Tracing the beginning of Corporate Social Responsibility

Corporate Social Responsibility [hereinafter referred to as “CSR”] came into common use in the late 1960s and early 1970s but if we were to turn the pages of history, we would know that the history of social and environmental concern about business is as old as trade and business itself. For example laws to protect forests, can be traced back almost 5,000 years. In Ancient Mesopotamia around 1700 BC, King Hammurabi introduced a code in which builders, innkeepers or farmers were put to death if their negligence caused the deaths of others, or major inconvenience to local citizens.

With industrialization, the impacts of business on society and the environment assumed an entirely new dimension. The “corporate paternalists” of the late nineteenth and early twentieth centuries used some of their wealth to support philanthropic ventures. By the 1920s discussions about the social responsibilities of business had evolved into what we can recognize as the beginnings of the “modern” CSR movement. It was in 1929, that the Dean of Harvard Business School, Mr. Wallace B. Donham commented in his speech delivered at North Western University:

Business started long centuries before the dawn of history, but business as we now know it is new - new in its broadening scope, new in its social significance. Business has not learned how to handle these changes, nor does it recognize the magnitude of its responsibilities for the future of civilization.”

Almost seventy five years later, these words ring just as true. Today also there are so much of talks going about the same but very little done in this regard.

Defining Corporate Social Responsibility

Corporate social responsibility (CSR), also commonly as called corporate conscience, corporate citizenship, social performance, or sustainable responsible business/ responsible business). CSR differs from place to place, from industry to industry. It is difficult to define CSR precisely because it will always have a locationspecific context. The world business Council for Sustainable Development defines CSR as, “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.” 

It is basically a form of corporate self-regulation integrated into a business model.

Friedman versus Russell

Milton Friedman indicated that one and only one social responsibility of a business is to use its resources and engage in activities designed to increase its profits, as long as it stays with the rules of the game, which is to say, engages in open and free competition without deception of fraud.

On the other hand Kirk Russell insisted that every right is married to a duty, every freedom owns a corresponding responsibility. Hence, there cannot be genuine freedom unless genuine order also exists in the moral realm and in the social realm.

Its not only in the times of Friedman and Russell that two completely contrasting opinions about CSR existed, even today there are a number of people, infact most number of people following the Friedman’s way. Without even realizing that today, there is no way to avoid paying serious attention to corporate citizenship/ CSR, as the cost of failing is very high. There could be countless win-win opportunities waiting to be discovered. It is to be understood that every activity in a firm’s/any sort of corporate set-up’s value chain overlaps in some way with social factors, from how to buy or procure to how to conduct the research, and its quite strange that yet very few companies have thought about it. The goal is not only to earn profit but leverage company’s unique capabilities in supporting social causes as well as improving its competitive context at the same time.

Methodology of Corporate Social Responsibility

CSR is the procedure of assessing an organization’s impact on society and evaluating their responsibilities. It begins with an assessment of the following aspects of each business:

  1. Customers
  2. Suppliers
  3. Environment
  4. Communities
  5. Employees

Corporate social responsibility is maintainable as it involves activities that can be upheld by an organization without negatively affecting the business growth. CSR is not only about protecting the environment, taking ecological accountability into consideration or having a recycling policy, it is about considering the whole representation of the company, from internal processes to the clients, taking in every step that a business takes during day-to-day operations and for its wholesome growth.

Organizations have to recognize that CSR is just a way in which companies manage their business processes to produce an overall positive impact on the community at large. It is very important big and small both companies to understand that besides growing their businesses, it is also important to shape responsible and supportable relationships with the society.

An initiative is also required from countries having developing economy to have CSR as a part of their business. This can be achieved by having specific departments and teams in their companies (having number of members depending upon the size of their organization/company) that develop specific policies, strategies and goals for their CSR programs and set separate budgets to support them.

Issues and Challenges

The prime purpose of including CSR in corporate business is to make the corporate business activities as well as the corporate culture both sustainable in three ways: economic, social and environmental. Paying equal amount of attention to all the three dimensions, but many companies think that corporate social responsibility is a much exterior part of their business, whereas most think it to be an irrelevant issue for their business as satisfying their customers/clients is more important for them. It is further felt that customer satisfaction is only about price and service, but concentrating on only these aspects of business makes them blind folded towards other important changes taking place worldwide that could blow the business out of the water. The change is named as social responsibility which is an opportunity in itself for the business.

Some of the drivers pushing business towards CSR include:

Inefficiency of the Government

In the past, governments have relied only on legislation and regulation to deliver social and environmental objectives in the business sector which has lead to certain failed initiatives.

Demands for Greater Disclosure

There is a growing demand for corporate disclosure from stakeholders, including customers, suppliers, employees, communities, investors, and activist organizations.

Increased Customer Interest

It has been seen and proved through a survey conducted in the year 2002 in 25 countries by Environics International1, it was found that more than one third of surveyed consumers believed that large companies “should do more than give money to solve problems.”

The same study found that almost 50 percent of consumers had considered punishing a company based on its social actions, and that nearly 30 percent had actually avoided a company for that reason. Further it was proved that the ethical conduct of companies have a growing influence on the purchasing decisions of customers.

Increased pressure from the Investor Investors are changing the way they analyze companies' performance, and are making decisions based on ethical concerns too.

Change in employee behaviour

Employees are increasingly looking beyond paychecks and benefits and seeking out employers whose operating practices match their own principles. In order to hire and retain skilled employees, companies are being forced to improve working conditions.

Advantages of making CSR a part

The concept of corporate social responsibility is now firmly rooted around the globe as a business agenda. But in order to move from theory to concrete action, many hurdles need to be overcome. The positives of a CSR initiative are that it can bestow an organization both in terms of finances as well as managerial talent and also attract right people to work on the initiatives. Thus looking at the initiatives by Corporate around the world one feels that we can expect more from them.

There is an urgent need to address the various CSR initiatives and also a need to build a mechanism through which such efforts are recognized and rewarded. It would not be wrong in saying that transparency and dialogue can help to make a business appear more trustworthy, and push up the standards of other organizations at the same time.

Some of the positive outcomes that can arise when businesses adopt a policy of social responsibility include:

Examples of benefits to a Company:

  • Improved financial performance;
  • Lower operating costs;
  • Enhanced brand image and reputation;
  • Increased sales and customer loyalty;
  • Greater productivity and quality;
  • More ability to attract and retain employees;
  • Reduced regulatory oversight;
  • Access to capital;
  • Workforce diversity;
  • Product safety and decreased liability.

Examples of benefits to the Community and the General Public

  • Charitable contributions;
  • Employee volunteer programs;
  • Corporate involvement in community education, employment and homelessness programs;
  • Product safety and quality.

Examples of benefits to the Environment

  • Greater material recyclability;
  • Better product durability and functionality;
  • Greater use of renewable resources;
  • Integration of environmental management tools into business plans, including life-cycle assessment and costing, environmental management standards, and eco-labeling.

It would certainly not be wrong to say that the leading global companies of 2020 will be those that would provide their customers and clients with goods and services and even reach out to them in a manner and with a approach that accommodates solutions to world’s major challenges, such as poverty, climate change, resource depletion, globalization and demographic shift.