Corporate social responsibility (CSR, also called corporate conscience, corporate citizenship, social performance, or sustainable responsible business/ Responsible Business) is a form of corporate self-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. CSR is 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, stakeholders and all other members of the public sphere who may also be considered as stakeholders.
A key relationship in the history of corporate social responsibility is the relative power between corporations and governments during particular economic periods. Although only in common usage since the 1960s, CSR has its roots in the Industrial Revolution – the birth of ‘big industry’ meant social structures, communities and ways of life were completely re-shaped over a relatively short period of time.
In the late 18th century a Scottish philosopher and economist named Adam Smith wrote numerous articles on these subjects, his magnum opus being The Wealth of Nations in which he espoused the concepts of free trade and the free market on which the classic market economy was based.
Smith’s principles were borne out. By the early 19th Century, new technology saw jobs being created and living standards improved. Unchecked by regulation businesses flourished and industrialists in Europe and the USA amassed huge fortunes. However few of these wealthy new industrialists were concerned about the wellbeing of their employees, society or the environment. The appalling conditions under which people worked were documented in the novels of Charles Dickens and inspired radical theorists such as Karl Marx and Friedrich Engels to write about new concepts on labor, socialism and communism.
By the start of the 20th century, powerful corporations suffered a backlash against their widespread exploitation. Labour unions were formed, giving a voice to the workers, and governments began to assume more responsibility for welfare and infrastructure, gradually introducing anti-trust legislation.
In the 1950s, emerging ‘consumer power’ saw companies start taking a new interest in the social and human aspects of their markets – it was at about this time scientists and environmentalists started noticing some worrying changes to the environment.
The 1960s saw a shift in attitudes towards government and business. In 1962 Professor Milton Friedman, Nobel Prize-winning economist, published his controversial Capitalism and Freedom. In it he makes the case for economic freedom as a precondition for political freedom.
The 1980s and 1990s saw communism collapse, globalization emerge and the information revolution change the way the world did business. As globalization intensified, so did environmental awareness and the emergence of responsible business practice? Key developments include: the Brundtland Commission, the formation of the World Business Council for Sustainable Development, and the United Nations Global Compact. Why follow CSR?
Businesses embarking on new environmental programs and initiatives are typically driven by three main drivers: values, compliance or opportunity. * Values: “the right thing to do” refers to those businesses that seek to reduce their negative and enhance their positive sustainability impacts as a demonstration of their values. Businesses that show concern for reducing their environmental footprint and for generating positive community benefits earn a reputation as a good company with employees, customers, suppliers, investors and community members. * Compliance: “the thing you must do” focuses on reducing time spent to manage current regulation, and the advantages of staying ahead of future regulation. All regulation can affect a business’ ability to operate and its profitability.
Reducing regulatory risk of fines, reducing time to understand and comply with regulations, and anticipating new regulation is just good management. For example, many businesses are working to reduce their energy use and carbon emissions, expecting that regulation will soon follow and force businesses to pay for their emissions. Other businesses are focused on improving the health and safety conditions in the workplace to reduce their regulatory burden.
* Competitive Advantage: “the thing you can do to make money” highlights that an environmental focus offers businesses the chance for increased revenues and profits. Some businesses improve cash flow by reducing resource inputs (water, energy, waste services) to lower operating costs, while others diversify existing product lines to meet new customer demand for green products and services. Still others might look at new ways to meet social needs via the marketplace, such as products and services accessible to seniors or people with disabilities. Once a business has embarked on this path, marketing and advertising their green successes and social responsibility can help build brand and market share. benefits
Reduce Your Operating Costs
Environmental initiatives reduce operating costs by reducing material and resource costs. More efficient use of materials – even if it’s a simple as using less toner and paper – reduces the cost of inputs. Resource efficiency – using less water, energy and sewage – reduces utility costs. It is also possible to reduce maintenance costs. For example, efficient lighting needs to be changed less often and waterless technologies require less maintenance. Small businesses can save up to 40% of energy costs simply by following recommended maintenance schedules for their equipment – cleaning and sealing ducts, changing filters and cleaning coils. Studies show small commercial buildings have duct leaks twice that of residential buildings. Identifying and repairing these problems is a cost effective way of reducing your energy costs and your impact on climate change.
