An executive summary for
managers and executive
readers can be found at the
end of this issue
The boundaries of strategic
corporate social responsibility
Geoffrey P. Lantos
Professor of Business Administration, Stonehill College,
North Easton, Massachusetts, USA
Keywords Corporate strategy, Social responsibility, Roles, Stakeholders, Ethics
Abstract Reviews the development of the corporate social responsibility (CSR) concept
and its four components: economic, legal, ethical and altruistic duties. Discusses different
perspectives on the proper role of business in society, from profit making to community
service provider. Suggests that much of the confusion and controversy over CSR stem
from a failure to distinguish among ethical, altruistic and strategic forms of CSR. On the
basis of a thorough examination of the arguments for and against altruistic CSR, concurs
with Milton Friedman that altruistic CSR is not a legitimate role of business. Proposes
that ethical CSR, grounded in the concept of ethical duties and responsibilities, is
mandatory. Concludes that strategic CSR is good for business and society. Advises that
marketing take a lead role in strategic CSR activities. Notes difficulties in CSR practice
and offers suggestions for marketers in planning for strategic CSR and for academic
researchers in further clarifying the boundaries of strategic CSR.
Introduction
It is no news that today's business organizations are expected to exhibit
ethical behavior and moral management. However, over the past half century
the bar has been steadily raised. Now, not only are firms expected to be
virtuous, but also they are being called to practice ``social responsibility'' or
``corporate citizenship''(Carroll, 2000, p. 187), accepting some
accountability for societal welfare. Marketers, as boundary spanners
responsible for the enterprise's dealings with various publics, have a primary
interest in, and should take a major role in, defining and implementing their
firm's social responsibility efforts. Unfortunately, too frequently marketers
still focus solely on their products and markets while neglecting the social
impact of their activities (Flores, 2001).
Corporate social
responsibility
Perhaps this is because the concept of corporate social responsibility (CSR)
is a fuzzy one with unclear boundaries and debatable legitimacy. The
purpose of this paper is to clarify the CSR concept by offering an historical
perspective on CSR, reviewing the different viewpoints on the role of
business in society, and distinguishing three types of CSR: ethical, altruistic
and strategic, thereby establishing parameters for its practice. I argue that for
any organization ethical CSR (avoiding societal harms) is obligatory, for a
publicly-held business altruistic CSR (doing good works at possible expense
to stockholders) is not legitimate, and that companies should limit their
philanthropy to strategic CSR (good works that are also good for the
business). I conclude with suggestions for marketers and others responsible
for strategic CSR as well as for further research.
The legitimacy of CSR relates to a set of fundamental and crucial questions:
Why do corporations exist? Should enterprises also be concerned with their
social performance as well as economic results? If so, what does it mean to
be ``socially responsible''? Should economic performance be sacrificed for
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social performance? To whom do businesses owe ``responsibilities'' (a.k.a.
``duties'' or ``obligations'')? What kinds of activities and programs should
CSR include? To what extent should social responsibility activities consume
the company's precious resources? How can we measure social performance
and thereby know when companies have fulfilled their societal obligations?
What are the interests of consumer marketers in CSR efforts? This paper will
offer suggestions for answering these questions based on a synthesis and
analysis of the literature, while recognizing that empirical research is needed
for definitive answers to many.
Four-part definition of CSR
History of CSR
Society's rising expectations for business
The notion that business has duties to society is firmly entrenched, although
in the past several decades there has been a revolution in the way people
view the relationship between business and society. Carroll (1979) and other
researchers believe that we should judge corporations not just on their
economic success, but also on non-economic criteria. Carroll (1979)
proposed a popular four-part definition of CSR, suggesting that corporations
have four responsibilities or ``four faces'' (Carroll, 2000, p. 187) to fulfill to
be good corporate citizens: economic, legal, ethical and philanthropic (which
I call ``altruistic'' or ``humanitarian'' CSR). I believe that much of the
uncertainty about the legitimacy and domain of CSR stems from failure to
distinguish the ethical and philanthropic dimensions as well as from the
misguided notion that it is somehow objectionable for business to prosper
from good works (what I call ``strategic CSR'').
Economic responsibilities. Ever since the industrial revolution, we have
depended on business as a major economic institution for producing
want-satisfying goods and services; providing jobs and fair pay for workers;
seeking raw materials supplies; discovering new resources, technological
improvements, and products; paying taxes for public needs; generating the
investment capital necessary for economic growth; all while earning a profit
for the owners and serving as an investment opportunity. Previously, if a firm
did all of this while obeying the law, it was praised.
Framework
The eighteenth-century Scottish philosopher Adam Smith, in The Wealth of
Nations, provided us with a framework for modern business and its
relationship to society. Smith proposed that capitalism, by encouraging the
pursuit of gain and efficiency, works to create greater wealth than any other
economic system, and maximizes liberty by allowing individuals freedom of
choice in employment, purchases, and investments, thereby benefiting the
common good. Endeavoring to beat one's rivals, and toiling to produce
better work to earn the next promotion, if done ethically, will result in high
personal development and therefore excellent use of one's time and talents
and the firm's treasury (Johnson, 1990). The manager's role is to act as a
fiduciary or trustee to a principal, the owners or shareholders, being their
steward in effectively and efficiently managing the organization's assets.
Economic responsibility. Economic responsibility, then, is to be profitable
for principals by delivering a good quality product at a fair price is due to
customers. Novak (1996) more fully delineated a set of seven economic
responsibilities. These are to:
(1) satisfy customers with goods and services of real value;
(2) earn a fair return on the funds entrusted to the corporation by its
investors;
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(3) create new wealth, which can accrue to non-profit institutions which own
shares of publicly-held companies and help lift the poor out of poverty as
their wages rise;
(4) create (and, I would add, maintain) new jobs;
(5) defeat envy though generating upward mobility and giving people the
sense that their economic conditions can improve;
(6) promote innovation; and
(7) diversify the economic interests of citizens so as to prevent the tyranny
of the majority.
I call these duties economic CSR. Societal expectations in this realm have
appeared to hold steady over the years.
Shortcomings of laws
Legal responsibilities. Legal duties entail complying with the law and
playing by the rules of the game. Laws regulating business conduct are
passed because society does not always trust business to do what is right.
However, laws have certain shortcomings to ensure responsible behavior:
they are of limited scope (they cannot cover every possible contingency);
merely provide a floor or moral minimum for business conduct; are reactive,
telling us what ought not to be done, rather than proactive, telling us what
ought to be done; and might be followed involuntarily out of fear of
punishment rather than voluntarily out of internal moral conviction.
Ethical responsibilities. Ethical duties overcome the limitations of legal
duties. They entail being moral, doing what is right, just, and fair; respecting
peoples'' moral rights; and avoiding harm or social injury as well as
preventing harm caused by others (Smith and Quelch, 1993). Ethical
responsibilities those policies, institutions, decisions, or practices that are
either expected (positive duties) or prohibited (negative duties) by members
of society, although they are not necessarily codified into law (Carroll,
2001). They derive their source of authority from religious convictions,
moral traditions, humane principles, and human rights commitments (Novak,
1996). Today, virtually all members of the business system agree, at least in
theory (although, unfortunately, often not in practice) with this third set of
``social responsibilities''. I call ethical duties ethical CSR.
Protestant work ethic
Prior to the 1960s, business ethics was not a major concern of business
people. Rather, it was left to theologians to discuss issues of fair wages,
unfair labor practices, and the morality of capitalism. The Protestant work
ethic taught people to work hard and be successful ± this was the essence of
business' social responsibility.
Beginning in the 1960s ethical issues in business were raised on an
unprecedented scale. There was a heightened realization that repressive labor
practices could be found at even some of the most admired corporations,
unsafe products were being sold, the business system was taking a toll on the
natural environment, society was not succeeding in elevating those most
economically deprived, bribery was occurring on an international scale, and
morality was being compromised in the pursuit of money and power. Liberal
consumerist media portrayed business as evil, implying that almost any
business activity is morally reprehensible. Consequently, we heard consumer
outcries against insensitive and immoral business practices. As a reaction to
the negative publicity, by the mid-1970s, the concept of raising corporate
USA's consciousness was in vogue in both corporate boardrooms and
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college classrooms. The idea was that enterprises should not single-mindedly
pursue profit without regard to morality.
Thus, since the 1970s, society's expectations of business ethics have been
climbing. Unlike yesteryear, productivity alone is no longer considered
sufficient morally to justify a business organization. Also important is how
wealth generation affects non-economic aspects of society, such as the
welfare of employees, customers, and other members of the business system,
as well as other outside groups and the natural environment.
Controversy over the
legitimacy of CSR
Altruistic responsibilities. Carroll's discretionary or philanthropic
responsibility ± ``giving back'' time and money in the forms of voluntary
service, voluntary association and voluntary giving ± is where most of the
controversy over the legitimacy of CSR lies. Over the past half century,
business increasingly has been judged not just by its economic and its moral
performance, but also by its social contributions. Henry Ford II identified
this when he spoke at the Harvard Business School as far back as 1969: ``The
terms of the contract between industry and society are changing . . . Now we
are being asked to serve a wider range of human values and to accept an
obligation to members of the public with whom we have no commercial
transactions'' (Chewning et al., 1990, p. 207).
CSR actually has its roots in the thinking of early twentieth century
theologians and religious thinkers, who suggested that certain religious
principles could be applied to business activities. For example, Andrew
Carnegie devised a classic twofold statement of CSR based on religious
thinking. First, was the charity principle, which required more fortunate
individuals to assist less fortunate members of society. However, by the
1920s community needs outgrew the wealth of even the most generous
wealthy individuals, with the result that some people expected business
organizations to contribute their resources to charities aiding the unfortunate.
Second, was the stewardship principle, a biblical doctrine that requires
businesses and wealthy individuals to see themselves as stewards or
caretakers, not just of shareholders' financial resources, but also of society's
economic resources, holding their property in trust for the benefit of society
as a whole.
Stewardship responsibility
Thus, there was a concern for the macro-level outcome of business decisions
in ways that went beyond the loyal agent's argument that a manager's duty is
solely to serve the employer loyally by contributing to profit maximization.
Now, it was suggested that stewardship of the corporation's resources
somehow be melded with a view of stewardship of society's resources to
more broadly serve society. Business was said to have stewardship
responsibilities not just to shareholders, but also to so-called ``stakeholders''
(a.k.a. constituencies or publics), notably employees, customers,
competitors, suppliers, distributors, the local community in which the
enterprise operates, the general public, and the natural environment. When
corporations make business decisions they have both short- and long-term
effects on many sectors of society.
During the latter half of twentieth century there arose the idea of the
corporate social contract, which today underlies the CSR concept. Given the
sometimes adverse effects of business decision making on society as well as
corporate reliance on society, the notion of an implied corporate social
contract was conceived by social and economic theorists. This contract spells
out society's expectations of business as well as (although much less
discussed) business' expectations of society. The social contract theory of
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business is widely held today by both business ethicists and business
decision makers (Bowie, 1983).
``Social contract''
The corporate social contract concerns a firm's indirect societal obligations
and resembles the ``social contract'' between citizens and government
traditionally discussed by philosophers who identified the reciprocal
obligations of citizen and state. Originally, this social contract focused solely
on economic responsibilities. Social progress and quality-of-life
advancement were assumed to be a by-product of economic growth.
Business' social responsibility was to maximize profits, subject to the
constraints of the law. Private business had no accountability for the general
conditions of life or the specific conditions in local communities (Anshen,
1988).
This new social contract postulated that social progress should weigh equally
in the balance with economic progress. The idea that corporations as
organizations have ``social responsibility'' and obligations tying them to a
wider society became popular in the 1950s, and continued through the 1960s
and 1970s, when US businesses rapidly gained in size and power (Davis,
1983). Several groups were responsible for this heightened social
consciousness, including the feminist movement and those advocating for
the mentally and physically challenged, for native people, and for minorities.
