Literature Review

What is meant by Corporate Social Responsibility Responsibility (CSR)? The issue of CSR is centuries old even though the term may appear to be relatively new to the corporate world. The terminology itself has changed over years, and this demonstrates that the development will be maintained in the meaning attributed to CSR. Definitions hereby reflect current situation; situation; implying implying that they are subject to global trends and changes in international law as time goes by. CSR in the 20th Century

The 20

th

century CSR ideals are still relevant for CSR today with additional statutory

requirements as a result of greater impact of companies on society. Indeed as pointed out by David C. Korten, “ Business has become, in the last half century, the most powerful institution on the planet. The dominant  institution in any society needs to take responsibility for the whole. . . . Every decision that is made, every action that is taken, must be viewed in light of that kind of responsibility.”

The corporate period can be referred to as the Golden age of Corporate Social Responsibility Movement. Two broad principles of CSR emerged in the 20th Century: the Charity Principle and the Stewardship Principle. Post, Fredrick and Lawrence pinpoint following two principles responsible for emergence of corporate social responsibility: the Charity Principle and the Stewardship Principle. 1

The Charity Principle states that the wealthy member of society ( business enterprises) should provide

voluntary aid to society‟s needy people, whilst the Stewardship Principle 2 states that business executives act as trustees or steward of society which consider the interest of all those affected by its activities, policies and decisions.

1

The types of activities addressed by the Charity Principle are Corporate Philanthropy and voluntary actions to promote social good. 2 The types of actions addressed under the Stewardship principle is based on the acknowledgement of business and society’s interdependence namely meeting legal requirements and undertaking a stakeholder approach in corporate strategic planning.

CSR in the 21st Century

There was continuity in the debate about the place of CSR in the global economy, with writers such as Scherer and Smid echoing Solomon‟s opinion that multinational corporations „should take responsibility for the improvement of world- wide social and environmental conditions‟. (Scherer and Smid in Windsor 2001, p. 245)

CSR as defined by European Commission (2001) i s “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stak eholders on a voluntary basis”. CSR is about managing change at company level in a socially responsible manner which can be viewed in two different dimensions: a) Internal – socially responsible practices that mainly deal with employees and related to issues such as investing in human capital, health and safety and management change, while environmentally responsible practices related mainly to the management of natural resources and its usage in production. b) External – CSR beyond the company into the local community and involves a wide range of stakeholders such as business partners, suppliers, customers, public authorities and NGOs that representing local communities as well as environment.

Corporate social responsibility (CSR) has generated significant debate in academic and corporate circles in recent times. According to Jamali and Miurshak (2007), this debate acknowledges the importance of CSR in the first-world, but raises questions regarding the extent to which corporations operating in developing countries have CSR obligations. They added, due to lack of  knowledge and experience in the CSR field, many corporations in the developing countries may not feel any obligation to the society. World Business Council for Sustainable Development has introduced its CSR definition, which 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” (World Business Council for Sustainable Development, 2008).

With ample definitions of CSR in existence, a search for commonality can be potentially enlightening. After examining various definitions, one commentator suggests that there are five key elements found in most definitions of CSR:

3

1. Corporations have responsibilities that go beyond the production of goods and services at a profit. 2. These responsibilities involve helping to solve important social problems, especially those they have helped create. 3. Corporations have a broader constituency than stockholders only. 4. Corporations have impacts that go beyond simple market place transaction. 5. Corporations serve a wider range of human values that can e captured by a sole focus on economic values.

As such theories like Political Economy Theory, Stakeholder Theory, Legitimacy Theory and Media Agenda Setting Theory were put forward by different school of thoughts in an attempt to explain the notion of CSR. A brief overview of these theories will be seen in the following part.

Political Economy Theory

Political economy theory places an emphasis on the inter-relationships between political and economic forces in society and recognises the effects of accounting reports on the distribution of  income, power and wealth (Cooper and Sherer, 1984).

This perspective also “accepts that society, politics, and economics are inseparable so that issues, such as economic issues, cannot be considered in isolation from social and environmental issues” (Blomquist and Deegan, 2000, p. 7). It recognises a pluralistic set of recipients of CSR information, who are considered to be in constant conflict, reflecting the amount of power they wield in society (Puxty, 1986).

3

R.A. Buchholz , “Corporate Responsibility and the Good Society: From Economics to Ecology,” July/August 1191: 19-31, at 19.

