Investigation of an argument: Corporate social responsibility is a largely meaningless slogan
Corporate social responsibility (CSR), burgeoning in the last decade, is the practice of corporations extending their responsibilities outside of their financial and shareholders interests, and towards the communities and environment in which they operate and society at large (Boatright 2012, pp. 276-277; Shaw & Barry 2014, p. 211). These three interests: social, environmental, and the archetypal financial, form the comparatively newly coined Triple-P bottom line, superseding the time-honored business bottom line traditionally motivating corporations’ activities (Mazereeuw-Van der Duijn Schouten and Grafland 2012, p. 379).
Worldwide, driven by public demand, and promoted by governments in place of increasing regulation, CSR is fast becoming an ever integral and expected part of business practice and corporate strategy (Boatright 2012, pp. 276-277). However, not everyone is convinced ethical motives underpin corporations’ CSR strategies, with some critics asserting CSR is merely a guise for corporations’ self-interest in increasing the bottom line, or a thinly veiled attempt to avoid increased government intervention and regulation.
In the limited scope available, this investigation will thus seek to explore the arguments of both the advocates and cynics of CSR, and evaluate whether CSR is indeed a largely meaningless slogan or a meaningful step forward in corporations taking social responsibility.
Perhaps the largest opposition to the notion of CSR is that of Friedman’s commonly recited idea that corporations have no place engaging in CSR activities, unless financially profitable (Boatright 2012, p. 180; Shaw & Barry 2014, p. 210); thus, a corporation’s social responsibility belongs only to its shareholders (Arnold, Beauchamp & Bowie 2013, pp. 46-47). Perhaps Friedman’s distaste for the idea of CSR is best represented in his own words: “whether blameworthy or not, the use of the cloak of social responsibility, and the nonsense spoken in its name by influential and prestigious businessmen, does clearly harm the foundations of a free society” (1970, p.214).
Indeed, CSR can be particularly profitable as well as providing competitive advantages for corporations, as demonstrated by Subaru. In 2008, when the car industry faced market declines of 18%, Subaru donated $250 per car sold to charities through their ‘Share the Love’ campaign, which rewarded it a 2% increase in market share; continuing on to donate a total of US$4.6 million dollars (Hemat & Yüksel 2014, Chapter 1).
Lougee and Wallace exemplified this abovementioned economic return of CSR through their regression analysis study of two samples of companies. These were taken from either the benchmark index S&P 500, or the index for “socially conscious stakeholders” (2008, p. 101), the Domino 400. Over a 15 year time span, they found increased return on assets (ROA) not only for companies exhibiting greater CSR strengths, but higher correlations still for companies reducing CSR weaknesses (2008, p. 104). In contradiction, however, corporations exhibiting poor social behaviour are not necessarily financially punished. For example, ExxonMobil outperformed any other oil company in returns on equity, despite being shunned by environmental groups for their anti-global warming and non-fossil based fuels stance (Barringer 2005, p. 1; Reich 2008, p. 175).
Some may be left pondering over certain corporations’ motivations for seeking to expand their social or environmental responsibilities. For example, in KFC’s 2010 donation-drive partnership with Komen, a non-profit organisation associated with breast-cancer research, they were accused of ‘pink-washing’ their KFC buckets, receiving public backlash despite raising US$4.2 million (Hemat & Yüksel 2014, Chapter 1.6). Additionally, they were criticized for hypocrisy, as poor diet is linked with breast cancer development (Hutchinson 2010, p. 1) – a dismal failure at attempting to appear ethical, or a backfired financial ruse?
Financially driven motives aside, there exists examples of CSR without any steadfast links to financial returns. An example of CSR not serving the bottom line comes from Jordan with Omar and Zallom’s study of 26 companies listed on the Amman Stock Exchange (ASE) from the period of 2006-2010. They investigated four CSR themed activities (environmental, community, product, and human resources) on the market value of three industries: food and beverage, pharmaceutical and medicine (P&M), and chemical. Environmental, community and product activities negatively impacted the food and beverage industry, community activities negatively effected the P&M industry, and lastly, all four activities had zero effect on the chemical industry (2016, p. 2). Obviously, Omar and Zallom’s study is limited to one country, and thus for several reasons such as cultural implications or market characteristics, can’t be extrapolated to form any solid conclusions; however, for the purposes of this investigation, it shows it is inconclusive whether CSR improves a corporation’s financial performance.
Professor David Vogel echoed this financial perspective by concluding that “the social and environmental practices of the vast majority of companies have not had demonstrated effects on their sales” (Vogel 2005, p. 73). Have these corporations just been unable to figure out how to produce economic benefits from the costs incurred, as suggested by Boatright (2012, p. 285), or does it aspire to the possibility that corporations’ CSR activities could be driven by motivations other than profit?
In a study conducted by Mazereeuw-Van der Duijn Schouten and Grafland, 473 Dutch business executives were surveyed regarding their motives for practicing CSR. It found that activities undertaken in the social and environmental spheres of the Triple-P bottom line were largely driven by intrinsic and ethical motives, and not by extrinsic motivation for financial gain (2012, p. 392). In a similar study, Brønn and Vidaver-Cohen’s quantitative study of 500 Norwegian business managers across varying industries attempted to discover the practical and moral motives behind businesses’ ‘social initiatives’ (2009, p. 92). They too found that few companies linked immediate financial outcomes with social activities; instead they were predominantly motivated by improving their business image and being recognised for moral leadership, followed by meeting stakeholder expectations and serving long-term company interests (2009, pp. 102-104). Thus, it is clearly contested whether intrinsic or extrinsic motivations drive CSR activities.
