Corporate Social Responsibility

Corporate social responsibility (CSR) refers to the general belief that businesses have a range of responsibilities that extend beyond the shareholders in the firm, including obligations to consumers, employees, governments, the environment, and the public as a whole. CSR, then, suggests that businesses not only provide quality goods and services and jobs but also address the legal, ethical, and discretionary expectations that society has of them at a given point in time. This entry first explains the history of CSR and the major theories and practices related to it. It then discusses criticisms of CSR and implications for corporate reputation.

CSR may include, but is not limited to, corporate philanthropy, volunteerism, cause-related marketing, and community-based initiatives that focus on a wide range of social, economic, and political needs in society. For example, corporations have been involved in traditional philanthropy to support the arts, education, and health care. They have engaged in volunteerism to help citizens and nonprofit organizations that are in need, both locally and globally. Corporations have also assisted with a range of causes, such as reducing poverty, increasing home ownership, strengthening literacy, eradicating diseases, and providing access to clean water, among many other endeavors. They have also participated in programs designed to help address the specific needs of communities that may be confronting, for example, unemployment, homelessness, lack of financial literacy, or a range of environmental challenges.

Because businesses depend on reputation and social standing for their survival, many CSR initiatives are based on the need to gain or maintain legitimacy. The more society expects responsible behavior from businesses, the more they must be seen to be meeting—and in some cases exceeding—those responsibilities. By investing in socially responsible initiatives, companies increase their support from their stakeholders and maximize reputational gains. In addition, by mitigating potential reputational threats through CSR programs, corporations build a safety net for themselves and minimize any reputational losses.

Historical and Conceptual Developments in CSR

The concept of CSR has a long and varied history. Questions regarding the nature, scope, and impact of corporations have been present in various forms for centuries, ranging across the “classical,” medieval, mercantile, industrial, and corporate eras. The history of CSR has been a somewhat cyclical one—including the ebb and flow of actions and reactions, control and resistance—between corporations and their critics. There is evidence of a concern for the relationship between business and society for centuries.

The social responsibilities of corporations have been a focus of scholars and business professionals since the 1930s and 1940s, including works such as Chester Barnard’s The Functions of the Executive in 1938, J. M. Clark’s Social Control of Business in 1939, and Theodore Kreps’s Measurement of the Social Performance of Business in 1940. Each of these publications touted the role of the businessperson as one of “corporate stewardship” to promote the general public welfare. One of the earliest, widely acknowledged conceptions of CSR was developed shortly after World War II in 1953 by Howard R. Bowen, an economics professor at Williams College in Massachusetts, in his book Social Responsibilities of the Businessman. According to Bowen, postwar prosperity in the United States produced a new set of expectations from corporations; as a result, he sought to outline the social responsibilities of business, arguing that corporations would be judged solely on their contribution to the general welfare and that CSR was a condition for the survival of what he termed the free enterprise system. For Bowen, businesses were expected to produce social goods such as (a) higher standards of living; (b) widespread economic progress and security; (c) order, justice, and freedom; and (d) the development of the individual person.

During the 1960s and 1970s, advocates of CSR sought to formalize and more accurately define CSR. Keith Davis, a management scholar, stated that CSR included business decisions that were made for reasons beyond the immediate economic and technical interests of the firm. He also argued that such decisions, however, may produce long-term economic gain, thus providing a return on the CSR investment—which later became known as the principle of “enlightened self-interest.” Davis also proposed the “iron law of responsibility,” which suggested that the social responsibilities of businesspersons should be commensurate with their social power.

A landmark contribution to the concept of CSR came from the Committee on Economic Development in its 1971 publication Social Responsibilities of Business Corporations. The committee noted that business can only function via public consent, and therefore, its basic purpose is to serve the needs of society to the satisfaction of society. Public opinion polls at the time indicated that two thirds of the respondents thought that business had an ethical responsibility to improve social progress in society, even if it was at the expense of profitability. As a result, a range of committees, commissions, and agencies were created both to protect the public from corporate harm and to facilitate a role for business to assume broader responsibilities in society. For example, during this period, government regulators (e.g., the Federal Communications Commission, the Federal Trade Commission) and public interest groups (e.g., American Civil Liberties Union, Sierra Club) emerged to hold corporations to a new level of accountability. Between 1964 and 1972, four of the major regulatory agencies in the United States—(1) the Occupational Safety and Health Administration, (2) the Equal Employment Opportunity Commission, (3) the Consumer Product Safety Commission, and (4) the Environmental Protection Agency—were founded to create greater disclosure and transparency of corporate actions.

