CORPORATE

SOCIAL RESPONSIBILITY

1. CORPORATE SOCIAL RESPONSIBILITY: BASIC

NOTIONS

1.1. DEFINITION OF CORPORATE SOCIAL RESPONSIBILITY

Currently, as a relatively new phenomenon that revolves around the evolution of social
interests, there is no agreed definition of Corporate Social Responsibility (CSR).

It is important to know some of the most relevant definitions of this term made by
several public and private organisations.

The AECA (Spanish Association of Accounting and Business Administration) defines

Corporate Social Responsibility as follows:

“CSR is the voluntary commitment of companies to the development of society and

the preservation of the environment, from its social composition and responsible
behavior towards people and the social groups they interact with. It focuses its
attention on satisfying the needs of stakeholders through certain strategies, whose
results have to be measured, verified and adequately communicated. Its objective
goes beyond the mere fulfilment of the established legal regulations and obtaining
exclusively economic results in a short term. It in turn means a strategic approach that
affects decision-making and the operations of the entire organisation, creating long-
term value and significantly contributing to obtaining lasting competitive advantage.”

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The Green Paper of the European Union defines Corporate Social Responsibility as
follows:

“Companies’ voluntary integration of social and environmental concerns in their

business operations and their relations with their interlocutors.”

In addition, it establishes the following objectives of this new European global strategy:

▪ Having the most competitive and dynamic economy of the world, based on
knowledge.

▪ Being capable of achieving sustainable economic growth.

▪ More and better jobs.

▪ Greater social cohesion.

The World Business Council for Sustainable Development defines Corporate Social
Responsibility as follows:

“Corporate Social Responsibility is the continuing commitment by business to behave

ethically and contribute to economic development while improving the quality of life
of the workforce and their families as well as of the local community and society at
large”

Corporate Social Responsibility Europe defines CSR as:

“The expression of a company's commitment towards society and the acceptance of

its role in it. This includes full compliance with the law and additional actions to ensure
that a company does not knowingly operate to the detriment of society. To be
effective and visible, this commitment must be supported by resources, leadership
and must be measurable and measured.”

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The NGO Economists without Borders defines Corporate Social Responsibility as

follows:

“It is the recognition and integration in the management and the operations of the
organisation of social, labour, environmental and human rights concerns, that
generate policies, strategies and procedures that meet these concerns and shape their
relation with their interlocutors.”.

Taking these five definitions, we can establish that CSR requires going beyond law,
regulatory and conventional obligations, and voluntarily making commitments. It is a
way of business management based on the management of the impact generated by its
activity on clients, employees, shareholders, environment and society in general that
results from a balance between economic growth, social welfare and the use of natural
resources and the environment.

This balance between business and society is vital for the business operation, as a
company taking an active part in solving the challenges of society will generate:

▪ Higher productivity through better conditions for the internal client that leads to
a better talent retention and, as a result, lower turnover rates.

▪ Customer loyalty by providing a place where they can express their needs and
file their complaints. In addition to quality and price, customers are starting to
demand information about production conditions and product certifications,
among others.

▪ Market access, thanks to the compliance with standards and certifications

required by external stakeholders, including consumers.

▪ Credibility. Companies that are respectful towards people, communities,

environment and society at large, acquire a reputation that guarantees greater

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sustainability over time, thus reducing risks and anticipating situations that may
affect them. This gives them greater agility to act and adapt, which creates
greater confidence.

Being environmentally responsible will be achieved if a company provides society with

transparent information related to its practices and management, and if it responds to
the expectations that society has. This is as important as adapting to the market and to
the needs of its different stakeholders.

1.2. HISTORY AND EVOLUTION OF THE CONCEPT

The concept of Corporate Social Responsibility, as we know it today, is relatively new. It

appeared for the first time in the academic world in 1953. Howard Bowen mentions it
for the first time and brings up the responsibilities towards society that employers
should bear. Under that approach, Bowen meant to point out that companies’ daily
activity has an impact on society, which makes it necessary to establish a series of
business policies aimed at the values and objectives of society.

However, it is interesting to make a greater leap in time and see that, throughout
history, there have been cases and situations in which companies and corporations have
been concerned about their employees and community.

The background of what we know today as CSR goes back several centuries, almost to
the origins of organisations that combined capital and work to generate profit. However,
it is important to point out that over the years human rights, labour and environmental
abuses have been significant.