Much of the public embraced the concerns of these groups because
unfortunate events brought the realization that some special-interest groups
were worth listening to, such as environmentalists, consumer advocates and
anti-apartheid supporters.
Corporate social culture
Thus, it was suggested that business, as a social institution, should join
with other social structures like the family, educational system and
religious institutions, to help enhance life and meet needs (Chewning et
al., 1990). Whereas in Adam Smith's model, property was owned by
individuals who directly decided how it was to be used, the modern
corporation is characterized by professional managers who make decisions
on behalf of the stockholder owners, and these decisions affect tens of
thousands of citizens (Miller and Ahrens, 1993). Moreover, corporations
need the resources of society if they are to survive and thrive. Corporate
taxes are supposedly not sufficient to pay for these resources, and so the
corporation should, out of a duty of gratitude, assist in solving social
problems (Bowie, 1995)[1]. Moreover, multinational corporations control
a tremendous amount of economic and productive resources, such as
technology, finances, and labor power on a scale that no adequate
accounting of their duties should ignore (Lippke, 1996). Therefore, social
contract theorists feel these resources should have some use beyond
producing more brands of household cleaners for consumers and wealth
for stockholders. The corporate social contract holds that business and
society are equal partners, each enjoying a set of rights and having
reciprocal responsibilities.
According to social contract thinking, the enterprise's responsibilities should
be commensurate with its economic, social and political power (Bowie,
1983; Davis, 1983; Lippke, 1996). Some even say that, because of its size
and special legal status, the modern corporation should be considered as a
public institution, a creature of the state, rather than a private organization,
so that it can be held to a higher legal and moral accountability than the
traditional business enterprise. In any case, social responsibility proponents
argue that corporations must be held to higher standards of social
responsibility than mere individuals (Miller and Ahrens, 1993). However, the
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social contract is a rather vague concept, however, as it is not written in one
place, varies from one region to another, changes as society changes
(Chewning et al., 1990), and does not specify to what extent the corporation
should be considered a public vs a private enterprise and how that might vary
with the size of the enterprise.
Concern about CSR prevailed through the ``kinder and gentler'' 1990s, due
to the growing recognition that governments had failed to solve many social
problems as well as the diminished scope of governments (Smith, 2001).
Also, for most of the period since 1960, disposable incomes and leisure time
have been sufficiently high to allow the public to focus on issues beyond
earning a living. Additionally, due to advances in satellite communications,
which have allowed virtually ``live'' coverage of worldwide problems, the
thinking of the North American public has become less inner directed and
parochial, and more sensitive to the shortcomings of business exposed by
wide-ranging investigative reporters.
Philanthropic CSR
Interest in doing good for society regardless of its impact on the bottom line
is what I call altruistic or humanitarian CSR. I shall argue that genuine
philanthropy, rather than that which is public relations driven, is not proper
for corporate responsibilities to practice. On the other hand, philanthropic
CSR used as a marketing tool to enhance the firm's image ± what I call
strategic CSR ± is legitimate since it helps achieve the firm's financial
obligations.
Defining CSR
According to proponents of CSR, then, the large US corporation is inherently
a social institution as well as economic enterprise, and so businesses should
weigh the social consequences of their activities, balancing carefully
conflicting responsibilities to various stakeholders. CSR has been variously
defined as:
An organization's obligation to maximize its positive impact and minimize its
negative effects in being a contributing member to society, with concern for
society's long-run needs and wants. CSR means being a good steward of society's
economic and human resources (Journal of Consumer Marketing, 2001).
The obligations of the firm to its stakeholders ± people and groups who can affect
or a who are affected by corporate policies and practices. These obligations go
beyond legal requirements and the company's duties to its shareholders.
Fulfillment of these obligations is intended to minimize any harm and maximize
the long-run beneficial impact of the firm on society (Bloom and Gundlach, 2001,
p. 142).
The intelligent and objective concern for the welfare of society that restrains
individual and corporate behavior from ultimately destructive activities, no matter
how immediately profitable, and leads in the direction of positive contributions to
human betterment, variously as the latter may be defined (Andrews, quoted in
Hartman, 1998, p. 243).
Obligation
600
In summary, CSR entails the obligation stemming from the implicit ``social
contract'' between business and society for firms to be responsive to
society's long-run needs and wants, optimizing the positive effects and
minimizing the negative effects of its actions on society. Note the focus on
both minimizing harms (ethical CSR) and promoting benefits for society
(altruistic CSR if the firm does not reciprocally benefit and strategic CSR if
management plans for the firm to profit too).
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Balancing act
Conflicting pressures for CSR
Social responsibility is a balancing act: business must balance economic
performance, ethical performance, and social performance, and the balance
must be achieved among various stakeholders. This suggests a dual bottom
line with economic criteria and noneconomic criteria. In fact, many
companies have multiple objectives. For instance, at Ben & Jerry's
employees are evaluated on both financial contribution and social
contribution to the community.
In the twenty-first century the public demands that businesses make social
issues a part of their strategies. Today, managers continually meet demands
from various stakeholder groups to devote resources to CSR. Such pressures
come from constituencies enumerated above, even including some
stockholders, especially institutional shareholders (McWilliams and Siegel,
2001). Examples of employee pressures include recognition of certain
employee rights in the workplace, including provisions for worker health and
safety as well as nondiscrimination in hiring, firing and promotion; tying pay
to performance; a zero-layoff policy; family-friendly leave programs; and
stock ownership by employees. Consumer pressures include withholding
price increases to cover rising costs, production of safe products, and greater
amounts of consumer information. Community and environmental pressures
encompass ensuring that the business' operations do not threaten the safety
of the local community, giving financial assistance to minority
neighborhoods, providing special training and jobs for the hard-core
unemployed, investing in pollution-abatement equipment, contributing to
charitable and not-for-profit organizations, and making executives available
to serve without compensation on public boards or other non-business
assignments. The mandate is clear: ``Decades of studying business' corporate
social performance lead one to conclude that corporate citizenship is real ± it
is expected of business by the public, and it is manifested by many excellent
companies'' (Carroll, 2000, p. 187, italics in the original).
Competing pressure
Yet, at the same time, there is the competing pressure for improved financial
performance from institutional investors, notably mutual and pension fund
managers, who have a fiduciary duty to their investors to earn a maximum
return on investment. The wealth of many US households is now closely tied
to the stock market, and so corporate managers are under the gun by both
individual and institutional investors to do whatever it takes to increase the
stock price (Boatright, 1999). This leads to the push and pull of forces
arguing for strict profit maximization vs those pushing for better social
performance.
We should note that such a dilemma does not exist to a great extent within
privately-owned businesses (sole proprietorship or partnership) since there is
no issue of economic agency where the manager, as a loyal agent of his or
her employer or stockholders, has a duty to maximize profits for them. The
owners of an unincorporated business are accountable only to one another
regarding their business performance; they are not subject to the market for
corporate control. They may define their mission and goals of their
organization as they wish. For instance, no one takes issue with the
well-known fact that Tom's of Maine engages in many practices that
voluntarily restrict profit in order to promote the general welfare[2].
The controversy over CSR arises when publicly-held companies undertake
``socially responsible'' activities that might restrict profits. Although there
are different types of corporations with differing perspectives, such as
family, closely held, not-for-profit, and public, this paper will take the
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601
perspective of the publicly-held corporation since the debate over CSR
generally rages in companies held by many individual and institutional
investors, where ownership is divided from management, control, and
responsibility. Some managers disdain demands for CSR, believing that such
efforts clash with profit maximization and the interests of shareholders,
whom they believe have primacy above all other stakeholders.
Popular perspectives on business' role in society
Table I shows a spectrum of opinions regarding the appropriate role of
business in society. At one end are those who say business only has an
economic responsibility to make a profit while obeying the law (the pure
profit-making view or economic CSR). In the middle are people who simply
want corporate management to be more sensitive to the societal impact of
their decisions, especially regarding potential harms to stakeholders (the
socially aware view or ethical CSR). At the other end of the spectrum are
those who want to see corporations actively involved in programs which can
ameliorate various social ills, such as by providing employment
opportunities for everyone, improving the environment, and promoting
worldwide justice, even if it costs the shareholders money (the community
service view or altruistic CSR). At one end of the spectrum the basic concern
is with economic values such as productivity and efficiency, while avoiding
social involvement. At the other end of the spectrum the primary concern is
societal welfare even at the expense of profits (Miller and Ahrens, 1993).
Property rights theory
Another way of envisioning the spectrum is that at one end is property rights
theory ± the corporation is viewed as the private property of its stockholders,
while at the other end ± the social institution theory ± the firm is considered a
public institution sanctioned by the state for some social good (Boatright,
1999). A moderate and relatively recent view which now dominates thinking
in financial economics and public law ± the contactual theory of the firm ±
holds that a company's assets are provided by many groups in addition to
shareholders, such as employees, customers, suppliers, and the like, and so
the company arises from the property rights and right of contract of every
corporate constituency, not just stockholders (Boatright, 1999).
The pure profit-maximizing view
The most extreme position on economic CSR was taken by Carr (1996) in
his classic Harvard Business Review article ``Is business bluffing ethical?''.
Carr said that the sole purpose of business is to turn out a product at a profit.
Owing to the prevalence of competition and negotiation, he viewed business
people as having a lower set of moral standards than those in the rest of
Author
Position on business' role in society
Albert Carr
Pure profit-making view ± economic CSR: business has lower
standards of ethics than society and no social responsibility
other than obedience to the law
Constrained profit-making view ± economic CSR: business
should maximize shareholder wealth, obey the law, and be
ethical
Socially aware view ± ethical CSR: Business should be sensitive
to potential harms of its actions on various stakeholder groups
Community service view/corporate social performance
perspective ± altruistic CSR: business must use its vast resources
for social good
Milton Friedman
R. Edward Freeman
Archie Carroll
Table I. Spectrum of viewpoints on the role of business in society
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society have. He argued that business has the impersonal nature of an
isolated game, like poker, in which anything goes within the accepted rules
of the game (legally set by the government and the courts). Thus, the lower
business ethics standards permit things like misstatement and concealment of
pertinent facts during negotiations, lying about one's age on a reÂsumeÂ,
automobile companies' neglect of car safety ± in short, ``bluffing'', i.e.
deception. Those who do not play by the ``rules of the game'' will not be
very successful in business. One's duties to the employer as a loyal agent
override other moral obligations. Carr's only standard of social responsibility
above economics was obedience to the law.
Integral part of society
However, almost all commentators agree that business as a game is a bad
metaphor. Whereas games are isolated from the rest of our lives, business is
an integral part of society. Also, business competition is not always
voluntary, and there are other involuntary players, namely the firm's various
stakeholders.
Carr subscribed to the all-too-common fallacy that the morality of one's
business life should be compartmentalized from the morality of the rest of
one's life. However, the dichotomy between one's business life and personal
life is nonexistent. One cannot partition life into work and personal, or
business and pleasure. Nothing that we spend so much time and energy on
can be separate from the rest of our lives (Johnson, 1990). To ignore this and
to encourage us to develop a different and sometimes contradictory set of
priorities, preferences, and values on the job can produce schizophrenia and
multiple personalities, a Dr Jekyll and Mr Hyde phenomenon (Sikula, 1996).
Contrary to the pure profit-maximizing view, there is nothing special about
business that somehow sets it apart from our ordinary ethical obligations.
Businesspeople are not professionals with a different set of moral standards.
