REVISION – BUSINESS CASE

The business case refers to the underlying arguments or rationales supporting why the
business should accept and advance the CSR ‘cause’. The business case is concerned with
the primary question: What do the organizations get out of CSR? That is, how do they benefit
tangibly from engaging in CSR policies, activities and practices?

Paper provides a brief discussion of the understandings of CSR and some of traditional
arguments that have been made both for and against the idea of business assuming any
responsibility to society beyond profit-seeking and maximizing its own financial well-being.

Arguments against CSR

Ever since the debate over CSR began, scholars have been articulating the arguments for
and against the concept of CSR.

The case against the concept of CSR begins with economic argument articulated by Milton
Friedman (1970). Friedman held that management has one responsibility to maximize the
profits of its shareholders. He further argued that social issues are not the concern of
business people and that these problems and responsibility to solve them falls upon not
businesses, but government and legislation. And if CSR is not used as a mean to increase
profits, then it’s immoral (Friedman, 1970).

A second objection holds that managers are oriented towards finance and operations and do
not have the necessary expertise to make socially oriented decisions (Davis, 1973) and that
the business is not equipped to handle social activities.

A fourth third against CSR is that business already has enough power, and so why should
we place in its hands the opportunity to wield additional power, such as social power (Davis
1973)?

Furthermore, anti-capitalists argue that CSR is mostly greenwashing (Haski-Leventhal, 2022)

It should be noted that the above arguments were introduced decades ago, though some still
hold them, and that the oppositions to the concept of CSR applied when the idea was once
more narrowly conceived.

Arguments in Favor of CSR

A counter approach was that corporates have responsibilities beyond their financial duty to
maximise shareholder value (Caroll, 1979)

The Business Case (Little, 2002).

“The justification or rationale for the direct benefits (financial and economic) that flow from
CSR activities and initiatives” (Carroll and Shabana, 2010).

Relates to Corporate Citizenship - concept of business as a necessary contributor to

community and obeying legal requirements of society, including the responsibilities imposed
by stakeholders (Matten and Crane, 2005) [i.e. Taking responsibility for everything and
impact on economy]
 1. Reputational Management: Critical to corporate success. One study found an
increase in the value of intangible assets 17% in 1981 to 71% in 1998. For example
Coca Cola’s value comes from their intangible assets like brand image. Balenciaga
lost a lot of their value because of their scandals.

H&M, Balenciaga; Kanye West

2. Risk Profile and Management: Increasingly companies have to be aware of a

widening range of risks. For example, a lot of companies have put robust
environmental systems in place. One study showed companies who had stringent
environmental standards had more long term benefits. Social issues can also create
risks. For example, H&M and the ‘Monkey in the jungle’ (people were offended
because of the advertisement showing a little black boy wearing a shirt that said
monkey in the jungle whilst the other kids were not wearing it in 2018.)

Cost and risk reduction may be achieved through activities directed at the natural
environment. A number of researchers (e.g. Berman et al. 1999) contend that being
environmentally proactive results in cost and risk reduction.

H&M, Balenciaga, Kanye West, Ford Pinto (1970)

3. Employee recruitment, motivation and retention: More employees are becoming

aware of their potential employers. Example, a survey in 1997 found that 42% of
participants looked at the company’s ethics before deciding their potential job. Good
example: BUPA implemented volunteering for employees and found a 20% increase
in job satisfaction. Bad example: Royal Mail, CEO refusing to increase wages and
pension benefits had led to strikes that has affected their value and customer
relationships.

Smith (2005) argues that CSR activities in the form of equal employment opportunity (EEO)
policies and practices and environmentally responsible commitments enhance long-term
shareholder value by reducing costs and risks.

Royal Mail, Brewdog

4. Learning and Innovation: Corporate Citizenship can encourage creativity and

innovation that leads to bottom- line benefits(employees who are at the bottom of the
hierarchy benefits from building trust in the workplace). One example, a major
science and technology company collaborated with agricultural industry and produced
fibres made from renewables sources which reduced fossil fuels 20% - 50%. Nike
using scrapped material to create recycled clothing. BOP strategy: Grameen Bank
who aims to help the poorest of society with the concept of microcredit.

