CORPORATE SOCIAL RESPONSIBILITY

INTRODUCTION

In defining the company’s mission, strategic managers must recognize the legitimate rights of the
firm’s claimants. These include not only stockholders and employees but also outsiders affected
by the firm’s actions. Such outsiders commonly include customers, suppliers, governments,
unions, competitors, local communities and the general public[ CITATION Joh09 \l 1033 ]. Each of
these interest groups has justifiable reasons for expecting the firm to satisfy their claims I a
responsible manner. In general, stockholders claim appropriate returns on their investment;
employees seek broadly defined job satisfaction; customers want what they pay for; suppliers
seek dependable buyers; competitors want fair competition; governments want adherence to
legislation; local communities want the firm to be a responsible citizen; unions seek benefits for
their members; and the general public expects the firm’s existence to improve the quality of
life[ CITATION Joh09 \l 1033 ].

Companies need to answer to two aspects of their operations. 1. The quality of their management
- both in terms of people and processes (the inner circle). 2. The nature of and quantity of their
impact on society in the various areas[ CITATION Mal101 \l 1033 ].

Outside stakeholders are taking an increasing interest in the activity of the company. Most look
to the outer circle - what the company has actually done, good or bad, in terms of its products
and services, in terms of its impact on the environment and on local communities, or in how it
treats and develops its workforce. Out of the various stakeholders, it is financial analysts who are
predominantly focused - as well as past financial performance - on quality of management as an
indicator of likely future performance[ CITATION Mal101 \l 1033 ].

Over the years, many different scholars, managers and business men have had different
meanings in their understanding of corporate social responsibility. Here are some of the
definitions that have been given out in the past years:

Corporate Social Responsibility is about how companies manage the business processes to
produce an overall positive impact on society[ CITATION Mal101 \l 1033 ].
The World Business Council for Sustainable Development in its publication "Making Good
Business Sense" by Lord Holme and Richard Watts used the following definition, "Corporate
Social Responsibility is the continuing commitment by business to behave ethically and
contribute to economic development while improving the quality of life of the workforce
and their families as well as of the local community and society at large”[ CITATION Mal101 \l
1033 ].

The same report gave some evidence of the different perceptions of what this should mean from
a number of different societies across the world. These were definitions as different as,
"Corporate Social Responsibility is about capacity building for sustainable livelihoods. It
respects cultural differences and finds the business opportunities in building the skills of
employees, the community and the government" from Ghana, through to "CSR is about
business giving back to society" from the Philippines[ CITATION Mal101 \l 1033 ].

Traditionally in the United States, CSR has been defined much more in terms of a philanthropic
model. Companies make profits, unhindered except by fulfilling their duty to pay taxes. Then
they donate a certain share of the profits to charitable causes. It is seen as tainting the act for the
company to receive any benefit from the giving.

The European model is much more focused on operating the core business in a socially
responsible way, complemented by investment in communities for solid business case reasons.

For instance, the CSR definition used by Business for Social Responsibility is: "Operating a
business in a manner that meets or exceeds the ethical, legal, commercial and public
expectations that society has of business[ CITATION Mal101 \l 1033 ].

On the other hand, the European Commission hedges its bets with two definitions wrapped into
one: "A concept whereby companies decide voluntarily to contribute to a better society and
a cleaner environment. A concept whereby companies integrate social and environmental
concerns in their business operations and in their interaction with their stakeholders on a
voluntary basis"[ CITATION Mal101 \l 1033 ].
History of Corporate Social Responsibility

Adam Smith was an eighteenth century Scottish moral philosopher and a pioneer of political
economics. Adam Smith, in “An Inquiry into the Nature and Causes of the Wealth of Nations,”
expressed that the needs and desires of society could best be met by the free interaction of
individuals and organizations in the marketplace[ CITATION JoN10 \l 1033 ].

The Wealth of Nations further noted that, “It is not from the benevolence of the butcher, the
brewer, or the baker that we expect our dinner, but from their regard for their own interest.”
These laid the foundation of corporate social responsibility, where consumers were aware about
the social benefits of creating the wealth of nations and of financing actions to “advance the
interest of society[ CITATION JoN10 \l 1033 ].”

Milton Friedman was an American economist and recipient of the Nobel Memorial Prize in
Economics who served as an economic advisor to U.S. President Ronald Reagan. Milton
Friedman wrote in his famous 1970’s article in The New York Times Magazine, that “the one and
only social responsibility of business, is to increase profits for shareholders[ CITATION JoN10 \l
1033 ].”

Management’s fundamental goal is to increase value for its shareholders and not any single
stakeholder such as solely the socially responsible. Whilst some shareholders may find it
acceptable to incur short term costs for socially responsible activities that benefit both the
company and the wider society in the long term, investors at large are unlikely to continue
investing in a socially responsible company that continuously makes losses. This causes an
undue amount of pressure on management to constantly maximize profits whilst supposedly
being socially responsible[ CITATION JoN10 \l 1033 ].

Whilst Milton Friedman and Adam Smith laid the foundation for corporate social responsibility,
CSR has always continuously evolved, and it is still evolving till today. A recurrent theme in
terms of social and environmental disasters involving businesses has been a failure to learn the
lessons of the past. Consumers and business owners alike now recognize that ignoring
environmental and social issues can be bad for business. Companies that pollute their local
communities risk harming their customers’ health and ill-treating workers, risks union backlash
and training costs[ CITATION JoN10 \l 1033 ].

Baker, M. (2010). Corporate Social Responsibility. Imenukuliwa July 12, 2010 kutoka MALLENBAKER.NET:
www.mallenbaker.net\Definitions of Corporate social responsibility.mht

John A. Pearce II and Richard B. Robinson, J. (2009). Strategic Management. New York: McGraw
Hill/Irwin.

Nelgadde, J. (March 20, 2010). History of Corporate Social Responsibiity. Imenukuliwa July 13, 2010
kutoka suite101.com: http://www.suite101.com\History of Corporate Social Responsibility