Some critics confer that corporations are motivated to voluntarily participate in CSR to prevent or forestall governments from inflicting regulation (Davis 1973, p. 314; Moon & Vogel 2008, p. 308; Reich 2008, pp. 191-197; Smith 2003, p. 59). Indeed, there are instances that could conceivably confirm this – for example, Reich suspects insincere motivations behind News Corporation’s MySpace multimillion-dollar safety awareness campaign towards teenagers, revealing state attorneys had earlier threatened action against the site to make it safer with software that could block access (Reich 2008, p. 191). Quazi’s study of 267 Australian firms found that as the educational level of managers increased, so did their belief that a proactive commitment to CSR reduced the chances of increased legislation (2000, p. 827). And yet, in Brønn and Vidaver-Cohen’s abovementioned Norwegian study, respondents across all industries ranked avoiding regulation as the least influencing motive for participation in social initiatives (2009, p. 98). So whether there may be cultural differences at play, these examples eradicate a definitive link between a corporation’s social behaviour and its motivation to avoid further regulation.
Interestingly, the government itself is an advocate of letting corporations regulate their own CSR activities. For example, the Australian Parliamentary Joint Committee on Corporations and Financial Services released a 2006 report, inquiring into incorporated entities in Australia, their corporate responsibilities and reporting on their Triple-Bottom Line (p. vii). Among recommendations made in their report, were to: introduce corporate responsibility performance measures for company directors, executives and managers as part of their remuneration packages (p. 146), for industry associations and peak bodies to promote CSR to their members (p. 148), and to provide regulatory relief to corporations who voluntarily undertook CSR activities (p. 206).
Furthermore, it discussed sustainability reporting (currently voluntary in Australia), and the large costs incurred to businesses – for example, Wesfarmers cited $150K, excluding staff costs, to produce their sustainability report (Kessell 2006, p. 42). The committee’s resulting recommendations included introducing inflated write-off arrangements for corporations initiating sustainability reporting (p. 235), and prolonging mandated reporting in favour of promoting reporting guidelines, such as those from the Global Reporting Initiative [GRI] (pp. 89-99), a globally independent organisation focused on critical sustainability issues (GRI n.d., p. 1). Interestingly, as a side note, GRI claims that out of the 250 largest corporations in the world, 92% produce reports on their sustainability performance (n.d., p. 1) – perhaps this epitomises the earlier discussed growing integration, and importance of, environmental responsibilities influencing corporate strategy?
And of course, there are those who surmise that whilst government legislation is capable of addressing “egregious corporate wrongdoing” (Shaw & Barry 2014, p. 218), they are incapable of providing appropriate guidance on socially appropriate behaviour, requiring businesses’ help in addressing social issues (Shaw & Barry 2014, p. 219). However, there are also concerns that corporations, in doing so, will serve their own self-interests through their discretionary powers over society (Shaw & Barry 2014, p. 220). Reich is a staunch supporter of seeking accountability for corporations through a democratic process, arguing corporations will act in any way necessary to minimize their costs (2008, pp. 182-184), asserting that regulation is the only way to make corporations commit activities not directly benefiting the bottom line (2008, p. 204).
To conclude the evidence provided in this investigation, one last significant consideration should be touched upon: how do citizens feel about CSR, and secondly, does it affect their purchasing decisions? Reich concludes that while we enjoy brand ideals arising from CSR as citizens, the consumer in us craves a better deal (2008, pp. 178-179); ergo, we often choose the cheaper product at the sacrifice of pursuing social values. Does this then shift the responsibility of encouraging CSR onto consumers? Alternatively, Smith cites (although limited) evidence demonstrating that customers will pay premiums for CSR, with free-range eggs in the UK accounting for 35% of all sales, despite being 25% more expensive (2003, p. 62). He cautions though, that there may be prevailing reasons such as health concerns for this effect.
In evaluation of the often-contradictory nature of evidence presented, there is insufficient conclusive support for the advocates or the cynics’ side of the argument in determining whether CSR is a largely meaningless slogan. For example, whilst CSR manifested financial profits for corporations such as Subaru, Omar and Zallom’s study of Jordan companies showed a negative correlation, and Vogel concluded that for the vast majority of corporations, sales were unaffected by social or environmental CSR activities.
Evidence was again conflicted regarding ethical motives underpinning CSR activities. In Mazereeuw-Van der Scouten and Grafland’s study of 473 Dutch business executives and Brønn and Vidaver-Cohen’s study of 500 Norwegian business managers, financial motivations were not the principal driving factors. Conversely, the ethics behind KFC’s pink buckets remains questionable, in addition to whether corporations undertake CSR to avoid government intervention and regulation.
Reich presented suspicions over MySpace’s safety awareness campaign true intentions. In support, Quazi’s study of 267 Australian firms revealed managers believed CSR could reduce the likelihood of increased legislation. Furthermore, the government’s committee report seemingly supported corporations self-regulating CSR. Although critics, such as Shaw and Barry, cautioned against businesses using their power to serve their own-self interests, and Reich proclaimed that only engaging in democracy would keep corporations accountable, preventing them acting merely for financial gain.
Finally, it was inconclusive whether we purchased with our consumer mindsets, such as in Reich’s argument, or whether we purchased ethically, such as in Smith’s egg-buying habit example. In closing, it is important to re-emphasise that evidences considered in this investigation have cultural and market implications, and thus are unable to form an accurate representation of CSR activity across the globe – rather, a mere glimpse. Further research is necessary to even attempt to decisively determine whether corporations are taking a meaningful step forward in their social responsibility through CSR. However, if CSR encourages ethical behaviour, whether it is intrinsically driven, or purely for financial gain, is this not meaningful to citizens? And is there any turning back?
Essay submitted as assessment for POL1000: Government, Business & Society
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