Reduce Your Risk
By reducing your negative environmental and social impacts, your business can reduce the risks associated with volatile energy and commodity prices, and rising insurance premiums. Environmental initiatives help your business hedge against rising natural resource (water, energy, wood, minerals) costs by reducing demand. In some instances you can switch to alternative and renewable sources. By eliminating hazardous materials, you can reduce the risk and costs associated with spills and injuries.
Businesses who demonstrate they are proactively managing their sustainability impacts are more likely to reduce their insurance bill as they are perceived by insurance companies as having a lower risk profile. Companies that are effective managers of their social and environmental performance are better managed companies overall and likelier to have fewer insurance claims and pay lower insurance premiums.
Attract & Retain Good Employees
Environmental and social responsibility programs affect human resources by putting a business’ values into action, and by engaging employees in the change. Such efforts can improve the morale and productivity of existing employees, and attract new talent to the business. Since many workers feel that they are greener than their employers, environmental initiatives allow them to bring their values and their ideas to work. When employees are proud of the business they work for, they are more productive, more creative, and more committed. Employee retention can reduce the costs associated with turnover. When considering recruiting, interviewing, hiring, training, and reduced productivity it costs a business approximately $3,500.00 to replace one $8.00/hour employee. Sustainability commitments can provide the following benefits to a business’ attraction/retention efforts:
* Increase competitive advantage for recruiting;
* Create a sense of teamwork among employees; and
* Establish an emotional tie between employee and the business.
Improve Your Brand
Brand is a business’ most important asset. It represents your company’s intangible worth – your reputation in the market. Sustainability initiatives help protect and enhance your brand. By walking your talk, you protect your brand from being tarnished. Further, a visible commitment to reducing your negative environmental and social impacts and enhancing your positive impacts can help foster strong relationships with your customers, your employees and your community. Many businesses refer to this as “social license to operate.” The Good news for resource-strapped small businesses is that it doesn’t take fancy marketing campaigns to broadcast your reputation. When surveyed, customers say that their decision to buy is mainly influenced by a product/company’s reputation (21%), word of mouth (19%) and brand loyalty (15%). Dollars spent on green advertising impacts their decisions only 9%.
Improve Your Access to Bank Financing
Businesses that are managing their sustainability impacts are more able to access credit. Perceived as capable managers because of their integrated approach to managing their financial, social and environmental risks and performance, sustainability-oriented companies are increasingly perceived as better investments by financial institutions. Some Canadian banks, including HSBC and Vancity, have begun scrutinizing the environmental and human rights track records of potential loan recipients as part of the loan assessment process.
Maintain and Improve Your Market Share
As large organizations green their supply chains, the small businesses that supply them are affected by increasingly stringent environmental and social requirements. Innovative small businesses will maintain if not gain market share and stay ahead of competitors. For instance, global giant Walmart is pushing many of its suppliers to green their operations, working to reduce waste from product packaging and reduce carbon emissions from production of products. Your business’ sustainability strategy can help you stay ahead of competitors, create a market differentiator, and gain access to new markets. In the refillable water bottle market in 2008 for instance, consumer concerns about the potential dangers of bisphenol-A (BPA) created a market opportunity for a small upstart called Klean Kanteen, positioning them as the safer alternative to BPA containing Nalgene bottles. issues
Businesses are owned by their shareholders – money spent on CSR by managers is theft of the rightful property of the owners
This is the voice of the laisser-faire 1980s, still being given powerful voice by advocates such as Elaine Sternberg. Sternberg argues that there is a human rights case against CSR, which is that a stakeholder approach to management deprives shareholders of their property rights. She states that the objectives sought by conventional views of social responsibility are absurd. Not all aspects of CSR are guilty of this, however. Sternberg states that ordinary decency, honesty and fairness should be expected of any corporation.
