5.3 What is corporate social responsibility?

Corporate social responsibility (CSR) refers to the concern of businesses for the welfare of
society. It consists of obligations beyond those required by law or social contract. This
definition makes two important points. First, CSR is voluntary. Beneficial activities that are
mandated by law, such as cleaning up toxic factories or paying employees, are not voluntary.
Second, the obligations of CSR are broad. A business obligation extends beyond investors to
include labour, suppliers, consumers, communities and society at large.

Economic responsibility is depicted in figure 5.2 as the foundation for the other three
responsibilities. At the same time a business pursues profits (economic responsibility) it is
also expected to obey the law (legal responsibility); and to do what is right, just and fair
(ethical responsibility); and to be a good corporate citizen (philanthropic responsibility).
These four elements are unique, but together they constitute a whole. If a business does not
make a profit, the other three responsibilities will not matter.

Many businesses continue to work hard to make the world a better place to live in. Recent
data suggests that multinational businesses spend billions annually on CSR activities.
Consider the following examples:

• A business donating tens of thousands of meals to local communities.

• A business encouraging its employees to volunteer in community activities and
paying or rewarding them for doing so.
• A business providing scholarship for the needy and deserving children in the local
community.
5.3.1 Understanding social responsibility

Peter Drucker, the late globally respected management expert and scholar, said that we
should first look at what a business does to society and second at what it can do for society.
This suggests that social responsibility has two basic dimensions: legality and responsibility.

a) Illegal and irresponsible behaviour

The concept of CSR is so widespread today that it is hard to understand why a business
continually acts in illegal and irresponsible ways. Nevertheless, such behaviour does
sometimes occur, which can create financial ruin for a business, extreme financial hardships
for many retired employees and general struggles for the communities in which the business
operate. Unfortunately, top executives still walk away with millions. Some, however, will
ultimately face the law, pay large fines and spend time in prison for their actions.

b) Irresponsible but legal behaviour

Sometimes businesses act irresponsibly, yet their actions are legal. For example, a Durban-
based business that manufactures electric blankets was recently fined R1 million by the
Department of Health for making unsubstantiated claims that the “most comfortable blanket
you’ll ever own” could help alleviate medical conditions such as snoring, fibromyalgia,
migraines and other disorders. The CEO countered that the claims were made by customers;
these testimonials were posted on the business's website but later removed. In addition to the
fine, the business faced several class-action lawsuits, and the South African Bureau of
Standards has revoked the blanket’s accreditation.

c) Legal and responsible behaviour

Most business activities fall into the category of behaviour that is both legal and responsible.
Most businesses act legally, and most try to be socially responsible. Research shows that
consumers, especially those under 30 years old, are likely to buy brands that have excellent
ethical track records and community involvement.

5.4 Responsibilities towards stakeholders

How do businesses meet their social responsibilities towards various stakeholders? What
makes a business to be admired or perceived as socially responsible? The answer is, such a
business meets its obligations to its stakeholders. Stakeholders are the individuals or groups
towards whom a business has a responsibility. The stakeholders of a business are its
employees, its customers, the general public and its investors. The responsibilities of a
business to stakeholders are illustrated in figure 5.3 and discussed.
Figure 5.3: Responsibilities to stakeholders

a) Responsibility to employees

A business's first responsibility is to provide a job to employees. Keeping people employed

and letting them have time to enjoy the fruits of their labour is the finest thing a business can
do for society. Beyond this fundamental responsibility, employers must provide a clean, safe
working environment that is free from all forms of discrimination. Businesses should also
strive to provide job security whenever possible. Enlightened businesses are also empowering
employees to make decisions on their own and suggest solutions to operational and strategic
problems. Empowerment contributes to an employee’s self-worth, which, in turn, increases
productivity and reduces absenteeism. Some companies offer unusual benefits to their
employees. For example, a business may offer employee compensation for taking alternative
methods of transportation to work, such as walking or cycling to work. Also, a business may
offer free commuter bus service to all employees.

b) Responsibility to customers

To be successful in today’s business environment, a business must satisfy its customers. A

business must deliver what it promises and should be honest and forthright in everyday
interactions with customers, suppliers and others. Recent research suggests that many
consumers, particularly millennials, prefer to do business with companies and brands that
communicate socially responsible messages; utilise sustainable manufacturing processes and
practice ethical business standards.

c) Responsibility to society

A business must also be responsible to society. A business provides a community with jobs,
goods and services. It also pays taxes that go towards supporting schools, hospitals and
building better roads. Some businesses have taken an additional step to demonstrate their
commitment to stakeholders and society by sparing a percentage of their profit to support
society.

d) Responsibility to the environmental

A business is also responsible for protecting and improving the world’s fragile environment.
The world’s forests are being destroyed fast. Every second, an area the size of a football field
is laid bare. Plant and animal species are becoming extinct at the rate of 17 per hour. A
continent-size hole is opening in the earth’s protective ozone shield. Each year we throw out
80% more refuse than we did in 1960; as a result, more than half the nation’s landfills are
filled to capacity.