During the 1960s and 1970s, then, the debates regarding the responsibilities of corporations changed somewhat. The focus shifted from corporate stewardship to corporate responsiveness, thus emphasizing what companies could do to better the world rather than what companies could do to ensure their survival. This move was partly in response to threats of governments’ intervention in the “windfall” profits of industries such as petroleum. The result, according to some observers, was a new emphasis on political action, public affairs, lobbying, and public relations directed toward “strategic philanthropy” and “cause-oriented” marketing. This proactive posture quickly spread to other industries and other nations. During this period, CSR became so fashionable that the abbreviation CSR could stand alone when used in the field of corporate communication. In some cases, the concept became a strategy by which companies attempted to turn public relations problems into public relations assets.

The following two decades represented a period during which CSR was increasingly assumed to be part of the cost of doing business. Scholars and businesspersons sought to answer new sets of questions regarding to whom, for what, and by what means to meet CSR mandates. The tumultuous 1960s and 1970s had produced a new focus not just on shareholders but also on a broader set of stakeholders who may be affected by corporate action. One of the most prominent and prolific writers on the topic, Archie Carroll, sought to clarify definitional distinctions of CSR. He suggested that corporate responsibilities should encompass the legal, ethical, and discretionary expectations that a society has of organizations at a given point in time. Carroll and others moved discussions of CSR beyond the economic bottom line and legal compliance to a range of contemporary social issues that may concern the public at any historical moment. Importantly, he noted that a society’s ethical expectations from business will shift, just as cultural beliefs, attitudes, and norms will change over time. In addition, he acknowledged that businesses also have discretionary responsibilities, which are humanistic activities that are undertaken to assist society with its own interests, apart from those of the corporation.

By the late 1980s and early 1990s, Edward Freeman had extended Carroll’s definition of CSR to further account for how to manage stakeholder relationships with not only shareholders but also employees, customers, suppliers, and communities. In time, such stakeholder models reaffirmed and even naturalized an emphasis on corporate duties and responsibilities that considered the needs and expectations of the public at large.

The turn of the century marked a new era for CSR, with a greater focus on global CSR. As U.S.-based multinational businesses extended their business internationally, CSR was exported globally as well. The challenge during this period was to develop policies and practices that would meet the needs of the host country and to address the reputational risks, which increased dramatically. This new global visibility—and the related vulnerability regarding brand and image—gave corporations a new incentive to develop CSR initiatives in their global markets.

Multinational corporations are increasingly accountable not only for their responsibility and ethical behaviors internally but also for ensuring responsible practices (e.g., health and safety, fair labor practices) all along their supply chain. As a subset of this global focus, some scholars and businesspersons began to focus on sustainability as well. Paul Hawken, in his book The Ecology of Commerce, detailed the various detrimental effects of corporate practices on the environment, describing it as a global ecological crisis. Focusing on the long-term strategic connections between the economy and the environment, the sustainability movement developed momentum both in the United States and in Europe and represented an important shift in CSR to focus more explicitly on human rights as a strategic imperative.

More recently, Michael Porter and Mark Kramer outlined the foundations for what they refer to as strategic CSR, which makes a link between competitive advantage and CSR. They take as a given that CSR has emerged as an inescapable priority for business leaders globally and that corporate success and social welfare are not necessarily incompatible. They argue that CSR can be a source of social progress, particularly when businesses draw on their wealth and expertise to offer insights into many of the world’s problems today. Porter and Kramer suggest that each company select the issues that most directly intersect with its particular business. It does so by integrating the inside-out and outside-in linkages. The former reflects how the company affects society, and the latter reflects the societal conditions that affect the company.

Porter and Kramer’s framework identifies, based on these linkages, three categories of social issues relevant to corporate responsibility: (1) general social issues, which are not directly affected by the company’s operations and do not materially affect its long-term competitiveness; (2) value chain social impacts, which are significantly affected by a company’s activities in the ordinary course of business; and (3) social dimensions of competitive context, which significantly affect the underlying drivers of a company’s competitiveness in the locations where it operates. According to Porter and Kramer, the third approach is preferable because it creates the perception of CSR as building shared value between business and society.

