You are on page 1of 7

Part 1 Introduction, History and Theory

Corporate social responsibility or CSR refers practices, policies, and

regulations within a company that are focused on ethical behaviour
with the objective if improving the quality of life of the companies
employees, the surrounding community, and society at large.
According to Richard E. Smith in defining corporate social
responsibility CSR began sometime in the 1920s but failed to become
a serious topic among business leaders until the 1950s. However, fast
forward to today and CSR can be said to play a major role in the
corporate world. Although there is not one definition of CSR There are
generally five dimensions which have been widely recognized and
appear in 80% of all definitions of CSR. These include the environment,
the relationship between business and society, the socioeconomic or
financial, stakeholders, and voluntariness. This paper will address first
address the history of CSR and the opposing views of Berle Dodds.
Next, this paper will address the practicality, significance and
legitimacy of CSR with reference to specific examples of CSR including
the EU2020 initiative, CA 2006, corporate social responsibility projects
done by large corporations, and the representation of women on
corporate boards.
History & Theory
UK company law has traditionally paid little attention to how anyone
other than members and creditors of a company may be affected by it.
This is apparent from the 1883 judgement in Hutton v West Cork
Railway, where Bowen J stated, The law does not say that there shall
be no cake and ale, but there are to be no cakes and ale except such
as are required for the benefit of the company.. The case of Parke v
Daily News also furthers this position.

Part 2 Berle & Dodds

Debates surrounding CSR often focus on two competing views of the

corporation and its purpose. Adolf A Berles view represents the
consevertive, traditiontal keysian view that companies sold purpose is
the maximaimisation of profit for sharholds. Burle suggests all powers
granted to a corporation or the management of a corporation are necessarily and
at all times exercisable only for the ratable benefit of all the shareholders as their
interests appears. Berle believed that corporations were simply vehicles for
advancing and protecting shareholders interests and that corporate law should
be interpreted to reflect this principle. He suggested that any other account of
corporations function and purpose would defeat the very object and nature of
the corporation itself. His view was more In line with the traditional shareholder
view of the company in that only the owners or shareholders of the company are
important, and that the company has a duty to put their interests first and to
increase value for them.

While Dodds took a position juxtaposed to his, suggesting and arguing

for a more left wing liberal approach based on the environment and
social arguments. On the contrary Dodd position was more akin to the
stakeholder theory., which argues instead that many other parties are involved,
including indirect and direct stakeholders. The stakeholder view of strategy integrates
both a resource-based view and a market-based view, and adds a socio-political level.

Dodds challenged Berles view in For Whom are Corporate managers trustees
suggested that, there is in fact a growing feeling not only that business has
responsibilities to the community but that our corporate managers who control
business should voluntarily and without waiting for legal compulsion manage it in
such a way as to fulfill those responsibilities. He quoted the heads of several
major corporations, such as General Electric, to argue that business leaders had
come to recognize that corporate managers needed to consider social
responsibility when running their companies. Dodds suggests that if social
responsibility meant that corporate managers paid more attention to the needs
of their employees and consumers, this would ultimately benefit shareholders.

Dodd supported this argument by noting that employee satisfaction leads to

greater productivity and ultimately increased profits. Next, Dodd suggested that
corporate charitable giving, while not immediately increasing shareholder wealth,
could generate good will in the community.[12] Such good will could benefit
shareholders, since consumers would be more likely to think favorably of the
corporation and buy its products.
For Dodd, these arguments meant that corporations are affected not only by the
laws which regulate business but by the attitude of public and business opinion
as to the social obligations of business.[13] He claimed that societys view of
the corporation as a purely private enterprise was shifting, and that corporate
managers should recognize that the attitude of law and public opinion toward
business [was] changing .
Part 3 Dodds won
However, Dodds position seems to have prevailed. According to Kevin
Jones in the strategic value of CSR a commission study by the
committee for economic development in 1970 contributed a paradigm
shift into the CSR debate by recognizing that a balance between social
and economic interests was a necessary factor. This runs contrary to
Milton Friedmans belief that there is only one responsibility of
business, namely to use its resources and engage in activities to
increase profits. (Friedman 1970) However, through the 1970s and
1980s in conjunction with increased public scrutiny and focus upon the
image of the corporation CSR has come into prominence. Now CSR is a
widely applied concept and is an increasingly central concern in
business decision-making.
Part 4: Acceptance of CSR
The acceptance of CSR is apparent in the enlightened shareholder
value approach which was adopted in the CA 2006, in relation to
directors duties. S.170(1) of the act states that the general duties

