Lecture No.

21 – Arguments for and against Corporate Social Responsibility

Academic Script
Corporate Social Responsibility is a management concept whereby companies integrate
social and environmental concerns in their business operations and interactions with
their stakeholders. CSR is generally understood as being the way through which a
company achieves a balance of economic, environmental and social imperatives
(“Triple-Bottom-Line- Approach”), while at the same time addressing the expectations
of shareholders and stakeholders. In this sense it is important to draw a distinction
between CSR, which can be a strategic business management concept, and charity,
sponsorships or philanthropy. Even though the latter can also make a valuable
contribution to poverty reduction, will directly enhance the reputation of a company
and strengthen its brand, the concept of CSR clearly goes beyond that.
Promoting the uptake of CSR amongst SMEs requires approaches that fit the respective
needs and capacities of these businesses, and do not adversely affect their economic
viability. UNIDO based its CSR programme on the Triple Bottom Line (TBL) Approach,
which has proven to be a successful tool for SMEs in the developing countries to assist
them in meeting social and environmental standards without compromising their
competitiveness. The TBL approach is used as a framework for measuring and reporting
corporate performance against economic, social and environmental performance. It is
an attempt to align private enterprises to the goal of sustainable global development by
providing them with a more comprehensive set of working objectives than just profit
alone. The perspective taken is that for an organization to be sustainable, it must be
financially secure, minimize (or ideally eliminate) its negative environmental impacts
and act in conformity with societal expectations.
Key CSR issues: environmental management, eco-efficiency, responsible sourcing,
stakeholder engagement, labor standards and working conditions, employee and
community relations, social equity, gender balance, human rights, good governance,
and anti-corruption measures.
A properly implemented CSR concept can bring along a variety of competitive
advantages, such as enhanced access to capital and markets, increased sales and profits,
operational cost savings, improved productivity and quality, efficient human resource
base, improved brand image and reputation, enhanced customer loyalty, better
decision making and risk management processes.
Corporate social responsibility (CSR) is how companies manage their business
processes to produce an overall positive impact on society. It covers sustainability,
social impact and ethics, and done correctly should be about core business - how
companies make their money - not just add-on extras such as philanthropy.
Companies need to answer to two aspects of their operations. 1. The quality of their
management - both in terms of people and processes (the inner circle). 2. The
nature of and quantity of their impact on society in the various areas.
Outside stakeholders are taking an increasing interest in the activity of the company.
Most look to the outer circle - what the company has actually done, good or bad, in
terms of its products and services, in terms of its impact on the environment and on
local communities, or in how it treats and develops its workforce. Out of the various
stakeholders, it is financial analysts who are predominantly focused - as well as past
financial performance - on quality of management as an indicator of likely future
performance.
Traditionally in the United States, CSR has been defined much more in terms of a
philanthropic model. Companies make profits, unhindered except by fulfilling their
duty to pay taxes. Then they donate a certain share of the profits to charitable
causes. It is seen as tainting the act for the company to receive any benefit from the
giving.
The European model is much more focused on operating the core business in a
socially responsible way, complemented by investment in communities for solid
business case reasons. Personally, I believe this model is more sustainable because:
1. Social responsibility becomes an integral part of the wealth creation process -
which if managed properly should enhance the competitiveness of business
and maximize the value of wealth creation to society.
2. When times get hard, there is the incentive to practice CSR more and better -
if it is a philanthropic exercise which is peripheral to the main business, it will
always be the first thing to go when push comes to shove.
But as with any process based on the collective activities of communities of human
beings (as companies are) there is no 'one size fits all'. In different countries, there
will be different priorities, and values that will shape how business act. And even the
observations above are changing over time. The US has growing numbers of people
looking towards core business issues.
For instance, the CSR definition used by Business for Social Responsibility is:
Operating a business in a manner, that meets or exceeds the ethical, legal,
commercial and public expectations that society has of business.