We all know about the exploitation of the working class during the Industrial Revolution.
If we look further back, we see how slavery was the basis of the economy of "modern"
societies, without being questioned by some of the main and most important

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philosophers of that time, such as Aristotle. He questioned the existence of friendship

between master and slave in his works. However, it is in situations like those mentioned
in which business and social leaders, acting freely and voluntarily to change things,
emerge.

Although there have been cases of great abuse, it is important to mention some
entrepreneurs who have been concerned about their employees’ welfare and
environment.

One of the entrepreneurs who played an important role in the promotion of what we
know today as CSR is Robert Owen. In Victorian England and during the Industrial
Revolution, he showed that production can be efficient and responsible towards
workers and environment at the same time. In 1820, Owen, who began working as an
assistant in a cloth factory, created in New Lanark an important company town, which
has been declared a World Heritage Site. In this community, cooperation and mutual
support prevailed. Owen introduced several welfare measures, including public health
and education, in order to eradicate child labour and the poor existing working
conditions.

It is also important to mention Whitbread and Truman in England, large brewers; Lloyd
and Darby, working in the steel industry; Cadbury, in the food sector, who bought land
close to their factory to build the town of Bourneville; Player, in the tobacco industry;
and Will, in cotton, who preferred to stay and invest in the development of Bristol, their
hometown.

In Spain, we also find several significant examples during the nineteenth century, such
as the emergence of a cooperative movement in the agricultural sector, consumer
cooperatives, textile company towns in river basins, etc. One of the most important
company towns built during that time was Colonia Güell in Santa Coloma de Cervelló
(Barcelona), currently an important architectural heritage that demonstrates the living
conditions of workers and their families, with schools, health centers and places for

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leisure, reflecting the vision of protection and responsibility of the entrepreneurs of that
time.

When it comes to the United States, we should emphasise the concern that many
entrepreneurs had for education. Many of the large private and prestigious universities,
such as Harvard, Yale, Cornell, Princeton, Duke and Columbia, among others, were
founded thanks to the financial contributions of the most prominent entrepreneurs of
that time. Many of them also collaborated in the creation of important cultural centres
such as the Metropolitan Museum or the Metropolitan Opera House in New York.
However, it is important to point out that those collaborations were only donations of
important amounts of money for prestigious projects of a great public impact that gave
them a good name. In most cases, though, it was detrimental to the neediest local
sectors.

It was not until the mid-fifties when the United States went from conceiving CSR as a
principle of charity based on philanthropic actions of big businessmen to conceiving CSR
as a principle of management in which social actions are integrated into business
strategy.

Regarding the academic field, and as we said at the beginning of this section, the concept
of CSR was used for the first time in 1953 by Howard Bowen. Later, in the 1960s, Davis
Keith, who theorised on the subject, suggested that the responsibility companies have
towards society and the environment should be in line with the impact and power that
these companies have over society.

Unlike Owen and Davis, Milton Friedman, Nobel Prize in Economics, clearly objects to
companies being socially responsible for the environment since he believes that the only
responsibility that business managers should have is to generate wealth and profit. In
1970, this same author called companies that allocated part of their profit to donations
or to the investment of activities that were not strictly linked to the business

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irresponsible. This generated a link between CSR and philanthropy since the second is
intimately linked to donation.

In this way, we can see that both on a practical level and in the academic field, there is
a debate between two positions: the first position of a wide responsibility and a second
one that only focuses on the economic benefits of the shareholders.

Linked to this, and in order to give a solution to these two different and opposing
positions, in 1971 Johnson established four visions of the concept that can complement
each other in practice and that equally focus on obtaining economic benefits and
implementing socially responsible actions:

▪ Vision 1: Knowledge of the environment of a company’s activity.

▪ Vision 2: Implementation of social programmes to obtain greater profits.

▪ Vision 3: The main interest of a company is to obtain benefits, whether economic

or social.

▪ Vision 4: Knowledge of the stakeholders and relations with them to gain wealth.

During the seventies, once the vision and the concept of CSR was defined, the authors
and businessmen who were concerned about this responsibility, focused their studies
on identifying how CSR should be carried out to obtain both economic and social
benefits.