Purely profit-based position
The constrained profit-maximizing view
The best-known argument for a purely profit-based position on CSR was laid
out by neoclassical economist Milton Friedman of the conservative Chicago
School of Economics, although Adam Smith was probably the first to
espouse this perspective (Hartman, 1998). Outlined in Friedman's 1960 tome
Capitalism and Freedom as well as in his seminal 1970 article ``The social
responsibility of business is to increase its profits'' (Friedman, 1996),
Friedman's ``custodian-of-wealth model'' asserted that, ``[In] a free economy
. . . there is one and only one social responsibility of business ± to use its
resources and to engage in activities designed to increase its profit so long as
it stays within the rules of the game, which is to say, engages in open and
free competition without deception and fraud'' (Friedman, 1996, p. 245), i.e.
act subject to the constraints of the law and morality. Like Carr, Friedman
too advocated just economic values, not social values, which he felt lie
beyond the company's mandate to maximize shareholder value while acting
legally, ethically and (unlike Carr) honestly. He felt that solving social
problems is part of the role of government and social agencies, not the role of
business. Friedman advised corporate managers to avoid interjecting
personal values into matters such as environmental concerns or community
interests if shareholder wealth is threatened. Thus, for instance, the
responsible manager will close or relocate plants whenever he/she can
improve the profitability of his/her operations by so doing, even if this causes
hardship to employees. In marketing, ``buyer beware'' is the tocsin.
Friedman recognized legal and ethical responsibilities for business, and so
his conception of economic CSR goes further than Carr's, to include a fairly
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extensive range of moral duties to other stakeholders: maintaining open and
free competition, abiding by the rule of law, avoiding deception and fraud,
and exemplifying fair play within the rules of the game (Boatright, 1999).
This is important to note since many of his disciples as well as his critics
claim that he advocated a bare-knuckled, no-holds-barred business
environment. Likewise, Levitt (1983), even earlier in his 1958 Harvard
Business Review article ``The dangers of social responsibility'', said that the
only social responsibility of business beyond seeking material gain is ``to
obey the elementary canons of everyday face-to-face civility (honesty, good
faith, and so on)'' (Levitt, 1983, p. 86). Corporate managers, business
schools, and the financial community embraced this dictum, and to this day
some still do.
Primary stakeholder
The socially aware view and the stakeholder model of CSR
What Friedman ignored was that a businessperson's decisions in the ethical
and social responsibility realms can affect many different people, groups and
institutions, which, in turn, can influence the organization's wellbeing.
Whereas, Friedman said that the primary stakeholder of concern in business
decision making is the stockholders/owners, subscribers to the idea of a
corporate social contract also take the short- and long-term interests of other
parties into account. Social contract theorists observe that business decisions
often impact large numbers of individuals, groups or institutions, i.e.
stakeholders. Stakeholders include: any individuals or groups affected by the
organization's actions, policies, and decisions (they have a stake in outcome
of the company's decisions), as well as any individual or group who is vital
to the survival and success of the enterprise (Freeman, 2001).
The stakeholder model is a reaction to Friedman's shareholder paradigm,
where no entity other than shareholders has a claim on the business.
Stakeholder theory explains that there is more than just a relationship
between an agent who has fiduciary responsibility to a principal ± there are
also third parties to whom the corporation owes morally significant
non-fiduciary obligations. ``These duties exist because, like stockholders,
these other stakeholders also make investments in enterprises: employees
invest their time and intellectual capital, customers invest their trust and
repeated business, communities provide infrastructure and education for
future employees as well as tax support, and so on'' (Graves et al., 2001,
p. 17). In other words, we need to go beyond profit maximization to
trusteeship, or the multifiduciary stakeholder concept, whereby management
sees itself as responsible for achieving balance among all stakeholders'
interests (Goodpaster, 1996), especially in avoiding harm to any groups or
rectifying any injuries caused. In fact, today's corporate mission statements
often pay homage to contribution to society in addition to the traditional
product, market and technology dimensions (Rae and Wong, 1996).
Four levels
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How many stakeholder groups and individuals there are depends on whom
you ask. However, stakeholders can be envisioned as existing at four levels.
First, is the systemic/macroenvironmental/general environment level ± larger
societal factors, including the entire business system, the social system, plus
society at large, which consists of institutions and forces, such as economic,
legal, political, technological, natural, media and sociocultural forces. The
second level of stakeholders is the corporation's microenvironment/
operating/task environment ± its immediate environment, consisting of
exchange relationship partners (such as suppliers and distributors), plus
competitors, customers, the local community, and the financial community
(stockholders, bondholders, and creditors). A third level of stakeholders is
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found within the business organization, notably superiors, subordinates and
other employees and labor unions. The final level of stakeholder is
significant others of business decision makers, such as peers, family, friends,
etc.
``Public welfare
deficiencies''
The community service view
This most-developed version of CSR demands that corporations help
alleviate ``public welfare deficiencies'', i.e. problems such as drugs, poverty,
crime, illiteracy, underfunded educational institutions, chronic
unemployment, etc. (Brenkert, 1996). Whereas, the economic, legal and
ethical obligations are mandatory, philanthropic responsibility is desired by
society, i.e. it is optional in that it is not expected with the same degree of
moral force (Carroll, 2001) since corporations are not causally responsible
for the deficient conditions they are attempting to rectify. However, there are
increasing pressures and rising expectations for such altruistic CSR because
there has been a decline in the social institutions that have traditionally tied
communities together, namely, families, religious organizations and
neighborhoods, along with higher mobility, and so it many people believe
that it is business' obligation to help fill the void (Carroll, 2001).
Distinctions needed: ethical CSR vs altruistic CSR vs strategic CSR
To decide on the parameters and legitimacy of CSR for a publicly-held
enterprise, we need to draw distinctions between three different types of CSR
a business can practice. Although the threefold classification of CSR I
propose does not explicitly appear in the literature, there appear to be three
mutually exclusive types of CSR based on their nature (required vs optional)
and purpose (for stakeholders' good, the firm's good, or both): ethical CSR,
altruistic CSR, and strategic CSR. Ethical CSR is morally mandatory and
goes beyond fulfilling a firm's economic and legal obligations, to its
responsibilities to avoid harms or social injuries, even if the business might
not benefit from this. There is nothing especially commendable about this
level of fulfillment of ``social responsibilities'' since it is what is ordinarily
expected in the realm of morality. Ethical CSR entails a ``negative
injunction'' to avoid and correct activities that injure others (Simon et al.,
1983, p. 87).
Altruistic responsibilities
Some would say that CSR is most noble when it fulfills alleged altruistic
responsibilities. Altruistic (humanitarian, philanthropic) CSR involves
contributing to the common good at the possible, probable, or even definite
expense of the business. Humanitarian CSR has firms go beyond preventing
or rectifying harms they have done (ethical CSR) to assuming liability for
public welfare deficiencies that they have not caused. This includes actions
that morality does not mandate but which are beneficial for the firm's
constituencies although not necessarily for the company. This is the pursuit
of ``affirmative duties'', i.e. the affirmative pursuit of some good (Simon
et al., 1983, p. 87). However, like Friedman, I shall conclude that altruistic
CSR, although appearing noble and virtuous, lies outside of the firm's proper
scope of activities. It is probably for this reason that altruistic CSR is
probably relatively rare (Smith and Quelch, 1993).
Strategic CSR ± the fulfillment of a firm's ``social welfare responsibilities'' ±
is, however, admirable since it creates a win-win situation in which both the
corporation and one or more stakeholder groups benefit. I shall focus
primarily on the nature and problems of strategic CSR, which I believe most
firms practice instead of humanitarian CSR, whether they profess to or not.
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Ethical duties
Ethical CSR
The nature of ethical CSR
Ethical CSR involves fulfilling the firm's ethical duties. This is ``social
responsibility'' in the sense that a corporation is morally responsible to any
individuals or groups where it might inflict actual or potential injury
(physical, mental, economic, spiritual and emotional) from a particular
course of action. Even when the two parties to a transaction are not harmed
others parties (stakeholders) might be.
Any organization not adhering to its ethical responsibilities would be acting
as a morally irresponsible agent. Although harms cannot always be avoided,
they should be minimized where feasible. For example, when a company
decides to close or relocate a plant because the product is no longer selling or
the source of raw materials has changed, this would seem sound. While the
shift might cause temporary difficulties for some employees and their
community, it makes more efficient use of resources and therefore, benefits
society as a whole, i.e. it is the socially responsible thing to do so long as
injuries to workers are minimized as much as reasonably possible via means
such as advance notification and severance pay.
Ethical edicts must be adhered to even at the firm's expense in terms of
possible foregone profits since by definition, ethics deals with moral
standards that override self-interest. Sometimes actions need to be taken
because they are right, not because they are profitable (Chewning et al.,
1990; Goodpaster, 1996; Miller and Ahrens, 1993). Managers of a
corporation do not have an obligation to maximize profits for shareholders
without regard to the means used. As in all social responsibility decisions,
there are tradeoffs, and with ethical CSR it is often between short-run
profitability and moral actions. For instance, money spent on product safety
or pollution control might reduce shareholder profits, but the alternative is to
threaten unethically the welfare of others in society (Boatright, 1999). As
another example, it would seem that owners of long-distance phones are
doing the morally correct thing by not charging for emergency 911 calls.
``Good ethics is good
business''
However, experience, anecdotal evidence and empirical evidence reveal that
in the long run ``good ethics is good business''. First, moral behavior builds
trust and enhances the firm's reputation, which attracts customers,
employees, suppliers and distributors, not to mention earning the public's
goodwill. Second, ethical actions minimize the cost of fines and litigation,
not to mention the bad publicity that unethical actions often attract,
especially with today's instantaneous, global communications and media.
For instance, we all know that several well-known firms came under fire for
running or letting their suppliers manage ``sweatshops'' in overseas
manufacturing facilities in order to cut costs.
Clearly, the boundaries of ethical CSR are not clear; otherwise we would not
have so many interesting ethics discussions in corporate boardrooms and
college classrooms. However, the parameters for ethical responsibilities are
beyond the scope of this paper, which focuses on why altruistic CSR is
wrong and strategic CSR is right[3]. Here, I shall restrict the discussion of
ethical CSR to that of ethical responsibilities.
The nature of ethical duties and responsibilities
In order to distinguish better ethical CSR and altruistic CSR, I now survey
the moral concept of responsibility, which looms large in the ethics
literature. The terms duty and obligations are used synonymously with
responsibility, suggesting its mandatory nature. In fact, responsibility has
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been described as ``the cornerstone of ethics'' (Solomon, 1994, p. 114). The
term suggests both accountability and usually a position of trust and
authority (Solomon, 1994).
Special moral obligations
In the context of ethical CSR, corporations are said to have special moral
obligations to their various stakeholders outside of the organization. So as to
determine the nature of corporate duties to these constituencies, it is helpful
to understand both ordinary language and philosophers give the term
``responsibility'' three usages (Goodpaster and Matthews, 2001; Shaw and
Barry, 1992). First, there is a capability usage ± someone has the ability to
accomplish something. Examples would be an individual assuming
responsibility for the success of a project since it falls within his/her area of
expertise, or declaring that a marketing manager is not responsible for the
death of a brand in the marketplace since he/she had no control over the
heavy competition which contributed to the product's demise. Capability
responsibility is a major argument for humanitarian CSR ± the enterprise has
the resources to solve societal ills and therefore should do so.
Second, causal responsibility means that someone caused something to
happen and is, therefore, morally responsible or accountable for its
consequences. Thus, causal responsibility is most closely tied to ethical CSR
± the organization is responsible for correcting harm it has done or
preventing possible damage it could cause. For example, we could say that
management is responsible for the failure of the business, given its poor
planning, or that the advertisment agency is responsible for the decline in
brand awareness because their advertisements are not memorable. It can, at
times, be controversial where the boundaries for causal responsibility lie. For
example, jury verdicts in recent years have held manufacturers responsible
for injurious effects of their products. Should cigarette and gun
manufacturers be held liable for who buys their products and how they are
used, or is that the responsibility of the retailer, or perhaps (in the case of
minors) of parents? In fact, often causal responsibility is shared, not just
among members of a business but also among members of society (Solomon,
1994). Consequently, buck-passing does occur. For instance, recently
Bridgestone/Firestone and Ford fought very publicly about who was
responsible for at least 174 deaths and 700 injuries resulting from vehicles
crashing after losing tire tread, with Ford officials blaming the tires and
Bridgestone/Firestone representatives blaming Ford for dangerous trucks and
giving bad advice about tire pressure, with both sides losing consumer trust
in the process (Kiley, 2001).