owed by director are owed to the company. S.172 states that a

director must act in the way he considers, in good faith, would be most
likely to promote success of the company for the members as a whole,
and in doing so have regard for certain matters including long term
consequences; interests of the companys employees; business
relationships; impact on the community and environment; reputation;
and the need to act fairly between members of the company where
172(3) a director may consider the interests of creditors of the
company. This is very relevant to CSR, as s.173 expands on the
general rule suggesting that a company is more then a set of contracts
between members, and that duties are owed to a large stakeholder
body. This in a sense codifies CSR practices into the CA 2006.
The Eu2020 and ART 3(3)
Ramon Mullerat in, CSR a European perspective suggests part of the
EU2020 strategy involves the EC stressing the importance of CSR
amount Small and medium sized enterprises or SMEs for growth, and
job creation. The EU2020 strategy itself focuses largely on reducing
emissions and waste among member states by setting ambitious
emission and recycling targets. The initiative itself seeks to support
economic growth while improving the environment. The European
union has taken steps to further legitimize CSR as through CSR
corporations contribute to the EUs treaty objectives of sustainable
development, economic growth, and improving the quality of the
environment. The EUs commitment to these goals is exemplified
through ART 3(3) of the TEU as well as the EU2020 initiative. Through
implementing art 3(3) and the EU2020 initiative the EU has displayed
a committmenent to csr.

Even tobacco companies have turned their focus to CSR. Over the past
three decades increasing pressure from non-governmental
organizations (NGOs), governments and the United Nations, has
required transnational corporations (TNCs) to examine and redress the
adverse impact their businesses have on society and the environment.
Atria has stated We can begin to focus attention away from tobacco,
and on to compliance, responsibility, philanthropy, environment, etc.,
all the things we want Altria to be identified with. And more recently
Philip Morris (PM) and British American Tobacco (BAT). Have followed
suit. (N HirschHorn CSR in the tobacco industry.) .
Harmony J. Palmer in Does it pay to be good highlights this fact
and says Mcdonalds is a prime example of how CSR really does
improve rpfits, as it has done well to enhance the companies
reputation and brand value. This is central to Freidmans position as
he believes CSR programs are in fact profit making programs, as he
believes social responsibility is frequently a cloak for actions that are
justified on other grounds rather than those actions. Palmer asserts
that CSR positively impact sfincail performance in the long run because
it helps increase the value of intangible assets like reputation and
brand value. However, just because CSR benefits the company itself
and the community does not necessarily make it any less legitimate.
Leo Strine This Article posits that benefit corporation statutes have the
potential to change the accountability structure within which managers
operate. These statutes create incremental reform that puts actual
power behind the idea that corporations should do the right thing.
Certain provisions of the Delaware benefit corporation statute are
discussed as an example of how these statutes can create a
meaningful shift in the balance of power that will in fact give corporate

managers more ability to and impose upon them an enforceable duty

to do the right thing.
Generally speaking, corporate social responsibility is concerned with
how companies handle social and environmental issues. A major social
issue which has been the subject of many debates as of late is womens
representation on corporate boards. Current empirical evidence
suggests that women are under presented on corporate boards (CSR
and the board of directors Phillip Kruger, 2009)
The positive relation between female directors and social responsibility
is consistent with experimental evidence showing that women are
more inequality averse and have more pronounced other regarding
preferences. Women directors seem to care more about the welfare of
a firms natural stakeholders, and benefiting communities and the
workforce. (Phillip Kruger)
However, a study done by fortune 500 held that in 1995 less than 10%
of board positions were held by women, while in 2004 13.6 percent of
board positions were held by women. In 2012, 17% of the Corporate Board
seats of S&P 500 companies were held by women. (Forbes)Although slow, there is

improvement. As the board of directors becomes more receptive to

women, this positive attitude tends to trickle down into all levels of the
company (i.e., from executives down to the staff ). For example, the
presence of female board members also signals potential to current
female employees about their chances for advancement within the
company (Women Directors and CSR, Bernardi and Threadgill)

Women representation on boards is a major CSR issue. As women

become better represented on boards, it has been shown that these
boards become more respective to other csr issues as well.
CSR has developed into a well-accepted practice. Not practicing CSR
according to David Henderson will most likely hurt a corporation and
draw attention from NGOS. Hence why he suggests many corporations
take up CSR out of conviction. However, CSR has proved to be very
significant as it has infiltrated EU initiatives, EU articles, and many
large and midsized corporations around the world. Although CSRs
importance continues to grow, its legitimacy may we weaked by
companies who simply seek to use CSR to deflect negative press and
to further the bottom line. However, according to Lorraine Talbot in
order to hold companies morally accountable they need to be free from
market constraints.