Business Horizons (2007) 50, 449–454

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The evolution of corporate social responsibility
Philip L. Cochran
Kelley School of Business, Indiana University, 801 West Michigan Street, BS 4049, Indianapolis, IN 46202-5151, USA

1. CSR: My, how you’ve grown (and changed!)
Over the past several decades, corporate social responsibility (CSR) has grown from a narrow and often marginalized notion into a complex and multifaceted concept, one which is increasingly central to much of today’s corporate decision making. To the extent that corporate social responsibility was even discussed several decades ago, these discussions were confined to a small group of academics. Among the first academics to debate the topic were Columbia professor Adolf A. Berle and Harvard professor E. Merrick Dodd, in a series of articles featured in the Harvard Law Review. Whereas Berle contended that managers were responsible only to a firm’s shareholders, Dodd argued that managers had a wider range of responsibilities. In a classic exchange, Professor Dodd (1932) asked: “For whom are corporate managers trustees?” (p. 1145). Answering his own query, he posited that corporate managers were responsible to the public as a whole, and not just to shareholders. The crux of Dodd’s argument was his contention that, in addition to the economic responsibilities they owed shareholders, managers had social responsibilities to society because the modern large firm is “permitted and encouraged by the law primarily because it is of service to the community rather than because it is a source of profit to its owners” (Dodd, 1932, p. 1149). This reasoning became the intellectual basis for the
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assertion that firms have a corporate social responsibility. Although many other proponents of “shareholder primacy” still disagree, by 1954, Professor Berle famously declared that “the argument has been settled (at least for the time being) squarely in favor of Professor Dodd’s contention” (Berle, 1954, p. 169). During the 1950s and 1960s, the United States witnessed the birth of the modern activist movements. The modern civil rights movement gained momentum with the 1954 decision of Brown v. Board of Education. The environmental movement was at least in part sparked by the publication of Rachael Carson’s (1962) Silent Spring. Some trace the beginnings of the modern consumer movement back to the publication of Ralph Nader’s (1965) first book, Unsafe at Any Speed. The Vietnam War of the 1960s and early 1970s swept these and other social movements together, permanently changing the business environment in America and the world by ushering in an era of activist groups and NGOs that are concerned about businesses and business practices, and which today often attempt to focus media attention on business practices they consider to be unethical or irresponsible. Unwanted media attention can seriously tarnish corporate reputation, which in turn can lead to decreases in sales or employee dissatisfaction. If firms do not react appropriately, this media attention can also lead to unwanted legislation and regulation. In today’s business environment, executives must either embrace corporate social responsibility or risk serious consequences. As a result, the focus of the debate changed in the 1970s from corporate social responsibility to