Business Horizons

Stakeholder Theory

Stakeholder theory is a cornerstone of CSR. Corporate Social Performance (CSP), it is argued, hinges on well-developed and effectively implemented stakeholder analyses (Clarkson 1995). But defining critical stakeholders can be challenging (Downey 2002, Vos 2003). Post et al (2002: 8) suggest that stakeholders in a corporation are, „ the individuals and constituencies that  contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and  that are therefore its potential beneficiaries and/or risk bearers‟. The different stakeholders of a

single firm share common risks: „ a possibility of gaining benefits or experiencing losses or  harm, as a result of corporate operations‟ (Post et al 2002: 8)

Roberts (1992) argues that CSR has been a relatively successful medium for firms, particularly, to bargain their stakeholder relationships.

Stakeholder theory seeks to overthrow the shareholder orientation of the firm. It is an outgrowth of the corporate social responsibility (CSR) movement to which Friedman's essay responds. According to CSR, the firm is obligated to "give something back" to those that make its success possible. The image of the firm presented in CSR is that of a free rider, unjustly and uncooperatively enriching itself to the detriment of the community. Socially responsible deeds (such as patronizing the arts or mitigating unemployment) are necessary to redeem firms and transform them into good citizens.

4

The stakeholder theory attempts to “justify the provision of social information in an attempt to gain stakeholder support and thus minimize the costs of dealing with complaints and actions that might otherwise affect them” (Davis, 2003). The stakeholder theo ry advocates that the success of  a company depends on the capability to balance the conflicting demands of its various stakeholders. A business executing CSR activities, attempts to meet the expectation of those on whom it depends or those who are associated to it. As argued by MacMillan et al. (2000), CSR is  based on “company behavior which generates the trust and support of key stakeholders”.

4

http://www.cato.org/pubs/policy_report/v22n3/cpr-22n3.html

Legitimacy Theory

Suchman (1995) defines legitimacy as „a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of  norms, values, beliefs and definitions.‟

Analysis of prior literature on legitimacy management including the strategic tradition of  resource dependence theory (Pfeffer and Salancik, 1978) and the institutional traditions (DiMaggio and Powell, 1983), he identifies three types of organizational legitimacy: 

Pragmatic



Moral



Cognitive

And he also identifies three key challenges of legitimacy management  –  gaining, maintaining and repairing legitimacy. Suchman points out that “legitimacy management rests heavily on communication”

Lindblom (1994, cited in Gray, Owen and Adams, 1996) notes that legitimacy is not necessarily a benign process for organizations to obtain legitimacy from society. Sheargues that an organization may employ four broad legitimating strategies when faced with different legitimating threats:

5

1. Seek to educate its stakeholders about the organisation‟s intentions to improve that performance 2. Seek to change the organisation‟s perceptions of the event (but without changing the organisation‟s actual performance 3. Distract (i.e. manipulate) attention away from the issue of concern 4. Seek to change external expectations about its performance

Thus legitimacy might be seen as a key reason for undertaking corporate social behaviour and also then using that activity as a form of publicity or influence (Lindblom cited in Gray et al, 1996 and in Clarke, 1998).

5

Lance Moir, (2001) "What do we mean by corporate social responsibility?", Corporate Governance, Vol. 1 Iss: 2, pp.11

Media Agenda Setting Theory

Brown and Deegan (1198) incorporated the media agenda setting theory to the legitimacy theory and this is explained by Ader (1195, P.300): “The Agenda-Setting hypothesis …posits a relationship between the relative emphasis given by the media to various topics and the degree of salience these topics have for the general public. Individuals note the amount of and distribution of media coverage among issues and this determines the salience of each issue  for the individuals. According to the agenda-setting hypothesis, the media do not mirror public priorities as much as they influence them.”

Internal Corporate Social Responsibility According to Dr Ron Sookram, programme director at the newly-established Centre for Corporate Responsibility at the Arthur Lok Jack Graduate School of Business, internal CSR refers to all the practices that are implemented within a company, such as employee development programmes, health and safety policies, governance practices, creating a motivating and productive work environment within the

organisation, and reducing the impact of a company‟s operation on the environment and product responsibility. Such policies are crucial because the companies' dealings with the outside world mirror how they work internally. According to Edwin Ebreo, highly experienced training and organization development consultant practicing in the Philippines, charity should begin at "home". In his opinion, a lot can be made to start an internal CSR and it starts with paying the right taxes, giving what employees are due them in terms of  return and benefits which according to him is a moral obligation as much as a legal one. There are a number of things too that can be done that go beyond the basics and give back to the country/society by starting with our very own employees.

According to the Report on “ Review of Corporate Social Responsibility policies and actions in Mauritius and Rodrigues” in April 2008, it was found that employers tend to arm their employees with the necessary tools in order to become more productive. From the survey that they conducted, the following results were obtained on Internal CSR: What does internal CSR encompass for the company? 

