Corporate Social Responsibility (CSR) is a strategy that companies adopt to ensure that their operations are ethical, impactful, and beneficial to society. Its underlying goal is for businesses to operate in an economically, socially, and environmentally sustainable manner. Examples include the Starbuck’s Initiative for Youths, which offered grants to help support and develop youth action, as well as the US Green Building Council’s LEED certification program, which was used to help create energy and water efficient designs.[1] In this article, we will be discussing the historical roots of the concept of social responsibility, then exploring the early stages of formal and academic writings regarding the social responsibility of corporations. This will include CSR’s evolution, issues and challenges, legal constraints, and considerations of CSR in the international context.

Background – Overview of CSR in a Democratic Capitalist State

The concept of CSR is based on the centuries old belief that corporate organizations have a responsibility to give back to society.[2] However, it was not until the 1930s and 40s, when the duties of the executives and the social performance of corporations began appearing in literature, that the modern understanding of CSR emerged.[3] The notion that businesses should respect human rights and consider the social and environmental effects of their actions has gained both broad acceptance and significance in democratic capitalist systems.

The social components of corporate behavior have a long history that can be traced back to ancient Roman laws. For example, businesses supported homes for the poor and old, hospitals, and orphanages.[4] The notion of corporations as social enterprises carried on through English law during the Middle Ages in academic, municipal, and religious institutions. Later, in the 16^th and 17^th centuries, the English Crown saw corporations as an instrument for social development. During the 18^th and 19^th centuries, the Christian religious philosophy and approach to the abiding social context were seen as a response to the moral failure of society. This failure was perceptible in terms of poverty of the overall population in the English empire and some parts of Europe.[5] The religious approach gave way to social reforms and Victorian philanthropy, which perceived a series of social problems revolving around poverty, education, child labor, and female labor.

During the late 1800s and early 1900s, the creation of welfare programs took a paternalistic approach aimed at protecting, retaining, and sometimes improving quality of life for employees. Furthermore, there were also clear illustrations that reflected the social sensitivity of business leaders. For example, in 1875 Macy’s contributed funds to orphanages and asylum homes and, by 1887, labeled their charity donations as ‘miscellaneous expenses’ within their accounting books. In the 1900s, there was also a growing level of urbanization and industrialization marked by large-scale production. This brought about new concerns to the labor market, such as new challenges for farmers and small corporations to manage in the new interdependent economy.[6]

Accordingly, by the 1920s and early 1930s, business managers began assuming the responsibility of balancing the maximization of profits with balancing the demands of their clients, labor force, and community. This led to managers being viewed as trustees for a different set of relationships outside the company, which in turn translated into social and economic responsibilities being adopted by corporations.

Issues and Challenges in Aligning CSR with Democratic Capitalism

As key actors are becoming increasingly interested in business affairs, many companies are already taking steps to ensure that their partners conduct themselves in a socially responsible manner. This typically involves the introduction of codes of conduct for suppliers to ensure that other companies’ policies or practices do not tarnish their reputation. A CSR project may commence in response to a crisis or adverse publicity, or may result from public expectations and advocacy. For example, in India, over time the expectation of the public has grown enormously with demands focusing on alleviating poverty, tackling unemployment, fighting inequality, or forcing companies to take affirmative action. The motive for launching CSR initiatives can vary from philanthropy to notions of corporate citizenship.[7]

Furthermore, the Times of India conducted a survey of 250 companies about the different challenges and issues related to CSR initiatives in different parts of the country. [8] Some of these responses include the following:

1. Lack of Community Participation in CSR Activities: Companies that practice CSR can benefit society, boost brand recognition, and improve investor relations. However, there is a lack of interest from the local community in participating and contributing to CSR activities of companies. This is largely due to the fact that there is little to no knowledge about CSR efforts within the local communities, as no serious efforts have been made to spread awareness about CSR and instill confidence in the local communities about such initiatives. The situation is further aggravated by a lack of communication between the company and the community at the grassroots level.[9]
2. Development of Local Skills: NGOs can be helpful in carrying out CSR activities, but are often overlooked due to their inefficiency, and lack of resources and support. Capacity building of local NGOs is necessary to ensure that they can effectively contribute to ongoing CSR activities and help scale up such initiatives.
3. Visibility Factor: Communication that is succinct, appropriate, and directed towards the right people can lead to success and motivation to perform well over time. The media plays an important role in highlighting successful CSR initiatives, as it spreads positive stories and raises awareness among the local population about various CSR initiatives of companies.[10] However, the desire to gain visibility and engage in branding exercises often leads many NGOs to focus on event-based programs, which can cause them to miss out on meaningful grassroots involvement.
4. Lack of Consensus on Implementing CSR Projects: There is a lack of agreement among local agencies regarding CSR projects, which has often resulted in corporate houses duplicating activities in areas where they are already involved. This can create a competitive spirit between local implementing agencies, rather than building collaborative approaches to address issues. Additionally, as a result of duplicated activities, companies may find it difficult to assess the impact of their initiatives from time to time.
5. Issues of Transparency: The survey conducted by the Times of India[11] further reveals that companies have expressed concerns about the lack of transparency on the part of local implementing agencies. These agencies do not make adequate efforts to disclose information on their programs, audit issues, impact assessments, or utilization of funds. This lack of transparency negatively impacts the process of trust-building between companies and local communities, which is a key factor to the success of any CSR initiative at the local level.
6. Narrow Perception towards CSR Initiatives: NGOs and government agencies usually possess a narrow outlook towards the CSR initiatives. Since CSR initiatives often prioritize short-term fixes over sustainable solutions, NGOs and government actors define CSR initiatives as more donor-driven than local in approach. Relying solely on donor funding, can lead to inconsistent support and limited long-term impact. As a result, these groups find it hard to decide whether they should participate in such activities at all in the medium to long-run.

Regulatory Framework – Legal Constraints on CSR Initiatives

CSR has become a well-known concept over the last ten and half years.[12] Employees, academic scholars, government representatives, NGOs, and international organizations have been contemplating what role they have to play in connection with CSR. Laws, rules, and regulations have been drafted that promote socially responsible behavior of companies.[13] Some international organizations have promoted CSR principles, some have adopted CSR mission statements and programs, and many are sharing their efforts through sustainability reports. Additionally, NGOs have contacted companies and pointed out how they can operate in a more responsible way and how the various laws, policies, and regulations can be improved.

The regulatory framework in the context of CSR has helped in developing a large variety of private self-regulatory instruments related to social or environmental aspects of economic activities. An example of this is the emergence of the various codes of conduct and private labels.[14] Some of these regulations have been adopted unilaterally by multinational companies, others have been developed together with NGOs or international institutions. These instruments have often acquired legal effect under private law because they have become part of the supply chain contract or labor agreements.

According to Carola Glinski’s book, Competing Transnational Regimes Under WTO Law, private regulatory instruments can also acquire legal effect in public international law when they would qualify as ‘international standards’ in the WTO Agreement On Technical Barriers To Trade (TBT Agreement). She furthers states that the concept of ‘international standards’ plays an important role in the TBT Agreement, as states are now required to base on their technical (e.g. environmental) regulations on international standards and to provide a justification for their technical regulations in accordance with these standards.[15]

Finally, according to Adefolake Adeyeye’s book, Corporate Social Responsibility of Multinational Companies in Developing Countries: Perspective on Anti-Corruption, the public sector took a stand that companies should adopt a CSR approach to curb the involvement of multinational companies in corrupt practices, particularly in developing countries.[16] The rationale behind this is that accountability is a major principle of effective CSR and without some form of accountability, corporations will lack the requisite motivation to act in a socially responsible way and the victims of this irresponsible behavior will be unable to receive compensation for the harm done to them.[17]

International Considerations

International CSR considerations involve several factors including respecting various cultural differences in adapting CSR initiatives to align with the diverse values and norms. Ethical standards also play a pivotal role, involving fair business practices and accountability on a global scale. Compliance with local laws is fundamental, as each country may have distinct regulations for CSR. A typical example is the United Nations Global Compact, which provides a framework for businesses to adhere to principles related to human rights, labor, the environment and anti-corruption.[18]

Environmental sustainability is another major focus of international CSR, with companies addressing issues like carbon footprint, waste management, and sustainable sourcing. Other international considerations include human rights concerns such as fair labor practices, diversity and inclusion, and avoiding exploitation in the supply chain. Community engagement is another vital aspect in international CSR, as it involves global corporations striving to contribute positively to the communities in which they operate through processes such as philanthropy, supporting local initiatives, and fostering social development.[19]

In addition to the other international CSR considerations, companies must engage with their stakeholders, including employees, customers, suppliers, and communities, to understand their needs and concerns and to build trust and mutual respect. This means that companies must communicate with their stakeholders regularly, listen to their feedback, and take their opinions into account when making decisions that affect them.

Furthermore, corporate organizations must respect the human rights of their stakeholders, including their right to life, liberty, and security, freedom from discrimination, as well as freedom of association and collective bargaining. Companies should ensure that their operations do not violate human rights and that they respect the rights of their employees, customers, and other key stakeholders.