On the other hand, the European Commission hedges its bets with two definitions
wrapped into one:
A concept, whereby companies decide voluntarily to contribute to a better society
and a cleaner environment. A concept whereby companies integrate social and
environmental concerns in their business operations and in their interaction with
their stakeholders on a voluntary basis.
When you review each of these, they broadly agree that the definition now focuses
on the impact of how you manage your core business. Some go further than others
in prescribing how far companies go beyond managing their own impact into the
terrain of acting specifically outside of that focus to make a contribution to the
achievement of broader societal goals. It is a key difference, when many business
leaders feel that their companies are ill equipped to pursue broader societal goals,
and activists argue that companies have no democratic legitimacy to take such roles.
That particular debate will continue.
There is an increasing awareness of the inter-dependence between business and its
environment in the society. Business organizations are no longer viewed as totally
private bodies free to pursue their own goals. This simply means that the objective of
any business enterprise is not just profit maximization these days. It is also expected
that they contribute towards the welfare of the society. The managers in the company
are not considered to have responsibility only towards the owners; however, they are
increasingly held accountable for the social effects of their actions. To put it in a broader
way, the operators of the business enterprise affect a wide spectrum. The shareholders,
the suppliers of resources, the consumers, the local community, and the society at large
are affected by the way an enterprise functions. Hence, a business enterprise has to be
absolutely socially responsible so that social balance may be struck between the
opposing interests of various listed groups. Several forces have led to the development
of the concept of social responsibility.
Kenneth and Andrews have described the concept as – “By social responsibility we
mean the intelligent and objective concern for the welfare of the society; that restrains
individual and corporate behavior from ultimately destructive activities, no matter how
immediately profitable they are and leads in the direction of positive contribution to
human betterment.” From this definition we can conclude that along with aggressive
business strategies, the enterprise has to look out for ways to maintain and develop
welfare and wellbeing of the society by minimizing the decisions that might have
negative or unfavorable impact on the society’s well-being.
The terms social responsibility has been defined by many people in many different
ways. As the terms social responsibility is itself very much dynamic in nature, people
perceive it through their own experiences of the business operations and decisions
taken and its impact on the society. Some people define it as responsibility of business
to perform its basic economic functions of producing and supplying products and
services in the most efficient manner; so as to maximize the profits. On the other hand,
some people define it as obligation to consider interests of society while performing its
economic functions. There are some who define it as the philanthropic and charitable
activities to promote education, health, employment, rural development, and other
social issues. “Social responsibility implies responsibility to society beyond the basic
economic responsibility of efficiency, and the profitability”. As an economic agent of the
society, a business enterprise must use its economic power to protect and promote
social values and interests of the public.
In the words of Peter Drucker – “Social Responsibility requires managers”. This
statement of Peter Drucker gives us food for thought. Let us elaborate on this
statement. Responsibility is always shared so that a disciplined is maintained
throughout the organization. Because if only few people are taking responsibilities and
others are just taking undue advantage, it will not serve the organization in the long run.
Hence, to implement the culture of responsibility and that too of social responsibility,
managers should be ready to develop the people and organization further.
H.R. Boweh has defined social responsibility as “Obligation of the manager to pursue
those policies, to make those decisions or to follow those lines of action which are
desirable in terms of objectives and values of our society”. This is exactly what Peter
Drucker meant in his statement. However, he did not mention anything about the
obligation of social responsibility. Mr. Boweh has straight away considered social
responsibility as an obligation. Like I mentioned earlier, people perceive the
phenomenon of CSR in their own way and hence there are many shades to this concept.
Of course, we will be considering all the definitions as equal and there are no arguments
made on an individual’s view.
The concept of social responsibility needs to be differentiated from social obligations
and social responsiveness. Social obligations indicate the typical activities of an
organization directed in response to market forces and internal aspirations. An
obligation means a compulsion. No matter whether you have understood or accepted
the policy, but you have to follow it since it is an obligation. This approach may not bring
whole-hearted participation of the employees in following social responsibility
initiatives. A socially responsive organization has to anticipate changing or emerging
social problems and respond to them. This is a scenario where the organization is
proactive towards social responsibility initiatives and there is no obligation or
compulsion on anybody. However, in spite of absence of obligation, the organization
still continues to fulfill its social responsibility initiatives because the very nature of the
enterprise is responsive to social demands.
