Chapter Two Literature Review
2.12 The Evolution of CSR
Social responsibility is not a new concept in business. It is far older than the concept of incorporation as evidence from ancient Chinese, Egyptian and Sumerian writings suggest that rules ensuring that wider public interest was considered were commonplace when it came to the facilitation of trade (Werther and Chandler, 2010). In the UK, CSR or what can be described as CSR, has existed for over 150 years (Henriques, 2003). Early proponents of this came most notably from the Quaker community who were responsible for many successful companies (Cadbury, Barclays, Lloyds) and believed that company profits should be made ‘the right way’ and in accordance with their code of ethics or what might be described by today’s companies as ‘core values’ (Jenkins, 2010). Cadbury in particular was a forerunner in social responsibility and became actively involved in social reform, labour relations and housing reform and their employees enjoyed working conditions and benefits far superior to those seen before in Victorian times (Samuel, 2000). Jenkins (2010) draws comparisons between Quaker companies role within the community and what is now regarded as the ‘function of the state’ provided through Quaker villages such as Bourneville which as well as providing housing also provided post offices and banks, libraries and community facilities. Cadbury’s association with CSR heritage is still relevant today as Cheryl Phillips of Cadbury remarked in a Sunday Times interview in 2009 that ‘it brings a sense of cohesion to the company, increases employee engagement and develops our people’ although this interview was given before the highly contentious £11.7 billion takeover by Kraft in 2010 which resulted in a significant number of job losses.
Early references to CSR in academic text date back over seventy years with Berle and Means (1932), Barnard (1938) and Kreps (1940) being amongst the first to attribute a social responsibility to executives and business. The development of what is regarded as modern CSR began with the publication in 1953 of ‘Social Responsibilities of the Businessman’ by Howard R. Bowen which is generally considered to be the first definitive book on the subject. Bowen conceptualised what is now described ‘CSR’ as being ‘the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society’ (p.6) which suggests an obligation to stakeholders as well as shareholders.
Further recognition of CSR was brought through the Committee for Economic Development (CED) when it published the ‘Social Responsibilities of Business Corporations’ (CED, 1971) in which it stated on p.11 that ‘business functions by public consent and its basic function is to serve constructively the needs of society - to the satisfaction of society’. The CED detailed (p.15) a three-tiered approach to CSR consisting of:
1) The inner circle (responsible for the exercising the economic function of the company),
2) The intermediate circle (responsible for exercising the economic function of the company with an awareness to the changing social contract between business and society), and
3) The outer circle (responsible for a company becoming more broadly involved in changing the social environment).
Membership of the CED consisted of a combination of business people and academics, thus ensuring the practicality and credibility of the publication. Carroll (1999, p.274) described the model as ‘a landmark contribution to the concept of CSR’ whilst Crane (2008, p.29) suggests that the ‘CED may have been responding to the times in that the late 1960s and early 1970s was a period during which social movements with respect to the environment, worker, safety and consumers were poised to transition from special interest status to formal government regulations’.
The development of further CSR models continued throughout the 1970’s, most notably Sethi (1975) who coined the term ‘corporate social performance’ and identified three states of corporate behaviour based on social obligation, responsibility, responsiveness. This model was further developed by Carroll (1979) who devised a four tier model (or Pyramid of CSR) based on the Economic, Legal, Ethical and Discretional/Philanthropic responsibilities. The headings for Carroll’s model are listed in decreasing order of importance can be interpreted as an early example of enlightened shareholder value due to his placing of economic success as being the foundation of the pyramid.
Whilst the 1970’s saw attention being focused on defining CSR, the 1980s focused more on research resulting in ‘a splintering of writings into alternative concepts and themes such as corporate social responsiveness, corporate social performance, public policy, business ethics, and stakeholder theory/management’ (Carroll 1999, p. 284). Two themes that emerged from this research were the incorporation of CSR into organisational framework (Jones, 1980, Tuzzolino and Amandi, 1981, Strand, 1983) and compatibility between social responsibility and profitability (Drucker, 1984, Freeman, 1984, McGuire, Sundgren and Schneewis, 1988). The link between financial performance and social performance can make CSR an appealing prospect for even the most hardened advocate of shareholder primacy. This link was first highlighted by Drucker (1984) who maintained that CSR creates new opportunities for businesses and that social problems could
present economic opportunity and is consistent with his earlier assertion that the purpose of business is to ‘create a customer’ (Drucker, 1955, p.35).
