Summary:
Theory lectures Corporate Social Responsibility
PROFESSOR: NIKOLAY A. DENTCHEV
Gino Aytas | 2MA IB | Academic year 2022 – 2023
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,Practical information:
The final grade is composed out of a group assignment representing 30% of the mark. The
remaining 70% of the marks is earned through a written exam of 6 open questions.
1. CSR Definitions
1.1. LECTURE
Famous economist Milton Friedman once said that it is the social
responsibility of businesses to increase profits. Friedman departs
from the idea that there is a demand and supply market, seeing social
and environmental issues as externalities. Friedman is of the opinion
that governments resolve market failure. While businesses develop
products and services of quality to fulfil the needs of customers.
Companies should not only pay attention to profits, but also to social and
environmental issues. The government will not always effectively deal with externalities,
sometimes the rule of law is insufficient.
However looking at large businesses in practice, there is a lot of corporate social
IRresponsibility. Take for example the case of asbestos, at the time is was a widely used
material, but the European Commission (EC) decided to ban it in 1995 from 2005 forward.
This is somewhat peculiar, as already in the 1930s there was consensus of the harmful effects
of asbestos. Think for example of an increased chance of cancer. There is clear market
failure, why did it take the EC so long to enforce a ban? There are lobbyists of asbestos
companies that employ big capital to withhold regulation.
Another example is the case of British Petroleum, regarded as a leader in corporate social
responsibility (CSR) in the 90s. However if you are considered a CSR leader you have to
continue with best practices, it is not a crown received for life. In 2010 British Petroleum
was faced with the Deepwater Horizon Oil Rig scandal, during which enormous amounts
of oil were leaked into the ocean due to rig malfunction. The cause was found to be
preventable missteps by engineers and workers on the drill platform.
Another example is that of Lernhout & Hauspie. The Belgian
company was considered one of the most innovative in the field
of speech technology. With a strong focus on profits the company
grew tremendously in the 90s. However, ultimately in 2001 went
bankrupt. The company cooked their books via giving false profit margins to attract
investors. As an investigation into their affairs was started, people started dumping shares.
The public is quick to point fingers at multinationals when something goes wrong, but are
consumers always aware of their own impact? Take for example sending a simple
message (ex. WhatsApp or e-mail) is responsible already for pollution. The servers that
process our messages need to be cooled, which causes CO2 emission. Not only companies
need to look at CSR, but also governments and individuals. The aim is to creating a culture
and sense of continuous improvement.
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,The Covid-19 pandemic was positive in terms of CSR. Many initiatives of solidarity
emerged, where people in families and neighbourhoods helped each other. There were
supporting mechanisms in place for companies, paid for by tax payers. However there was
no sustainability criteria attached to receiving support. It is not important if the
company develops initiatives for society and the environment or not, you get support
anyways. It seems that sustainability is not a priority. Everyone is in favour of helping
the environment and understands that climate change is a reality, but no one is motivated
to do actually do something.
The Story of Stuff depicts the story of products their value chain, from gathering natural
resources to selling a final product to customers. It shows a rather negative harsh view of
reality, identifying that it is not sustainable for the environment in the long run. The
solution to this is up to everyone, not only for companies and governments. Instead of
assigning blame, one should work towards contributing to a solution.
It is important to understand what CSR entails. CSR started as a criticism towards the
economic approach of capitalism. Being of the opinion that companies should do more
than solely maximizing profits. There needs to be attention for social and
environmental issues. Moreover, only governments execute public policy, but
companies should also participate in making and executing public policy. Companies have
resources and knowledge to resolve social issues. Ideally companies would promote
social good and prevent social harm.
Social issues are usually defined as problems, however they can also be opportunities.
As something with a strategic importance that is meaningful for the company to act upon.
These social issues are attached to a stakeholder, that are putting the issue on the agenda
and are proposing solutions. For example employees that raise a health and safety concern,
in which the employees are the stakeholder. On a broader scale, climate change would not
be a social issue without NGO’s (i.e. stakeholder) bringing it to our attention. The theory
sees CSR as activities you do beyond what is expected legally.
Besides economic and legal responsibilities, companies also have ethical (i.e. doing the
right thing) and discretionary possibilities (i.e. doing more than what is expected).
There are many concepts around CSR, however they are the “diarrhea of CSR terms and
definitions”. All are basically variations of the same thing, describing that we have to do
our best for society and the environment because there is a problem. Some of the
concepts include:
Corporate social responsibility Corporate social responsiveness
Corporate social performance Corporate sustainability
Corporate citizenship Corporate social activity
Corporate social accounting Sustainable development
Social issues in management Stakeholder management
Business ethics People-planet-profit
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, The following quote was made in 1972: “The term [CSR] is a brilliant one; it means
something, but not always the same thing, to everybody. […] Even the antonyms, socially
“irresponsible” and “non-responsible”, are subject to multiple interpretations”.
Still today, top management in companies questions the exact definition of CSR. This is
because the definition of CSR is difficult. New names and concept get given to CSR, but this
will not resolve the issue. Managers frame the definition of CSR as something they can
manage. This doesn’t mean that stakeholders are helped, rather managers should start
developing actions in a strategic way.
CSR has five dimensions (Dahlsrud, 2008) that frequently occur in CSR definitions:
Dimensions Refers to Example phrases
Environmental dimension Natural environment “Environmental stewardship”
Social dimension Relationship between business and “Contribute to a better society”
society
Economic dimension Financial, describing CSR in terms of “Preserving the profitability”
a business operation
Stakeholder dimension Stakeholder (groups) “Interaction with their stakeholders”
Voluntariness dimension Actions not legally required “Beyond legal obligations”
Governments have important roles to play in the development of norms, however it is good
that companies as part of the latter dimension voluntariness go beyond what is legally
required.
The EC defines CSR as “a concept whereby companies integrate European social and
environmental concerns in their business operations and in their interaction with their
stakeholders on a voluntary basis”. We clearly recognise some of the examples given for
the dimensions. The EC also sees CSR as the responsibility of enterprises for their
impact on society.
It is important to go a step further. A company
should look at 4 aspects to assess what its
actions in terms of CSR are. First, identify in
which context it is active, in what sector
does it operate? Each sector has different
responsibilities, for example a consulting firm
will pollute less than a production firm. What
CSR entails differs per sector.
Second, the company should identify the dynamics of CSR. Not too long ago children still
worked in the Belgium textile industry, however this is unthinkable nowadays. The
dynamics have changed since then, what is considered normal depends on the time and
context. Therefore companies need to assess what is responsible today, CSR is a moving
target that evolves over time.
Third, there are conflicts between what stakeholders in a company. Their interests and
positions are different. It requires stakeholder management, considering their opinion and
evaluating how it can help the company in their mission of continuous improvement.
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