There is no universally agreed definition for CSR but it’s generally agreed that CSR is
about organizations ‘doing the right thing’ and going the extra mile beyond legal
requirements to reduce negative impacts on the environment and society. It’s about
giving something back to positively benefit the environment, the community in which an
organization operates and society as a whole. But CSR should not be tagged onto an
organization - it should be integral to business decision making and CSR strategies
should be aligned with corporate values and stakeholder expectations. A responsible
business will also adopt sustainable development principles.
CSR is also considered as a self-regulating business model that helps a company be
socially accountable – to itself, its stakeholders and the public. By practicing social
responsibility, also known as corporate citizenship, companies can be conscious of the
kind of impact they are havng on all aspects of society including economic, social and
environmental. To engage in CSR means that, in the normal course of business, a
company is operating in ways that enhances society and the environment, instead of
contributing negatively to it.
Increasing the shareholders’ value is considered to be the main objective of any
corporate strategy. In fact, this has been the backbone of various strategies followed by
leading corporate houses across the globe. However, if the recent failures of some
leading business houses across the globe is any indication, it seems that maximizing the
shareholders’ value alone is not sufficient. It has been proved that only maximizing the
value of shareholders has created an unprecedented greed in the minds of some of the
leaders of prominent business houses and ultimately has resulted into the downfall of
them. On the other hand, there are examples of several business houses that have
responded to the needs of the society and are prospering even in adverse situations. A
question that naturally arises is that why some business houses fail miserably while
some business houses continue to progress in spite of difficult environment? If we try to
find out the answer for this, it is realized that there are some important aspects of a
business which are beyond just maximizing the shareholders’ value. A business has to
be sustainable and for this profit maximization alone will not be sufficient. It has to be
understood that apart from the shareholders there are several other stakeholders and
maximizing value of all these stakeholders only will make the business sustainable.
The need of the hour is to be sensitive to the interests of all these stakeholders for a
sustainable progress. This line of thinking is increasingly gaining ground across the world
and the concept of ‘Corporate Social Responsibility’ is becoming the important aspect of
business strategy. Though the concept of Corporate Social Responsibility has gained
much importance in the past two decades as such, the concept is not new to India. In
fact, it is embedded in the Indian culture itself. As per the ancient Indian literature, it is
expected that some portion of the income earned by either an individual or by an
enterprise, should be devoted for social cause. The reason behind this is that any
enterprise is using the resources of the society and hence it has an obligation to fulfill
for the society.
Corporate Social Responsibility is becoming an increasingly a prominent issue in the
entire world especially due to the following reasons.
1. Globalization and the rapid advances in information technologies.
2. The greater importance of citizen-driven activities, best seen in the work
performed by the Non-Government Organizations. [NGOs]
3. Greater social awareness among consumers.
4. Increased competition among business organizations.

Both e-commerce and brick and mortar businesses stand to benefit from the
implementation of CSR strategies. Some activities that fall under the umbrella of CSR,
with their corresponding benefits include:
1. Prevent financial ramification: Compliance with the spirit and letter of the law —
both nationally and internationally — through self-regulatory processes will
 prevent fines, put your business "low on regulators' radar screens," and lower
legal expenses.
2. Increase employee loyalty: Treating your employees fairly and generously is a part
of corporate social responsibility. By providing good jobs and encouraging high
professional and moral standards, you increase employee loyalty, and by
procuring only those overseas products produced at factories where workers
were treated ethically, you gain support among "Fair Trade" advocates.
