What is Corporate Social Responsibility all About?

Journal of Public Affairs
J. Publ. Aff. 6: 298–306 (2006)
Published online in Wiley InterScience
(www.interscience.wiley.com) DOI: 10.1002/pa.238
Commentary
What is Corporate Social
Responsibility all About?
Introduction
Corporate social responsibility is not a new issue (Hopkins, 2003).
The social responsibility of business was not widely considered to be
a significant problem from Adam Smith’s time to the Great
Depression. But since the 1930s, and increasingly since the 1960s,
social responsibility has become ‘an important issue not only for
business but in the theory and practice of law, politics and
economics’ (McKie, 1974). In the early 1930s, Merrick Dodd of
Harvard Law School and Adolf Berle of Columbia Law School
debated the question, ‘For whom are corporate managers trustees?’
(Gary von Stange, 1994). Dodd advocated that corporations served a
social service as well as a profit-making function, a view repudiated
by Berle. This debate simmered for the next 50 years, according to
Gary von Stange, before it once again sprang into prominence in the
1980s, in the wake of the ‘feeding frenzy atmosphere of numerous
hostile takeovers’. This concern for the social responsibility of
business has even accelerated since the fall of the Berlin Wall, which
symbolized the collapse of communism and (more importantly) has
turbo-charged globalization.
Further acceleration has occurred in the past few years. Global
concerns were given an additional edge by the awful events of 11th
September. The collapse of Enron and World Com and their auditor
Andersen due to dubious accounting practices has raised the level of
examination of large companies as well as their auditors. And this is
in spite of the most friendly to companies President of the USA
known in modern times—himself with a dubious past in share
dealings and sailing close to the wind in business transactions as Paul
Krugman’s ‘Op-Ed’ columns in the New York Times have carefully
analysed. Even the President has broached, albeit tamely, the notion
of the responsibility of corporations.1 Moreover, previously quiet
CEOs have begun to note the pressure—for instance, in a rare public
appearance in June, 2002, the chairman and chief executive of
Goldman Sachs HenryM. Paulson Jr. noted,2 after the collapse of the
————— 1See President Bush’s speech in early 2002 and again in July, 2002.
2 www.nytimes.com
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Enron Corporation in late 2001, that ‘I cannot think of a time when
business over all has been held in less repute’.
Moreover, the need to address questions of low living standards,
exploitation, poverty, unemployment and how to promote social
development in general, has been to date almost entirely the
preserve of governments. Clearly, they will continue to have a, if not
the, major role to play. But, increasingly in the future, the promotion
of social development issues must also be one of partnership
between government and private and non-governmental actors and,
in particular, the corporate sector (Hopkins, 2006).
Up until the 1970s, despite regulation and legislation, business
continued largely along an autonomous path, from which it ignored
its critics and listened only to its shareholders, to whom it felt
somewhat responsible. But the decade of the 1960s was to be a
period of enlightenment for many. The Korean War had ended
indecisively, and new conflicts in South-East Asia seemed destined to
follow the same pattern. Citizens were distrustful of government, of
business and of the undefined ‘establishment’. Consumers had
grown suspicious of adulterants in their food and dangerous defects
in the products they bought. People were becoming aware of the
fragile nature of the earth’s ecology, while simultaneously becoming
more cognisant of human rights.
The CSR concept is still developing and has not reached the
maturity stage (Ghobadian et al., 2006). It consists of a number of
free standing and competing ideas that have not been sufficiently
integrated into a broadly accepted and robust theory (Wood, 1991).
In particular, there is an absence of consensus regarding the
elements underpinning the processes of corporate social responsibility.
In this paper a definition offered by Hopkins (2005) has been
adopted:
‘CSR is concerned with treating the stakeholders of the firm
ethically or in a socially responsible manner. Stakeholders exist both
within a firm and outside. The aim of social responsibility is to create
higher and higher standards of living, while preserving the profitability
of the corporation, for its stakeholders both within and
outside the corporation’.
