BA C 2 – Good Governance and Social Responsibility

Unit 1

Understanding Corporate Social Responsibility

Corporate Social Responsibility: A Brief History

Corporate Social Responsibility (CSR) has come a long way, morphing from a nice thing
to do to what it is today: a necessity for a successful business.
Today’s CSR programs have their roots in corporate philanthropy. Wealthy businessman and
philanthropist Andrew Carnegie challenged wealthy people to support social causes, following
his belief in the Gospel of Wealth. In the late 1800s, John D. Rockefeller, taking inspiration from
Carnegie, followed suit in donating more than half a billion dollars.
In 1914, Frederick Goff, a well-known banker in Cleveland, founded the Cleveland
Foundation, a trustee of the Cleveland Trust Company. Its purpose was to give power to the
community by accepting gifts from multiple donors rather than one fortune, which could
collectively assess needs and respond to the community. This was the first community
foundation.
It wasn’t until the 1940s, however, that businesses, and not their owners or shareholders,
could support charities.
Howard Bowen, an American economist and Grinnell College president, is often cited as
the “father of CSR.” He connected the responsibility of corporations to society and published a
book in 1953, which advocated for business ethics and responsiveness to societal stakeholders
called Social Responsibilities of the Businessman.
CSR truly began to take hold in the U.S. in the 1970s, when the concept of the “social contract”
between business and society was declared by the Committee for Economic Development in
1971. The social contract is based on the idea that business functions because of public
“consent,” therefore business has an obligation to constructively serve the needs of society. This
is often referred to today as “license to operate” – that is to contribute more to society than
solely their products for sale.

The social contract outlined three responsibilities, and they’re still applicable today: 
1. Provide jobs and economic growth through well run businesses.
2. Run the business fairly and honestly regarding employees and customers.
3. Become more broadly involved in improving the conditions of the community and
environment in which it operates.

In 1976, professor Sandra L. Holmes conducted a survey on CSR to find how decisions on
which causes to support were made. Her results, from the Executive perceptions of corporate
social responsibility,  can boil down to:
1. Utilizing a corporation's ability to help a specific need
2. Severity of a social need
3. Executive interest
4. PR gained from action
5. Government influence
https://www.accprof.org/ACCP/ACCP/About_the_Field/Blogs/Blog_Pages/Corporate-Social-Responsibility-Brief-History.aspx

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Corporate Social Responsibility Definition
Corporate Social Responsibility (CSR) is a mechanism by which companies hold
themselves to a set of legal, ethical, social and ecological standards. It is a form of business self-
regulation that has developed alongside greater public awareness of ethical and environmental
issues.
https://en.reset.org/knowledge/corporate-social-responsibility-csr-%e2%80%93-societal-responsibility companies?
gclid=Cj0KCQjw7ZL6BRCmARIsAH6XFDIpqk1X5CZzMLsUxPLAUZ1DfON9z_daQE2yf-taieh63EGn-0DbrsUaAuSBEALw_wcB

Carroll’s Pyramid of Corporate Social Responsibility

Economic responsibilities
As a fundamental condition or requirement of existence, businesses have an economic
responsibility to the society that permitted them to be created and sustained.

Legal responsibilities
Society has not only sanctioned businesses as economic entities, but it has also
established the minimal ground rules under which businesses are expected to operate and
function. These ground rules include laws and regulations and in effect reflect society’s view of
“codified ethics” in that they articulate fundamental notions of fair business practices as
established by lawmakers at federal, state and local levels. Businesses are expected and required
to comply with these laws and regulations as a condition of operating. It is not an accident that
compliance officers now occupy an important and high level position in company organization
charts. While meeting these legal responsibilities, important expectations of business include
their
 Performing in a manner consistent with expectations of government and law
 Complying with various federal, state, and local regulations
 Conducting themselves as law-abiding corporate citizens
 Fulfilling all their legal obligations to societal stakeholders
 Providing goods and services that at least meet minimal legal requirements

Ethical responsibilities
The normative expectations of most societies hold that laws are essential but not
sufficient. In addition to what is required by laws and regulations, society expects businesses to
operate and conduct their affairs in an ethical fashion. Taking on ethical responsibilities implies
that organizations will embrace those activities, norms, standards and practices that even though

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they are not codified into law, are expected nonetheless. Part of the ethical expectation is that
businesses will be responsive to the “spirit” of the law, not just the letter of the law. Another
aspect of the ethical expectation is that businesses will conduct their affairs in a fair and
objective fashion even in those cases when laws do not provide guidance or dictate courses of
action.

Philanthropic responsibilities
Corporate philanthropy includes all forms of business giving. Corporate philanthropy
embraces business’s voluntary or discretionary activities. Philanthropy or business giving may
not be a responsibility in a literal sense, but it is normally expected by businesses today and is a
part of the everyday expectations of the public. Certainly, the quantity and nature of these
activities are voluntary or discretionary. They are guided by business’s desire to participate in
social activities that are not mandated, not required by law, and not generally expected of
business in an ethical sense.
https://jcsr.springeropen.com/articles/10.1186/s40991-016-0004-6

Components of Corporate Social Responsibility

1. Economic Responsibilities: Responsibility of a company using the resources that is
available in order to provide goods and services for the community.
2. Legal Responsibilities: Regulations and laws that businesses should observe by their
daily performance.
3. Ethical Responsibilities: Expectations of the society, therefore they change eventually.
Business should be a good corporate citizen going beyond the legal and governmental
standards.
4. Discretionary Responsibilities: Activities that are left in managers’ are not seen as
unethical if hand in order to make right decisions managers do not contribute in these
discretionary responsibilities, for e.g. a firm's philanthropic (charitable) commitment.
https://www.ftms.edu.my/images/Document/BB315014S%20-%20Sustainable%20Management%20Futures/BB315014S%20SMF%20CSR.pdf

Understanding Corporate Citizenship

Corporate citizenship refers to a company’s responsibilities toward society. The goal is to
produce higher standards of living and quality of life for the communities that surround them and
still maintain profitability for stakeholders.
The demand for socially responsible corporations continues to grow, encouraging
investors, consumers, and employees to use their individual power to negatively affect
companies that do not share their values.
All businesses have basic ethical and legal responsibilities; however, the most successful
businesses establish a strong foundation of corporate citizenship, showing a commitment to
ethical behavior by creating a balance between the needs of shareholders and the needs of the
community and environment in the surrounding area. These practices help bring in consumers
and establish brand and company loyalty.

The five stages of corporate citizenship are defined as:

1. Elementary
2. Engaged
3. Innovative
4. Integrated
5. Transforming
In the elementary stage, a company’s citizenship activities are basic and undefined because
there are scant corporate awareness and little to no senior management involvement. Small

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businesses, in particular, tend to linger in this stage. They are able to comply with the standard
health, safety, and environmental laws, but they do not have the time nor the resources to fully
develop greater community involvement.
In the engagement stage, companies will often develop policies that promote the involvement
of employees and managers in activities that exceed rudimentary compliance to basic laws.
Citizenship policies become more comprehensive in the innovative stage, with increased
meetings and consultations with shareholders and through participation in forums and other
outlets that promote innovative corporate citizenship policies.
In the integrated stage, citizenship activities are formalized and blend in fluidly with the
company’s regular operations. Performance in community activities is monitored, and these
activities are driven into the lines of business.
Once companies reach the transforming stage, they understand that corporate citizenship
plays a strategic part in fueling sales growth and expansion to new markets. Economic and social
involvement is a regular part of a company’s daily operations in this stage.
https://www.investopedia.com/terms/c/corporatecitizenship.asp