3. Maintain a positive reputation: Demonstrated consciousness in a variety of areas
can garner publicity and give a business tangible proof of their conduct, which can
be proudly displayed on a company website. These include:
a. Environmental consciousness: Reducing waste, recycling, minimizing
carbon footprint, and other best practices can. Using or producing only
sustainable products, lowering energy usage, and supporting
environmental causes will boost a business's "green reputation" among
environmentally concerned clients.
b. Social Concern: Donating to humanitarian causes that fight persistent
poverty, help the victims of epidemics like AIDS or Ebola, or assist those
displaced by hurricanes or earthquakes shows concern for issues that
consumers are more and more aware of in our modern, interconnected
world.
c. Local Community: Involvement in local community projects, either through
financial donations, employee participation, connecting your customers
with project leaders, or promotion of the project through advertising and
fundraising enhances your CSR credentials with clients in the given location.
The need for social responsibility
1. Self-interest: It is in the self-interest of the business to have a social responsibility
as it opens opportunities for understanding the problems and issues of society.
2. A better environment for business: In today’s cynical age, social responsibility
keeps the businesses honest and the markets stable.
3. Public image: When a business takes initiative to solve problems of the society, it
puts the business in the goodwill of the people.
4. Social Power: A leader is a helper. Helping the society is a form of social
responsibility. Executing social work helps the business attain social power within
the society.
Arguments supporting social responsibility
1. The justification for existence and growth: The primary goal of business is to make
profits as only profits can help the business sustain and expand. Profits should
only be made as a return of service to the society by producing goods and
services.
2. The long-term term interest in the firm: A firm is to gain maximum profits in the
long run if it has it’s the highest goal as service to society. As humans are social
beings, when they notice that a particular corporation is not serving it’s the best
interest socially, they do not support the organization further.
3. Avoidance of government regulations: Government is the highest authority in the
nation. When a government feels that the business is not socially responsible or is
creating problems like pollution, the government limits its freedom.
4. Maintenance of society: Business is one of the important pillars on which society
survives. It is the responsibility of the business to take care of society’s needs.
Law alone can’t help people with the issues they face. Therefore, businesses
contribute to the well-being, peace and harmony of the society.
5. Availability of resources with business: Business enterprises have huge financial
resources, very efficient managers and contacts and thereby they can ensure that
a social problem can be solved easily.
6. Converting problems into opportunities: Business means risk. Turning risky
situations into profits can also be related to solving social problems.
7. Holding business responsible for social problems: Business enterprises are
responsible for many problems such as pollutions, discriminated employment,
corruption etc. It is the duty of the business to solve the problems created by
them.
Arguments against social responsibility
1. Violation of maximization of the profit motive: This statement argues that
business exists only for maximizing profits and businesses fulfill their social
responsibility best by maximizing profits by increasing efficiency and reducing
costs. They need not take up any additional obligations.
2. Side effects on consumers: Customers suffer because of the solving social
problems and taking social care requires huge financial investment. As the money
within the business is used in social help, the business increases the cost of their
products and services.
 3. Lack of social skills: It is often stated that businessmen don’t fully understand the
social problems and thus can’t solve them efficiently.
4. Personal resistance: People tend to dislike interference from businesses in their
problems.
The reality of social responsibility
1. The threat of public regulation: Government agencies keep watchful eye on all
the business operations. So to avoid government action, business should behave
in a responsible manner.
2. The pressure of labor movement: Labor plays an important role not only in
production but also in the managerial factors of the organization. Labour
nowadays is more educated and their movements are more powerful. Hire and
fire policy no longer work. Managers now have to be more responsible while
dealing with labors.
3. Impact of consumer consciousness: In this era, consumers are well aware of the
quality and price of the product. Consumers understand their rights over the
product and even in small issues; they file a suit in consumer court.
4. Development of business education: Business education has created awareness
among investors, consumers, employees etc. and the world is more sensitive
towards social issues.
5. The relationship between social interest and business interest: People know that
social interest and business interest are complimentary. This means long-term
benefits of the business.
6. Development of professional and managerial class: Earlier business houses only
aimed at profit maximization but now professional management and educational
institutions have made a new kind of managers that give similar importance to
social responsibility.
From the above seen “realities of social responsibilities” it is clear that business houses
must assume social responsibility for their survival, growth and sustainability.