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6
Corporate Social Responsibility

Key concepts and terms

zz Corporate social responsibility zz Stakeholder theory

(CSR) zz Strategic CSR

Learning outcomes

On completing this chapter you should be able to define these key concepts. You should
also know about:

zz The meaning of corporate social zz CSR activities

responsibility (CSR) zz The rationale for CSR
zz CSR strategy
zz Developing a CSR strategy

Introduction
Corporate social responsibility (CSR) is exercised by organizations when they conduct their
business in an ethical way, taking account of the social, environmental and economic impact
of how they operate and going beyond compliance. As defined by McWilliams et al (2006),
CSR refers to the actions taken by businesses that further some social good beyond the interests
of the firm and that which is required by law.
CSR has also been described by Husted and Salazar (2006) as being concerned with the impact
of business behaviour on society, and by Porter and Kramer (2006) as a process of integrating
96 Human Resource Management

business and society. The latter argue that to advance CSR, We must root it in a broad under-
standing of the interrelationship between a corporation and society while at the same time
anchoring it in the strategies and activities of specific companies.
Redington (2005) placed more emphasis on CSR in the workplace when he defined it as:

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.

Strategic CSR defined

Strategic CSR is about deciding initially the extent to which the firm should be involved in
social issues and then creating a corporate social agenda determining what social issues
to focus on and to what extent. As Porter and Kramer (2006) emphasized, strategy is always
about choice. They suggest that organizations that make the right choices and build focused,
proactive and integrated social initiatives in concert with their core strategies will increasingly
distance themselves from the pack. They also believe that It is through strategic CSR that the
company will make the greatest social impact and reap the greatest business benefits. Baron
(2001) pointed out that CSR is what a firm does when it provides a public good in conjunction
with its business and marketing strategy.
CSR strategy needs to be integrated with the business strategy, but it is also closely associated
with HR strategy. This is because it is concerned with socially responsible behaviour both
outside and within the firm with society generally and with the internal community. In
the latter case this means creating a working environment where personal and employment
rights are upheld and HR policies and practices provide for the fair and ethical treatment of
employees.

CSR activities
CSR activities as listed by McWilliams et al (2006) include incorporating social characteristics
or features into products and manufacturing processes, adopting progressive human resource
management practices, achieving higher levels of environmental performance through recycling
and pollution abatement and advancing the goals of community organizations.
 Corporate Social Responsibility 97

The CSR activities of 120 leading British companies

zz Community skills and education, employability and social exclusion were
frequently identified as key risks and opportunities. Other major activities were
support for local community initiatives and being a responsible and safe
neighbour.
zz Environment most companies reported climate change and resource use as key
issues for their business, and 85 per cent of them managed their impacts through
an environmental management system.
zz Marketplace the issues most frequently mentioned by companies were research
and development, procurement and supply chain, responsible selling, responsible
marketing and product safety. There was a rising focus on fair treatment of
customers, providing appropriate product information and labelling, and on the
impacts of products on customer health.
zz Workplace this was the strongest management performing area as most
companies have established employment management frameworks that can cater
for workplace issues as they emerge. Companies recognized the crucial role of
employees to achieve responsible business practices. Increasing emphasis was
placed on internal communications and training to raise awareness and
understanding of why CSR is relevant to them and valuable for the business. More
attention was being paid to health and well-being issues as well as the traditional
safety agenda. More work was being done on diversity, both to ensure the
business attracts a diverse workforce and to communicate the business case for
diversity internally.
Business in the Community also reported a growing emphasis on responsible business
as a source of competitive advantage as firms move beyond minimizing risk to creating
opportunities.
Source: Business in the Community (2007).

A survey conducted by Industrial Relations Services (Egan, 2006) found that:

zz Most employers believe that employment practices designed to ensure the fair and ethical
treatment of staff can boost recruitment and retention.
zz Relatively few employers are strongly convinced of a positive link to business performance
or productivity.
zz The issue of ethics in employment is often viewed as part of a broader social responsibility
package.
98 Human Resource Management

zz Policies on ethical employment most commonly cover HR practice in the areas of

recruitment, diversity, redundancy/dismissal proceedings and employee involvement.