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In fact. If a firm has no competitive advantage in a given philanthropic area. organizations should find social needs that align with their particular expertise. the firms were reacting by changing products. $1500 to Princeton University without violating shareholder interest” (Burlingame. Cisco contributed networking equipment to schools in its region. The range of appropriate responses has. The term corporate social performance was first coined by Sethi (1975). The authors cited the Cisco Networking Academy as an example. 104). Cisco dramatically increased the pool of trained network administrators. but also benefit the firm. there was a stigma attached to activities that also produced benefits for the firm. Instead. and then refined by Wartick and Cochran (1985). when corporations began giving for purposes not directly related to immediate corporate benefit. In the decades that followed. policies. This could include donations to universities. the authors noted that “[i]n the long run…social and economic goals are not inherently conflicting but integrally connected” (p. Late in the decade. local operas. Then. William Frederick (1978) wrote a much cited working paper entitled From CSR1 to CSR2: The Maturing of Business-and-Society Thought. In this decision. In response. As such. the company ramped up the program and began systematically offering it in more and more schools. more than half of whom found employment in the IT industry. as well. P Smith Manufacturing Company to donate . From this viewpoint. An important intellectual tipping point occurred with the publication of an article in the Harvard Business Review by Michael Porter and Mark Kramer (2002).450 corporate social responsiveness. Barlow. p. businesses should emphasize projects that have both significant financial and social returns. the idea behind corporate social performance is the recognition that firms do have ethical obligations and that they must also respond pragmatically to social pressures. it could easily be extended to virtually any form of CSR.000 students. their charitable activities were pursued as individuals and not on behalf of corporations. by increasing the number and quality of network administrators.” which Peters and Waterman (1982) described when they contended that firms should concentrate on their core competencies and not be distracted by other apparently interesting opportunities in which they have little to no expertise. For example. which built a powerful argument in favor of a . Although Porter and Kramer applied this principle to philanthropy. and soon students were taking these classes. Basically. Cisco began opening academies in developing countries. Thus. One major tenet of this phase of corporate philanthropy was that it be “from the heart. Porter and Kramer argue that firms should not simply throw money at good causes. Many argued that activities that also enhance the firm’s bottom line should not be seen as “philanthropic. Barlow opened the floodgates of corporate philanthropy. basically as a goodwill gesture. and many social investments have economic returns. expanded by Carroll (1979). When the United Nations became interested. Although early capitalists such as Andrew Carnegie were renowned philanthropists. Further. It soon became clear. From philanthropy to strategic philanthropy One of the pioneering aspects of corporate social responsibility was corporate philanthropy. 2004. Instead of trying to keep these two types of returns totally separate. they pointed out that many economic investments have social returns. 5). they were pragmatically responding to various social pressures. some Cisco engineers decided to help train involved teachers to maintain the equipment. it is likely that any investment it makes in that area will have little to no long-run impact. however.000 academies and graduated over 115. Porter and Kramer suggest that firms use the basic fundamentals of corporate strategy to find those philanthropic areas that not only benefit society. Within five years. This benefited not only the students who were trained in network administration but also Cisco. the “gold standard” for corporate philanthropy was for firms to make philanthropic contributions that would improve the overall health of the larger society. At that point. Through the relatively minor investment of $150 million. “the New Jersey Supreme Court cleared the way for A.” rather than focused on any clear business or “bottom line” gain. This concept is similar to the business strategy of “sticking to your knitting. it would 2. EXECUTIVE DIGEST new type of corporate philanthropy. Cisco realized there was a significant demand for such training. Initially. In this piece. they began to focus their academies in economically challenged communities. Instead. the firm had established nearly 10. grown dramatically over the past several decades. began in 1953 as a result of Smith v. in which he noted that firms were no longer simply involved in an academic debate about the ethics of different degrees of social responsibility. at the urging of the US Department of Education. that these schools did not have the expertise to manage the donated hardware. as various activist groups began applying media and other pressures to firms. or any other worthy social service cause. The era of modern corporate philanthropy.” but viewed strictly as business decisions. with over 1 million unfilled IT jobs worldwide. however. etc.

In this case. or community investment. She would be very concerned about measuring outcomes. $2. funds focus their investments in areas such as non-profits. Although but one factor in the eventual collapse of the white minority regime. It consists of representatives from major institutional investors. 4. 3. social advocacy. Socially responsible investing entails following one of three broad strategies: screening. This is similar to voting in national elections: while it is very unlikely that any single individual can make a difference. In fact. but rather that when it does so. The reason for their existence is not to maximize return to shareholders. and advocates in the area of climate change. and organize the enterprise.29 trillion in assets was socially managed in 2005. One of the best known social entrepreneurs is Professor Mohammed Yunus. On occasion. many stockholders can make a major difference. gambling.EXECUTIVE DIGEST seem to make little sense for a computer manufacturer to spend funds on building homeless shelters. The central idea behind social investing is that it is possible for groups of individuals to have an impact on the practices and policies of firms through market mechanisms. and over 15 countries. Funds with positive screens invest in firms that are viewed as socially responsible.2. customers. it will also lobby for climate change legislation. According to the Social Investment Forum (2006). defense. market the product. Timberland. Examples of such organizations include Herman Miller. In addition. Companies that focus on causes in their area of expertise will almost certainly be more efficient at addressing social needs. and other stakeholder groups. or those that are categorized as terrorist states. community facilities. with the growing number of boycotts of firms that were doing business in South Africa. rather than try to minimize it. 3. Such funds run the gamut and often exclude firms that deal in tobacco. From investing to socially responsible investing The modern history of socially responsible investing (SRI) can be traced back to the activist movements of the 1960s and 1970s. Social enterprises are enterprises devoted to solving social problems. the sum of all individuals can make a substantial difference. and Starbucks. small businesses. it should engage in an activity or issue closer to its area of expertise. They have policies and practices lauded by the firm’s employees. 451 might screen out firms that operate in countries with human rights abuses or repressive regimes. Porter and Kramer suggest that firms should exploit this synergy between the social and the economic. an MBA facing a social problem would be concerned with how to finance the operations. this successful social movement provided the model for similar movements. The INCR is a network of over 60 institutional investors that is concerned with climate change. Here. Community investment The final strategy of SRI is community investing. but to make a positive social impact.3. he or she can make a small difference. cooperatives. This represents nearly 10% of all managed assets. IBM. SRI is a large and sophisticated movement. alcohol. Professor Yunus’ first experiment 3. One example of social advocacy is the Investor Network on Climate Risk (INCR). funds research. The INCR holds conferences. and nuclear power. What unites this disparate group is the recognition that either their investment portfolios or their beneficiaries are vulnerable to the risks posed by climate change. or operate in distasteful industries or countries. a number of states.1. This is not to suggest that the computer manufacturer should not engage in philanthropy. they . By not purchasing or by selling the shares of certain firms that are engaged in practices that the stockholder finds objectionable. Those with negative screens weed out firms that produce objectionable goods and services. and would be wise to leave to a construction company the charitable provision of sheltering homeless citizens. Social advocacy A second focus of socially responsible investing is social advocacy. Screening Screened funds have either negative screens or positive screens. Presumably. From entrepreneurship to social entrepreneurship Social entrepreneurship is the process of applying the principles of business and entrepreneurship to social problems. She would recognize that it will be necessary to generate funds in order to pay for the ongoing social investments. all of which tend to rank near the top of the most recent lists of ethical and socially responsible firms. Today. 3. and affordable housing. Acting in unison. who founded the field of micro lending. a computer manufacturer might have a goal of providing free or low cost computing solutions for the poor. The principle behind community investment is to make investments that will strengthen local communities. The real boost to social investing occurred in the 1960s. One way to envision social entrepreneurship is to picture how an MBA might tackle a social problem.