Role-related responsibility
Third, is role-related responsibility ± the duties or proper behavior that go
along with a given role or particular position within a social group or society
(Solomon, 1994). For instance, accountants are responsible for the
independence and objectivity of their judgments and must report the
financial misconduct of clients, journalists are duty-bound to print fair and
accurate accounts of newsworthy items, and marketers are obliged to serve
and satisfy their customers. A person who shirks his/her role-related
responsibilities is also violating standards of ethical CSR.
A complication is sometimes caused by role conflict ± a given role
sometimes has irreconcilable conflicting duties. Consider the salesperson
who is expected to help maximize the company's profits while
simultaneously maximizing the customer's wellbeing or engage in
prospecting while also building customer relationships, or the boss who must
keep employees loyal while criticizing them for poor performance. It is this
type of conflict that proponents of altruistic CSR set managers up for, pitting
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the shareholders against society's welfare. How does one resolve the
conflicts inherent in serving these two masters?
To answer this question we must know whether the proper or legitimate role
of a business organization is merely economic or also social. Those who
suggest that a corporation is not a private entity but rather is a public
institution that interacts with and affects many stakeholders advocate the
social role.
General and special duties
In addition to the proper role of business as an institution, we also need to
investigate the societal role of professionals, as business managers are
generally considered professionals in their fields. In order to do this, we need
to distinguish general duties from special duties. General duties or civic
responsibilities are widely accepted ethical requirements for how people
should treat one another in a civilized society. They are a kind of cement to
the implied social contract that people in society all have with one another.
Examples include, ``Do no harm'' (ethical CSR) and ``If possible, do good''
(altruistic CSR). Special duties are situational ± we are required to do
something given our circumstances. Managers and professionals are said to
have special duties due to their privileged position within society.
In the study of professional ethics, it is often claimed that professionals have
these special duties because society has granted them various privileges,
including meaningful work experiences, high incomes, prestige, high social
status, work autonomy, access to massive resources, and, in many cases,
self-regulation and licensing. In turn, these privileges carry with them
various special duties or social responsibilities ± society expects
professionals to conduct themselves in a way that will yield some benefits to
society beyond economic and legal duties, to moral and quality-of-life
obligations. In other words, professionalism carries with it an extra burden of
accountability ± the special duty of ``professional reciprocity'', i.e. the social
obligation to act in ways which benefit society. Thus, the social contract
model of business can be used also to justify the social duties of business as
an institution, as well as of professionals as individuals within those
institutions.
Special social
responsibilities
Specifically, these special social responsibilities include provision of
nondiscriminatory access to professional services, fairness in setting fees,
service to clients in a fiduciary manner, maintenance of professional
competence, diligence and avoidance of negligence, preservation and
protection of the values of the profession, and obedience to professional
codes of conduct (e.g. the American Marketing Association Code of Ethics)
(Cottell and Perlin, 1990). A quick review of the codes of conduct in the
professions would confirm the important role attached to the notion of social
service in professional life. Every such code itemizes the social aspects of
professional work, suggesting that rendering service to society should be a
high priority in the professions. Given that the American Marketing
Association has recently established professional credentialing, such special
duties will likely become increasingly important to marketers.
Altruistic CSR
The nature of altruistic CSR
The terms altruistic or humanitarian CSR I have coined to suggest genuine
optional caring, even at possible personal or organizational sacrifice.
Humanitarian CSR is Carroll's ``fourth face'' of CSR ± philanthropic
responsibilities ± to be a ``good corporate citizen'' by ``giving back'' to
society, furthering some social good, regardless of whether the firm will
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financially reap what it has spiritually sown. It demands that corporations
help alleviate ``public welfare deficiencies'' (Brenkert, 1996, p. 525), such as
urban blight, drug and alcohol problems, poverty, crime, illiteracy, lack of
sufficient funding for educational institutions, inadequate moneys for the arts,
chronic unemployment and other social ills within a community or society.
The business has no ``moral obligations'', only alleged ``social obligations''
(DeGeorge, 1990, p. 168). Humanitarian CSR is based on capability
responsibility ± the company has the resources to be able to do social good. In
some peoples' thinking it is also founded on role-related responsibility ±
companies and their professionals are participants in the social contract, as we
have just seen. However, there is no causal responsibility.
Humanitarian CSR
Humanitarian CSR includes all philosophies, policies, procedures and
actions intended to enhance society's welfare and improve the quality of life,
and it involves linking core corporate competencies to societal and
community needs. Altruistic CSR, then, goes beyond ethics to somehow
making the world a better place by helping to solve social problems.
Unlike strategic CSR, where it is believed that the money put into good
works will yield a return on investment for the business, with altruistic CSR
this is not the motive (although the firm could conceivably benefit as a
by-product). For instance, if a firm adopts an inner-city school and pours
resources into it, there is no guarantee that the business will immediately
gain when tomorrow's workers are better educated, as they could work for
other area organizations or even move away (Singer, 2000). Or, if a firm
provides job training for the hardcore unemployed, there is no certainty that
they will be productive employees or even end up working for that
organization. Indeed, some firms can free ride off the efforts and
expenditures of other companies.
In the past decade or two we increasingly have seen such activities as
charitable contributions, community service programs, employee
voluntarism, environmentally friendly policies, executive loan programs and
various quality-of-life efforts. Regarding charitable giving, companies
increasingly strive to align charitable giving with the hearts of workers and
customers. For instance, LensCrafters donates eye exams and glasses to the
needy; Avon, with a representative force that is 98 percent women, raises
money for breast cancer research; and Ben & Jerry's gives 5 percent of
pretax profits to politically correct causes that its founders believe in, such as
antinuclear campaigns, gay rights groups, etc. Endowing universities doing
research in the firm's field is another common example of charitable giving.
Corporate on-site day care
center
In the realm of community service programs, Stride Rite opened the first
corporate on-site day care center in 1971 at the company's factory in
Roxbury, a poor section of Boston, and the nation's first on-site fitness center
for employees.
Employee volunteerism programs grew in the 1990s, including mentoring
students (e.g. some Stride Rite employees tutor inner-city students two hours
a week), painting low-income houses and distributing food to the needy.
Reasons for involving employees included increased employee mobility,
creating a desire to get to know one's coworkers quickly and community,
and the inability of local governments to keep pace with the demand for
services. For instance, at Tom's of Maine, 5 percent of an employee's work
time can be donated to community outreach at the regular pay rate. The Body
Shop requires employees to do a certain amount of community service on
company time.
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Quality-of-life issues
Quality-of-life issues include rebuilding inner cities, providing job training
for the hardcore unemployed, helping renovate parks, sponsoring cleanup
programs, establishing manufacturing plants in ghetto areas, offering
seminars to high school students on how effectively to seek employment,
supporting minority business ventures, fighting illicit drug traffic, funding
cultural programs, and providing educational videos, instructors, and tutors
to public schools.
The debate over altruistic CSR
The case for altruistic CSR. There are a number of arguments for altruistic
CSR, all of which contain some truth but none of which, individually or
collectively, builds a strong case for the practice. The most basic justification
for humanitarian CSR is the social contract argument previously discussed.
``Business is a major social institution that should bear the same kinds of
citizenship costs for society that an individual citizen bears'' (Davis, 1983,
p. 95). It is said that just as you and I have an obligation to take into
consideration all of the parties that we directly and significantly affect, so too
are businesses required to take into consideration all parties that they will
affect.
In the moral realm this is true. For example, businesspeople have the same
obligation to tell the truth in their advertisements that you and I do when we
are talking with strangers who stop by at a garage or a yard sale. And, just as
you have to take special care when you are dealing with children that come
by your garage sale, advertisers must take special care when designing
advertisements aimed at youth audiences. This is an argument for ethical
CSR ± avoiding harms or social injuries.
Providing for social welfare
However, the argument does not extend to humanitarian CSR ± mandating
doing good works ± because the analogy between people as individuals and
business organizations as institutions breaks down when we discuss
providing for social welfare. First, he idea of you and I doing good works in
our role as compassionate persons as an analogy for an enterprise to also do
good work as a compassionate corporate creature is fallacious. It is true that
a ``socially responsible'' individual is one who takes active part in the
community, helps those who are less fortunate, participates in the civic life
of the community, and so forth. However, whereas human beings are
multifaceted individuals with diverse interests, corporations are formed for
limited economic ends that do not include good works and social welfare.
Second, while it is true that in US culture individuals with wealth are
expected to share it with those less fortunate (Trevino and Nelson, 1999), it
is a different story when we are talking about corporations whose
stockholders might not be particularly well-to-do and who are counting on
the funds for needs such as their retirement or college for their youngsters. It
is the individual and institutional stockholders' funds that are being
expended, not those of some amorphous creature known as ``The
Corporation''. It is true that society provides businesspeople with resources
such as an education, training, and other nurture. Especially executives from
less privileged backgrounds who got help from others in pulling themselves
up by their bootstraps are justified in feeling the need to ``give back''.
However, they can best do this as private individuals, not as corporate
humanitarian ambassadors.
A rebuttal to this is that when a corporation views itself as acting only with
its stockholders' financial interests in mind, stock market pressures often
result in the achievement of short-term financial interests at the expense of
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long-term financial and societal welfare. However, this only argues for
ethical behavior, which should not be sacrificed for ill-gotten financial gain,
not acts of charity, which Robin-Hood style rob from the rich to give to the
poor.
Corporate philanthropy
Another point made by champions of humanitarian CSR is that, as the two
most powerful institutions in the USA, business and government, are obliged
to address and rectify problems of social concern (``power begets
responsibility''). They say corporate philanthropy is a preferable substitute
for government welfare, or at least is necessary in the face of deficient public
welfare, which, indeed, is partially due to corporate opposition to higher
taxes (Benkert, 1996). The public is apparently transferring its expectations
for solving social problems from failed ``Great society'' government
programs to business (Carroll, 2001). Also, humanitarian CSR is favored
over government welfare in that the aid is voluntarily, more personally and
perhaps more efficiently bestowed, whereas state contributions come via the
inefficiency and plodding pace of government bureaucracy and legislators
through faceless bureaucrats. Granted, taking money out of the cash registers
and paychecks of businesspeople to pay for inefficient, wasteful, centralized,
bloated government programs is not a good idea. However, just as
government welfare coerces taxpayers to hand over a generous portion of
their income to ``compassionate'' legislators, altruistic CSR forces
stockholders to sacrifice part of their income so managers can be ``generous''
with shareholders' funds. Moreover, there is a false dichotomy in saying that
only either business or government (neither of whose proper role is charity)
can solve social problems. We also have private individuals (many of whom
are businesspeople) and the collective efforts of these individuals through
charitable and social service organizations, foundations, and not-for-profit
organizations.
Enlightened capitalism
A final and purely pragmatic argument for humanitarian CSR is enlightened
capitalism. Being socially responsible does not necessarily mean profits will
fall ± indeed, they might rise because of the favorable publicity and
goodwill, enhanced employee morale leading to higher productivity, and less
government intervention, which historically has led to excessive power,
tyranny, corruption, and abuse of rights (Novak, 1996). However, if business
prospers, this means we are discussing strategic CSR, nor altruistic CSR.
In short, all of the pro-altruistic CSR arguments really only hold for ethical
CSR or strategic CSR. There is no foundation for the firm acting out of
purely benevolent motives.
The case against altruistic CSR. I will now examine criticisms concerned
with what the proper role of a business organization is, the competence of
businesses to effectively contribute to societal welfare, the difficulty of
deciding what is meant by ``socially responsible'', the uncertainty over
whether business has an obligation to ``give back'', the undue influence
which companies might gain over society through their largesse, and the
possibility that philanthropic giving will put the company at a competitive
disadvantage. While the latter two arguments are flawed, together the others
build a strong position against altruistic CSR.
