Corporate Social Responsibility

by Emily Nelson

Definition

Corporate Social Responsibility (CSR) is defined as “actions through which businesses meet the expectations of society in any particular time” (Burlingame 2004, 104). CSR is also referred to as corporate philanthropy, corporate community involvement, or corporate citizenship. CSR includes giving financially to nonprofits, but because corporations consist of skilled people, it is certainly not the only thing they can contribute. For example, they can provide free services (marketing and public relations, legal, IT help, etc.), donate items such as furniture, office supplies, or office space, and employees can give of their time by volunteering or serving on boards. CSR also includes the way in which corporations treat employees and other stakeholders and being mindful of the impact that their business has on communities, other people and the environment.

Archie B. Carroll suggests that CSR can be defined by four responsibilities of businesses, and can be arranged in a pyramid model. At the bottom of the pyramid are economic responsibilities. Businesses are supposed to produce goods and services for society, and sell them at a price deemed fair by society; therefore, they must serve the interests of the public. Just above this on the pyramid are legal responsibilities. Businesses must respect that society has created laws under which businesses can operate. These laws are intended to serve as an ethical outline for business, but are not fully encompassing; businesses can follow the law, but operate unethically. This is why businesses also have ethical responsibilities, which are the next level of the pyramid. These include “norms, standards, values, and expectations” that stakeholders deem necessary for businesses to follow in order to be just, and to reduce harm to them as stakeholders. Lastly are philanthropic responsibilities, which are at the very top of the pyramid. These are separate from ethical responsibilities because they are voluntary and discretionary. Businesses decide the amount and extent of their philanthropic activities but engage in them to reflect public expectations (Carroll and Buchholtz 2008).

Carroll explains that the four responsibilities are not mutually exclusive, but rather should be fulfilled simultaneously. There is a difference in the degree of importance among the four responsibilities, however. Economic responsibilities make up the bottom of the pyramid because fulfilling them is the most basic function of business. Without regard to economic responsibilities, businesses could not fulfill any of the other responsibilities higher on the pyramid (Carroll and Buchholtz 2008).

Historic Roots

CSR is a relatively new concept. However, there has always been an implicit expectation that business have a responsibility to society. The American marketplace was created based on the economic model, which assumed that society would have control over this market. The public determines its wants and needs, and the business that provide these things are successful. This does not, however, mean that businesses do so ethically. This economic model has therefore been modified in regards to philanthropy and community obligations. There has always been evidence throughout American history, before the emergence of CSR as a concept, of businesspeople giving to charity. There is also early evidence of companies working with nongovernmental organizations. In the 1800s when railroads were being built, for example, the railroad companies worked with the YMCA to establish community centers at newly created rail stations (Carroll and Buchholtz 2008).

In the late 1800s and early 1900s, corporations were booming and moguls such as John D. Rockefeller and Andrew Carnegie were amassing huge fortunes. Simultaneously, there was increasing public outcry against business, not only because of the success of these businessmen but due to questionable business practices of many other companies. Neil J. Mitchell suggests that philanthropy was a strategic response of business leaders to appease antibusiness protests from the public. More importantly, their motivation was to quell the public’s demand for more government regulation of business. Though perhaps a cynical analysis of these philanthropy giants’ giving, it is clear that regardless of motivation, they ushered in a new consideration for businesses to give back and be more socially responsible (Carroll and Buchholtz 2008).

Now that giving was more prevalent in the corporate world, regulations were put in place in the early 20^th century to determine what type of donations were acceptable by corporations. It was not clear how much money companies could donate while still respecting their shareholders, who expect that their investment in the company will be used to increase profits. As a solution to this issue, from 1921 to 1953, companies were only permitted to donate to causes that directly benefited the company (Burlingame 2004). In 1936, the IRS code changed to allow companies to deduct charitable gifts from their taxes, though these gifts were still restricted to causes that promoted business activities (Burlingame and Dunlavy 2016).

CSR changed in 1953 with the Smith v. Barlow case. The New Jersey Supreme Court ruled that the A.P. Manufacturing Company could donate to Princeton University even though there was not a tangible return and benefit for the company. A new precedent was therefore set that businesses had a responsibility to the public, and that they could donate to charities regardless of the return for the business (Burlingame 2004). Today, there has been a shift in CSR efforts as business becomes increasingly global. As corporations expand, they increasingly must be more aware of the impact they make in the places in which they do business. This includes making more of an effort to be environmentally conscious and to operate in a way that addresses global poverty and human rights (Carroll 2012).