strategy. An early recipient of a MacArthur Prize (sometimes referred to as the “genius 7. A joint venture of the Kelley School of Business. This finding is similar to results of earlier studies. Ultimately. seller. focus on CSR issues. Since 1981. 2002). This MBA in CSR examines the full range of socially responsible organizations.” EXECUTIVE DIGEST grant”). Professor Yunus founded Grameen Bank in 1976 as a trial to determine whether it was feasible to systematically provide credit and banking services without collateral to the very poor (in his words. the organization has named over 1800 Ashoka Fellows from over 60 countries. the School of Public and Environmental Affairs. Corporate social responsibility and profitability Several hundred academic studies have attempted to analyze the relationship between corporate social responsibility and profitability. Green Mountain Coffee represents another type of social venture: it makes a profit. grants a degree in the field. at least in part. A recent metaanalysis suggests “the cost of having a high level of corporate social responsibility is minimal and that firms may actually benefit from socially responsible actions” (Wu. 2006. and networking opportunities (www. Following that and similar experiences whereby he funded loans using his own money. Another social venture capital firm. living stipends. such as Abbott and Monsen . For example. As of March 2007. and social capital markets” (Aisner & Kavanagh. when he lent $27 to 42 families in rural Bangladesh so that each could purchase a small inventory of items to sell for a profit (Knowledge@Wharton. but at the same time entertains a significant social mission. and the Center on Philanthropy. providing them with training. Today. using courses from all three of these highly rated entities. Indiana University now offers a certificate program in Social Entrepreneurship for graduate students. The exclusive roaster. but also engage in a rigorous process of training future social entrepreneurs.” This plan supports “the creation. Ashoka’s annual budget is in excess of $30 from forprofit through public. these funds are recycled into the community by extending more loans. was founded by Bill Drayton. in the fundamentals of social enterprise. Green Mountain gives at least 5% of its pre-tax profits to a range of social initiatives. Of critical significance is that once loans are repaid to Grameen Bank. 2007). the program requires that MBA students (and others) take 18 credit hours to prepare them to help solve social problems.000. Ashoka. Drayton founded Ashoka with an initial investment of $50. the company has invested $25 million in the program and has seen its Fellows subsequently raise an additional $938 million. The CSR movement has now reached the point that at least one MBA program. Grameen Bank was able to achieve an astounding repayment rate of over 98% (Yunus. as Echoing Green Fellows. 5. the institution had lent over $6. In addition. Echoing Green has supported over 400 social entrepreneurs. Green Mountain Coffee has been recognized by Forbes magazine as one of the “200 Best Small Companies in America. Mohammed Yunus and Grameen Bank were named recipients of the 2006 Nobel Peace Prize. These loans were subsequently repaid in full. 168). the Harvard Business School created an “Initiative on Social Enterprise. 1999). 2007). Students apply principles of CSR and business ethics through the spectrum of functional courses. and distributor of Newman’s Own Fair Trade Certified coffees. For example. representing a nearly 40-fold leverage on the initial investment (Echoing Green. “the poorest of the poor”) in developing countries. and networking opportunities.452 in micro lending occurred in 1972. The firm. In 1993. From an MBA to an MBA in CSR A number of MBA programs have begun to focus on the area of social responsibility and social entrepreneurship.13 billion (Grameen Bank. Social venture capitalists not only supply seed money to social ventures. and earned a profit in all but three years of its existence. corporate involvement in the social sector. 2007). For pioneering work in micro credit. the program prepares individuals for careers that will.ashoka. involving over 40 faculty and more than 300 students in this innovative program. From venture capital fund to social venture capital fund Supporting the growth in social ventures is a new type of venture capitalist. consulting help. the governance of social nonprofit organizations. p. After several years of testing. Beyond providing seed money and training. and management of social enterprises. which produces a variety of fine coffees. also supports a wide range of social causes. Drayton was in 2005 named one of America’s top 25 leaders by US News & World Report. Covering individuals for two year terms. The Initiative on Social Enterprise now consists of one required MBA course and seven elective courses. Nottingham University (in conjunction with Nottingham’s International Centre for Corporate Social Responsibility (ICCSR)). Echoing Green provides technical assistance. 6. In 1980.

