Corporate Social Responsibility

Corporate social responsibility (CSR) is the practice by which a business views itself within a broader context, as a member of society with certain implicit social obligations and environmental responsibilities (Video 12.1). CSR ensures that a company is engaging in sound ethical practices and policies in accordance with the company’s culture and mission, above and beyond any mandatory legal standards. A business that practices CSR cannot have maximizing shareholder wealth as its sole purpose, because this goal would infringe on the rights of other stakeholders. For instance, a mining company that disregards its corporate social responsibility may infringe on the right of its local community to clean air and water if it pursues only profit. In contrast, CSR places all stakeholders within a proper contextual framework.

An additional perspective to take concerning CSR is that ethical business leaders opt to do good at the same time that they do well. This is a simplistic summation, but it speaks to how CSR plays out within a corporate. The idea is that a corporation is entitled to make money, but it should not only make money. It should also be a good civic neighbor and commit itself to the general prospering of society as a whole. It ought to make the communities of which it is part better at the same time it pursues legitimate profit goals. These ends are not mutually exclusive, and it is possible—indeed, praiseworthy—to strive for both. When a company approaches business in this fashion, it is engaging in a commitment to corporate social responsibility.

CSR and Sustainability

In recent years, corporations have made efforts to respond to stakeholder concerns about the environment and sustainability (Video 12.2). There is a growing awareness that human actions can, and do, harm the environment. Destruction of the environment can ultimately lead to reduction of resources, declining business opportunities, and lowered quality of life.

Stakeholders such as customers, state governments, NGOs, citizen groups, and political action committees in the United States apply social and legal pressure on businesses to improve their environmental practices. For example, the state of California in 2015 enacted a set of laws, referred to as the California Transparency in Supply Chains Act, which requires firms to report on the working conditions of the employees of their suppliers. The law requires only disclosures, but the added transparency is a step toward holding U.S. and other multinational corporations responsible for what goes on before their products appear in stores. The legislators who wrote California’s Supply Chains Act recognize that consumer stakeholders are likely to bring pressure to bear on companies found to use slave labor in their supply chains, so forcing disclosure can bring about change because corporations would rather adjust their relationships with supply-chain stakeholders than risk alienating massive numbers of customers.^[1]

As instances of this type of pressure on corporations increase around the world, stakeholder groups become simultaneously less isolated and more powerful. All stakeholders exist in an interdependent network of relationships, and what is most needed is a sustainable system that enables all types of key stakeholders to establish and apply influence.

People, Planet, Profit: The Triple Bottom Line

How can corporations and their stakeholders measure some of the effects of CSR programs? The triple bottom line (TBL) offers a way (Video 12.3).

TBL is a measure described in 1994 by John Elkington, a British business consultant, and it forces us to reconsider the very concept of the “bottom line.” Most businesses, and most consumers for that matter, think of the bottom line as a shorthand expression of their financial well-being. Are they making a profit, staying solvent, or falling into debt? That is the customary bottom line, but Elkington suggests that businesses need to consider not just one but rather three measures of their true bottom line: the economic and also the social and environmental results of their actions. The social and environmental impacts of doing business, called people and planet in the TBL, are the externalities of their operations that companies must take into account.

The TBL concept recognizes that external stakeholders consider it a corporation’s responsibility to go beyond making money. If increasing wealth damages the environment or makes people sick, society demands that the corporation revise its methods or leave the community. Society, businesses, and governments have realized that all stakeholders have to work for the common good. When they are successful at acting in a socially responsible way, corporations will and should claim credit. In acting according to the TBL model and promoting such acts, many corporations have reinvested their efforts and their profits in ways that can ultimately lead to the development of a sustainable economic system.

