History of CSRAfter being attacked and rejected by business leaders for decades, the notion ofCSR has suddenly become a central facet of the modern corporation: “Corporatesocial Responsibility (CSR) has been transformed from an irrelevant and oftenfrowned-upon idea to one of the most orthodox and widely accepted concepts inthe business world during the last twenty years or so” (Lee, 2008, p. 53).Dodge v. Ford Motor CompanyThe CSR debate entered the courtroom in 1919 with the Dodge v. Ford MotorCompany court case, which concerned the proper role of business. The majorityopinion of the case had a distinctively conservative view of CSR. The casecentered on the proper use of shareholder funds. Henry Ford, Ford’s founder,strongly believed in providing a Ford vehicle for everyone. Therefore, he plannedto reduce the price of a Ford from $440 to $360. However, shareholderscomplained that this action would prove to be detrimental because the primaryresponsibility of Ford Motor Company was to provide them with a profit. Thecase concluded: A business corporation is organized and carried on primarily forthe profit of the stockholders. The power of the directors is to be employed forthat end. The discretion of directors is to be exercised in the choice of means toattain that end and does not extend to a change in the end itself, to the reductionof profits or to the nondistribution of profits among stockholders in order todevote them to other purposes. (Ostrander, 2002, p. 259) This decision presentedthe view of most people concerning the role of business until the middle of the20th century; businesses were created to enhance shareholder wealth, notredistribute it.Historical CSR FiguresThe first key statement to specifically mention the social responsibility ofbusiness emanated from Harvard University. The business school dean, DonaldDavid urged the incoming MBA class to perceive the responsibilities that were tobe assumed by business leaders. These responsibilities consisted of going beyondthe financial interests of shareholders and supporting social causes (Spector,2008). Some other historical leaders in the CSR discussion were Levitt andFriedman. Levitt, in 1958, exhorted businessmen to take heed of the dangers ofsocial responsibility. Likewise, in the 1960s, Friedman warned about the negativeconsequences of social responsibility. Friedman offered a conservative, economicview of CSR. In a New York Times article, Friedman (1970/2002) asserted,
“There is one and only one social responsibility of business – to use its resourcesand engage in activities designed to increase its profits so long as it stays withinthe rules of the game” (p. 230).CSR TodayToday, textbooks, magazines, journals, newspapers, websites, and booksconsistently mention CSR. An emphasis on CSR permeates higher education.One cannot open many business textbooks that do not flaunt the benefits of thisexalted concept. CSR has become popular throughout the world. For instance, theAsia-Pacific CSR group was founded in July 2004. This group was founded topromote favorable environmental and human resource regulations across theregion (Gautam & Singh, 2010). Businesses are increasingly implementing CSRpolicies. For example, many firms in the airline industry have incorporated CSRinto their business structures. In recent decades the airline industry has beenpressured into reducing their negative environmental effects. Consequently,airline firms are focusing on reducing emissions and aircraft noise (Cowper-Smith & de Grosbois, 2011). Reasons for firms implementing CSR includestrategy, defense, and altruism. Many corporate executives believe that CSRcreates a competitive advantage for firms, thus leading to greater market share.CSR can differentiate a company from its competitors by engendering consumerand employee goodwill (McWilliams & Siegel, 2001). CSR may also be used topreempt competitors from gaining an advantage. Once a firm in an industry hasimplemented CSR policies successfully, rival firms may be forced to engage inCSR as well. If they do not exercise CSR, these rival firms are in danger of losingconsumer loyalty. On the other hand, some firms are involved in CSR simplybecause they believe it is the right thing to do. Regardless of the underlyingreasons, CSR has become a commonly used term in the business arena(Lindgreen, Swaen, & Maon, 2009). N. Craig Smith (2003b), a former professorat Harvard Business School, argued that “The impression created overall is thatthe debate about CSR has shifted: it is no longer about whether to makesubstantial commitments to CSR, but how”Recent Corporate ScandalsOpponents of shareholder theory assert that recent corporate scandals includingEnron, Tyco, and WorldCom expose the inefficiencies of shareholder theory(Freeman, Wicks, & Parmar, 2004). However, these companies were focused onmaximizing short-term not long-term shareholder value. Additionally, themanagers of these organizations were engaging in clearly fraudulent activities bypromoting their personal welfare above the shareholder’s welfare (Smith, 2003a).Advocates of shareholder theory proclaim: “The shareholder model—when
