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Sustainability Corporate Social Responsibility

Corporate Social Responsibility (CSR)

The concept of Corporate Social Responsibility (CSR) is included in the definition of Sustainability. So what exactly is it? The definitive answer is "That depends." Yes, there are evaluation criteria (e.g., the Electronic Industry Code of Conduct (EICC), SA-8000 by Social Accountability International (SAI)), organizations providing assessment (e.g., Oekom-Research) and even guidance standards (e.g., ISO 26000 - Guidance on Social Responsibility currently being developing by ISO and BIP 2045:2004 (The Corporate Responsibility Code Book) and BIP 2041:2004 (Implementing Effective Corporate Social Responsibility and Corporate Governance. A Framework) from BSI), all dealing with this concept, or parts of it, in their own way. But, there is no single agreed to definition of CSR. It depends on the demographic, political, and moral (ethical) background of the person, organization, website providing the definition.

Milton Friedman and CSR

"[I]n my book Capitalism and Freedom, I have called [CSR] a 'fundamentally subversive doctrine' in a free society, and have said that in such a society, 'there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

Milton Friedman, "The Social Responsibility of Business is to Increase its Profits", The New York Times Magazine, September 13, 1970.

The various CSR approaches all lead to some type of corporate activity integrated into the organization's business model whereby the business would ensure its adherence to law, ethical standards, and international social norms (i.e., expected patterns of behavior) and would include businesses accepting responsibility for the impact of their activities, regardless of legality, on

  • the environment,
  • consumers,
  • employees,
  • communities,
  • stakeholders and
  • all other relevant members of the public sphere.

Essentially, CSR is the deliberate inclusion of public (societal) interest into corporate decision-making.

It is the "How" this should be done that leads to the diversity of international CSR models which range from

  • corporations independently defining their level of contribution for societal development to
  • formal and in formal institutions (from governments to NGUs to common interest groups) agreeing on public interests which are then transformed into mandatory requirements for corporations

This is most clearly seen in comparing the approaches in America and Europe. Jeremy Moon, and Stanislav Grafski, in their section of The Report On Social Investments In Russia 2004, compared and contrasted the approaches to CSR by America, Europe, Great Britain, and Russia:

"Corporate social responsibility is often regarded as an American phenomenon based on the principles of self-help and participation. The culture of philanthropy in America can be traced to the early 20th century and provides an excellent outline of its historical evolution (e.g., from Rockefeller's public libraries and Carnegie's initiatives to Bill & Melinda Gates Foundation). Due to the nature of American entrepreneurship, which is based on maximizing the freedom of participants, there are a number of self-regulating mechanisms in contemporary American society. Thus, employer-employee relations are mainly the subjects of bilateral agreements between the respective parties. The right to health protection is regarded as an individual choice, i.e. to acquire health insurance or not (hence, voluntary medical insurance).

"The Government guarantees the fundamental rights of citizens in this sphere. Likewise, all CSR initiatives are carried out on a purely voluntary basis by corporations. America has developed numerous mechanisms through which the private sector participates in social support initiatives, such as through corporate funds that address various social problems.

"It is well-known that higher education in the USA is sponsored by the private sector to a far greater extent than in most other countries"1. For example, during the 1950s to 1980s, General Motors not only had an excellent tuition refund program for its employees and had outreach programs to Colleges and Universities, it also established and ran its own four year college, the General Motors Institute in Flint Michigan. Basic research (i.e., research without any predetermined commercial applications) was also supported by many American companies, such as Western Electric, General Motors, etc. Education financing patterns can partially be accounted for by the motives of corporations to voluntarily support education, pension and insurance schemes for the staff, and other socially important programs.

"Socially responsible corporate behavior is often underpinned by appropriate fiscal incentives that are statutory by law. It is important to point out that the American Government has a "hands-off" approach when engaging with the private sector.

