What is corporate social responsibility?

Defining Corporate Social Responsibilities

Conducting business globally, and making it work humanely, is quickly becoming the dominant issue of today. Trade, investment, and information technology are exploding across borders and overwhelming governments’ ability to provide social safety nets and public services to cushion the impact of globalization on people. The result is shaping up as a new era of corporate social responsibility. Being a “good global citizen” means conducting business responsibly and being committed to conducting business with the highest level of integrity and in an ethical and responsible manner.

We define Corporate Social Responsibility (CSR) as the integration of business operations and values, whereby the interests of all stakeholders including investors, customers, employees, local community members, and the environment are reflected in the company’s policies and actions.

Corporate social responsibility focuses on treating the stakeholders of the firm ethically or in a responsible manner. This means treating key stakeholders in a manner deemed acceptable in civilized societies. Social includes economic and environmental responsibility. Since stakeholders exist both within a firm and outside, the net result of social responsibility is to create higher and higher standards of living, while preserving the profitability of the corporation, for people both within and outside the corporation.

There are three principal reasons why business leaders should be concerned about the socially responsible behavior of their businesses. First, a company’s right to exist depends on its responsiveness (or lack of) to the external environment. Second, federal, state, and local governments can (and will) threaten increased regulation if business does not evolve to meet changing social needs. Third, a responsive corporate social policy may enhance a company’s long-term viability.

So there is no challenge than finding a right balance between the relentless pressure for short-term profits and broader social responsibilities. It is important to begin today, thinking long-term, investing heavily in the communities that you do business in, being obsessive about achieving profits, and fully integrating social responsibility into your policies.

We define the key types of corporate social responsibilities:

Economic Responsibilities
These include the most basic of corporate social responsibilities of conducting business, and some economists see these as the only legitimate social responsibilities of business. Corporations living up to their economic responsibilities requires business executives to maximize profits whenever possible. The essential responsibility of a business is assumed to be providing goods and services to society at a reasonable cost. The company also emerges as socially responsible by providing productive jobs for its workforce, tax payments for its local, state, and federal governments. They could be providing a great work environment, with a corporate culture based on respect and dignity. They could be embracing diversity that represent all-walks-of-life which makes everyone feel included and valued.

Legal Responsibilities
These reflect the company’s obligations to comply with the laws that regulate day-to-day business activities. The legal responsibilities are supplemental to the requirement that businesses and their employees comply fully with the general and criminal laws that apply to all individuals and institutions across the county. These include labor laws, insider trading and self-dealing, falsifying statistics, inflating revenues, hiding expenses, and defrauding investors and regulators. In recent years failures to adhere to the law have recently produced some of the greatest scandals in the history of American free enterprise. These include Adelphia Communications, Enron, Global Crossing, ImClone Systems, WorldCom, AIG, and Tyco.

Environmental Responsibilities
We all know and understand that environmental responsibility is essential if we hope to sustain the quality of life on our planet. The environmental movement around the world has achieved stricter enforcement of existing environmental protections and actually spurred the passage of new, more comprehensive laws. These new laws are devoted to preserving the world’s ecological balance and making environmental protection a policy goal in many nations. And each year we learn more about what it means to be environmentally responsible. These actions include a reduction of greenhouse gas emissions, developing renewable resources for energy, waste reduction, utilizing post-consumer waste for recycling like with new packaging containers, a reduction of hazardous waste in landfills and waste system and encouraging consumers and suppliers alike to participate in environmental responsibility.

Ethical Responsibilities
These reflect the company’s notion of right or proper business behavior. They are obligations that transcend legal requirements for conducting business. Generally, companies are expected, but not required, to behave ethically within the boundaries of the local community’s social norms. Some actions that are legal might be considered unethical. For example, the manufacture and distribution of cigarettes is legal and governments make billions in taxes on the sales of them. But in light of the often-lethal consequences of smoking, many consider the continued sale of cigarettes to be unethical.

Discretionary Responsibilities
A business and its employees voluntarily assume these. They include public relations activities, good global citizenship and full corporate social responsibility. Through public relations activities business leader attempt to enhance the image of their companies, products, and services by supporting worthy causes. This form of discretionary responsibility has a self-serving dimension. Companies that adopt the “good citizenship” approach actively support ongoing charities, public service advertising campaigns or issues in the public interest. A commitment to full corporate responsibility requires strategic managers to attack social problems with the same focus in which they attack business problems.

It is important to understand that the types of corporate social responsibility will often overlap, creating gray areas where societal expectation on organizational behavior is difficult to categorize. In considering the overlaps among various demands for corporate social responsibility, business leaders should keep in mind that in the view of the stakeholders, economic and legal responsibilities are required; ethical responsibility is expected; and discretionary responsibility is desired.

Corporate social responsibility is no longer a luxury for companies. In today’s global economy, it is critical for companies to embrace social and environmental responsibility in order to meet the demands of their stakeholders–investors, consumers, employees, and communities where they serve.

Benchmarking Examples:
- Cisco
- FedEx
- HP Global Citizenship
- IBM
- Kellogg’s
- McDonald’s Corporation
- Silicon Valley Bank
- Starbucks
- TimeWarner
- Wells Fargo

We believe that any company, regardless of size and industry, should strive to enhance their corporate image with all stakeholders and create social cause projects that give back to their community. Each company, regardless of size, must decide how to meet its perceived social responsibility. We know that while large, well-capitalized companies may have easy access to consultants and in-house specialists, this is not an affordable strategy for smaller companies. However, the experience of many small businesses demonstrates that it is feasible to accomplish great things without great expenses.