Importance

CSR is a clear example of how the for-profit and the nonprofit sector overlap and can benefit one another. Giving of money and resources helps nonprofits further their missions while ensuring the longevity of the places in which for-profits do business. Corporate social responsibility has more immediate benefits for businesses as well. It can improve a corporation’s reputation, not only with customers but also with other stakeholders. There is also emerging evidence that giving back through CSR increases companies’ profits (Wang, Dou and Jia 2016). Increasingly, investors are seeking companies that are sustainable and socially responsible, and CSR is a clear example. In addition, it can improve employee morale, particularly if employees are giving opportunities to volunteer and be involved (Forte 2013).

The reasons for engaging in CSR have changed as doing so has become more important to businesses in the 21^st century. In the early 2000s, numerous business scandals, including the major fallout of Enron, were highly publicized and created a lack of trust between the public and the for-profit sector. At the same time, increasing concern over more specific societal issues arose, including those of product safety, employee rights, and the environment. Engaging in corporate social responsibility, while always being voluntary, has increased in importance in recent years and likely will continue to increase as the public begins to expect more from businesses (Carroll and Buchholtz 2008).

Ties to the Philanthropic Sector

There are four main theories to explain why corporations participate in CSR. The first is the stakeholder model, which is based on the idea that corporations are responsible to many stakeholders, including employees, customers, communities, suppliers, and government. All of these groups allow the corporation to do business and it therefore must respond to their interests. CSR is a way to acknowledge and respond to these various interests. The neoclassical/corporate productivity model is based on enlightened self-interest, which means that companies give as a way to also benefit themselves. Some of the self-benefitting motivations include improving company reputation and thus increasing profits (Burlingame and Dunlavy 2016).

The political model is split into two parts: the internal model suggests that companies partner with nonprofits in order to influence people or groups within the company, while the external model suggests that CSR is used to build relationships and protect corporate power, while also limiting the power of government. If companies can bolster the power of nonprofits, and respond better to societal pressures through giving, government ability to enact restrictions on for-profits could be minimized. Lastly is the ethical model, which explains that because society allows companies to exist, they have an obligation to give back. Often with this model, companies see CSR as part of their company culture and are more concerned with bettering the communities in which they do business as a way to give back (Burlingame and Dunlavy 2016).

Interestingly, corporate profits have grown at a faster rate than corporate giving (Burlingame and Dunlavy 2016). This is not to say, however, that corporate philanthropy does not make an impact in the nonprofit sector. According to the most recent report from Giving USA, corporations gave five percent of the total charitable contributions in 2015. All 2015 giving increased 4.1 percent, while corporate giving increased 3.9 percent (Giving USA 2015). The ways in which corporations are giving are changing. Corporations are less inclined to give larger, one-time gifts, but rather focus on creating partnerships and investing in projects and programs that empower their communities (Burlingame and Dunlavy 2016).

The Cellular Connection (TCC), for example, is a rapidly growing Verizon retailer with over 600 stores in 37 states, and in 2013 incorporated what is referred to as a “Culture of Good”. This is a way of conducting business in which communities, customers and employees are treated equally. TCC chooses themes, such as stopping hunger, and helps each TCC location to partner with organizations in their area that focuses on the issue. TCC also encourages its employees to volunteer and better the communities in which they work (TCC). Scott Moorehead, co-owner of TCC, has said that “simply writing a check” would not be sufficient (Wildow 2015). His company’s approach follows the more recent pattern of corporations giving to fewer, more focused areas and wanting to be invested and to contribute more than money.

Key Related Ideas

• Cause-related marketing: a partnership in which a business donates a portion of proceeds from a specific product to a particular nonprofit or cause (Burlingame, 2004).
• Corporate giving: for more information about corporate monetary donations, please refer to the corporate giving briefing paper (http://www.learningtogive.org/resources/corporate-giving).
• Enlightened self-interest: being philanthropic not only to help others but to gain benefit for oneself. Many corporations are engaging in CSR with this as their motivation (http://www.learningtogive.org/resources/enlightened-self-interest).
• Corporate sponsorship: a partnership in which a business financially supports a nonprofit cause or event and gets exposure in exchange because the company name is tied to and displayed throughout the cause or event (Burlingame 2004).

Important People and Organizations Related to the Topic

• Ben Cohen and Jerry Greenfield (both 1951 – present) (Ben & Jerry’s): These two men opened their first ice cream shop in a renovated gas station in 1978 and successfully expanded. Ben Cohen has said that throughout their growth, they looked at the company as “an experiment to see if it was possible to use the tools of business to repair society” (Page 2012). In 1985, the company established the Ben & Jerry’s Foundation, which receives 7.5 percent of annual pre-tax profits. Some causes on which Ben & Jerry’s focuses include the environment, voting rights and democracy, fair trade, and social justice (https://www.benjerry.com/values). Ben and Jerry were recently arrested in April for demonstrating for Democracy Awakening at the US Capitol Building.
• DLA Piper: One of the largest global law firms, DLA Piper was listed by Forbes as successfully engaging in CSR (https://www.forbes.com/sites/devinthorpe/2013/05/18/why-csr-the-benefits-of-corporate-social-responsibility-will-move-you-to-act/). DLA Piper invests in its communities by encouraging its lawyers to do pro bono work for clients in need or who benefit society. It has also created an initiative to remove employment barriers within the legal profession and has pledged millions of dollars to improve child justice through a partnership with UNICEF. (https://www.dlapiper.com/en/us/aboutus/).

