Define Corporate Social Responsibility (CSR) and state the stakeholders in corporate social responsibility.
Organisations and individuals dealing with a company expect certain standards of ethical behaviour from the company representatives they deal with, but they also expect similar standards from the company as a whole. There is a view that the best managed companies are those that are aware of their responsibilities towards all stakeholders and society as a whole. In other words, the best-managed companies show a large degree of corporate social responsibility (CSR).
‘While there is no single, commonly-accepted definition of corporate social responsibility, or CSR, it generally refers to business decision-making linked to ethical values, compliance with legal requirements, and respect for people, communities and the environment.’
In ‘leadership companies’, CSR is viewed as ‘a comprehensive set of policies, practices and programmes that are integrated throughout business operations, and decision making processes that are supported and rewarded by top management’. Whereas a code of corporate ethics is addressed primarily to a company’s employees, CSR is about how a company implements its policies on social, ethical and environmental issues, and how it presents those policies to stakeholders and the general public. Major issues of CSR vary from one company to another according to its particular circumstances, but include:
- minimising damage to the environment and promoting ‘sustainable’ business development, i.e. business growth that does not have adverse long-term consequences for the environment and the earth’s resources;
- having liberal employment policies;
- investing money in local communities;
- Helping in the fight against crime;
Business in the Community, a voluntary group of UK companies working for the application of responsible business practices, has set out five principles that companies should apply:
- to treat employees fairly and with respect;
- to operate in an ethical way and with integrity;
- to respect basic human rights;
- to sustain the environment for future generations;
Examples of corporate activities that might be prompted by an awareness of social responsibility and the need to sustain the company’s reputation include: giving scholarship awards for environmental studies, or giving money or resources to aid the victims of a hurricane or major flood. A multinational mining company operating in less-developed economies might give money to local tribal communities for the purpose of preserving them. A holiday company with centres on ‘paradise islands’ has developed environmentally and culturally sustainable practices at its resorts to prevent them from being overrun by damaging aspects of commercialism. At least one US company sets aside one day each year for its employees to do voluntary work in their local community.
The purpose of CSR policies
CSR policies are linked to ethical behaviour and the view that companies should act as corporate citizens’. However, there are differing views about the significance of CSR for companies. The National Association of Pension Funds, in a document on the NAPF and CSR/SRI (2005), suggested that corporate social responsibility relates to the idea that companies, in addition to their responsibilities to shareholders, have responsibilities to other stakeholder groups and to society at large. The document then comments, interestingly, that these responsibilities can be divided into two distinct elements:
- generally accepted responsibilities that a board of directors must fulfil in order to succeed in business or comply with legislation or regulations; and
- functions considered by some parties, including some investors, to be responsibilities that go beyond compliance with the law and regulations, and beyond the measures necessary for achieving commercial success. Whereas it would be widely accepted by company directors that companies should comply with the law and should give serious attention to the company’s reputation risk, there are differences of opinion about the extent to which companies need to go beyond legal, regulatory and commercial requirements in pursuing CSR
The potential benefits of CSR for companies
There are differing views about the extent to which companies benefit commercially from CSR policies. In 2004, the ABI published a research report on CSR and its impact on company performance and investor relations. The key findings of the report were as follows:
Some studies have found that companies with active CSR policies benefited financially. The evidence is not conclusive but it points to benefits in areas such as corporate reputation, consumer acceptance, employee loyalty and environmental management.
- The benefits of CSR for companies are not uniform across all companies or sectors.
- Strategic risk aspects of CSR are as important as the effect on short-term profitability.