viewed from a long term perspective—still provides the best framework in whichto balance the competing interests of various stakeholders (including both currentand future stakeholders) when making business decisions”Reason For Companies Engaged In CSRMiles and Munilla (2005) describe the motives for participating in CSR by usingVan Marrewijk’s (2003) CSR framework and Carroll’s (1991) pyramid of CSR,which can be observed in table (1). This table illustrates how different levels ofcommitment to CSR are related to motives and out comes. The frameworksdescribe that a company’s CSR philosophy can be, compliance driven, profitdriven, driven by caring, synergetic or holistic. In the first stage of CSR categorywhich is called the legal stage companies engaged in CSR as it their duty andobligation to follow laws and regulations. In the economic stage, company useCSR as strategy to create competitive advantage and gained improved financialperformance. The ethical and philanthropic stage has the aim to have a balancebetween the profit, people and the planet. In this stage the company does not onlyfocus on profit but also on social welfare.(Danielson, Heck, & Shaffer, 2008, p. 65).
Approaches::Some commentators have identified a difference between the Canadian (Montrealschool of CSR), the Continental European and the Anglo-Saxon approaches toCSR. And even within Europe the discussion about CSR is very heterogeneous.A more common approach of CSR is philanthropy. This includes monetarydonations and aid given to local organizations and impoverished communities indeveloping countries. Some organizations who do not like this approach as itdoes not help build on the skills of the local people, whereas community-baseddevelopment generally leads to more sustainable development.[clarificationneeded Difference between local org& community-dev? Cite]Another approach to CSR is to incorporate the CSR strategy directly into thebusiness strategy of an organization. For instance, procurement of Fair Trade teaand coffee has been adopted by various businesses including KPMG. Its CSRmanager commented, "Fairtrade fits very strongly into our commitment to ourcommunities."
Another approach is garnering increasing corporate responsibility interest. This iscalled Creating Shared Value, or CSV. The shared value model is based on theidea that corporate success and social welfare are interdependent. A businessneeds a healthy, educated workforce, sustainable resources and adept governmentto compete effectively. For society to thrive, profitable and competitivebusinesses must be developed and supported to create income, wealth, taxrevenues, and opportunities for philanthropy. CSV received global attention inthe Harvard Business Review article Strategy & Society: The Link betweenCompetitive Advantage and Corporate Social Responsibility by Michael E.Porter, a leading authority on competitive strategy and head of the Institute forStrategy and Competitiveness at Harvard Business School; and Mark R. Kramer,Senior Fellow at the Kennedy School at Harvard University and co-founder ofFSG Social Impact Advisors. The article provides insights and relevant examplesof companies that have developed deep linkages between their business strategiesand corporate social responsibility. Many approaches to CSR pit businessesagainst society, emphasizing the costs and limitations of compliance withexternally imposed social and environmental standards. CSV acknowledgestrade-offs between short-term profitability and social or environmental goals, butfocuses more on the opportunities for competitive advantage from building asocial value proposition into corporate strategy.Many companies use the strategy of benchmarking to compete within theirrespective industries in CSR policy, implementation, and effectiveness.Benchmarking involves reviewing competitor CSR initiatives, as well asmeasuring and evaluating the impact that those policies have on society and theenvironment, and how customers perceive competitor CSR strategy. After acomprehensive study of competitor strategy and an internal policy reviewperformed, a comparison can be drawn and a strategy developed for competitionwith CSR initiatives.