• Google: Google has been named the most corporately responsible company by the Reputation Institute in 2016. Google created the China Social Innovation Cup for College Students, which is a nationwide competition to encourage students to become involved in creating social change. Google Grants is another program in which Google gives free AdWords online advertising to nonprofits. Additionally, the company encourages employee engagement and outlines its commitment to supply-chain and employee rights and safety online (http://www.google.cn/intl/en/about/company/responsibility/).
• Milton Friedman (1912-2006): Economist who won the Nobel Prize for economics in 1976. Friedman wrote his book Capitalism and Freedom in 1962, in which he argued that corporations had responsibility only to the shareholders who invested in the company. To pursue other forms of CSR would be, in his opinion, to take action using others’ resources without their consent. Friedman wrote that businesses must only “make as much money as possible while conforming to the basic rules of the society” – he suggests that in doing so, businesses will inherently encourage social responsibility (Friedman 1970). (https://bfi.uchicago.edu/news/feature-story/corporate-social-responsibilty-friedmans-view)

Related Nonprofit Organizations

• Business for Social Responsibility (BSR): According to its website, BSR is “a global nonprofit organization that works with its network of more than 250 member companies and other partners to build a just and sustainable world.” The organization seeks to help businesses become more sustainable and work together toward common goals (https://www.bsr.org/en/).
• CECP (Committee Encouraging Corporate Philanthropy): according to the website, CECP is “a coalition of CEOs united in the belief that societal improvement is an essential measure of business performance.” Founded by Paul Newman, the organization includes 150 CEOs across all industries and provides them with consultation, networking and other information on CSR (http://cecp.co).
• U.S. Chamber of Commerce Foundation Corporate Citizenship Center: a resource for businesses to improve society and the environment by working together as well as with nonprofits and government (https://www.uschamberfoundation.org/corporate-citizenship-center).

Reflection Question

Do the different motivations for corporate social responsibility affect the value of what these corporations contribute? For example, is there a difference in value if one corporation gives to boost its reputation, while one does so to be “greener” and improve the environment? Could a corporation have both of these motivations at the same time?

Bibliography

• Burlingame, Dwight F. "Corporate Giving." In Philanthropy in America: A Comprehensive Historical Encyclopedia. 104-105. Santa Barbara, CA: ABC CLIO, 2004.
• Burlingame, Dwight F. and Dunlavy, Sean. “Corporate Giving and Fundraising.” In Achieving Excellence in Fundraising, edited by Eugene R. Tempel, Timothy L.            Seiler, and Dwight Burlingame. 85-99. New Jersey: John Wiley & Sons, 2016.
• Carroll, Archie B. and Buchholtz, Ann K. Business & Society: Ethics and Stakeholder Management. Ohio: Cengage Learning, 2008.
• Carroll, Archie B., and others. Corporate Responsibility: The American Experience. Cambridge: Cambridge University Press, 2012.
• Friedman, Milton. “The Social Responsibility of Business is to Increase its Profits.” The New York Times Magazine, 1970.            http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-respbusiness.html
• Forte, Almerinda. "Corporate Social Responsibility in the United States and Europe: How    Important is it? the Future of Corporate Social Responsibility." The International  Business & Economics Research Journal (Online) 12, no. 7 (2013): 815-n/a.
• Giving USA: The Annual Report on Philanthropy for the Year 2014 (2015). Chicago: Giving USA Foundation.
• Page, Antony and Katz, Robert A. “The Truth About Ben and Jerry’s.” Stanford Social Innovation Review, Fall 2012.            https://ssir.org/articles/entry/the_truth_about_ben_and_jerrys
• TCC. Culture of Good. https://www.tccrocks.com/culture-of-good/. Accessed 23 November 2016.
• Wang, Quian, Dou, Junsheng and Jia, Shenghua.”A Meta-Analytic Review of Corporate Social Responsibility and Corporate Financial Performance.” Business & Society 55, no. 8 (2016): 1083-1121.
• Wildow, Sam. “Cellular Connection creating a ‘culture of good.’” Piqua Daily Call, 2015. http://dailycall.com/features/3707/cellular-connection-creating-a-culture-of-good/

This briefing paper was authored by a student taking a philanthropic studies course at The Lilly Family School of Philanthropy.