By Mallen Baker
Corporate social responsibility (CSR) is how companies manage their business processes to produce an overall positive impact on society. It covers sustainability, social impact and ethics, and done correctly should be about core business – how companies make their money – not just add-on extras such as philanthropy.
Getting into the detail
One of the most frequently asked questions at this site – and probably for all those individuals and organisations dealing with CSR issues is the obvious – just what does ‘Corporate Social Responsibility’ mean anyway? Is it a stalking horse for an anti-corporate agenda? Something which, like original sin, you can never escape? Or what?
Different organisations have framed different definitions – although there is considerable common ground between them. My own definition is that CSR is about how companies manage the business processes to produce an overall positive impact on society.
Take the following illustration:
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.
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.
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
The same report gave some evidence of the different perceptions of what this should mean from a number of different societies across the world. Definitions as different as CSR 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 Phillipines.
Traditionally in the United States, CSR has been defined much more in terms of a philanphropic 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. Personally, I believe this model is more sustainable because:
Social responsibility becomes an integral part of the wealth creation process – which if managed properly should enhance the competitiveness of business and maximise the value of wealth creation to society.
When times get hard, there is the incentive to practice CSR more and better – if it is a philanphropic exercise which is peripheral to the main business, it will always be the first thing to go when push comes to shove.
But as with any process based on the collective activities of communities of human beings (as companies are) there is no ‘one size fits all’. In different countries, there will be different priorities, and values that will shape how business act. And even the observations above are changing over time. The US has growing numbers of people looking towards core business issues.
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.
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.
When you review each of these, they broadly agree that the definition now focuses on the impact of how you manage your core business. Some go further than others in prescribing how far companies go beyond managing their own impact into the terrain of acting specifically outside of that focus to make a contribution to the achievement of broader societal goals. It is a key difference, when many business leaders feel that their companies are ill equipped to pursue broaders societal goals, and activists argue that companies have no democratic legitimacy to take such roles. That particular debate will continue.
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Acknowledgement: We are thankful to Mallen Baker for writing wonderful article on definition of CSR. This article is very much useful and relevant for our readers.
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