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MANDATORY STAGE POLITICAL STAGE SOCIALLY RESPONSIBLE

STAGE

- Market - Social pressures - Anticipating and preventing

social impact
- Existing regulation - Improving relations

Sethi (1975) talked about three stages in the operation of a company.

The first stage is represented by all those actions that a company must take, either
because they are established by law or because of the functioning of the market they
work in. The second is a political stage referring to all the pressures and demands of
society towards a company in order to improve relations. The third stage, called socially
responsible stage, is concerned with the ability of a company to anticipate and prevent
the impact that its activity may have. The actions taken here are free and voluntary, and
depend on the ethics of each company or organisation.

Linked to this, Carroll created a model focusing on corporate socially responsible

performance made up of four interrelated categories:

▪ Economic: Focusing on the generation of profits.

▪ Legal: Complying with current regulations governing business activities.

▪ Ethical: Carrying out activities based on values and moral principles and
exercising them voluntarily.

▪ Philantrophic: Under the discretion of each company according to the

environment in which it is located.

Following this logic, in 1984, Drucker states that to achieve an implementation of socially
responsible programmes in companies, it is necessary for these companies to turn these
social responsibilities into business opportunities so as to obtain economic benefits but

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also to generate skills, competences, better paid jobs and opportunities for the whole
society to access health services.

Thanks to this idea an interest in establishing the connection between financial

performance and CSR arose so that during the second half of the eighties, the interest
in this field was focused on socially responsible performance, on the basis of the three
dimensions that Carroll proposed in 1979: corporate social responsibility, social
problems and corporate social actions.

In 1984, Ullmann, Cochran and Wood came up with the idea of bringing a degree of
regulation to the CSR, which must be implemented through the generation of principles
that define a company’s performance, the implementation of policies that seek to
respond to social problems and the creation of processes that aim to generate social
actions. This resulted in the creation of written principles and norms in what we know
today as codes of conduct or ethical codes.

From that time on, we can see that there is a real effort to link some of the theoretical
elements, through the creation of models, with the practices that were carried out in
companies and with the performance of each organisation. This results in the
construction of CSR indicators, gaining strength during the 21st century with the
creation of institutions and organisations geared towards this purpose.

1.3. BUSINESS ETHICS

Corporate Social Responsibility implies that companies or organisations have total

freedom when choosing which actions or policies to carry out based on the objectives
they pursue. However, this freedom is determined by ethics, which will act as a guide in
decision making.

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The Cambridge dictionary defines ethics as:

“The study of what is morally right and wrong, or a set of beliefs about what is morally
right and wrong.”

By contrast, the Spanish philosopher Adela Cortina, in her work Company Ethics,
defines it as:

“A type of knowledge of those who seek to guide human action in a rational sense,
that is, it expects us to act rationally (…). Ethics is essentially being able to act
rationally (...) in life as a whole.”

Thus, both ethics and moral guidance are needed for companies and organisations to
form their character based on the objectives and purposes they have and also in terms
of the audiences they are directed to, their interests and their needs. This character will
define the actions of a company, and these actions will end up becoming behavioral
habits. These habits can be good or bad, and it will be up to a company to decide how
to act on the basis of law but also on its business ethics, since it should be noted that
law and ethics do not always go hand in hand.

In this respect, it should be underscored that some countries lack laws for regulating
certain areas, such as child labour, exploitation of workers with endless workdays and
miserly wages or disregard for environmental pollution. It is in that context that ethics
comes into play, assuming a series of guidelines and behaviors that are not set by law
but that a company assumes as their responsibility.

This way, we can state that CSR stands between imposed legality and freely accepted
morality, since the CSR unites norms, actions and values that a company or organisation
assumes voluntarily but end up becoming regulatory standards within the organisation
itself. They are mandatory values for this company, but not for the rest.

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LAW ETHICS

(mandatory) CSR (voluntary)

Regarding the ethical and moral nature that companies and organisations may have, it
is important to highlight that, although today the CSR is an inseparable part of these, it
has not always been that way. As we have seen, there have been cases of unethical
practices throughout history and many authors have defended the amoral nature of
companies.

In that sense, we must emphasise the phenomenon of globalisation, which may or may
not help companies and organisations carry out socially responsible actions.

The Cambridge Dictionary defines globalisation as:

“The increase of trade around the world, especially by large companies producing and
trading goods in many different countries.”