A set of philosophic objections concerns the proper roles of government,
corporations, and individuals in society. Some still view the enterprise as
having a purely economic role. Adam Smith's ``invisible hand'' argument
says that by giving the public a product it wants at a reasonable price,
businesses unconsciously transfer the profit motive into consumer welfare. If
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a company makes a profit, employees will benefit through higher wages
(and, in some cases, through stock ownership/profit sharing), and the
company will grow, enabling it to employ more people and contribute to the
community in the form of taxes. Thus, from an economic viewpoint, it is
more beneficial for companies to continue expanding rather than giving
money away to charity and good works.
Pareto Opitimality theory
Similarly, the microeconomic theory of Pareto Optimality says that
free-market forces ensure that maximum social benefits will be achieved at
minimum social costs when each company tries to maximize profits.
Society's scarce resources are used so efficiently by producing firms, and the
goods and services are distributed so effectively by competitive markets, that
it would be impossible to make any single person better off without making
some other person(s) worse off. The maximum economic benefits for society
will be produced, recognizing the full personal and social costs of that
production.
However, the assumption of Pareto Optimality breaks down if we do not
have perfect competition, where no market participants can control or
influence the marketplace, especially prices. The ``invisible hand'' model
was reasonably descriptive in an agrarian economy characterized by
commodities. However, ``modern corporations bear about as much
resemblance to Smith's self-sufficient farmers and craftspersons as today's
military complex bears to the Continental militia'' (Shaw and Barry, 1992,
p. 216). Today, successful companies can be less than fully efficient and less
than entirely satisfy consumer wants. In imperfect markets, companies need
to go beyond maximizing profits and consider whether their actions are
serving society by avoiding unreasonable harms, since several ways of
increasing profits actually hurt society, such as deceptive advertising,
bribery, tax evasion and price fixing.
Incomplete measure
Thus, profit is an incomplete measure of social performance and therefore a
nonaccurate measure for resource allocation (Rivoli, 1996). One reason is
externalities ± deleterious, unintended side effects of business activities that
result in costs to society that are not reflected in the company's cost structure
and are not considered by the neoclassical economic model. Examples of
such unintended consequences of business activity include pollution,
job-related accidents, injuries to customers by defective products, and even
the unintended societal impact of advertising (Pollay, 1986).
Since the industrial revolution, companies have attempted to internalize the
benefits and externalize the costs of their actions where feasible (Freeman,
2001). In economic theory, these are costs of production, and if they are
absorbed by the firm and factored into the prices that companies pay ± that
is, if they are internalized ± then, economists argue, the market itself takes
care of the problem. Thus, a business causing air or water pollution should
dispose of waste in an environmentally safe (albeit more expensive) way or
pay for the damage the waste does downstream. Then the price of this firm's
widgets will reflect their true social cost. Forced to pay the true cost of
pollution, instead of being able to use air and water as free resources,
companies have an incentive to stop polluting. However, the costs of
pollution control are often not internalized but passed on to workers,
consumers, and the public as spillover effects or externalities because
government fails to perform its role to police such activities.
When externalities are present, the problem of damage must be addressed
directly in business decision making, either voluntarily (ethical CSR) or via
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government regulation. For instance, ``environmentally friendly'' products
reduce pollutants and waste so that pollution costs are not borne by and
charged against the profits of other companies, towns, and entities. Note that
the problem of externalities falls outside the realm of altruistic CSR.
Internalizing the externalities voluntarily might also be practicing strategic
CSR in that such companies keep government out of their decision making
(Boatright, 1999, p. 344).
Difficulty with the
economic argument
Another difficulty with the economic argument is that it assumes that
producing whatever the buying public wants is good. This ignores
controversial or ``socially undesirable'' products like recreational drugs,
liquor targeted toward children and alcoholics, handguns and pornography.
Nobody but a diehard libertarian would advocate giving customers whatever
their hearts desire. For example, Wal-Mart refuses to carry CDs with lyrics
or cover art it finds offensive (and in the process probably actually satisfies a
customer group larger than teenagers ± their parents). Unfortunately, the
market does not always correct such abuses. But, since here we are
discussing what is morally good or bad, we are considering ethics, not
altruism.
One other systemic problem with unbridled free markets is the sometimes
exclusion of minorities and the poor. It is observed that these groups,
because they lack ownership of any of the factors of production beyond their
unskilled labor, receive inadequate income to participate in many product
markets and consequently cannot maximize their own satisfactions in any
meaningful way. In effect, there is discrimination against the needs of
segments that are too uneconomic or small to serve.
Who should provide for
needs?
The question is, who should provide for their needs? This again raises the
question of the relative roles of business, government, and private
individuals in promoting the general good. Friedman (1996) and Levitt
(1983) seem to believe that it is government's obligation to provide for all
kinds of individual and community needs. However, the proper, limited role
of government as found in both the Bible (especially Romans 13:1-7) and the
US Constitution is to preserve peace and order, promote justice and enforce
the law, and to punish evildoers, not to provide all kinds of ``public services''
and ``free lunches''. Although this suggests that government is responsible
for holding companies accountable for the harms they create (Trevino and
Nelson, 1999), civil government should not provide for welfare. Our
Founding Fathers understood that the right to ``pursue happiness'' meant that
others could not infringe on our right to obtain these things. The right to
education, health care, etc. means we have the right to obtain these, either
through our own means or with the help of others, not that the government,
or business for that matter, must provide them to us (at taxpayers' or
stockholders' coerced expense) (Ahlseen, 2000). It is the duty of individual
citizens, sometimes collectively through dedicated organizations, to provide
funds for societal needs voluntarily. Nowhere in Scripture or the Constitution
is there a call for progressive taxation and forced, governmental
redistribution of income, which Friedman's adherents feel government
should implement as an alternative to corporate benevolance (Boatright,
1999). In fact, such compulsory redistribution of income violates the Eighth
Commandment against theft (Ahlseen, 2000).
To conclude this discussion on the economic role of business, the ``Adam
Smith's invisible hand does not work'' arguments, while meritorious, are
actually irrelevant to altruistic CSR. Since these arguments concern harms,
they are relevant to ethical CSR and should be taken seriously by managers
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who would like to replace the hand of government with ``the hand of
management'' (Goodpaster and Matthews, 1982, p. 74). In the case of
provision of welfare, individuals and charities provide a better option to
government and business.
Role of individuals
It should be the role of individuals, not business, to provide for such needs
since for business to go beyond profit maximization would not be in
shareholders' best interests and would constitute social engineering, an
improper corporate function. The corporation is not a welfare agency, but is
rather an economic association with specific and limited responsibilities
(Novak, 1996). Once you add social goals to the demands of serving
customers, employing workers, and making a profit for stockholders, your
business suffers and stockholders starve. Devotion of corporate resources to
social causes is contrary to an implied contract with investors to maximize
their profits and is, in effect, tantamount to stealing stockholders' money. In
effect, you are taxing the owners via deliberations that do not include their
representation (``taxation without representation'') and spending these taxes
on social causes (Benkert, 1996; Friedman, 1996). There does not appear to
be any instances of a corporation deciding which causes to support and to
what extent by polling its stockholders (Bowie, 1995). Alternatively, you
must raise the price to your consumers, thereby taxing them, or lower the
wages (price of labor) of your workers, in the process taxing them
(Friedman, 1996). Executives become unelected civil servants with the
power to tax some group(s), and corporations become government agencies,
not part of their proper economic role in the business system (Friedman,
1996.)
Although polling stockholders on proposed CSR initiatives might help solve
the problem of ``taxation without representation'', we would still end up with
unelected businesspeople substituting their judgment of what constitutes the
social good for consumers' beliefs or the views of elected policymaking
officials. Corporate responsibility for public welfare threatens to reduce,
transform, and even on occasion eliminate important aspects of public life
(Brenkert, 1996). DeGeorge (1990, p. 171) warns:
There is great danger in expecting corporations to take on themselves the
production of public welfare, because they already have enormous power and are
not answerable for its use to the general public. Politicians are elected by the
public and are expected to have the common good as their end. We should not
expect corporations to do what they are neither competent nor organized to do.
State welfare keeps its
recipients dependent
Another cited problem with business assuming the (illegitimate) welfare role
of government and the (legitimate) welfare role of individuals is that those
needing welfare assistance tend to be the powerless. Corporate responsibility
for their wellbeing tends to perpetuate their dependency since there is no
formal relationship between the enterprise and the aid recipients, and hence
the division between the powerless and the powerful continues (Brenkert,
1996; DeGeorge, 1990). However, this argument would seem to be more
applicable to CSR in the form of outright grants and gifts rather than CSR
involving training workers, educating children, and otherwise helping people
to help themselves (giving a man a fish vs teaching him to fish). Nonetheless,
at least with the welfare state there are safeguards and guarantees not
imposed on corporations, such as voting, representation, public hearings and
sunshine laws (Brenkert, 1990), although many political conservatives argue
that state welfare also tends to keep its recipients dependent.
The end of the matter is that altruistic social responsibility is neither in the
proper domain of business nor of government, but only of individuals, often
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working collectively. The kind of help provided by these groups is on a
``small and human scale'', as President George W. Bush remarked during his
graduation speech at Notre Dame (Colson, 2001).
Competence
A second major area of concern about the properness of altruistic CSR is
competence ± it is objected that corporate executives are ``inept custodians'',
(Shaw and Barry, 1992), i.e. they lack the moral and social expertise and
authority to make noneconomic decisions for improving society (Freeman,
2001). Very few business people have special qualifications in defining and
acting in the public interest, with the result often being unintended
consequences of managers' well-intentioned actions. For instance, in the
mid-1990s McDonald's responded to pressures from a small but very vocal
group of noncustomer environmentalists who protested the waste of
disposable containers, labeled the McFare ``junk food'', and accused the
company of clogging US arteries and hyping high blood pressure.
Consequently, McDonald's treated the customer who has no health problems
as the exception rather than the rule. No one consulted the customer about
tasteless fries with less salt, the unpopular ``healthy'' McLean Deluxe burger
(made from seaweed extract!), and abandoning foam containers, which keep
food hot. Fortunately, the market is usually able to correct such mistakes
when customers are the victims ± if one business does not meet consumer
needs very well, this gives rivals the opportunity to jump in and fill the void.
However, this problem of managerial ineptness in the social realm is not
necessarily subject to market forces when the recipients of ``aid'' are outside
of the firm's business arena.
Whose agenda and values
should be followed?
Opponents of altruistic CSR also suggest that individual initiatives are
preferable to managerial actions regarding philanthropy because what
exactly is ``socially responsible'' becomes debatable in a pluralistic society.
The question is, ``Whose agenda and values should be followed?''. For
instance, liberals and conservatives have very different viewpoints on issues
such as the value of recycling, supporting ``faith-based initiatives'',
providing ``safe sex'' education to teens, ridding the Internet of ``smut'', and
fighting for ``gay rights''. Therefore, while most ``socially responsible''
mutual funds filter out companies involved in tobacco, alcohol, and
gambling, there is little consensus on what other screens are appropriate.
Funds with a liberal worldview (e.g. the Calvert and Domini groups) tend to
shun environmentally insensitive companies, firearms producers, nuclear
power generators, or employers of child labor. At the conservative end of the
spectrum is the evangelical Christian Timothy Plan fund, which boycotts
companies that provide health benefits to the partners of gay employees and
firms that profit from pornography and abortion.
There are also so many debatable issues beyond what constitutes a worthy
cause, such as how much money should be given, whether it should be a
certain percent of corporate income (and if so, before or after taxes) or an
absolute amount, and so on. Such questions are virtually impossible to
answer to everyone's satisfaction for altruistic CSR and are even difficult for
strategic CSR, although as we shall see, in that case optimizing the bottom
line underlies all decisions. Although, if individuals are concerned about
their corporations investing in the ``wrong'' causes, they can investigate for
themselves, it appears that most are unwilling to take the time and effort to
do so.