CSR as Public Relations Tool

Unfortunately, for some, CSR is nothing more than an opportunity for publicity as a firm tries to look good through various environmentally or socially friendly initiatives without making systemic changes that will have long-term positive effects. Carrying out superficial CSR efforts that merely cover up systemic ethics problems in this inauthentic way (especially as it applies to the environment), and acting simply for the sake of public relations is called greenwashing (Figure 12.1). To truly understand a company’s approach toward the environment, we need to do more than blindly accept the words on its website or its advertising.

Stakeholder Management

Many individuals and groups inside and outside a business have an interest in the way it brings products or services to market to turn a profit. These stakeholders include customers, clients, employees, shareholders, communities, the environment, the government, and the media, among others (Figure 12.2). All stakeholders should be considered relevant to a business, but not all have equal priority. Different groups of stakeholders carry different weights with decision makers in companies and assert varying levels of interest and influence. Stakeholder theory argues that corporations should treat all their constituencies fairly and that doing so can strengthen companies’ reputations, customer relations, and performance in the marketplace.^[4]

The term stakeholder has become commonplace in business. Companies and organizations that base their strategic decisions on the principle of duty to earn stakeholder trust “are likely to yield a number of strategic benefits, too, and can help manage political, social, and reputational risk.”^[5]

Identifying and Influencing Major Stakeholders

There are several methods for analyzing stakeholder transactions and relationships with an organization.^[7] Using an ethical perspective, a goal of this approach is for organizations to employ values of transparency, fairness, and consideration of stakeholder interests in strategic decisions and transactions. Toward that end, the following questions can help an organization’s leaders inform, involve, obtain feedback from, and influence each of their stakeholders with regard to strategy, issues, or opportunities the organization pursues:

1. Who are the stakeholders (that is, people who have an interest in supporting or resisting a proposed course of action, resolving an issue, and addressing a change)?
2. What are their stakes in either supporting or resisting the change?
3. What do the supporters stand to gain and lose from the change?
4. What do the resisters stand to gain and lose from the change?
5. What type(s) of power do the supporters have with regard to the change?
6. What type(s) of power do the resisters have with regard to the change?
7. What strategies can we use to keep the support of the supporters?
8. What strategies can we use to neutralize or win over the resisters?

CSR and stakeholder management have demonstrated benefits to firms’ reputations and profitability.^[8] The relationship of an organization’s ethics and social responsibility to its performance concerns both managers and organization scholars. Studies have shown a positive relationship between ethical and socially responsible behavior and financial results. For example, one study of the financial performance of large U.S. corporations that are considered “best corporate citizens” found that they have both superior reputations and superior financial performance.^[9] Similarly, Governance Metrics International, an independent corporate governance ratings agency, found that the stocks of companies run on more selfless principles perform better than those run in a self-serving manner. Top-ranked companies also outperformed lower-ranking firms on measures such as return on assets, return on investment, and return on capital.^[10]

Profitability and Success: Thinking Long Term

Decades ago, some management theorists argued that a conscientious manager in a for-profit setting acts ethically by emphasizing solely the maximization of earnings. In contrast, there is growing consensus today that ethical business leadership is grounded in doing right by all stakeholders directly affected by a firm’s operations, including, but not limited to, stockholders, or those who own shares of the company’s stock. That is, business leaders do right when they give thought to what is best for all who have a stake in their companies. Not only that, there is growing evidence that firms may actually reap greater material success when they take such an approach, especially over the long run.

Nobel Prize–winning economist Milton Friedman stated in a now-famous New York Times article in 1970 that the only “social responsibility of a business is to increase its profits.”^[11] This concept took hold in business and even in business school education. However, although it is certainly permissible and even desirable for a company to pursue profitability as a goal, managers must also have an understanding of the context within which their business operates and of how the wealth they create can add positive value to the world. The context within which they act is society, which permits and facilitates a firm’s existence.

Thus, a company enters a social contract with society as whole, an implicit agreement among all members to cooperate for social benefits. Even as a company pursues the maximizing of stockholder profit, it must also acknowledge that society will be affected to some extent by its operations. In return for society’s permission to incorporate and engage in business, a company owes a reciprocal obligation to do what is best for as many of society’s members as possible, regardless of whether they are stockholders. Therefore, when applied specifically to a business, the social contract implies that a company gives back to the society that permits it to exist, benefiting the community at the same time it enriches itself.

