Assignment Question: What exactly is CSR? Should modern businesses be engaged with CSR?

Did you ever expect a corporation to have a conscience, when it has no soul to be damned and no body to be kicked? (And by God, it ought to have both!) The First Baron Thurlow, Lord Chancellor of England

Executive Summary: The aim of this paper is to explain corporate social responsibility as a theoretical construct and explore its implications and consequences not only for corporate governance but also for the economy, business and society. What is CSR? Corporate social responsibility is defined by the British government on their website (www.csr.gov.uk/whatiscsr.shtml) as being about how 'business takes account of its economic, social and environmental impacts in the way it operates maximising the benefits and minimising the downsides (2004). However accurate, there are dozens of different conceptual definitions of corporate social responsibility (CSR) within the academic literature. Carroll (1999) alone actually reviewed over 25 of them. Many view it as an empirical reality, which has pragmatic and normative appeal, nonetheless, or opt to define the concept quite broadly. McWilliams and Siegel (2001) believe CSR represents 'action that appears to further some social good, extends beyond the explicit economic interests of the firm, and is not required by law. Bowd et al. (2006, p. 150) captured several attributes that are believed to make up CSR:. . . proactive community involvement, philanthropy, corporate governance, corporate citizenship, addressing of social issues, a commitment to the quality of its products and services, human rights, health, safety and the environment. . . Carroll (1979, 2001) identifies four types of corporate social responsibility: economic, legal, ethical, and discretionary (or philanthropic). Economic responsibility is concerned with a firms financial performance and the provision of goods and services. Legal responsibility is concerned with compliance with societal laws and regulations. Ethical responsibility relates to following societal moral codes of conduct, and discretionary responsibility relates to voluntary involvement and support of wider societal entities. Tullberg (2005) also suggests two approaches to CSR: one responsive and the second the autonomous. The autonomous approach is described as more independent and involves ignoring other stakeholders opinions to make decisions and formulate strategy. The responsive approach suggests firms should aim at being as responsive as possible to the demands of society and by doing that becoming more dependent on public reaction. CSR can mean different things to different people. One would think a unifying definition would make sense but how can that be achieved taking into consideration the competing agendas of different stakeholders? It is then no wonder that the lack of an accepted definition has made it very difficult to establish a clear link between CSR and corporate financial performance (CFP). With regards to corporate governance, it refers to those administrative monitoring and incentive mechanisms that are intended to reduce conflicts among organizational actors due to differences in incentives (Lubatkin et al., 2007: 43). In other words, governance concerns the structure of rights and responsibility among the stakeholders in a firm and refers to the strictness and extent to which their claim is taken into account and protected and can actually influence managerial goals. It's key parameters are ethics, transparency and compliance and it can be defined in a narrow or broad way as well, depending on whether it concerns board level management issues or every level of the day-to-day organisation and operational issues. If one chooses to adopt the broader approach, then CSR is not confined to management only but affects the entire organisation and its stakeholders as well (Cornelissen, 2004). The term 'corporate citizenship' can then be applied to this wider context. All in all, most of the different definitions and interpretations available in literature seem to converge into the idea of a voluntary commitment by business to behave ethically and pursue good business practices and standards whilst contributing towards the general improvement of the local community and society it is integrated in. This broad concept encompasses not only the aspect of ethical conduct, governance and transparency but also an effort to balance business objectives and aspirations with external non-financial