The rise of CSR in the last decade
There are at least seven key items on the CSR agenda that have
developed over the past 10 years3:
1. Corporate scandals: Certainly CSR was not a new issue in the mid
1990s, as noted above, however, the mid 1990s saw an upsurge in
interest as the public sector involvement in key industries fell
away, particularly after the collapse of the Soviet Union, and as a
————— 3This first appeared in Hopkins, M. ‘The rise and rise of CSR’, March, 2006 in
www.mhcinternational.com.
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Commentary 299
crop of corporate scandals hit the headlines—the Ken Saro
Wiwa affair that severely affected Shell’s international image was
perhaps the watershed. To enhance their reputation most major
western companies these days produce CSR reports or similar
such as CR or sustainability reports. There are, also, increasing
numbers of companies in middle income developing countries
that are producing CSR reports. However, there is a concern that
many of these reports may simply be whitewash and business
goes on as usual.
2. Terminology still unfocussed: There has been no convergence on
terminology so that we would, at least, know what we are talking
about. However with the brief dominance of the term CSR in the
early 2000s, the terms corporate responsibility (CR) or corporate
sustainability (CS) have tended to dominate in corporate circles.
Nevertheless, what ismeant by these notions has led to someform
of convergence and the social responsible treatment of stakeholders
is accepted by just about everyone these days.
Many environmental NGOs have expanded into the social arena
giving CSR a strong environmental bias although this bias can be
quickly spotted by noting words such as sustainability liberally
applied—the phrase ‘corporate sustainability’ is such a manifestation.
For instance, the Global Reporting Initiative (GRI) that emerged
from the environmental movement CERES is still stronger on
environmental concerns than social and economic but has had a
major impact on the social reporting of companies who try and
follow GRI guidelines both for reporting and for the production of
very useful indicators. Certainly measurement has improved
enormously over 10 years when, in 1995, I had to scrape to find
social indicators on companies. Nonetheless, issues such as
corporate governance have remained firmly in the hard nosed
business camp and are not often treated along with CSR concerns.
More precision on terminology can be expected as academics start
to analyse CSR. Few, if any Universities have had courses on CSR
although some had started course on business ethics. Today, hardly
an MBA is taught without at least some discussion of CS or CSR or CR
in university courses.
3. The stages of CSR: In the past 10 years the classical route of the
introduction of a new technology has been followed—innovation,
diffusion (through writings, discussions, seminars etc.) and
implementation which is just about starting particularly in
Europe. The USA is behind the European trend as is Japan. There
is much interest in CSR in the developing world, especially India
and South Africa even though few major corporations can be
found with theirHQin the developing world. The diffusion phase
is illustrated by the fact that there are now many newsletters and
newsgroups covering CSR from the very popular Yahoo group
CSR-chicks that fostered CSR-blokes and regional newsgroups,
to Ethical markets, Csrwire, Ethike, Ethical corporation, Ethical
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300 Michael Hopkins
performance and a whole host of regional newsletters such
as CSR Asia, Philippine for Social Progress etc. Although there is
now too much information to read, if one has the time, it is
gratifyinghow much ‘good’ stuff there is about on companies and
their performance, as well as the main actors in the field.
4. Legal basis: Few new laws have entered the arena directly related
to CSR which was one of the concerns of market capitalists such
as ‘The Economist’ and some ‘Financial Times’ correspondents.
However, closely related was the Sarbanes-Oxley law covering
corporate governance which has had the unfortunate effects of
raising the costs of reporting and reducing the number of new
flotations on theNewYork stock market in favour of slightly more
liberal regimes such as London. The field has been characterized
by the growth in ‘voluntary’ accounting standards for CSR—
Account Ability, for instance, with its AA1000 and then Alice
Tepper Marlin’s SA8000, standards. Both groups, incidentally,
steadfastly refuse to use the term CSR. In the pipeline is also a
standard (ISO 26000) on CR coming from the International
Standards Organisation (ISO) based in Geneva. Corporations,
however, have noticed that observing CSR does not mean just
ticking a set of boxes—the approach is more complicated and
cannot be covered by legislation.