Response: In the first instance, this case strongly depends on the model of social responsibility adopted by the business being a philanthropic one. The starting point assumption is that, through CSR, corporations simply get to “give away” money which rightfully belongs to other people. If CSR is seen as a process by which the business manages its relationships with a variety of influential stakeholders who can have a real influence on its licence to operate, the business case becomes immediately apparent. CSR is about building relationships with customers, about attracting and retaining talented staff, about managing risk, and about assuring reputation.
The market capitalisation of a company often far exceeds the “property” value of the company. For instance, as much as 96% of Coca Cola is made up of “intangibles” – a major part of which rests on the reputation of the company. Only a fool would run risks with a company’s reputation when it is so large a part of what the shares represent.
In any case, if shareholders are to be accorded full property rights one would expect to see the balancing feature of responsibility for the actions taken by the enterprises they often fleetingly own. Since most shareholders remain completely unaware of any such responsibility, it can only fall to the management – the “controlling mind” of the company, to take that responsibility on. The leading companies who report on their social responsibility are basket cases – the most effective business leaders don’t waste time with this stuff.
When surveys are carried out of the “Most Respected Business Leaders” you will often find names there, such as Bill Gates of Microsoft, a few years ago Jack Welch of GE, who have not achieved their world class status by playing nice. Welch is still remembered for the brutal downsizing he led his business through, and for the environmental pollution incidents and prosecutions. Microsoft has had one of the highest profile cases of bullying market dominance of recent times – and Gates has been able to achieve the financial status where he can choose to give lots of money away by being ruthless in business. Doesn’t that go to prove that “real men don’t do CSR”?! Response: There is no denying the force of this argument. We do not live in a Disney world where virtue is always seen to be rewarded, and that’s a fact. Nevertheless, the picture is not as simple as the above argument makes out.
In the first instance, very few businesses operate in a black or white framework, where they are either wholly virtuous or wholly without redemption. There are many aspects in the way Jack Welch restructured General Electric which would play to the kind of agenda recognizable to advocates of social responsibility – in particular that of employee empowerment. Welch has gone on record as saying that he believes the time has passed when making a profit and paying taxes was all that a company had to worry about. And since Welch moved on, General Electric has been busy catching up big time with its EcoMagination initiative.
Also, many of the leading companies with regard to their social responsibility are equally successful companies. The same “Most Respected” surveys will usually provide other names at, or near, the top such as IBM and Motorola – and these are companies that have been much more strongly associated with the CSR movement. Coca Cola achieved its place partially because of its profile in social responsibility. When still in charge, Sir John Browne of BP was widely respected as having led BP into a strong position as one of the world’s leading companies whilst also showing environmental leadership. The events that latterly tarnished that reputation simply show that skill in execution is key to success – but even those events don’t disprove the fact that success in business and commitment to responsibility can go hand in hand. Our company is too busy surviving hard times to do this. We can’t afford to take our eye off the ball – we have to focus on core business. It’s all very well for the very big companies with lots of resources at their disposal.
For those fighting for survival, it’s a very different picture. You can’t go spending money on unnecessary frills when you’re laying people off and morale is rock bottom. And the odd bit of employee volunteering won’t make any difference to our people when they feel cynical and negative about how the company operates. Response: Managing your social responsibility is like any other aspect of managing your business. You can do it well, or you can do it badly. If the process of managing social responsibility leads you to take your eye off the ball and stop paying attention to core business, the problem is not that you’re doing it at all – it’s that you’re doing it badly. Well managed CSR supports the business objectives of the company, builds relationships with key stakeholders whose opinion will be most valuable when times are hard, and should reduce business costs and maximize its effectiveness. It’s the responsibility of the politicians to deal with all this stuff.