In addition to taking this more nuanced view of profits, managers must also use a different time frame for obtaining them. Wall Street’s focus on periodic (i.e., quarterly and annual) earnings has led many managers to adopt a short-term perspective, which fails to take into account effects that require a longer time to develop. For example, charitable donations in the form of corporate assets or employees’ volunteered time may not show a return on investment until a sustained effort has been maintained for years. A long-term perspective is a more balanced view of profit maximization that recognizes that the impacts of a business decision may not manifest for a longer time.

The Ultimate Stakeholder Benefit

CSR used in good faith has the potential to reshape the orientation of multinational corporations to their stakeholders. By positioning themselves as stakeholders in a broader global community, conscientious corporations can be exemplary organizations. They can demonstrate interest and influence on a global scale and improve the way the manufacture of goods and delivery of services serve the local and global environment. They can return to communities as much as they extract and foster automatic financial reinvestment so that people willing and able to work for them can afford not only the necessities but a chance to pursue happiness.

In return, global corporations will have sustainable business models that look beyond short-term growth forecasts. They will have a method of operating and a framework for thinking about sustained growth with stakeholders and as stakeholders. Ethical stakeholder relationships systematically grow wealth and opportunity in dynamic fashion. Without them, the global consumer economy may fail. On an alternate and ethical path of prosperity, today’s supplier is a consumer in the next generation and Earth is still inhabitable after many generations of dynamic change and continued global growth.

Chapter Review

Optional Resources to Learn More 

	Articles
	“What is Stakeholder Engagement and Why Do It?” https://www.fws.gov/stakeholder-engagement/what-and-why
	“Stakeholder Analysis” https://www.mindtools.com/aol0rms/stakeholder-analysis
	Books
	Deep Purpose by Ranjay Gulati https://deeppurpose.net/
	Moral Capitalism by Steven Pearlstein https://us.macmillan.com/books/9781250251459/moralcapitalism
	Podcasts
	The Stakeholder Podcast https://stakeholdermedia.libsyn.com/
	Deep Purpose https://hbswk.hbs.edu/Pages/browse.aspx?HBSContentType=Deep+Purpose
	Videos
	“Business is about Purpose” https://youtu.be/7dugfwJthBY
	Websites
	Creating Shared Value https://www.isc.hbs.edu/creating-shared-value/Pages/default.aspx
	Stakeholder Thoery http://stakeholdertheory.org/about/
	United Nations Sustainable Development Goals https://sdgs.un.org/goals

Chapter Attribution

This chapter incorporates material from the following sources:

Chapters 1 and 3 of Byars, S. M. & Stanberry, K. (2018). Business ethics. OpenStax. https://openstax.org/details/books/business-ethics. Licensed with CC BY 4.0.

.Chapter 5 of Bright, D. S. & Cortes, A. H. (2019). Principles of management. OpenStax. https://openstax.org/books/principles-management/pages/5-introduction. Licensed with CC BY 4.0.

Media Attributions:

Figure 12:1: Stay Grounded. (2021). Bristol Airport Greenwashbusters. Licensed with CC BY 2.0.

Figure 12:2: Hoopes, C. (2023). Stakeholders. Licensed with CC BY-NC-ND 4.0.

Video 12.1: HBS Online. (2022, March 25). What is corporate social responsibility? [Video]. YouTube. https://youtu.be/ZoKihFLCY0s

Video 12.2: UCLA. (2021, April 13). What is sustainability. [Video]. YouTube. https://youtu.be/zx04Kl8y4dE

Vide 12.3: HBS Online. (2022, September 28). What is the triple bottom line? [Video]. YouTube. https://youtu.be/1-Ct_53XKYY