"On the other hand, European CSR practices rarely originate from the explicit policies of corporations. Corporate activities, which are traditionally carried out on a voluntary basis in the US, are normally implicitly codified in the norms, standards and legal frameworks of respective countries in Europe." 2

American Context European Context
Characterization Intrinsic: The American doctrine has not dramatically changed over the last 100 years and has been developing smoothly reflecting gradual shifts in social development Extrinsic: Britain and the European continent developed CSR practices intensively over the last 25-30 years, driven largely by external factors
Economic Responsibilities Corporate policies with regard to "good corporate governance", "remuneration" or "consumer protection" Legal framework, codifying corporate constitution ("Betriebsverfassungsgesetz"), the 35h-week, minimum wage legislation, overtime regulation, development and testing of pharmaceuticals
Legal Responsibilities Relatively low level of legal obligations on business Relatively high levels of legislation on business activity
Ethical Responsibilities Corporate policies with regard to local communities High level of taxation in connection with high level of state welfare provision
Philanthropic Responsibilities Corporate initiatives to sponsor art, culture or fund university education High level of taxation sees governments as the prime provider of culture, education etc.

CSR Models in the American and European Contexts3

A final reason why there is not a single definition for CSR is the "chicken and egg" problem. Although this site is focused on Sustainability and is looking at CSR as one of the requirements, there are many people and organizations who feel that CSR has precedence over, and even is the motivation for Sustainability. Unfortunately this only obfuscates any discussion on what exactly is CSR.

Concerns with CSR

Notwithstanding the lack of a single universally acceptable definition, there are arguments against the very concept of CSR.

In a United Nations Industrial Development Organization (UNIDO) report on CSR4 prepared by Peter Raynard and Maya Forstater, the case against corporate social responsibility is discussed:

"CSR is a pragmatic response to balancing the negative and positive effects of modern capitalism, it is an attempt to counter the ‘there is no alternative' school of thought through innovation and new alliances. It attracts critics (as well as advocates) from across the political spectrum. What lies at the heart of the debate is a definition of the parameters of a company's responsibility.

"For neo-liberal economists, CSR is an aberration from efficient market economics, introducing barriers inimical to choice and enterprise and therefore to wealth creation. They believe in Milton Friedman's doctrine that "there is one and only one responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game." They contrast the ‘nebulous' concepts of sustainable development, fair trade and environmentalism with the science of economics in which the ‘invisible hand' of the market ensures that what is good for business is good for society.

"In essence therefore, neo-liberal economists believe that CSR is both bad for companies and society, while those more antipathetic towards capitalism believe it to be good for companies but bad for society. Those on the right believe that the power of business is overstated while those on the left believe it is out of control. Critics on both side rally against what they see as the illegitimate influence of unaccountable organizations in what should be the role of democratically elected government.

"The criticisms of CSR are not simply the product of conflicting ideologies but help to illuminate the twin pitfalls for CSR:

  • Imposing inappropriate standards which constrain the value creation role of business and lead to job losses, under-investment, lack of services and an ever widening gap between developed and developing countries.
  • Distracting criticism and pressure for change away from human rights abuse, economic exploitation, environmental destruction and cultural imperialism while doing little to improve things.

"It is crucial that CSR supporters focus resources in these areas, e.g. by influencing consumer choice in order to strengthen the business case and addressing the weaknesses in participation so far rather than simply focusing on CSR boosterism based on wishful thinking.

CSR in Excellence Models

But back to the question: "What do I need to do for CSR?" ISO 26000 and the many organization developed criteria can provide useful guidance and may be required by a customer. However additional insight can be gained by looking to the major Performance Excellence Models - notable the MBNQA Performance Excellence Model and Criteria and the EFQM Excellence Model and EQA Criteria. These models and criteria are used by Performance Excellence companies and those companies aspiring to achieve Performance Excellence. They are not prescriptive like standards and audit criteria but, instead, ask how individual organization handle specific business requirements, including CSR.

EQFM Fundamental Concepts
EQFM Fundamental Concepts

Both MBNQA and EFQM include CSR as part of their model as a Core Value / Fundamental Concepts of Excellence. Following the difference between America and Europe identified above, the EQFM includes "Corporate Social Responsibility" directly as a fundamental concept while the MBNQA has the core value of "Societal Responsibility".