It is generally easier to enjoin and correct an ethical wrong than it is to
prescribe affirmatively what is good for society, although drawing the line
between ethical CSR and altruistic CSR is at times difficult ± what some
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view as affirmative duties might be seen by others as correction of social
injury (Simon et al., 1983). For instance, affirmative action programs might
be seen as some as altruistic CSR to promote diversity in the workplace and,
hence, the general welfare, while others might view them as ethical CSR to
right past social injustice in treatment of minority groups.
Avoid controversial causes
Whether the issue is altruistic or strategic CSR, companies would be wise to
avoid controversial causes, walking a fine line between conservative and
liberal critics of philanthropic giving, as it is becoming increasingly difficult
to avoid offending at least one important constituency (Carroll, 2001). A
well-publicized example was when retailer Dayton Hudson made a
contribution to Planned Parenthood, right-to-lifers noisily stood outside the
stores cutting up their credit cards. When the retailer then contributed to
right-to-life groups in an effort to appease them, Dayton Hudson incurred the
wrath of the pro-choicers. In a similar dilemma, US West gave funds to the
Boy Scouts of America and was beat up by gay-rights activists because the
Scouts fought for their right as a private association to exclude openly
homosexual leaders. On withdrawing support from the Boy Scouts, US West
upset conservative religious groups (Carroll, 2001). Even ``safe'' groups with
broad public support can at times become controversial, such as when some
local United Way chapters withheld funds from the Boy Scouts over the
homosexual issue and rose out of favor with many conservatives. Companies
should support causes that will be favorably received by their targeted
constituencies.
Another argument against philanthropic CSR is that the notion of
``returning'' something to the community and ``giving back'' to society for
the firm's good fortune is fallacious. CSR advocates suggest that businesses
have a special obligation to do more than the rest of us, to do special things
for society or to solve society's problems. Critics reply that the obligations of
business extend no further than the obligations all human beings have to each
other. If businesses have obligations to do something for society, it is
because you and I have exactly the same obligations.
Special duties
However, what this viewpoint overlooks is the previously-discussed notion
of special duties. As an economically and socially powerful institution,
perhaps business does have special obligations, as do professionals as
privileged members of society. But recall that this line of reasoning is only
valid regarding ethical CSR, not social CSR.
Another argument against philanthropic CSR is that shareholders are also
consumers, employees (increasingly so with stock options and profit
sharing), environmentalists, and community citizens, and so stockholders are
affected when corporations fail to act responsibly (Boatright, 1999).
However, this argues for ethical CSR but not philanthropic CSR since, as
private citizens. stockholders can contribute to causes of their choosing out
of their own pockets.
The final two objections to humanitarian CSR seem to have little basis in
fact. One concerns the undue influence over society it might grant business.
Levitt (1983) argued that corporate responsibility for welfare threatens to
reduce pluralism and to create a monolithic society. This will supposedly
happen because if business starts doing the ``government's job'' (Bowie,
1995) the government will take over business, with ``Big Government'' and
``Big Business'' merging into one powerful group at the sacrifice of our
democratic institutions. This relates back to the roles of business vs
government problem in that altruistic CSR could supposedly create demands
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for public participation in corporate management or governance (e.g. seats
by members of each stakeholder group on the board of directors, election of
managerial social servants through a political process), threatening the
private role of the corporation (Friedman, 1996; Goodpaster, 1996).
However, there does not seem to be any evidence of this happening since
Friedman first warned of it over 30 years ago.
Threatening our democratic
freedoms
Alternatively, it is alleged, business will be granted an excessive
concentration of power which would threaten the pluralistic division of
powers among our various social institutions, thereby threatening our
democratic freedoms. Moreover, neither business nor government are
monolithic institutions at present, and it is doubtful that they ever will be. In
short, the fear that corporate CSR will result in a radical re-division of power
in society seems to be unfounded.
Another objection is that humanitarian CSR will put the firm at a competitive
disadvantage since social action entails costs that competitors need not bear.
However, this might or might not be the case as there are possible publicity
and goodwill that can accrue to the enterprise from CSR, in which case it is
strategic CSR, not altruistic CSR.
In fact, skeptics say that often, good works are just a publicity stunt or a
public relations ploy. There is no doubt that companies practicing social
responsibility often, and probably usually, have ulterior motives. For
example, volunteerism can lead to higher employee morale, which then leads
to higher productivity. Or, ``giving back'' to the local community might
make it easier to attract desirable employees. Companies usually become
good corporate citizens because it makes good business sense. However, the
objection here to is strategic CSR, and the basis for a philosophical objection
to business killing two birds with one proverbial stone (doing well while
doing good) is unclear. Somehow the critics find CSR worthy only when
business (stockholders, again, many of whom are individuals counting on the
returns to meet future needs) does not benefit in the process.
Materialization of society
Nonetheless, when such strategic CSR efforts cross the ethical line, then the
critics have a point. For instance, educational materials for the public schools
that include a religious message would violate the constitutional separation
of church and state. Grayer but still ethically dubious is liberally sprinkling
such materials with the corporate logo or slogan (Brenkert, 1996). Many
such CSR efforts are said to foster the ``materialization of society'', although
it can just as easily be said that this is already occurring through traditional
marketing activities such as advertising and retailing (Shaw and Barry, 1992)
or, more likely, that such efforts are merely appealing to an already
materialistic society.
Friedman (1996) believed that CSR activities are indicative of an agency
problem arising from separation of ownership and control, i.e. a conflict
between the interests of managers and shareholders where managers use
CSR as a means to further their own personal agendas at the expense of
shareholders (McWilliams and Siegel, 2001). Thus, one explanation for
some humanitarian CSR activity might lie in ``ego'' or agency costs. As a
vast literature in economics, finance, and accounting demonstrates, where
there is separation of ownership and managerial control, managers will be
tempted to be poor stewards of corporate resources and consume excessive
perquisites, feathering their own nest at the expense of stockholders (e.g.
golden parachutes, nepotism and accepting ``gifts''). An example from
strategic CSR is corporate sponsorships of sporting events, the arts, and such.
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While participating in these might give the appearance of corporate caring
and thereby generate some goodwill, the major motivation might be the
non-pecuniary benefits which managers enjoy from participating in such
events, such as ego gratification and pleasure (Cornwell et al., 2001).
Good for business as well
as for society
Strategic CSR
Strategic CSR or ``strategic philanthropy'' (Carroll, 2001, p. 200) is done to
accomplish strategic business goals ± good deeds are believed to be good for
business as well as for society. With strategic CSR, corporations ``give
back'' to their constituencies because they believe it to be in their best
financial interests to do so. This is ``philanthropy aligned with profit
motives'' (Quester and Thompson, 2001) ± social goals might be profitable
in the long run since market forces provide financial incentives for perceived
socially responsible behavior. Stakeholders outside the stockholder group are
viewed as means to the ends of maximizing shareholder wealth (Goodpaster,
1996).
Such strategic philanthropy grew popular beginning around the mid-1980s
(Jones, 1997 and Carroll, 2001) expects it to grow in the years ahead. The
idea is that while being socially responsible (and ethical, too) often entails
short-run sacrifice and even pain, it usually ultimately results in long-longgain. Expenditures on strategic CSR activities should properly be viewed as
investments in a ``Goodwill bank'' (Vaughn, 1999, p. 199) which yields
financial returns (McWilliams and Siegel, 2001). These long-term benefits
might not immediately show up on a firm's financial statements, as is true of
economic outcomes of many marketing activities, such as marketing
research and image-building advertising. Also, a company is wise to make
deposits in this bank of goodwill in order to make withdrawals when it
comes under fire. For instance, Ford spent millions of dollars on an
advertising campaign to convince parents that most four- to eight-year-old
children should ride in booster seats, which raise children in auto seats so
that adult seat belts fit better, and Ford gave away one million such seats.
The goodwill generated among customers, government regulators, and
consumer advocates from such efforts might likely justify the investment.
Providing for good works from the corporate coffer is therefore compatible
with Friedman's neoclassical economic view so long as the firm reaps
indirect financial benefits (Boatright, 1999). As Douglas W. Leatherdale,
chairman and CEO of The St Paul Companies, said:
We view corporate social responsibility as an asset [emphasis added] we continue
to nurture and grow. It's a critical part of how we do business and balances the
needs of all our constituents. In the long-term, it will benefit our company and its
shareholders (Business Ethics, 2001, p. 12).
Charitable good deeds
Thus, we might find a corporation practicing strategic CSR by providing
charitable good deeds such as providing shelter for the destitute, building a
museum, or renovating the local park if, as a result, those helped will feel
grateful and indebted to that organization, and will reciprocate in various
ways by giving it their business, recommending it to others, asking
government regulators to stay at bay, and so on. And, some of those not
directly helped will still look more favorably on the firm and thereby turn
their loyalties toward it (Brenkert, 1996).
Cynics complain that strategic CSR is self-serving and somehow
impoverishes the notion of citizenship (Brenkert, 1996). However, I would
argue that this is certainly preferable to politicians ``bringing home the
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bacon'' (theft of other citizens' bacon) in order to curry voter favor and
loyalty. Unlike government largesse, which is, at best, a zero-sum game,
corporate generosity can grow the size of the economic pie and thereby
contribute to generating new wealth. Also, why is it that philanthropic
behavior of wealthy individuals is usually very publicly recognized, and yet
we do not claim that their behavior is less worthy, whereas if corporations
are generous we view this as somehow tainted?
Publicity
There is nothing morally objectionable to doing well while doing good, to
help the stockholders while aiding other stakeholders. Yet, it is perhaps
because of the cynics that most companies say they shun publicity for fear of
making their efforts appear insincere (Jones, 1997). Nonetheless, now the
federal government encourages such publicity via the Ron Brown Award for
leadership, which goes to companies whose programs improve the wellbeing
of employees or enhance the communities in which they live and work
(Jones, 2001).
The wisdom of strategic CSR is seen in the fact that some of the most
successful corporations are also among the most socially responsible, with
some of the most prominent examples being the Body Shop, Ben & Jerry's,
and Tom's of Maine (Boatright, 1999; Smith, 2001). With all of the media
attention focused on corrupt business ethics over the past two decades, many
consumers are eager to do business with businesses they believe are ethical
and have a social conscience (Rae and Wong, 1996).
Types of strategic CSR
Novak (1996, p. 145) makes a strong case for his seven ``responsibilities
outside business'', suggesting that all are ultimately necessary for the
survival of business as an institution. While he views these as moral
responsibilities, all but the obligation to respect the law seem to be optional
altruism that nonetheless can potentially profit the firm.
Three extra-legal social
responsibilities
Three of Novak's (1996, p. 151) extra-legal social responsibilities would
appear to benefit a business directly. These are to:
(1) communicate frequently and fully with investors, shareholders,
customers, employees, and other constituencies in order to gain their
support;
(2) establish within the firm a sense of community and respect for the
dignity of persons, which should foster motivation, teamwork,
fulfillment, and, hence productivity; and
(3) protect the ``moral ecology'' by accepting some responsibility for the
television programs (and, I would add, other media environments) in
which they advertise, avoiding shows laced with sex, violence and
denigration of either business or religion.
This should help enhance the organization's reputation.
The problems with Novak's (1996) other three responsibilities are that it
would appear to be difficult to directly link them to the firm's welfare, and
rivals could also hitchhike off a company's efforts. The first of these
indirectly beneficial social duties is to protect liberty's political roots, since
the survival of business depends on the survival of free institutions. Thus,
businesses should encourage their employees, retirees, and shareholders to
participate in politics. The second indirectly advantageous social
responsibility is to uphold social justice, since for its welfare and survival
business depends on its members being active in civil society. Thus, Novak
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urges businesses to encourage employees to volunteer for civic activities and
to be good citizens in the local community. If businesses practice these two
responsibilities through simple exhortation and encouragement, they would
seem to be low-cost efforts that should not detract from their bottom line.