It’s not our role to get involved Business has traditionally been beyond morality and public policy. We will do what we’re allowed to do. We expect governments to provide the legal framework that says what society will put up with. There’s no point, for instance, allowing smoking to remain legal – even making large tax receipt from it – and then acting as though tobacco companies are all immediately beyond the pale. If you think it’s so dreadful, you should make it illegal. If not, then let us get on with the job of meeting the demand out there of adults who can choose for themselves. Response: In some areas, this is right – albeit that it is getting increasingly difficult to sustain. If you consider that of all the institutions which are currently getting more powerful in the world, they are essentially the global players – the multinational corporations and the non-governmental organizations. The institutions which are decreasing in power and influence are those tied to the jurisdiction of the nation state – governments first and foremost. It is tempting therefore to look towards the multinationals to take a lead in creating solutions for global problems where the governments seem incapable of achieving co-operative solutions.
The interest of Unilever in sustainable fisheries comes to mind. However, there is a strong case that says that the democratic deficit created by such a process is too important to ignore. To whom are the multinational corporations accountable? Outside of that “macro” scale, the argument holds up less well. Many companies actually spend considerable time and money seeking to influence the formation of public policy in their area of interest. And since that area of interest can range far and wide – from international treaties on climate change, through to domestic policy on health (such as that relating to smoking) or transport – the fact is the lobbying activities of companies show that they have a role like it or not. And if that lobbying has involved blocking legislation that serves a social end purely in order to continue to profit in the short term, then the company is on very dodgy ground. If CSR is simply about obeying the law and paying taxes, then perhaps the above statement is fair comment.
If it is about managing the demands and expectations of opinion formers, customers, shareholders, local communities, governments and environmental NGOs – if it is about managing risk and reputation, and investing in community resources on which you later depend – then the argument is a nonsense. I have no time for this. I’ve got to get out and sell more to make our profit line. Response: I have spoken to a lot of business managers about environmental performance, and it always struck me how difficult a sell waste minimization was to managers who really needed to save money.
Study after study after study has shown that just about any business you can think of, if it undertakes waste minimization for the first time, can shift 1% of its overall turnover straight onto its bottom line. That is not an insignificant figure. And yet, getting out and selling more product somehow remains more attractive for business managers than making more profit through wasting less. It will take a long time and a change in fundamental attitudes towards doing business before this one shifts. In the meantime, keep looking at the evidence.
Case Title: The Tata Nano: A Successful CSR Strategy?
In January 2008, India’s largest automobile company, Tata Motors showcased its dream, the ‘People’s Car’ named Nano, worth 1 lakh rupees. The Nano had been manufactured targeting the Indian middle class and was therefore a reflection of Tata’s efforts towards corporate social responsibility (CSR). However, since the car was a product of frugal engineering, analysts were skeptical about the impacts of such a car on the environment. They questioned Tata’s ability to create a low cost car for the masses without sacrificing quality and safety standards.
They were apprehensive about the impacts of such low cost cars, as they could accentuate the already serious traffic scenario in India. Tata had defended its Nano, saying that it would cause less pollution than two wheelers, and instead questioned the moral authority of the people who were opposing middle class people owning a car. However, the question remained as to whether Nano would eventually be able to overcome the challenges and emerge as a successful initiative of Tata Motors.
* To analyze the Tata Nano ‘The low cost car’ as a reflection of CSR on the part of Tata Motors. * To understand the environmental impacts of the low cost car. * To analyze whether the Nano would be able to overcome the challenges and emerge as a successful initiative of Tata Motors.
Analysis and Interpretation
* I consider Tata Motor’s providing the Nano ‘the low cost car’ as a social responsibility in the area of morale upliftment to the middle class. * Environmental impacts (obviously negative) is another issue in CSR. Coping with the economic and morale side for the customers, the company compromised the environmental side. Compromising the environmental side of the social responsibility not just offsets the essence of CSR but undermine it. It is better that they didn’t not make a CSR plan for morale upliftment at least there would be no future damages than pursuing it but would later cause environmental hazards. * Nano would still be able to overcome its challenge by improving this line of brand to be also an environmental friendly car.
Creating Shared Value
The central premise behind creating shared value is that the competitiveness of a company and the health of the communities around it are mutually dependent. Recognizing and capitalizing on these connections between societal and economic progress has the power to unleash the next wave of global growth and to redefine capitalism.