Nike

5. Investor relations and Access to capital: More investors are looking at the
strategic approach of the company rather than the value. Indices like DJGSI looked at
human rights ethics, labour practices, environmental impact which helped investors
look at the CSR activities of the company. Some research has found that good
 corporate citizenship correlates to good financial performance. The use of SRI
portfolios for investors had also increased

One or multiple stakeholders will prefer the firm over its competitors specifically because of
the firm’s engagement in such CSR initiatives (Kurucz et al. 2008). Smith (2005) reports that
many institutional investors ‘avoid companies or industries that violate their organizational
mission, values, or principles.

Amazon

6. Competitiveness and Market Positioning: Customers want companies to behave

as good corporate citizens. In the UK, 92 percent of customers think that British
companies should have a minimum standard of labour conditions for their developing
world suppliers and 42% percent say that CSR is important in their purchasing. More
and more retailers are making sure that their suppliers are complying to sustainable
and ethical standards. Example: Divine chocolate only uses fair trade chocolates and
is co-owned by cocoa farmers.

Smith (2003) argues that companies may build their competitive advantage through CSR
strategies. If social responsibility strategy is genuinely and carefully conceived, should be
unique. This uniqueness may serve as a basis for setting the firm apart from its competitors
and, accordingly, its competitive advantage.

7. Operational Efficiency: Aim is for companies to reduce waste and excess inventory
by using techniques such as JIT and TQM to increase efficiency. For example: Uber
uses a ride matching concept where customers can join those going the same
direction as them. This saves them petrol and money for customers. Supply chain
innovations can generate better value for the customer.

TQM concept
Quality comes for free (Crosby, 1978)
Deming’s 14 point’s
Shrinking and spoilage problem
Bottleneck
IKEA, Zara

8. Licence to operate/ Legitimacy: Increasingly, companies actions are becoming

more legislative rather than voluntary. Example; the oil industry is becoming more
subjective to stricter regulations and policies. The BP oil spill in 2010 resulted in
disastrous consequences. By failing to comply to more sustainable and ethical
standards this can reduce a company’s legitimacy to operate. Example; companies in
the paper industry faced a lot criticism for damage to rainforests and their reputation
decreased.

The business case for CSR refers to the arguments that provide rational justification for CSR
initiatives from a primarily corporate economic/financial perspective. Business-case
arguments contend that firms which engage in CSR activities will be rewarded by the market
in economic and financial terms, however business case is not a perfect solution!

Volkwagen, BP
 Criticisms of The Business Case: (Nijhof and Jeurissen, 2010).

Companies operating under the business case approach create their own limitations of a
glass celling.

 Company actions are meaningless as the intention behind them is not for the end of
social welfare but rather a means for profit like a parrot mimicking human voice.

 Lack of data - lots of studies have been done to find the connection between CSR
and CFP and there have been mixed results

1. Opportunism; Companies pick what they like for their social agenda. Example;
Adidas and Kanye. Adidas did not drop Kanye when he made insensitive comments
about slavery. However, he was dropped when he made anti semitic remarks.
Facebook sells the idea that you can make a free account but they also get access to
your data.

- Not all ethical practices are good for businesses and firms are likely to favor most
profitable CSR projects instead of most needed ones (Stamir, 2008)

- It makes CSR debate irrelevant as companies will only make green products if
consumers buy them

2. Institutional Blockade: Research shows companies were aware of CSR but was
stuck with the ‘how’ part. Employees even after being motivated to do CSR initiatives,
they are still stuck in a financial mindset. Example; Amazon, Facebook and energy
companies.

- In 40 multinational companies, 91% respondents stated that CSR practices are

important, but only 24% actually applied them.

- Corporate mindset must be changed, it cannot be business as usual.

3. Intrinsic motivation: Without the economic reward would companies participate in

CSR activities? The motivation should come without tangible rewards to ensure the
companies are dedicated to CSR objectives.

- Self-determination theory – if you reward a person for doing task they already
enjoyed, you may move their motivation from intrinsic to extrinsic.

Other:

- There is no guarantee that a firm with a CSR strategy will become more profitable
than a firm without (Vogel, 2005).
- There are no legal penalties for misleading information of non-profitable
performances . Therefore firms don’t have to be responsible and can greenwash for
marketing purposes (Vogel, 2005).