considerations such as environment, sustainability, society and governance success. Chan and Shenoy (2009) argue that this strong external manifestation and the difficulty in providing a unifying definition for CSR has many a times contributed to it being seen as more of a 'cosmetic' or PR exercise than actually the attempt by business to behaving responsibly. Ideally CSR should be more about the sound business approach and less about the results it bears in terms of reputation and image. Still, it is perceived as a platform by which a company can gain social approval or 'social license to operate' beyond what is determined by laws and regulations. And this social license does not come without a price as it can bear hidden costs, undermine what is seen by many as the first priority of business - economic wealth and place too much responsibility on businesses as opposed to individuals or governments, ultimately contributing towards confusing their distinct roles in society. This leads us to the second fundamental question Why should business engage with CSR? It is clear that for most the purpose of business has always been profit-making . Friedman (1962) stresses that business is motivated by self-interest and that the 'business of business is business' ie. all that matters is economic performance and shareholder value. Indeed the maximisation of profit is what differentiates business from charity. However, based on a pure cost-benefit analysis, McWilliams and Siegel argue that there is an optimal corporate social responsibility spending level, which maximizes shareholder value, which states that CSR and profit maximisation can be compatible. Friedman also insists that only people and not business can have social responsibility. Nonetheless, can one not argue that a business is owned and run by people? John Mackey (2005) highlights that business is composed of all its stakeholders and that to create value to all stakeholders is far more important than to create profit for its investors or shareholders. So, is it then not possible that the concept of CSR can co-exist with this aim of profit-maximisation and even contribute towards it without becoming just another means to an end? Friedman has also been proven wrong in the sense that the quickly changing societal expectations have put more pressure on firms to intensify their CSR engagement by introducing new initiatives and a new rhetoric in their communications with the stakeholders and by this changing and redefining the role of business in society. There is indeed more to business than profit and corporate strategy and choices can have a profound impact on government decisions and society in general. In line with this, Porter and Kramer (2006) believe that as CSR is becoming more common it is essential that CSR is practised in a more enlightened way in order to avoid the connotation of 'corporate green wash'. According to them, organisations should use the same frameworks that guide their core business choices and introduce a strategic framework to integrate business and society that boosts a 'shared value' which benefits both equally. This interdependence is seen as the key to long term success of business and a catalyst to innovation. Conclusion One thing is for certain CSR is here to stay. If nowadays business decides not to engage in CSR then knowingly or unknowingly it is practising CSI (Corporate Social Irresponsibility). The choice is clear: whether a firm has the intention of doing 'good' or 'well' that will ultimately depend on its agenda and the purpose of its business. Still, keeping a good reputation and image have become irrefutably part of doing business and there isn't much of a choice, especially for big corporations with large exposure and that are directly involved in environmental and sustainability debates. Business is certainly becoming more and more directly and indirectly influenced by external elements and motivations. This is the society we live in and even though firms do not have a body to be kicked they are certainly being asked to have some sort of conscience. Whether this change is implemented voluntarily or out of societal or governmental pressure, the fact is business is changing and CSR has been a part of that change as it provides the social validation firms require in order to be successful.
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References Brian Jones, Ryan Bowd, Ralph Tench, (2009),"Corporate irresponsibility and corporate social responsibility: competing realities", Social Responsibility Journal, Vol. 5 Iss: 3 pp. 300 310.

Bowd, R., Bowd, L. and Harris, P. (2006), Communicating corporate social responsibility: an exploratory case study of a major UK retail centre, Journal of Public Affairs,, May, pp. 147-55. Carroll, A. (1979), A three-dimensional conceptual model of corporate performance, Academy of Management Review, Vol. 4 No. 4, pp. 497-505. Carroll, A. (1999), Corporate social responsibility: evolution of a definitional construct, Business and Society, Vol. 38 No. 3, pp. 268-95. Chan, G. and Shenoy, G. (2009), Ethics and Social Responsibility Asian and Western Perspectives, McGraw-Hill Education, pp. 209-247. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston, MA. Friedman, M. (1962), Capitalism and Freedom, University of Chicago Press, Chicago, IL. Letza, S., Sun, X. and Kirkbride, J. (2004), Shareholding versus stakeholding: a critical review of corporate governance, Corporate Governance, Vol. 12 No. 3, pp. 242-62. McWilliams, A. and D. Siegel: 2001, Corporate Social Responsibility: A Theory of the Firm Perspective, Academy of Management Review 26(1), 117127. Nielsen, A.E. and Thomsen, C. (2007), Reporting CSR what and how to say it?, Corporate Communications: An International Journal, Vol. 12 No. 1, pp. 25-40. Study Book, Unit 1 and 2 (2012) Tullberg, J. (2005), What should companies be responsible for?, Business Ethics: A European View, Vol. 14 No. 3, pp. 261-3. www.csr.gov.uk/whatiscsr.shtml http://www.ragm.com/search.php