Societal ResponsibilityMBNQA defines the core value of Societal Responsibility as:

"An organization's leaders should stress responsibilities to the public, ethical behavior, and the need to consider societal well-being and benefit. Leaders should be role models for your organization in focusing on ethics and the protection of public health, safety, and the environment. The protection of health, safety, and the environment includes your organization's operations, as well as the life cycles of your products. Also, organizations should emphasize resource conservation and waste reduction at the source. Planning should anticipate adverse impacts from production, distribution, transportation, use, and disposal of your products. Effective planning should prevent problems, provide for a forthright response if problems occur, and make available the information and support needed to maintain public awareness, safety, and confidence. For many organizations, the product design stage is critical from the point of view of public responsibility. Design decisions impact your production processes and often the content of municipal and industrial waste. Effective design strategies should anticipate growing environmental concerns and responsibilities.

"Organizations should not only meet all local, state, and federal laws and regulatory requirements, but they should treat these and related requirements as opportunities for improvement "beyond mere compliance." Organizations should stress ethical behavior in all stakeholder transactions and interactions. Highly ethical conduct should be a requirement of and should be monitored by the organization's governance body.

"Societal well-being and benefit" refers to leadership and support - within the limits of an organization's resources - of publicly important purposes. Such purposes might include improving education and health care in your community, pursuing environmental excellence, being a role model for socially important issues, practicing resource conservation, performing community service, improving industry and business practices, and sharing nonproprietary information. Leadership as a role-model organization also entails influencing other organizations, private and public, to partner for these purposes.

"Managing societal responsibilities requires the organization to use appropriate measures and leaders to assume responsibility for those measures." 5

Both the MBNQA and EFQM Models require the users to identify their approaches to this core values but do so with different focuses.

The MBNQA Criteria Item "1.2 Governance and Societal Responsibilities: How do you govern and fulfill your societal responsibilities?" explicitly asks the applicant to

  • "Describe your organization's governance system and approach to leadership improvement.
  • Describe how your organization assures legal and ethical behavior, fulfills its societal responsibilities, and supports its KEY Communities."

The MBNQA Criteria does not specifically require CSR results separately but ask that "[k]ey results, such as results of regulatory and legal compliance (including the results of mandated financial audits); reductions in environmental impacts through the use of "green" technology, resource-conserving activities, or other means; or improvements in social impacts, such as the global use of enlightened labor practices, should be reported as Leadership Outcomes (Item 7.6).

The EFQM Model, on the other hand, has a Results Category "Society Results" which is to draw together the results from different activities and processes specified in various enabler categories (see sidebar/subtab).

So how do these models handle the criticisms of CSR. Most of criticisms come about by treating CSR in isolation. The MBNQA and EFQM models take a systems viewpoint of the organization (see also tab Background). Dr. Russell Ackoff described the three aspects of systems management as

  • self-control - traditional (self = system)
  • humanization (serve purpose of parts to better)
  • environmentalization (serve purpose of containing system to better serve the purposes of the system)

The last aspect directly addresses the concerns of Milton Friedman and the neo-liberal economists. The system's approach is expansionism oriented while the neo-liberal arguments rely on a reductionism approach (looking inward and focusing on the parts) which, while prevalent in the past, do not support the current excellence models.

Conclusion:

Corporate Responsibility to society is a philosophy of conduct and is part of a systems approach to business focused on the following:

  • Offering high-quality products and services to consumers;
  • Creating safe working environment, paying documented salaries, investing into human capital development;
  • Complying with legislative (fiscal, labor, environmental, etc.) requirements;
  • Building credible and genuine relations with all stakeholders;
  • Improving business operations with a view to add value and increase shareholders' wealth;
  • Considering public expectations and following generally accepted ethical values within business processes;
  • Contributing to the emerging civil society through partnerships and local community development projects.

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