges to protect our planet and its future? https://www.innocentdrinks.co.uk/us/sustainability/protected-futures (Accessed 4.06.2020)
How Innocent promotes sustainability and CSR across its stakeholders? https://www.innocentdrinks.co.uk/us/sustainability/heroes-of-change (Accessed 4.06.2020)
How Innocent takes responsibility for the packaging? https://www.innocentdrinks.co.uk/us/recycling-revolution (Accessed 4.06.2020)

https://www.youtube.com/watch?v=grltlvtOJTo

Source: innocent drinks,  an innocent film about sustainable bananas (1:09 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=grltlvtOJTo

Yes, CSR goes through the entire supply chain, and philantropy is just a small part of CSR activities. CSR is much more about how to make a profit than about how to spend money. And you will have the opportunity to discover more in the next section.

References:

- Crane, A., Matten, D. and Spence, L. J. (2013), Corporate Social Responsibility in a Global Context. In: A. Crane, D. Matten, and L.J. Spence (eds.), Corporate Social Responsibility: Readings and Cases in a Global Context, 2/e. Abingdon: Routledge, pp. 3-26 . Available at SSRN: https://ssrn.com/abstract=2322817