2005). and free medical care on site (Fortune. F. Harvard University Gazette . In fact. 659). engineers at Google are allowed to spend up to 20% of their time working on projects of their own choosing. in part due to the quality of the customer experience. J. Schuler. & Kavanagh. in 2007. such firms are less likely to see seriously onerous regulations imposed on their industries. Consider the fact that. 658). A. 8. the overall success of any organization is a result of its entire portfolio of management practices and policies.4. It is rare when a single factor can explain why any specific organization is successful or unsuccessful. be used to enhance the bottom line. 7. Rehbein. Turban and Greening (1997) demonstrated that “a firm’s CSP may provide a competitive advantage in attracting applicants” (p. The authors went on to argue that firms develop a competitive advantage by being perceived as great places to work. In fact.. and reporting on their activities will generally be significantly more positive. the actual relationship is very difficult to parse out in empirical studies. like conclusions can be found. many would claim the firm is one of the most “fun” for employees: it offers free meals. 453 are likely to be repeat customers. Media Positive media relations can be absolutely critical to organizations in today’s media rich environment. et cetera.1. Firms that are seen as socially responsible will have an edge over other firms. Clearly. W. In addition. On the measurement of corporate social responsibility: Self reported disclosures as a method of measuring social involvement. Starbucks can charge five to ten times as much for a cup of coffee than does the local convenience store.. With an exceptionally low turnover rate and very high employee morale. In an important empirical study of this phenomenon. Academy of Management Journal.EXECUTIVE DIGEST (1979). 2006). Organizations that do a poor job with media relations risk damaging their reputation (Motion & Weaver. Examining the marketing or the research-and-development literature. argues that “[w]ith more than 40 million customers per week worldwide. 7. Customers who are delighted References Abbott. Firms that successfully pursue a strategy of seeking profits while solving social needs may well earn better reputations with their employees. As a result. Moreover. Starbucks must continually find ways to surprise and delight customers by offering the highest quality products and services” (Business Wire. R. Google was named by Fortune magazine as the best company for which to work. lead to higher profits for the firms’ shareholders. particularly those with socially irresponsible reputations. This can. combined with industry and economic conditions. 2007). For example. It is important to understand this does not mean that firms which engage in socially responsible activities will always be more successful. Aisner. 22(3). Employees Firms that have good employee relations are likely to have significantly lower turnover rates and a substantially more enthusiastic workforce. Google falls into that category. and should. (1979). and are more likely to be able to anticipate and react to new regulations. J.2. Nonetheless. and should not be surprising. factors such as these are likely to enhance Google’s bottom line over time. it is undoubtedly a function of the specific industry and the environmental conditions faced by any specific firm at any given point in time. (1999). Importantly. economic decisions should also be screened for their social impact. Google can choose from the best of the best when hiring staff members. if not all. & Monsen. Companies of good repute are much more likely to be believed. governments. it is possible to find mechanisms by which CSR might enhance profitability by examining the impact of social responsibility on various stakeholders. Howard Schultz. As a result of all these perks. a spa.3. 501−515. In a study of how firms can acquire strategic advantage through political means. Although higher levels of both marketing and R&D are often associated with higher profits. chairman of Starbucks. media. Customers An excellent customer experience is a core element for most successful firms. they are expected to be able to help mold new regulations in ways that are less likely to damage their basic business practices. The bottom line Perhaps the most important intellectual breakthrough regarding modern conceptions of CSR is that socially responsible activities can. Economic returns and social returns should not remain quarantined in isolated units. Governments Strong government relations can also help companies in a number of dimensions. Business school honored for social enterprise activities. the company of 6000 employees receives over 1300 résumés a day. The corollary is that most. 7. and Cramer (2002) found that “firms with access to those who make public policy enjoy competitive advantage” (p. in turn. 7. customers. plus a certain degree of luck.

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