Conclusion and Recommendations

In a nutshell, for CSR initiatives to be successfully implemented – from the front lines to the international level, and in order to bring CSR further into the mainstream, several actions should be considered including:

1. Improving Public Awareness: In order to make CSR initiatives more effective, there is a need for awareness about CSR amongst the general public. This awareness could be driven by the various stakeholders, including the media, to highlight the good work done by corporate houses in this area to bring about effective changes in the approach and attitude of the public towards CSR initiatives undertaken by corporate houses.
2. Creating Shared Values: It is important to create shared values, as this is a necessary step in the evolution of business. The shared value creation process focuses on primarily identifying and expanding the connections between societal and economic progress.[20] Through this process, the policies and operating practices of a company can be shaped to help advance the economic and social conditions in the communities they operate.
3. Agreeing on Effective Stakeholder Initiatives: It is necessary to involve stakeholders in the CSR process, as understanding their concerns and exceptions to the performance of the various initiatives that resonate with both internal and external stakeholders will go a long way towards implementing adequate and proper CSR policies.
4. Customizing Global Initiatives: When operating internationally, customize CSR initiatives to respect the different local cultures and address specific issues in each region. A one-size-fits all approach may not be the most successful because of the diverse global landscape.
5. Communicating Progress Transparently: This involves openly sharing CSR goals and progress as well as challenges. Effective communication through the different channels such as the annual reports, social media, and press releases, helps build trust and credibility. Furthermore, it is also pertinent to acknowledge challenges and setbacks transparently, as this helps in demonstrating authenticity and a commitment to continuous improvement.

In conclusion, for CSR initiatives to have a significant effect, it’s essential for organizations to not only engage in positive corporate actions but also actively advocate for them. This involves aligning business strategies with societal advancement goals and tailoring global efforts to suit the specific needs and nuances of local communities. Moreover, maintaining transparency in communication, such as through detailed annual reports and active engagement on social media platforms, plays a crucial role in fostering trust and credibility among stakeholders.

 

 

[1] Corporate Social Responsibility (CSR) by the CFI Team, Corporate Social Responsibility (CSR) – Types and Business Benefits (corporatefinanceinstitute.com) (Retrieved February 07, 2024)

[2] Carroll, A. B. (2008). A history of corporate social responsibility: concepts and practices. In A. M. Andrew Crane, D. Matten, J. Moon, & D. Siegel (Eds.), The Oxford handbook of corporate social responsibility (pp. 19–46). New York: Oxford University Press.

[3] Carroll, A. B. (1999). Corporate social responsibility. Business & Society, 38(3), 268–295.

[4] Chaffee, E. C. (2017). The origins of corporate social responsibility. University of Cincinnati Law Review, 85, 347–373.

[5] Id.

[6] Heald, M. (1970). The social responsibilities of business: company and community 1900–1960. United States of America: Pr. of Case Western Reserve Univ.

[7] Nexa Saxena C.A (2018), Corporate Social Responsibility: Issues & Challenges, Volume III, Issue IA, January 2016, p. 44.

[8] Id.

[9] The Forbes article titled “Why Community Engagement Is A Crucial Piece Of A Thriving Company Culture” emphasizes the importance of authentic community engagement in organizational culture

[10] Nexa Saxena C.A (2018), Corporate Social Responsibility: Issues & Challenges, Volume III, Issue IA, January 2016, p. 44.

[11] Id.

[12] Tineke Lambooy, Corporate Social Responsibility. Legal and semi-legal frameworks supporting CSR (Kluwer 2010), <https://openaccess.leidenuniv.nl/handle/1887/16169>.

[13] Indonesian Corporate Law and Investment Law oblige CSR. See Tineke Lambooy and others, CSR in Indonesia: legislative developments and case studies (Konstitusi Press 2013).

[14] Tineke Lambooy, Legal Aspects of Corporate Social Responsibility, 30 UTRECHT J. INT’l & EUR. L. 1 (2014).

[15] Carola Glinski, Competing Transnational Regimes Under WTO Law, Utrecht Journal of International and European Law, Vol. 30, No. 78, pp. 44-67 (2014)

[16] Adefolake O. Adeyeye, Corporate Social Responsibility of Multinational Corporations in Developing Countries: Perspectives on Anti-Corruption (Cambridge University Press 2012)

[17] David Weissbrodt, Corporate Social Responsibility: A Legal Analysis, 32 HUM. RTS. Q. 207 (2010).

[18] Andrew Crane & Dirk Matten, Corporate Social Responsibility: A business Ethics Approach (2016).

[19] Charles W.L. Hill & G. Tomas M. Hult, International Business: Competing in the global Marketplace (2020)

[20] Porter, M. E., & Kramer, M. R. (2011). Creating shared value. Harvard Business Review (January-February).