The third indirectly beneficial responsibility however is potentially
expensive and, outside of its goodwill value, the least likely to earn the firm
any financial return; hence, in my view, it should be practiced only when it
can be clearly demonstrated to yield a return on investment. This is the duty
to contribute to making the surrounding society a better place by taking a
leadership role in that society. Especially industry giants can serve as an
example and create a standard for others to follow. This responsibility
includes welfare activities such as contributing to not-for-profit institutions
and charities, caring for the environment and the elderly, meeting the needs
of marginalized groups such as the homeless and the poor, and so on. An
indirect benefit of this, Novak believes, is less government involvement in
these affairs.
Need for balance
Unresolved issues with strategic CSR
One unsettled difficulty lies in ethically and strategically balancing the
tradeoffs among stakeholder groups. For instance, while customers would
prefer that more money be spent on improved products or that prices be
lowered, employees want higher wages and benefits. Although Freeman
(2001) argues for the need for balance in serving the various constituencies,
he does not offer clear guidelines on how to achieve this.
Another issue is that the empirical evidence on the effectiveness of strategic
CSR as a good investment is equivocal ± it is not clear whether socially
responsible corporations outperform or underperform other companies
(McWilliams and Siegel, 2001; Trevino and Nelson, 1999). Although in any
given case it is difficult to quantify the returns to social responsibility,
research studies have found that short-term profits sometimes increase and at
other times decrease when executives include social objectives. Some
research shows that companies that practice social responsibility prosper in
the long run, although these studies are neither conclusive nor exhaustive,
nor do they clarify causality (Business Ethics, 2001). One researcher even
found a curvilinear relationship, with moderately socially responsible firms
being more profitable than very high CSR and very low CSR organizations
(Singer, 2000, p. 195). This suggests that, just as it is possible to overspend
on computers, research and development, advertising, and other investments,
it is also possible to go overboard regarding strategic CSR ± as is true of all
marketing expenditures, there is apparently an optimal level of spending on
strategic CSR. Nonetheless, the research evidence is correlational, not
causal. Thus, when positive correlations were found, it was not clear whether
social responsibility led to increased financial performance or whether better
economic results yielded surplus funds corporations could devote to social
performance (Trevino and Nelson, 1999).
Qualitative factors
620
A problem in assessing the effectiveness of CSR efforts is that factors
contributing to profits in this arena are often qualitative and hence difficult to
measure and quantify, such as the value of employee morale, corporate
image, reputation, public relations, goodwill and popular opinion (Miller and
Ahrens, 1993). There is plenty of soft, anecdotal evidence of CSR's
effectiveness. For instance, Ray Anderson built Interface Inc., a
billion-dollar international carpet manufacturer by becoming the world's first
environmentally sustainable manufacturing enterprise, recycling everything
possible, releasing no pollutants, and filling no landfills. When Marriott set
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up a 24-hour multilingual hotline whom employees with personal problems
could call for help, Marriott's turnover was cut to 35 percent compared to an
industry average of 100 percent, with the human resources director
explaining, ``We've documented increases in productivity, morale, and
better relations with managers and co-workers as a result of the hotline. But
we're not able to quantify the gain in managers' time'' (Daviss, 2001, p. 208
italics added). Then, there is the well-known case of the Malden Mills
factory in Lowell, Massachusetts that burned to the ground during the 1995
Christmas season. Nonetheless, owner Aaron Feuerstein continued to pay
workers' salaries and benefits until a new plant was built. The result:
productivity in the new facility rose by 25 percent and quality defects
dropped by two-thirds (Daviss, 2001, p. 209)[4]. Harder evidence of the
pecuniary benefits of CSR can also be found. For instance, returns for the
Domini 400 Social Index, a group of 400 publicly traded, ``socially
responsible'' businesses monitored by the investment advisory firm Kinder,
Lydenberg, Domini & Co., consistently beat those for the Standard & Poor's
500 (Daviss, 2001, p. 209). Other quantitative research also attests to the
business performance gains from CSR (Daviss, 2001).
Rising public expectations
The future of strategic CSR
Owing to belt tightening and increased pressure for accountability for
expenditures, the trend will likely be toward funding only those good works
expected to benefit companies financially (Carroll, 2001). Nevertheless, in
view of rising public expectations for corporate good works, returns to
strategic CSR should rise. The Iron Law of Responsibility will continue: ``In
the long run, those who do not use power in a manner which society
considers responsible will tend to lose it'' (Boatright, 1999, p. 344).
We might also find social audits becoming almost as common as financial
audits. More companies are conducting such audits to rate their social and
environmental performance. Social audits are either conducted internally by
company personnel or externally by ethics consultants, social auditing
organizations (e.g. The New Economics Foundation), or a board of directors
audit committee. Shareholders and special interest activists will place greater
pressure on businesses to be audited by these entities (Carroll, 2001). Like
corporate ethics codes, they will increasingly be used as public relations
tools.
Last consideration
Reciprocal stakeholder responsibilities
One last consideration for strategic CSR planners is the notion of reciprocal
stakeholder responsibilities. Recall that the corporate social contract should
spell out society's expectations of business as well as business' expectations
of society. Freeman (2001) notes that the ``stakes'' in the stakeholder model
are reciprocal, since both the corporation and its constituencies can affect the
other in terms of rights and responsibilities. Bowie (1995) suggests that if we
are to have a truly comprehensive theory of CSR, we must be able to
determine the parameters for the reciprocal duties of corporate stakeholders
to the organization. What these duties entail has hardly been discussed.
If management has certain duties to its constituencies, it seems reasonable to
suppose that these publics also have responsibilities to the business. Social
responsibility is rightly thought of as a shared duty, and the stakeholder
model mandates that each stakeholder has reciprocal duties with others. For
example, while business ethicists frequently discuss the unjust treatment of
employees during plant closings, seldom do they criticize employees who
leave a corporation on short notice to take a better job (Bowie, 1995).
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Similarly, perhaps employees have a duty to speak favorably about a
company (Freeman, 2001), or at least not denigrate it.
Consumer's responsibilities
Marketers are especially interested in the consumer's responsibilities, rarely
mentioned in discussions of CSR (Solomon, 1994). However, customers
have an obligation to support socially responsible firms rather than socially
irresponsible or socially indifferent businesses. For instance, it is often
possible for consumers to refuse to support polluting businesses or be willing
to pay more for pollution control. In fact, Friedman suggested, ``the people
responsible for pollution are consumers, not producers. They create, as it
were, demand for pollution. People who use electricity are responsible for
the smoke that comes out of the stacks of the generating plants'' (quoted in
Solomon, 1994, p. 259). Yet, environmentally friendly products which cost a
bit more or cause consumer inconvenience (such as Downy fabric softener in
concentrated form which requires less packaging but which also is less
convenient because it must be mixed with water) have not been big sellers.
In this case, it would seem that the environmentalists, as well as marketers,
should share some of the burden of educating the public about the
importance of adopting such products. Other consumer examples of social
irresponsibility include buyers who complain about poor-quality products to
their friends, but not the manufacturer, retailer, or Better Business Bureau;
people who do not contact companies about advertising they find offensive
or misleading; and customers who turn a blind eye when they learn of
businesses which engage in any kind of illegal or unethical practices.
Social responsibility for marketing activities, then, is a collective
responsibility, to be divided among all stakeholders, including, outside
partners and vendors such as suppliers of materials, parts, and services;
wholesalers, retailers, and other distributors; advertising agencies and other
marketing communications creators; marketing research firms and other
information vendors; the media and other marketing communications
carriers; government agencies; consumer protection champions; and even
consumers themselves. Marketers have an opportunity to take a leadership
role, encouraging other stakeholders to take social responsibility too.
Besides consumers, another group with social responsibility is stockholders,
who have the duty to evaluate corporations in which they invest not only in
terms of financial security and expected return, but also vis-aÁ-vis their ethical
and social performance, as do ``ethical investors''. Even if one's knowledge
of the business is limited to news reports or reading the quarterly or annual
report, that is usually sufficient to let one know what he or she is supporting
(Solomon, 1994).
Collective responsibility
Others who share collective responsibility include competitors, who can
blow the whistle on others in their industry who they think are being socially
irresponsible; suppliers of services such as advertising agencies and
marketing research agencies, who should recommend that their partners do
business in a socially responsible manner or else refuse to deal with them;
and other facilitators such as transportation agencies and the media, who can
also refuse to do business with socially irresponsible or indifferent
businesses.
Suggestions for managers and researchers
Managerial implications
Senior management leadership for strategic CSR is vital. One of the most
important factors in the literature on corporate cultures is the influence of
leaders within the organization. It is their behavior that serves as a model and
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message-sender to all. Therefore, top-management commitment to strategic
CSR is key ± commitment is signaled by chief executives (CEO, CFO, COO,
CIO, etc.), including chief marketing officers, president- and vice-presidentlevel executives, including marketing VPs, and affirmation by the board of
directors.
As the business function most closely related to satisfying and
communicating with most of the organization's constituencies, marketing
should take a leadership role in responsibility for CSR. This consumer
marketing social responsibility (CMSR) is marketing's duty to society to
advance life, liberty, and the general welfare of consumers through
value-creating marketing activities that increase the efficiency, effectiveness
and enjoyment of economic life while benefiting the firm.
Common ground
Leaders of corporations should discover and communicate a few simple
shared values and visions that form a common ground on which all ethical
and strategic CSR activities can stand, proclaiming them continuously, and
demonstrating devotion to these values and visions by actions (not just
words), encouraging groups and teams to invent and innovate new CSR ideas
that conform to these values and visions, listening to everyone's ideas,
rewarding every attempt to advance these values and visions and making
everyone feel like a winner in these efforts.
These values and visions and the business' commitment to strategic CSR
should be embodied in a corporate credo ± a succinct statement of the
organization's philosophy of business and core values (e.g. respect for
people, focus on the customer, continuous improvement, etc.) and ethical
and social responsibilities to its stakeholders. These should be sincere, not
just public relations fluff stuff to look good in employees' and the public's
eyes, and must be made clear in some sort of a public forum.
Mission and vision
statements
Mission and vision statements can be used to make the values and firm's
commitment to CSR clear among the company's many external
constituencies as well as to motivate employees with a vision worth getting
up out of bed for in the morning. Measurable and achievable goals should be
set in each of the CSR activities, including expected benefits to both
stakeholders and the firm (e.g. ``To train 20 poverty-level adults to perform
such-and-such by the end of the fiscal year, and to achieve awareness of 20
percent in the community regarding our involvement in this activity'').
Targets for strategic CSR. To minimize the problem of pluralism regarding
what is, in fact, socially responsible, strategic CSR must be targeted to
receptive publics. The balancing act among stakeholder groups is always a
tricky one, and solutions to resolving tradeoffs must usually be found on a
case-by-case basis, considering the relative importance of each stakeholder
group to the company.
Boatright (1999), following Simon et al.'s (1983) criteria for determining
ethical responsibility, suggests several criteria for establishing groups to
target. These are groups:
.
with an urgent need;
.
in close proximity to a corporation;
.
a corporation is capable of responding to effectively; and
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JOURNAL OF CONSUMER MARKETING, VOL. 18 NO. 7 2001
for which the likelihood is high that the need will not be met unless a
corporation acts (called the ``last resort'' criterion).
623
Because of the danger of assuming someone else will act or not acting
because one assumes the need is not strong since no one else is acting, the
last resort criterion is less useful (Smith and Quelch, 1993)
In most cases customers and employees are the two groups whose welfare
seems to be most closely linked to the business and therefore whose needs
and wants should generally be given primacy. Companies can use strategic
CSR to boost consumer patronage and loyalty and worker morale and
loyalty. I will also briefly examine government and special interest groups as
frequent targets of strategic CSR.
Noble calling
Marketers have a noble calling ± to serve and satisfy consumers' legitimate
needs. Socially responsible marketing boils down to providing consumers
with products of genuine value which will enhance their physical or
psychological well-being, pricing them at a level that yields a fair return to
the firm but which is also done with integrity, distributing products
effectively and efficiently (Chewning et al., 1990), and promoting them with
honesty and in a wholesome environment (Dunkerton, 1990).