The rationale for CSR

Stakeholder theory, which was first propounded by Freeman (1984), suggests that managers
must satisfy a variety of constituents (such as workers, customers, suppliers and local com
munity organizations) who can influence corporate outcomes. According to this view, it is not
sufficient for managers to focus exclusively on the needs of stockholders or the owners of the
corporation. Stakeholder theory implies that it can be beneficial for the firm to engage in
certain CSR activities that non-financial stakeholders perceive to be important.
A different view was expressed by Theodore Levitt, the marketing expert. In his 1956 Harvard
Business Review article The dangers of social responsibility, he warned that governments job
is not business, and businesss job is not government. Milton Friedman (1970), the Chicago
monetarist, expressed the same sentiment. His maxim was that the social responsibility of
business is to maximize profits within the bounds of the law. He argued that the mere existence
of CSR was an agency problem within the firm, in that it was a misuse of the resources en-
trusted to managers by owners which could be better used on value-added internal projects or
returned to the shareholders.
Generally, however, academics at least have been in favour of CSR, and there is plenty of evidence
in both the United Kingdom and the United States that many firms are pursuing CSR policies.

Arguments supporting CSR

zz The moral appeal the argument that companies have a duty to be good citizens.
The US business association Business for Social Responsibility (2007) asks its
members to achieve commercial success in ways that honor ethical values and
respect people, communities and the natural environment.
zz Sustainability an emphasis on environmental and community stewardship.
As expressed by the World Business Council for Sustainable Social Development
(2006) this involves meeting the needs of the present without compromising
the ability of future generations to meet their own needs.
zz Licence to operate every company needs tacit or explicit permission from
government, communities and other stakeholders to do business.
zz Reputation CSR initiatives can be justified because they improve a companys
image, strengthen its brand, enliven morale and even raise the value of its stock.
Source: Porter and Kramer (2006).
 Corporate Social Responsibility 99

The rationale for CSR as defined by Hillman and Keim (2001) is based on two propositions.
First, there is a moral imperative for businesses to do the right thing without regard to how
such decisions affect firm performance (the social responsibility argument), and second, firms
can achieve competitive advantage by tying CSR activities to primary stakeholders (the stake-
holders argument). Their research in 500 firms implied that investing in stakeholder manage-
ment may be complementary to shareholder value creation, and could indeed provide a basis
for competitive advantage, as important resources and capabilities are created that differentiate
a firm from its competitors.
It can be argued, as did Moran and Ghoshal (1996), that what is good for society does not
necessarily have to be bad for the firm, and what is good for the firm does not necessarily have
to come at a cost to society. It could also be argued, more cynically, that there is room for
enlightened self-interest which involves doing well by doing good.
Much research has been conducted on the relationship between CSR and firm performance,
with mixed results. For example, Russo and Fouts (1997) found that there was a positive rela-
tionship between environmental performance and financial performance. Hillman and Keim
(2001) established that if the socially responsible activity was directly related to primary stake-
holders, then investments may not only benefit stakeholders but also result in increased share-
holder wealth. However, participation in social issues beyond the direct stakeholders may
adversely affect a firms ability to create shareholder wealth.

Developing a CSR strategy

The basis for developing a CSR strategy is provided by the following competency Framework
of the CSR Academy (2006), which is made up of six characteristics:
zz Understanding society: understanding how business operates in the broader context and
knowing the social and environmental impact that the business has on society.
zz Building capacity: building the capacity of others to help manage the business effectively.
For example, suppliers understand the businesss approach to the environment and
employees can apply social and environmental concerns in their day-to-day roles.
zz Questioning business as usual: individuals continually questioning the business in rela-
tion to a more sustainable future and being open to improving the quality of life and the
environment.
zz Stakeholder relations: understanding who the key stakeholders are and the risks and
opportunities they present. Working with them through consultation and taking their
views into account.
zz Strategic view: ensuring that social and environmental views are included in the business
strategy so that they are integral to the way the business operates.
100 Human Resource Management

zz Harnessing diversity: respecting that people are different, which is reflected in fair and
transparent business practices.