5. Government has got into the CSR act, particularly the UK which
has a lively website promoting CSR and also appointed a
succession of CSR ministers who, unfortunately, do not seem to
do very much. Even the USA has haltingly produced a report on
CSR and what Government can contribute after ignoring the field
for many years. Internationally, the inter-governmental organizations—
European Union, World Bank, UNDP, IDB—have been
the most prominent. My previous employer, ILO, has gained
prominence through the application and citation of its core
labour standards but has no policy as such on CSR due to in-house
in-fighting between workers, government and employer organizations
(most notably the appalling IOE, International Organisation
of Employers). The EU, in particular, has done good work in
funding CSR initiatives all over Europe although my own personal
experience shows that its bureaucracy needs a lot of patience to
work with.
6. International development: More and more companies are
adding international development to their CSR activities and, as
Hopkins (2006) points out, there are three main types of
development activities—Type 1: development philanthropy,
Type 2: assisting developing countries purely through housing
local operations there and Type 3: development assistance as part
of reputation building which, in turn, is part of CSR. In my book
(Hopkins, 2006), I argue that there is a real chance thatMNEswith
their wealth and global reach can do much more on development
than the UN has achieved to date. This is because the UN has
become a political football with its development efforts seriously
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Commentary 301
under-funded. It is likely thatMNEsmay, eventually, convince host
Governments that the UN is too important to fail. This is because
CSRwill ensure that corporationswill be involved in development
and since they cannot be directly involved in key policy management
issues they will see that supporting the UN’s development
efforts will, also, be in their own best interest.
7. Finance centre scepticism: As CSR has grown in prominence, at
least in its various manifestations, the right wing so-called ‘think
tanks’ have been arguing that profit maximization should be the
main aim of business while remaining within (more or less) the
confines of law. Simply put, they argue that CSR simply adds costs
with no immediate benefit to profits. Yet, the business case for
increased profits through increased reputation, lower risk that
come hand in hand with CSR have been ignored by the right.
Despite the growing evidence that ‘ethical corporations’ tend to
do better on average in terms of share price, Wall street turks and
their mirror image in the major financial centres of London,
Frankfurt and Tokyo still claim not to understand what CSR is all
about as they punch another button flashing money around the
world. This latter view is being shaken as analysts note that
socially responsible investment (SRI) has been the fastest
growing financial instrument in the USA and Europe financial
centres over the past 10 years. The strange contradiction, where
the subject is ignored in the City but important to investors will,
undoubtedly, change in the coming years. As better educated
graduates enter investment houses, and as the investment record
of SRI’s is better known, the right wing think tanks and their
aficionados in the City and Wall Street will soon be barking up the
same tree.
What is the future for CSR?
And what will happen with CSR in the future, at least the next
decade? Again, seven issues seem to be on the horizon:
1. CSR will become embedded: There is no doubt that CSR will
become embedded in a company’s culture and organizational
profile to such an extent that it will not be noticed, explicitly,
anymore. There is also not much doubt that the phrase CSR will
disappear but the sentiments behind it will be in place. The area
of business and society will continue to be one of great debate,
and the corporation will certainly change its form. I would
hazard a guess that the private sector will still flourish as far as
the next 50 years ahead but its power will be very much
controlled as our own personal liberties also, unfortunately,
become, more controlled.
2. No need for exit strategy: There will be no need for a CSR exit
strategy simply because business will only survive if they can
show, and be evaluated to show, a clear social responsibility in
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302 Michael Hopkins
their continual treatment with their stakeholders. An exit
strategy will not be required simply because social responsibility
will just be part and parcel of normal business practice.
3. Major inroads in developing countries: CSR will continue to
make inroads into developing countries, particularly through
the main suppliers to the large corporations in the developed
world, but also because developing country people will not
suffer corporations that have no connection with local cultures
and aspirations.
4. SMEs will have CSR: CSR will extend to SMEs through rapid
assessment and implementation tools.