The globalisation of the world’s economy in the 1990‘s which saw increased corporate exposure to social problems led to an interesting twist of Druckers ‘purpose of the business’ assertion when in light of the growth of CSR the customer can be said to have created the business and led to the growth of a CSR industry. This new CSR industry evolved rapidly with major professional services companies such as PWC and KPMG engaging in the provision of CSR Services and new CSR specific consultancies including SustainAbility (1987), Business for Social Responsibility (1992) and CSR Europe (1996) assuming an agency role between business and society. CSR was no longer viewed as just internal policy or codes of conduct but rather a way for businesses to interact with stakeholders whether it be directly through new service providers or through non government organisations (NGOs) engagement such as the World Fair Trade Organisation (1989), the European Fair Trade Association (1990) and the Ethical Trading Initiative (1993).
Governmental recognition of the importance of CSR to business was highlighted in 2000 when European Heads of State and Governments appealed for the business case for CSR by placing it at the heart of the EU’s ‘Lisbon Strategy’ which aimed ‘To make Europe the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion by 2010’. In 2001 the European Commission published the green paper ‘Promoting a European framework for corporate social responsibility (CSR)’ and followed it in 2002 with a communication entitled ‘A business contribution to sustainable development’ which defined CSR as ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with stakeholders on a voluntary basis’. This was followed in 2006 by a second communication entitled ‘Implementing the partnership for growth and jobs: making Europe a pole of excellence on CSR’ which was notable for the introduction of the European Alliance for CSR which now serves as an open partnership for enterprises to promote and encourage CSR and provides a platform for ‘open debate on the linkages between CSR and competitiveness, in support of the European Strategy for Growth and Jobs’ (CSR Europe, 2010). The EC continues to invest in CSR and in October 2011 published a new CSR policy whose aims to ‘enhance the positive impact of business on society and enterprise and minimise and prevent the negative impacts’ (EC, 2011).
2.12.1 Current Thinking in CSR
The concept of CSR continues to evolve with the latest conceptions coming in the form of CSR 2.0 (Visser, 2011) and ‘Creating Shared Value’ (Kramer and Porter, 2011).
2.12.1.1 CSR 2.0
CSR 2.0 argues that CSR in its present form has failed. Visser (2012) claims that codes and standards encourage a box ticking approach to CSR and that our social and environmental problems are complex and intractable. CSR 2.0 is based on principles of creativity, scalability, responsiveness, glocality (meaning think global, act local) and circularity. These principles are spread over responsibility bases of value creation, good governance, societal contribution and environmental integrity. CSR 2.0 stands for corporate sustainability and responsibility and represents a collaborative, reward based, performance driven, integrated, diversified, scalable and global approach to value creation (Visser, 2011).
2.12.1.2 Creating Shared Value
The Creating Shared Value concept is based on the premise that the competitiveness of a company and the health of their communities are mutually dependent. CSV suggests that capitalism can be redefined by:
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Re-conceiving product and markets: companies can meet social needs while better serving existing markets, accessing new ones, or lowering costs through innovation.•
Redefining productivity in the value chain: companies can improve the quality, quantity, cost, and reliability of inputs and distribution while they simultaneously act as a steward for essential natural resources and drive economic and social development.•
Enabling local cluster development: companies do not operate in isolation from their surroundings. To compete and thrive, for example, they need reliable local suppliers, a functioning infrastructure of roads and telecommunications, access to talent, and an effective and predictable legal system.CSV proposes that advantage can be created by building a social proposition into corporate strategy (Kramer and Porter, 2011). A prime example of this was seen when Novartis, a global pharmaceutical company based in Switzerland, took a shared value approach to selling their pharmaceuticals in rural India, where 70% of the population lives. The obstacle was not the prices they charged but the social conditions in the region such as a chronic lack of health-seeking behaviour in the community, healthcare providers with virtually no healthcare training, and tens of thousands of local clinics without a reliable supply chain. Looking through a shared value lens, Novartis saw these social problems as business opportunities and resulted in the company hiring hundreds of community health educators, holding training camps for providers, and ultimately building up a distribution system to 50,000 rural clinics (Kramer, 2012). This example shows a company using its resources and capabilities to solve a specific social problem in ways that are
aligned with the company's strategy, whilst strengthening its competitive positioning and increasing profit.