Creating Shared Value (CSV) is a concept first introduced in Harvard Business Review article Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility and further expanded in the January 2011 follow-up piece entitled Creating Shared Value: Redefining
Capitalism and the Role of the Corporation in Society. Michael E. Porter, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School, and Mark R. Kramer, Kennedy School at Harvard University and co-founder of FSG. The article provides insights and relevant examples of companies that have developed deep linkages between their business strategies and corporate social responsibility. Moreover the concept is remarkable in their last article “Creating Shared Value”.
3 Ways of Creating Shared Value Opportunities
Reconceiving Products and Markets
Companies can meet social needs while better serving existing markets, accessing new ones, or lowering costs through innovation Redefining Productivity in the Value Chain
Companies can improve the quality, quantity, cost, and reliability of inputs and distribution while they simultaneously act as a steward for essential natural resources and drive economic and social development
Enabling local cluster development
Companies do not operate in isolation from their surroundings. To compete and thrive, for example, they need reliable local suppliers, a functioning infrastructure of roads and telecommunications, access to talent, and an effective and predictable legal system Examples
“We did it from a business standpoint from Day 1. It was never about corporate social responsibility.”- Jefferey R. Immelt, G.E.’s chief executive General Electric’s redirection of its business plan to “ecomagination” program in 2005 was a result of the societal and governmental push for reduction in electrical and fuel costs and in carbon emissions. With the help of environmental consulting firm, GreenOrder, G.E. managed to modify its products more eco-friendly and energy saving. Its sales reached $18 billion in 2009 and is predicted to grow twice as fast as overall company revenues over the next five years.
Dow AgroSciences has developed a line of Omega-9 rich canola and sunflower oils, with zero trans fats and the lowest levels of saturated fats. Since 2005, Omega-9 Oils have eliminated nearly a billion pounds of trans fat and 250 million pounds of saturated fat from North American foods.
Companies can also improve the competitive context in which they operate by investing in their communities. Nestlé, for example, worked closely with the farmers of the Moga Milk District in India, investing in local infrastructure and transferring world-class technology to build a competitive milk supply chain that simultaneously generated social benefits through improved health care, better education, and economic development. In conclusion, CSV encourages each company to create economic and social value simultaneously by focusing on the social issues that each is uniquely capable of addressing.
CSV vs CSR
CSR differs from Creating Shared Value, although they share the same ground of “doing well by doing good.” Mark Kramer, the co-writer of Harvard Business Review article on Creating Shared Value, states in his Creating Shared Value blog that the major difference is CSR is about responsibility, whereas CSV is about creating value. Whether it is an extended “new form of CSR” or “shared value,” CSV is fundamentally different from the CSR activities of the past. Rather, CSV is a transition and expansion from the concept of CSR. Business responsibility has evolved from Traditional CSR 1.0 (Stages: Defensive, Charitable, Promotional and Strategic), Transformative CSR 2.0 and to CSR 3.0 what is similar to CSV.] Such development of stages by redefining CSR has laid theoretical foundations for companies and society to sustainably and communally overcome societal issues.
As capitalism matures, it is companies’ duties to break itself out of the traditional CSR by realizing its limitations and try to restructure and pursue new market strategies that value both economic and societal development. CSV concept supersedes CSR for it is a way for corporations to sustain in the competitive capitalistic market. Whereas CSR focuses on reputation with placing value in doing good by societal pressure, it generates both economic and societal benefits relative to cost in real competition of maximizing the profits. Instead of being pushed by external factors, CSV is internally generated not confined to financial budget as CSR is. With the advent of CSV and following strong worldwide advocacy for it, companies started to overthink about their vision for their sustainable growth
Social entrepreneurship refers to the practice of combining innovation, resourcefulness and opportunity to address critical social and environmental challenges. Social entrepreneurs focus on transforming systems and practices that are the root causes of poverty, marginalization, environmental deterioration and accompanying loss of human dignity. In so doing, they may set up for-profit or not-for-profit organizations, and in either case, their primary objective is to create sustainable systems change. The key concepts of social entrepreneurship are innovation, market orientation and systems change. Social entrepreneurs are united by their ability to
•Adopt a mission to create and sustain social value (not just commercial value) •Recognize and relentlessly pursue new opportunities to serve that mission •Engage in a process of continuous innovation, adaptation, and learning •Act boldly without being limited by resources currently in hand, and •Exhibit a heightened sense of accountability to the constituencies served and for the outcomes created. What does not constitute social entrepreneurship?