5. Companies cannot ignore global concerns: Companies will
grapple with the big issues simply because they see failure as bad
for business. Under-development, labour exploitation, curbs on
migration, global warming, trade barriers, global terrorism are all
major challenges for Governments and corporations. We
already see signs of these increasing concerns for corporations
at the annual World Economic Forum conferences in Davos.
6. UN and third sector cooperation: As companies cannot easily
shape the macro agenda there will be increased cooperation
between corporations, the UN and its agencies as well as NGOs,
the so-called ‘third sector’.
7. Political leadershipwill improve: If the leadership of our nations
continues to be poor—there have been very few decent leaders
in the last 50 years that have combined decencywith social justice
(NelsonMandela, Jimmy Carter, JuliusNyrere, Nye Bevan,Harold
Wilson and even Bill Clinton are just about all, and even those
were not perfect)—then, like it or not, corporationswill become
even more powerful and influential. But will they be setting a
coherent social agenda? Some will, some would not but their
agendas will be examined in ways hardly thought of so far today.
So what is likely to happen next? Hard economics is losing way to
more softer versions. Culture and ethnicity have dominated recent
world events and this trend is likely to continue. Focusing on purely
economic growth for countries or profits for companies will, of
course, be uppermost in our leader’s minds. But the softer undercurrents
of change, such as CSR, will require new, inspired
leadership and, as Jem Bendell4 puts it:
‘Understanding power and its responsible use is probably the
bedrock question underlying much work on corporate citizenship
today’.
Economics of corporate social responsibility (CSR)
Following on from the previous section, does it make sense to talk
about the Economics of CSR? Is not CSR just a good thing in itself?
————— 4See ‘The rise and rise of CSR’ www.mhcinternational.com, March, 2006.
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Commentary 303
There are at least two issues. First, will added emphasis on CSR bring
about an adequate return to company bottom lines? Second, will
increased expenditure on CSR lead to lower competitiveness? Basic
economics tells us that an emphasis on CSR will lead to price
increases that may not allow the specific markets for a companies’
goods and services to clear.
This can be illustrated by considering two companies producing
similar products such as Coca-Cola and Pepsi-Cola or Shell and
Exxon. One company has a vigorous CSR policy—a manager
appointed to deal with CSR, production of a social report, staff
trained on CSR issues, a clear code of ethics, stakeholder needs
addressed regularly. The other company does the minimum—only
takes on board good corporate governance guidelines when
legislation insists, considers pro-active HR policies to train people
the minimum to do the job well, observes environmental regimes
passed into law, consults as few stakeholders as possible.
Clearly under this simple economic model the CSR company will
have additional costs compared with the non-CSR company. If these
costs are then transferred to the companies’ products then, all other
things being equal, neo-classical economics will predict that the non-
CSR company will find it easier to clear its product market than the
CSR company. The consequences are that the non-CSR company will
eventually drive its CSR competitor out of business or force it to
reduce CSR costs.
But, economics does allow price increases and markets to clear if
product quality increases. Thus there is a CSR premium (i.e. an
additional benefit because of CSR earned by firms or appreciated by
consumers and other stakeholders) that can be earned by firms on
such items as product quality, employee productivity, consumer
satisfaction. Therefore, the additional CSR costs could well be
cancelled out by consumers accepting to pay for this additional
premium or through prices being positively affected by the
additional efficiency that CSR is likely to bring about.
Evidence for this positive CSR premium is growing. For instance
the UK-based Co-operative Bank has persistently sought to
distinguish itself from rival banks by stressing its socially responsible
credentials. Its strategy has worked as it has had record profits for
7 years in a row.
Thus, with a well-managed CSR premium, consumers would be
willing to pay extra in the knowledge that the products they bought
had not been produced by slave labour, had respected the
environment, that the technology to produce them had been
acquired without corruption payments, and that the human rights of
its employees and the local community had been protected etc. They
would also know that the products or services delivered were at the
cutting edge of technology and design. CSR does not mean
sacrificing high levels of product or service quality
ACSRpremiumis also earned from increased productivity through
sound human resource (HR) policies of employees and managers.