Surveys that are periodically reported in the press attest to the fact that
consumer responsiveness is a mandate for CSR. By 1992, a survey by the
Public Relations Society of America revealed that one of the industry's ten
hottest trends was social issues marketing ± celebrating a company's
commitment to public issues as well as to its products and customers
(Carroll, 2001). A 1994 study by Walker Research and Analysis found that
88 percent of consumers claimed they were much or somewhat more likely
to buy from a firm which is socially responsible and a good corporate citizen
if quality, service, and price are all comparable to those of competitors, while
92 percent said they would be much or somewhat less likely to buy from a
company that lacks social responsibility (Smith, 2001, p. 155). A 1997
Cone/Roper survey revealed that 76 percent of consumers claimed they
would switch brands or stores that seem concerned about the community
(Jones, 1997).
Marketers have an
important role
Clearly, marketers have an important role to play in strategic CSR
designed to enhance customer goodwill and provide a way of
differentiating the company and its products (McWilliams and Siegel,
2001; Stodder, 1999), notably through ``leveraging'' these activities via
marketing communications such as publicity and advertising. Very
common areas of activity here are sponsorship of the arts and marketingdriven sponsorships (Quester and Thompson, 2001). Also common is
giving to local community endeavors. For instance, the retailer Target
boldly proclaims in their advertising campaigns that they contribute large
percentages of their profits back into their communities. During the 1990s,
many companies practiced ``green marketing'' for the goodwill they
imagined they would get from touting a brand's social attributes, such as
being pesticide free and nonpolluting, although abuses have somewhat
curtailed that practice.
Cause-related marketing, which involves linking consumer purchases of a
firm's products with fund-raising for worthwhile causes or charitable
organizations, has grown exponentially over the past few decades. It is
effective because of consumers' growing social consciousness;
consequently, consumers now buy products as an expression of their own
social consciousness. Case studies suggest that cause-related marketing is
effective in boosting brand loyalty and preventing the onset of commodity
status for a brand (Dupree, 2000).
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Opportunities are limited only by the marketer's creative imagination. For
instance, Wells Fargo Bank teamed with Austin, Texas police to offer bank
accounts to undocumented workers who are often targets of violent robberies
because they must carry cash. Although the bank's regional president said
they were doing this because ``It is just the right thing to do'' (Garcia, 2001,
p. 8B), the marketing value was clear: it gave the bank an opportunity to tap
into the rapidly growing Hispanic market. ``This is not a marketing effort,
though we'd hope that people far and wide discover and use the program'',
the bank's regional president admitted (Garcia, 2001, p. 8B).
Consumer psychology
The consumer psychology is that companies that actively support CSR are
honest, more reliable and, hence, produce high-quality products
(McWilliams and Siegel, 2001). Thus, social attributes such as
``environmentally friendly'' or a ``caring company'' can serve as signals of
product quality. Consumers also tend to think, ``Those are pretty good folks,
I ought to give them a chance'' (Harvey, 2001).
Employees are a second vital target of strategic CSR efforts. An
organization's greatest resource is people, not property, manpower, nor
money. The rate of return on human capital can be higher than the rate of
return on physical or technological capital. An old adage in the advertising
industry is, ``Our assets go down the elevator every evening''. Thus, most
efforts to help employees will yield business benefits.
Marketers know the importance of internal marketing, especially to
front-line employees: if they are happy, they will more likely work to satisfy
customers. Efforts here can include ``progressive'' labor relations policies,
workplace safety, financial security, flextime and job sharing, workplace
amenities such as recreational facilities and on-site childcare, and matching
employee contributions to charity. In return, businesses expect to be
rewarded with increased worker loyalty, morale and productivity
(McWilliams and Siegel, 2001). One-third of large companies now have a
formal policy whereby they pay workers or give them release time to do
community volunteer work. Studies have confirmed what managers have
suspected: workers who do volunteer work for something they find
meaningful return to their job more motivated and fulfilled, and with
stronger community ties, which lessens their propensity to move elsewhere
for a different job and also aids recruitment (Jones, 1997).
Evaluation of employees
Employees should be evaluated on not just financial criteria, but also on
ethical and social responsibility criteria. Employees should see their peers
who have modeled ethical and socially responsible behavior recognized and
rewarded, even if there was a short-term cost to the bottom line (so long as
there is believed to be a long-run return to the firm's value).
Legislators and regulators are another important public for strategic CSR.
For instance, if a firm is sued for, say, racial discrimination, it can help their
cause to tell the jury about employee volunteer work for, say, minority
literacy programs (Jones, 1997). Strategic CSR might also be done with a
view to minimizing government regulation. For example, in the real estate
industry, builders and developers routinely need zoning clearances in order
to conduct their businesses; thus, if these outfits are viewed as good
community citizens, zoning decisions are more likely to be favorable and
faster[5].
Strategic CSR can also be used to keep at bay public-interest (specialinterest) groups ± non-profit organizations that have been founded to
promote a cause perceived (at least by their members) to be in the ``public
JOURNAL OF CONSUMER MARKETING, VOL. 18 NO. 7 2001
625
interest''. These groups are important constituencies since they can bring
pressure to bear via direct lobbying of government officials, such as via
personal presentations and testifying at congressional hearings; trying to alter
public opinion through activities which will garner public relations, such as
demonstrations, picketing, and letter writing; organizing boycotts; and
releasing research results (Smith, 2001).
Also, it is in a company's best interests to target those individuals or
organizations which promote the firm's own values and agenda (Brenkert,
1996). Thus, it might be financially beneficial to donate to universities doing
basic research in an organization's field, whereas it would be objectionable
to support colleges whose professors denounce the free enterprise system.
Informed consent
Strategic considerations. As Novak (1996) suggests, companies need to
communicate clearly with their various constituencies, including
stockholders. They need to state in their investment prospectuses, annual
reports, and other corporate communications the causes they support and
provide a break-out of the costs and benefits of their various CSR efforts.
This will give potential and current investors ``informed consent'' in
deciding to purchase shares (Rae and Wong, 1996). Additionally,
management can poll stockholders to determine their preferences for areas of
strategic CSR the company should get involved in or to get them to
specifically approve the company's CSR activities when they cast their
annual proxy vote for the election of the board and other issues (Bowie,
1995).
Determining the amount to spend on strategic CSR is admittedly difficult,
since, as is true for most marketing communications, it is complex to
correlate directly the effort expended with financial performance measures
such as sales and profits. In theory, so long as the marginal contribution
margin exceeds the marginal cost of strategic CSR, CSR activities should be
undertaken. In practice, given the multiplicity of factors causing business
performance and in view of the lagged effects of many CSR efforts (e.g.
corporate reputation is slow to build and a function of many variables), this is
impossible to do. As is true for measuring the effectiveness of advertising
and other marketing communications, marketers will need to use surrogates
for sales and profits as a indicators of CSR's value to the firm, such as
enhanced trust and reputation. Nonetheless, especially in view of their added
societal benefits, more companies should consider reallocating funds from
traditional marketing communications activities to strategic CSR. If
stockholders derive nonpecuniary benefits from CSR, these should somehow
be weighed in the balance too.
Delineation of CSR efforts
Suggestions for future research
A fuller theory of strategic CSR should be developed, including reciprocal
stakeholder responsibilities. Although I have drawn some general boundaries
on appropriate CSR efforts, a full delineation of strategic CSR efforts, more
details on the appropriate boundaries of each of these areas, and the roles of
marketers as well as other functional area involvement is required.
We also need a theory of how to balance the tradeoffs inherent in serving the
various corporate constituencies. While I suggest customers and employees
are most critical, stakeholder theory as it now exists does not prioritize
among stakeholder groups (Freeman, 2001). We should determine how
certain stakeholder groups should be weighted in importance for targeting
these efforts. For each stakeholder group we need to learn which types of
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CSR activities yield the highest payback. We should discover if there are the
general limits that should be set on spending on these activities.
Event study analysis
technique
The event study analysis (ESA) technique (Miyazaki and Morgan, 2001) is a
useful academic research methodology which can help provide some
answers. ESA originated and is now widely accepted in the finance and
economics disciplines, and it has also been borrowed in recent years by
marketing scholars. ESA examines the impact of a single event (or series of
events) on the value of a business. In marketing, ESA has been used to
investigate the influence on the firm's value of new-product announcements,
brand-extensions, celebrity endorsements (Miyazaki and Morgan, 2001),
slogan changes, new advertising agency-client relationships (Knowles et al.,
1997) and special event sponsorship (Cornwell et al., 2001).
The idea underling ESA is that stock markets are generally efficient in that
stock prices correctly and rapidly incorporate all publicly available
information, and so changes in information valued by the market should lead
to significant changes in stock prices, with information perceived to signal
future earnings increases (decreases) leading to a stock price increase
(decrease). ESA entails measuring how a given event, such as an
announcement concerning a change in present and future marketing
strategies of a company, influences movement in a company's stock price.
The impact of the announcement is gauged by comparing the amount of
change in the stock price around the event date with the predicted change in
stock price based on inspecting the past relationship between the stock and
the market from time series data (Cornwell et al., 2001; Miyazaki and
Morgan, 2001). The advantages of using stock price changes as a measure of
CSR effectiveness are that this measure is free of some of the biases of more
subjective metrics such as communication measures (e.g. awareness,
attitude, image, etc.) (Cornwell et al., 2001), it can more cleanly be
associated with changes in marketing strategies than can communication
variables, and it is directly tied to shareholder interests since CRM activities
that move the stock price significantly upward are defensible from the
shareholders' perspective.
ESA data is correlational
Since ESA data is only correlational, it can be supplemented with field
experimental research that demonstrates cause-and-effect relationships. For
instance, sponsorship effectiveness has been studied using a before-after
(pretest-posttest)-with-control-group design, in which ``before'' and ``after''
measures of attitudes toward sponsors and sponsorships were taken,
comparing control and treatment groups (Quester and Thompson, 2001).
Because this method would substitute communications measures of the
effectiveness of CSR for the financial measures of event study analysis, I
recommend that researchers use both ESA and field experience
simultaneously in order to achieve convergent validity.
Conclusion
The jury is in ± CSR is increasingly expected and can be rewarding for both
societal stakeholders and the firm. Ethical responsibilities, i.e. ethical CSR,
is the mandatory minimal level of social responsibility an enterprise owes its
constituencies. Given the ultimate responsibility of a corporation to its
stockholders, strategic CSR, which financially benefits the business through
serving society in extra-economic ways, is justifiable, and from society's
perspective, should be applauded, not condemned as ``self-serving''.
Altruistic CSR, whose benefit to the company is uncertain and even
irrelevant, lies outside the scope of business responsibility. If managers wish
JOURNAL OF CONSUMER MARKETING, VOL. 18 NO. 7 2001
627
to do good works of questionable return to the firm, they may do them on
their own time and with their own dollar. Marketers, as the corporation's key
need satisfiers and corporate communicators, should be in the vanguard of
strategic CSR efforts. While difficult issues remain, such as balancing
conflicting stakeholder interests and measuring returns to strategic CSR, in
view of the public's rising expectations for CSR, marketers should press
ahead. If the future academic research recommended above is undertaken,
and as marketers do their own proprietary research, the task should become
easier.
Notes
1. However, some observers suggest that, like citizens, corporations pay their fair share of
taxes to cover the cost of using of these resources, and so they should not have
responsibilities beyond those of other taxpayers (Lippke, 1996).
2. A philosophy of altruistic CSR for a privately-held firm is a subject for a follow-up article
in this journal.
3. In a forthcoming paper on the boundaries of ethical CSR for this journal I shall argue that
a proper understanding of the various ethical theories actually results in a narrower range
of mandatory ethical responsibilities and a wider range of optional strategic social
responsibilities than many people believe. Here, I shall restrict the discussion to that of
duties and responsibilities.
4. This is not to suggest that Feurstein did this with strategic considerations in mind.
Although he was apparently motivated by humanitarian considerations, his good deeds
prospered him in the long-run.
5. Of course, if favoritism is sought, this would violate canons of fairness and hence ethics.
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