This phenomenon opens the way for companies to relocate their production to other
territories. They see this not only as a business opportunity, but also as a way to dodge
the law of the current country.

Nowadays, globalisation has overstretched the capacity of States to regulate their

policies regarding respect for human, civil, political, economic, social and ecological
rights. Now if a company feels suffocated by strict legislation, it can relocate its
production to a territory with more relaxed laws eager to attract new investment.

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This new international context leads to two totally different visions of the phenomenon,
one in support of globalisation and economic rationality, and the other against
globalisation and defending social justice.

Against what the ETNOR Foundation (Ethics for Business and Organisations) stated:

“Ethics is profitable”

T. Levitt, one of the pioneering authors in defending globalisation, states that the sole
purpose of companies is to obtain economic benefits, and globalisation is the solution
to state intervention in the economy and the market, which often causes a setback in
business activity with its policies.

Supporters of this vision affirm that it is the market itself that makes companies and
organisations take the high moral ground, with no need for State intervention for its
regulation, this being the basis of the Economic Theory.

Milton Friedman made it clear in 1970 stating that "the only social responsibility of a
company is to make money".

Regarding the ethical vision, “The purely economic man is indeed close to being a social
moron." This is what Amartya Sen calls the defenders of globalisation, considering as
well that the distance between ethics and economy is one of the main factors that have
led to the impoverishment of the economy for the last years.

Business activity is affected every day by a wide range of externalities, which can be
positive or negative. Considering these externalities, the interest of society for a market
outcome goes beyond the well-being of the buyers and the sellers of that market, since
it also includes the welfare of others that are or may be affected.

Efficiency at a business level is not only measured in terms of profitability and economic
benefit, but also several intangible values that will generate benefits in the long term
must be taken into account.

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The CSR helps a company to achieve the following: innovation, reputation, transparency,
reliable and fluent information, and an increasingly agile and proactive communication
between companies and their stakeholders. In addition to good communication, CSR
will help to build a corporate reputation that will decisively influence the survival
capacity of companies in today’s voracious, competitive and ruthless market.

Corporate reputation is understood as the recognition of a company that stakeholders

have based on its behavior towards society, the fulfilment of its commitments and the
satisfaction of the expectations of these stakeholders.

Apart from economic interest, organisations have a social purpose. This means that the
organisation aims to provide society with goods or services that it demands (needs)
through certain cooperative activities (economic, human capital...) on the basis of
respect for human rights. A company is socially legitimate if these requirements are
fullfilled. Otherwise, a company is delegitimated and lacks corporate reputation. To
quote Adela Cortina: "the delegitimated company has fewer resources to compete in
the market".

The following graph defines Adela Cortina's statement very well.

ECONOMIC VISION

If a company is only dedicated to gaining economic benefits, it will be delegitimized in

the long run, leading to a loss of resources to compete in the market as well as a loss of
reputation with its stakeholders.

ECONOMIC, SOCIAL (Human and Labour Rights) AND ENVIRONMENTAL VISION

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A company that is not only concerned about the economic benefit and implements a
wide range of CSR policies to improve its reputation will see how it will eventually win in
the long run.

In this part, as we said in the previous section, it is important to make a distinction

between CSR and the concept of philanthropy because although they are similar, they
are not the same.

As we have seen, in the United States, donations from important businessmen have
always been very common for the creation or support of institutions, especially in the
cultural field. Continuing with the thought on the link between strategic management
and CSR, at the end of the nineties, these philanthropic donations were seen as a
competitive advantage that gave society a good impression of a company, since such
actions are intimately linked with charity.

That resulted in the association of CSR with aspects of philanthropy, rather than the
responsibility of the firm towards society as a whole, thus generating two positions
against the CSR. The first position carries out philanthropic actions with an interest in
improving its image and positioning in the market. The second position provides a
comprehensive view, in which the social concerns, expressed by the different interest
groups, are integrated into the aspects that make up the business activity, such as: the
business model, the strategy, the vision, the goods or services offered, etc. In addition,
and in response to social concerns, the socially responsible company promotes the
creation of synergies with different social actors from different sectors whose interest
is focused on positively impacting the welfare of the entire society.

The implementation of this comprehensive social responsibility requires a paradigm

shift in the way of thinking and acting, which is what differentiates it from philanthropy.