Training and development - 87%



Occupational health and safety - 76%



Incentive programs - 76%



Work place diversity - 73%



Profit sharing/share options, employee satisfaction surveys and collective bargaining - 37%, 41% and 43% respectively

 Benefits of internal CSR 

Higher Productivity – 81%



Better Staff Retention – 85.5%



Higher Staff Morale – 93.5%

Who is responsible for CSR? It has been seen in the report on “Review of Corporate Social Responsibility policies and actions in

Mauritius and Rodrigues” in April 2008 that there are different categories of persons who are actually in charge of CSR. Moreover depending upon companies, some engage their employees in their CSR undertakings while others engage only the management body. Below is the result according to the report: Who oversees CSR activities? 

HR, Personnel, Administration – 39%



Marketing, Communications, External Affairs, Business Development – 23%



Compliance – 5%



Dedicated Team / Person – 16%



Others (Board, Top Management, Finance) – 12%



No answers – 5%

Who is/are actually involved in the CSR activities? 

Employees  – 48%



Management – 97%

CSR Reporting CSR reporting is similar to reporting financials, but rather than focusing on the profits, importance is attached on the people and planet impacts. At the moment, such reporting is voluntary. Certain companies do it while others do not. Some companies report because it enhances their name, even if costs can be added up. According to European Commission,

“ By disclosing social, environmental and governance information, enterprises often find that they can better identify and manage issues that influence their business success. Good disclosure of non-financial information enables investors to contribute to a more efficient  allocation of capital and better achieve longer-term investment goals.  It can also help to make enterprises more accountable and contribute to higher levels of citizen trust in business.”

According to the survey done on “Review of Corporate Social Responsibility policies and actions in

Mauritius and Rodrigues” in April 2008, it has been noted the percentage of 100 Best companies who disclose their CSR undertakings and the way they pave the way.

Do you communicate about your CSR activities? Yes

68%

No

32% 100%

If yes, How?

Annual Report Newspaper / Magazine

100% 51%

Social report

9%

Emails

28%

Benefits of CSR Research suggests that companies may receive external benefits from implementing CSR policies. Study prove that CSR is associated to more positive corporate appraisal, increased purchase behavior, higher customer satisfaction and market value of a f irm which finally turn into amplified profitability for the company. According to business link, here are some more possible benefits: 

A good reputation facilitates the recruitment of employees.



Better staff retention, hence reducing the costs and disruption of recruitment and retraining.



Employees are better motivated and more productive.



CSR helps ensure you comply with regulatory requirements.



Activities such as involvement with the local community are ideal opportunities to generate positive press coverage.



Good relationships with local authorities make doing business easier. See the page in this guide on how to work with the local community.



Understanding the wider impact of your business(clients) can help you develop new products and services.



CSR can make you more competitive and reduces the risk of sudden damage to your reputation (and sales). Investors recognize this and are more willing to finance you.

Let us now consider the benefits derived from the report on “Review of Corporate Social Responsibility policies and actions in Mauriti us and Rodrigues” in April 2008. 

Better Public Relations – 79%



Better Relations – 48%



Better Relations with suppliers  – 27%



Better Motivation amongst employees  – 79%

Challenges for implementation of CSR Companies face challenges despite the available benefits from CSR. These challenges can be experienced at start of the implementation process of CSR, during the process or post-implementation. In the report

“Review of Corporate Social Responsibility policies and actions in Mauritius and Rodrigues” in April 2008, certain challenges were discovered and the 100 Best companies had given their opinion upon the challenges that they faced. Below is the result challenges that were faced: 

Lack of coordination -19%



Lack of Audit after implementation – 22%



No proper partnership – 19%



Lack of information  – 33%

Views against CSR

However, there are more extreme views. In a 2001 journal article, the former chief economist at the Organization for Economic Co-operation and Development (OECD), David Henderson stated that CSR „rests on dubious and false assumptions‟ and that the role of business remains to make profit. This view coincides with that of Milton Friedman, the Nobel Prize winning economist who holds, „the business of business is business‟; being that the ultimate outcome of business is strictly to generate wealth for shareholders. The „shareholder primacy‟ proponent argues that a corporation‟s sole reason for existence is to maximise shareholder wealth whilst obeying the laws of the countries within which the corporation operates. Economist Milton Friedman famously argued that because shareholders „own‟ corporations, the only „social responsibility of business is to increase profits‟. Friedman‟s argument gained traction, especially after the publication in 1976 of an influential paper, „Theory of the Firm,‟ which stated shareholders are „principals‟ who hire directors as their agents to manage corporations, and the job of directors is to increase shareholder wealth through every means possible, short of violating the law.