Implications for Corporate Reputation

The evolution of the historical and conceptual developments of CSR noted above suggests that CSR is no longer considered merely an economic, bottom-line issue for corporations. Rather, CSR activities are now seen as contributing factors to a company’s reputation as well. CSR initiatives (e.g., philanthropy, volunteerism, cause-related marketing, community-based programs), for example, may strengthen the overall estimation of a company by its various stakeholders. In this respect, CSR is one among several other factors that build corporate reputation, such as (a) products and services, (b) financial performance, (c) vision and leadership, (d) the workplace environment, and (e) corporate governance.

In this view, CSR is considered to be a feature of reputation itself. By contrast, CSR may also be seen as a driver of reputation, which precedes it as a means to promote corporate legitimacy. In this approach, reputation is a two-dimensional construct that includes cognitive (competence) and affective (sympathy) dimensions. As a precursor to corporate reputation, socially responsible actions result in a positive affective reputation, sympathy, while socially irresponsible actions result in a negative one, antipathy. Thus, many scholars and business professionals see a relationship between CSR and business performance that can strengthen reputation. They argue that CSR is a means to mitigate against risk—including future missteps—and to enhance the company’s reputation, boost sales revenue, strengthen internal resources and skills, attract and retain a productive workforce, and, in some cases, increase rivals’ costs of doing business. The threat of a loss of reputation, in particular—and the expected impact on performance—is a central reason why companies are increasingly focusing on CSR. When facing ethical crises, for example, companies with credible CSR profiles face lower reputation risks than those with no such CSR programs. Other authors have noted the positive connection between corporate philanthropy and volunteerism, and corporate reputation. So the reputational benefits of CSR activities can emerge via either positive or negative business incidents.

Given the risks and opportunities related to reputation, it is not surprising that CSR programs are also tied to public and media relations. From this perspective, CSR is seen as an investment in reputational capital that can be stored and used when and as needed. Yet recent research suggests that public relations professionals, for example, face a CSR paradox. While stakeholders demand stronger social commitments from corporations, their distrust of corporate actions rises in proportion to the degree to which companies increase their CSR-related communication. That is, there appears to be an important balance in meeting societal norms and expectations while not touting CSR activities too aggressively.

Given this tension, the media also play a central role in the relationship between CSR and corporate reputation. A focus on the news media reveals that corporations are not the sole originators of information about their activities that may affect corporate reputation. CSR initiatives, for example, are often reported and interpreted for audiences by third-party agents, such as news outlets. The media are likely to assume a dual function in this process. First, they are able to set the agenda by selecting and emphasizing key topics that are considered newsworthy. In this respect, the media offer a communication platform—as mediators of competing views regarding the role of corporations in society—for others who address companies via public communication. In addition, the media are also semiautonomous communicators in their own right as they offer opinions that also influence a company’s reputation.

The broadening of the range and scope of CSR-related practices related to corporate reputation is also evident in the proliferation of CSR reporting and CSR indexes, both of which may affect a company’s brand and image. Not surprisingly, many corporations have responded to societal demands for responsible behavior with extensive reporting mechanisms. It is common in today’s business environment for the corporate annual report to be accompanied by a CSR report as well. Since the audience for CSR reports is often more discerning, these reports tend to be longer and more elaborate than traditional annual reports for general consumption.

In a related phenomenon, CSR indexes have grown nearly exponentially in the past several years. Not only are average consumers interested in corporate responsibility, but so too are mutual fund managers, who want to respond to consumers in the financial markets. As a result, the convergence of these two realms of consumers of CSR-related evaluation has produced indexes such as the Global Reporting Initiative, Caux Roundtable Principles for Business, Global Compact, and Dow Jones Sustainability Index and a host of consulting firms (e.g., Accenture, Deloitte), institutes (e.g., New Economics Foundation), and universities devoting resources to social auditing. In each of these examples of CSR reporting and indexes, we see an emerging future trend that focuses on more explicit assessment and evaluation of CSR initiatives, to understand their impact on corporate reputation as well as on communities themselves.