Corporate Responsibility

Description of Corporate Responsibility. Explanation.

Corporate Responsibility. Description.

Corporate social responsibility ("CSR") is a form of corporate (self-)regulation integrated into a business model.

A CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms.

Purpose of Corporate Responsibility

The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere.

Furthermore, CSR-focused businesses would proactively promote the public interest by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality.

CSR is the deliberate inclusion of public interest into corporate decision-making, and the honoring of a Triple Bottom Line: people, planet, profit.

History of Corporate Social Responsibility

The term "corporate social responsibility" came in to common use in the early 1970s, after many multinational corporations formed. The term stakeholder, meaning those on whom an organization's activities have an impact, was used to describe corporate owners beyond shareholders as a result of an influential book by R. Edward Freeman, Strategic Management: a Stakeholder Approach in 1984.

Proponents argue that corporations make more long term profits by operating with a perspective, while critics argue that CSR distracts from the economic role of businesses.

Others argue CSR is merely window-dressing, or an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations.

Michael Porter recently introduced his idea for a Shared Value philosophy.

ISO 26000 is the recognized international standard for CSR (currently a Draft International Standard). Public sector organizations (the United Nations for example) adhere to the triple bottom line (TBL).

It is widely accepted that CSR adheres to similar principles but with no formal act of legislation. The UN has developed the Principles for Responsible Investment as guidelines for investing entities.

Two main visions underlying Corporate Social Responsibility

Supporters of a Regulation-based Approach argue that:

Corporations care little for the welfare of workers, and given the opportunity will move production to sweatshops in less well regulated countries.
Unchecked, companies will squander scarce resources.
Companies do not pay the full costs of their impact. For example the costs of cleaning pollution often fall on society in general. As a result, profits of corporations are enhanced at the expense of social or ecological welfare. Note that recent environmental legislation increases the range of risks and responsibilities for companies. To protect themselves against losses from environmental hazards, companies can consider Environmental Insurance.
Regulation is the best way to ensure that companies remain socially responsible.

Supporters of a more Market-based Approach argue that:

Free markets and capitalism have been at the centre of economic and social development over the past two hundred years and that improvements in health, longevity or infant mortality (for example) have only been possible because economies (driven by free enterprise) have progressed.
In order to attract quality workers, it is necessary for companies to offer better pay and conditions which leads to an overall rise in standards and to wealth creation.
Investment in less developed countries contributes to the welfare of those societies, notwithstanding that these countries have fewer protections in place for workers.
Failure to invest in these countries decreases the opportunity to increase social welfare.
Free markets contribute to the effective management of scarce resources. The prices of many commodities have fallen in recent years. This contradicts the notion of scarcity, and may be attributed to improvements in technology leading to the more efficient use of resources.
There may indeed be occasions when externalities, such as the costs of pollution are not built into normal market prices in a free market. In these circumstances, regulatory intervention is possible to redress the balance, to ensure that costs and benefits are correctly aligned.
Whilst regulation is necessary in certain circumstances, over regulation creates barriers to entry into a market. These barriers increase the opportunities for excess profits, to the delight of the market participants, but do little to serve the interests of society as a whole.

The concept is strongly related to other concepts such as Corporate Sustainability, Corporate Transparency, Corporate Accountability, and Corporate Governance.

Also called (Corporate) Social Responsibility, corporate conscience, corporate citizenship, corporate social performance, and sustainable responsible business.

Corporate Responsibility Forum (4)

Is Acting Selflessly Required for Social Responsibility?
"Does a company have to act selflessly to be considered socially responsible?"

Corporate Responsability Checklist
"According to Mark Daniel, if your company’s approach to corporate responsibility is not the right one, you will not inspire your personnel, create a sense of purpose and enhance your corporate and civic network. You have to check your are fulfilling your corporate responsibilities. Pay attention to:
• Workplace – Consider health and safety, and other employee issues.
• Business systems – Set high corporate-behavior standards. Be sure your partners, franchisees and any other allied parties comply.
• Reporting – Deceptive or inadequate reporting processes can undermine your firm.
• Governance – Avoid shareholder lawsuits by staying righteous.
• Customer rights – This litigious area is growing more important daily.
• Environment – Stay on the right side of this emotional, high profile issue.
• Community – Become an active part of your community; it’s smart business. Take Responsibility."

The Begin and End of Corporate Responsibility
"Where should your efforts to be (perceived as) a responsible corporation start and where should they stop? In other words: which phenomena are (or should be) considered as external of your firm, and which phenomena are (or should be) considered internal to it?
Christopher Meyer and Julia Kirby say in HBR April 2010 ("Leadership in the Age of Transparancy") the answer is dynamic and depends on 3 S-es:
Scale: small externalities are generally ignored but can grow bigger and bigger and become internalities as a result.
Sensors: more and more technical and behavioral phenomena are measured with increasing sophistication.
Sensibilities: increasing sensitivity of firms for effects of stakeholder demands due to better and more transparent communication."

Establishing Priorities for Action
"I am looking for a method for determine which actions we should take first to satisfy our stakeholders in a social responsible environment. Any ideas?"

New topic | Join our management network