SAGE International Australia (SIA)
Series on Ethical Capitalism
By Ms. Astrid Vikström, SIA Intern (UK-based)
Corporate Social Responsibility (CSR) relates to the conduct of corporations, and in particular to their interaction with the environment in which they operate. However, while the phrase CSR is gaining momentum, the concept it describes is not new. The debate on the social responsibility of corporations has persevered for centuries, and is today largely divided into those who advocate them and those who do not.
This division originates from an inherent difference in what the main purpose of a corporation is believed to be, and thus whose interest it should answer to.
Today, one is increasingly hard pressed to deny that large corporations are powerful entities to the point where companies such as Apple, Samsung and Toyota produce annual turnovers the size of certain nation states. This fact has brought to the fore the debate about the social responsibility of corporations – whether it is needed, if it exists or whether the main and sole aim of a corporation is to produce a profit that will benefit its investors and shareholders. In an era where multinational large corporations are gaining increasing market shares, the debate about their social responsibility is as significant as ever.
Corporations have played an important role in society since the days of mercantilism, and have played a central role in advancing the development of national and global economies to the capitalist state of today.
Historically, corporations have contributed to social development as they, during their course of business, contribute to social good through employment, and by putting consumer goods and services on the market. For businesses to thrive, a comprehensive and trustworthy legal system must be in place, which in turn further benefits the inhabitants of the society in which they operate.
Thus, in a globalised capitalist economy such as the one most of the modern world operates in today, business is a central tenant, and companies are increasingly recognising that customers care about how business is conducted. What we see at the back of this is a growing number of corporations adopting policies to try and put CSR at the core of how their businesses are managed, making it a central feature of their branding.
The main case against the adoption of CSR policies is primarily the belief that the principal responsibility of the corporation is towards its investors and shareholders. This has the implied meaning that any policies that hamper profit making are directly opposed to this goal, and CSR policies are understood as such profit reducing exercises. Second, is the argument that CSR policies are little more than window-dressing, nothing but a marketing exercise to attract conscious consumers. Ultimately, these beliefs stem from the notion that corporations primary motif is profit maximisation; that self-regulation is the best form of regulation: and that the market will reward ethical behaviour. However, incidents such as the Volkswagen emissions scandal (with a following crash in share value) challenges the notion that companies can be trusted to self-regulate and not falsify test results to boost financial performance.
The main case for the adoption of CSR policies is founded upon the realisation that corporations are increasingly powerful entities operating across borders with offices in multiple jurisdictions, and that this necessitates further means to hold them accountable for potentially unethical business practices. It questions corporations’ inclination to self-regulate, and put profit-maximisation second. The view is that business should consider all stakeholders, and not only those looking for a profit and short-term gains. Ultimately, that the resources and influence concentrated in international corporations can and should be used to ‘do good’.
The question is, whether companies be trusted to ‘do good’, or if the view that it hampers short-term financial performance and the need to please shareholders will triumph. This begs the question whether profit is a good enough measurement of a company’s impact, and ultimately what companies’ duties towards the communities they operate in are?
In a 2011 paper, Smith further investigates the concept of corporate responsibility, and discusses it in relation to corporate sustainability. He proposes a definition that adopts a ‘system approach’ to CSR:
corporate social responsibility is a business system that enables the production and distribution of wealth for the betterment of its stakeholders through the implementation and integration of ethical systems and sustainable management practices.
With this view, CSR should not have to be a trade-off between profits and societal benefits. In an interconnected globalised world, where consumers increasingly are making conscious consumption decisions, the corporations that survive in the long run will be the ones that can prove to consumers that they care about being ‘good international citizens’.
Views expressed in this article are not necessarily those of SAGE International Australia