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304 Michael Hopkins
Product quality is also likely to be much improved when employees
are treated as part of the companyrather than as add-ons—thismuchis
already known in business circles but it is also part of a CSR approach.
CSR is also investment as much as a cost per se. Consequently, to
costs come benefits that are not always immediately apparent when
the ‘social’ investment is made. Training is an obvious social
investment that is accepted as essential for future growth and profits.
Other investments that serve to increase ‘social capital’ are less
obvious but are beginning to be accepted as previously under-played
but essential for the future. For example reputation, a key ingredient
of social capital, is known to be an important force in the market
place. But can reputation be more easily destroyed for a CSR than a
non-CSR company? There is certainly evidence that Nike’s attempts
to adopt CSR policies throughout have led them to attract criticizm
more than its competitors such as Reebok or Adidas. But is this a
result of adopting CSR policies or simply a result of cynicism on the
part of corporate watchers who have heard so much promise but
been disappointed so many times? Certainly, the more companies
and institutions that adopt CSR policies the less particular companies
will be picked upon, and the more resilient they will be to attacks on
their reputation.
As the world teeters toward slower growth and higher real interest
rates another ‘R’ word enters play—that of recession. Under a
worsening business climate, what will become of CSR? Clearly, nonessential
investments and costs are quickly cut back but why would a
company have non-essential investments or costs anyway? The real
issue is what defensive measures can be taken when a downturn in
the global economy is apparent. These could include cutting
product lines, reducing investment in products likely to suffer from
a fall in consumer spending and reducing inventories. CSR being an
increasing part of a companies’ strategy and having a longer term
payoff than other investments might, at first sight, seem to be an
obvious area to cut. But a little more thought shows that CSR is
actually part of a progressive corporate strategy. The same issues of
consumer alienation exist in a downturn as much as in an upturn—
for instance using child labour in appalling conditions is unacceptable
in growth or recession. In fact, a CSR strategy would give a
company an edge either in a downturn or upturn compared with its
competitors and thus CSR is likely to be recession proof.
Concluding remarks
There is little doubt that CSR is here to stay. The momentum
gained in the past decade will be hard to reverse. Clearly, a new
concept is easier to criticize than to propose especially one, such as
CSR, that appeals to the moral sense of corporations as much as their
business sense. But, as the public sector reduces around the world
and the private sector is given its head, the price to pay, at least in the
short term, is increased CSR.
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Commentary 305
Biographical notes
Michael Hopkins is CEO of MHC International Ltd. (London &
Geneva), a research and service company that specializes in social
development issues for the public and private sector alike (see
www.mhcinternational.com). Michael is also Professor of Corporate
and Social Research at Middlesex University Business School,
London and Associate Professor at Brunel University Business
School. He is a former ILO research economist and is a widely
published author on CSR, labour markets and international
development issues. His most recent book is Corporate Social
Responsibility and International Development: Is Business the
Solution? (Earthscan, London, 2006). Michael holds First and
Masters degrees in Mathematics and Statistics and a Doctoral Degree
in Labour Economics from the University of Geneva, Switzerland.
References
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Ghobadian A, Gallear D, Hopkins M. 2006. TQM and CSR Nexus
International Journal of Quality and Reliability Management
(in press) .
Hopkins M. 2003. The Planetary Bargain—CSR Matters. Earthscan:
London, UK.
Hopkins M. 2005. Measurement of corporate social responsibility.
International Journal of Management and Decision Making 6(3–4):
213–231.
Hopkins M. 2006. Corporate Social Responsibility and International
Development—Is Business the Solution? Earthscan: London, UK.
McKie JW. (ed.). 1974. Social Responsibility and the Business Predicament.
Brookings Institution: Washington DC.
Wood D. 1991. Corporate social performance revisited. Academy of
Management Review 16(4): 691–718.
Michael Hopkins
April, 2006
E-mail: mjdhopkins@mhcinternational.com
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306 Michael Hopkins