That paradigm shift translates into:

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▪ Donations go to social investment.

▪ The impact not only falls on specific assets, but also seeks to generate social
processes in favour of social welfare.

▪ It goes from a partial vision of reality to a comprehensive one.

▪ The reactive position becomes a proactive attitude of solidarity.

▪ The scattered intermittent actions become permanent social programmes.

▪ It goes from specific donations without commitment to the creation of

cooperative funds.

▪ There is no longer room for informality and non-transparency, and a company

must be transparent and communicate with its public.

▪ It goes from an improvised action to a professionalisation in the activities aligned

with the core of the activity carried out by a company.

1.4. PERSPECTIVES OF CSR

As we have seen in the previous points, one of the main dilemmas concerning CSR is if,
on the one hand, a company should focus only on the economic benefits that it can
obtain performing its activity as the Dodge brothers and shareholders of Henry Ford did
or if, as the latter claimed, it was necessary to invest the profits of a company in the
development of its factories; and as a consequence, in the improvement of the welfare
of its workers.

Another point of disagreement is the one defended by Levitt (1958) and Friedman
(1970). Their criticism is based on an individualist conception of CSR. For both, investing
in CSR will cause more profits than losses at the economic level. Defending also, that it

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is not the responsibility of a company to worry about social and/or environmental

aspects.

Against these views, Carrol proposes a reconciliation between the vision of Freidman
and Levitt. He argues that the only responsibility of a company is to make money, but
defending an ethical responsibility to society and environment on the part of a company.

Carrol theorises about four levels of CSR: the first responsibility is economic, since a
company has to fulfil its function of producing goods and services as well as generating
profit. In addition, it must operate within a legal framework, it must respect local ethical
standards and, finally, it must provide discretionary resources from its operations once
the three previous responsibilities have been fulfiled. This means that a company will
work freely and according to its own criteria, complying with the three previous
responsibilities.

This conciliation results in the analysis of Burrell and Morgan, who speak of four
approaches or perspectives on Corporate Social Responsibility to present the
relationship established between business and society:

▪ A functionalist approach focused on the regulation of the relationship between

a company and society.

▪ A socio-political approach that exposes the relationships of power and the logic
of power that is present between a company and society.

▪ A culturalist approach, which emphasises sharing values and social standards

between business and society.

▪ A constructivist approach that aims to account for the reciprocal construction

of a company to society and society to a company.

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▪ Funcionalist approach: CSR as a social regulator

This first approach is characterised by designing a company and society as two

systems that pursue specific purposes and that use each other to achieve this
purpose.

The "bronze law of CSR" (David, 1973) establishes that this regulation is achieved
thanks to the control that society has over the business world, known in theory
as an implicit social contract that brings companies into contact with the
societies that surround them.

According to this perspective, CSR is defined as an instrument of regulation of

the company/society relationship that has the function of stabilising such
relationship and integrating the purposes of the company with those of society.

▪ Socio-political approach: CSR related to power

This second vision focuses on the power relations and the logic of conflict that
acts in the relations between companies and society. Companies are conceived

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as a "political arena" where resources depend on relationships, sometimes

conflicting, with external groups.

Following this perspective, CSR is defined as the expression of power relations,

as it translates the capacity of social actors or organisations (non-governmental
organisations, activists, government, etc.) to influence companies and make
them take into account their social, ethnic and/or environmental claims.

▪ Culturalist approach: CSR as a cultural product

This approach perceives the relations between companies and society as an area
of diffusion and exchange of representations, standards and values. Companies
are seen as a cultural place that is directly linked to the cultural system that has
constituted the society. The degree of openness of a company to its socio-
cultural environment will determine its capacity to take into account the values
and social standards dominant in its management.

In this case, CSR is defined as a cultural product that reflects the relationships
established between business and society, as defined by the cultural, political,
institutional and social environment.

▪ Constructivist approach: CSR as a sociocognitive structure

This last vision recognises the subjective and socially constructed nature of the
relationship between business and society. It is an area where both entities
interact, are built and permanently reconfigured. Following the image proposed
by Morgan (1986), this perspective can be characterised by the metaphor of two
interacting brains.

In this case, CSR is defined as a socio-cognitive construction of the business and

society sphere through a complex process of reciprocal framing of intensities,
value systems and social issues.

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