•A successful business man or woman who, upon retirement, has decided to help the less privileged in society and “give back”. To do so, s/he endows a foundation to support early childhood education and to set up hospitals in poor countries. •Such a person is a philanthropist who has set up a charity. •Philanthropists are critically important in society – and many of them support social entrepreneurial activities. But don’t confuse philanthropic largesse with social entrepreneurship.
•A passionate animal rights activist, who at an early age volunteered in an NGO to lobby the government to ban whale hunting. Subsequently, s/he worked to boycott garment companies using the fur of baby seals to make winter coats. As a young adult, s/he founded Bambi to raise money to lobby governments to protect the rights of laboratory animals. •This person an activist working to bring pressure on policy makers and the public to stop a specific practice. No alternative options are proposed. •We need activists – but they are not social entrepreneurs.
Companies with a Foundation
•Foodmart is a global discount grocery & household products chain that has been rated by the International Better Business Bureau as one of the top companies to work for in the world. The World Health Organisation has designated Foodmart as a “Healthy Workplace” for worker safety and wellbeing. The company encourages its staff to engage in community activities and provides them with company time to do so. The company established the Foodmart Foundation to support activities in maternal and child nutrition. •Foodmart is a socially responsible global business that has incorporated corporate citizenship and social responsibility into its core business practice. •We would love more companies like Foodmart – but their priority is to make money for their shareholders. It is not an example of social entrepreneurship practice, which subsumed value appropriation at the service of transforming social and environmental conditions.
The Process of Social Entrepreneurship
1.Find an opportunity
2.Develop a business concept
3.Figure out what success means and how to measure it
4.Acquire the right resources
5.Launch and grow
•Social entrepreneurship meets needs unmet by commercial markets and (usually) the government •Social entrepreneurship is motivated by social benefit
•Successful social entrepreneurship usually works with, not against, markets Closing Today with social economic inequality growing worldwide, millions of people are connected by the idea that it is possible to do business on a human scale, that it is possible to make good money and do something good for community that idea is called social entrepreneurship. Social entrepreneurship is a new creative approach to business, social engagement, and social services. Today, organization operating worldwide and our country that we call social enterprises. Social enterprise is just like any other business. Its work is charge its markets rates and generates profit. What makes into business in human scale is the way that profit is use. Profit serves to fulfill clear social mission. Social enterprises do not serve to enlarge the wealth of their owners or share holders.
They operate in order to contribute social equality and to improve living conditions of people in the community. Generate it profit is re-invested to business or realizing social goals like job creation, cultural means, health care and preservation of the environment. A social enterprise places social goals and increase profits uses business as means as social change, resolves social problems through markets strategies (better society). Social entrepreneurship is also good way for civil society organization that want to reduce their dependency of owners system and gain greater financial and operational freedom. Starting a social enterprise is a challenge for all those do profit is not the only goal, who wanted job that make sense and has a purpose..
Corporate social responsibility, http://en.wikipedia.org/wiki/Corporate_social_responsibility A short history of Corporate Social Responsibility, http://www.sustainabilitysa.org/sustainabilityreporting/BusinessandCSR/HistoryofCSR.aspx Case Title: The Tata Nano: A Successful CSR Strategy?
http://www.ibscdc.org/Case_Studies/Corporate%20Social%20Responsibility/CSR0073IRC.htm Business case, http://www.ic.gc.ca/eic/site/csr-rse.nsf/eng/rs00176.html Arguments against corporate social responsibility – And some responses By Mallen Baker: Last updated 23 May 2008,