Corporate social responsibility: key learning points

zz CSR refers to the actions taken by businesses that further some social good
beyond the interests of the firm and what is required by law. It is concerned with
the impact of business behaviour on society, and can be regarded as a process of
integrating business and society.
zz CSR strategy determines how socially responsible behaviour is exercised both
outside and within the firm.
zz CSR activities include incorporating social characteristics or features into
products and manufacturing processes, adopting progressive human resource
management practices, achieving higher levels of environmental performance
through recycling and pollution abatement and advancing the goals of
community organizations.
zz There are two rationales for CSR (Hillman and Keim, 2001). First, there is a moral
imperative for businesses to do the right thing without regard to how such
decisions affect firm performance (the social issues argument), and second, firms
can achieve competitive advantage by tying CSR activities to primary stakeholders
(the stakeholders argument).

Questions

1. What does the concept of CSR mean, and what are the main activities involved?
Review the situation in your own organization, and identify what CSR activities are
taking place and what more could be done.
2. Comment on the following remarks:
Porter and Kramer (2006): The most important thing a corporation can do for
society, and for any community, is contribute to a prosperous economy.
Matsushita (2000) Profits should be reflection not of corporate greed but a vote
of confidence from society that what is offered by a firm is valued.
 Corporate Social Responsibility 101
Questions

3. You have been asked by your HR director to produce a memorandum setting out the
business case on why the company should develop a more active corporate respon-
sibility strategy. You looked at the research conducted by IRS (Egan, 2006) and came
across the following information.

The main motivations for employers in engaging in community and charitable work
seem to be varied and sometimes interlinked. The following factors were cited by 12
organizations each: to enhance corporate image/reputation, to promote the busi-
ness, and to improve employee satisfaction and motivation. The desire to help others
was mentioned by 10, with seven wishing to help employee development and four
hoping to boost recruitment and retention. Two organizations each mentioned the
aims of enhancing profitability, helping acquire public sector contracts and helping
to acquire other contracts. Just one employer was motivated by a sense of moral
obligation.
Taking into account these varied arguments, produce the business case.

References
Baron, D (2001) Private policies, corporate policies and integrated strategy, Journal of Economics and
Management Strategy, 10 (7), pp 745
Business for Social Responsibility (2007) Annual Report, [email protected]
Business in the Community (2007) Benchmarking Responsible Business Practice, bits.org.uk
CSR Academy (2006) The CSR Competency Framework, The Stationery Office, Norwich
Egan, J (2006) Doing the decent thing: CSR and ethics in employment, IRS Employment Review, 858
(3 November), pp 916
Freeman, R E (1984) Strategic Management: A stakeholder perspective, Prentice-Hall, Englewood Cliffs,
NJ
Friedman, M (1970) The social responsibility of business is to increase its profits, New York Times
Magazine, September, p 13
Hillman, A and Keim, G (2001) Shareholder value, stakeholder management and social issues: whats the
bottom line? Strategic Management Journal, 22 (2), pp 12539
Husted, B W and Salazar, J (2006) Taking Friedman seriously: maximizing profits and social perform-
ance, Journal of Management Studies, 43 (1), pp 7591
Levitt, T (1956) The dangers of social responsibility, Harvard Business Review, SeptemberOctober,
pp 4150
Matsushita, A (2000) Common sense talk, Asian Productivity Organization News, 30 (8), p 4
McWilliams, A, Siegal, D S and Wright, P M (2006) Corporate social responsibility: strategic implica-
tions, Journal of Management Studies, 43 (1), pp 112
102 Human Resource Management

Moran, P and Ghoshal, S (1996) Value creation by firms, in Best Paper Proceedings, Academy of
Management Annual Meeting, Cincinnati, OH
Porter, M E and Kramer, M R (2006) Strategy and society: the link between competitive advantage and
corporate social responsibility, Harvard Business Review, December, pp 7892
Redington, I (2005) Making CSR Happen: The contribution of people management, CIPD, London
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ance and profitability, Academy of Management Review, 40 (3), pp 53459
World Business Council for Sustainable Social Development (2006) From Challenge to Opportunity: The
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