To slow the erosion of the world’s natural resources, many businesses have become more
environmentally responsible. For example, a business may use renewable energy sources
such as solar, wind, geothermal, and waterpower for electricity to run its facilities.

e) Corporate philanthropy

Businesses also display their social responsibility through corporate philanthropy. Corporate
philanthropy includes cash contributions, donations of equipment and products and support
for the volunteer efforts of the business's employees. Non-profit organisations, such as Gift of
the Givers, rely almost entirely on charitable gifts to carry out their programmes and services,
which include disaster relief and humanitarian relief. The funds provided by businesses
enable non-profit organisations to deliver humanitarian relief to victims of numerous
disasters around the world.

f) Responsibilities to investors

The relationships of businesses with investors also entail social responsibility. Although a
business's economic responsibility to make a profit might seem to be its main obligation to its
shareholders, some investors increasingly put more emphasis on other aspects of social
responsibility. Some investors are limiting their investments to securities (stocks and bonds)
that coincide with their beliefs about ethical and social responsibility. This is called social
investing. For example, a social investment fund may not even consider the securities of all
businesses that make tobacco products or liquor, manufacture weapons, or have a history of
being environmentally irresponsible. Not all social investment strategies are alike. Some
ethical mutual funds will not invest in government securities because they help to fund the
military; others freely buy government securities with managers noting that government
funds also support the arts and pay for AIDS research. Today, assets invested, using socially
responsible strategies amount to trillions.

Over the last several years businesses have tried to meet their responsibilities to investors and
other stakeholders, perhaps partly as the result of the global recession that lasted from 2007 to
2009. Recent research suggests that CEOs are increasingly being tied to higher standards by
boards of directors, investors, governments, media, and even employees when it comes to
corporate accountability and ethical behaviour. A recent global study by PwC reveals that
over the last several years, there has been a large increase in the number of CEOs being
forced out due to some sort of ethical lapse in their businesses. Strategies to prevent such
missteps should include establishing a culture of integrity to prevent anyone from breaking
the rules to ensure that business goals and metrics do not create undue pressure on employees
to cut corners, and to implement effective processes and controls to minimise the opportunity
for unethical behaviour.

.5 Trends in corporate social responsibility

What are the trends in corporate social responsibility? Three important trends related to
corporate social responsibility are strategic changes in corporate philanthropy, a new social
contract between employers and employees and the growth of global corporate social
responsibility.

5.5.1 Changes in corporate philanthropy

Historically, corporate philanthropy typically involved businesses seeking out charitable
groups, giving them money or donating business products or services. Today, the focus has
shifted to strategic giving, which ties philanthropy and corporate social responsibility efforts
closely to a business's mission or goals and targets donations to the communities where a
company does business. Some top businesses are recognised for their efforts to give back to
communities.

5.5.2 Social contract between employer and employee

Another trend in social responsibility is the effort by businesses to redefine their relationship
with their employees. Many people have viewed social responsibility as a one-way street that
focuses on the obligations of business to society, employees and others. Now, businesses
recognise that the social contract between employer and employee is an important aspect of
the workplace and that both groups must be committed to working together for the business
to prosper. The social contract can be defined in terms of four important aspects:
compensation, management, culture and learning and development.

When it comes to compensation, businesses today must accept that most employees do not
stay with one business for decades. Thus, businesses need to change their compensation
structure to acknowledge the importance of short-term performance; and to update their
methods of determining compensation, including benefits and other non-traditional perks,
such as increased paid leave and telecommuting options.
In the current workplace environment where employees are likely to jump to new jobs every
couple of years, managers need to take a more active and engaged approach to supervising
employees and perhaps changing the way they think about loyalty, which may be difficult for
managers who are used to supervising the same group of employees for a long
period. Engaging employees on a regular basis, setting realistic expectations and identifying
specific development paths may help retain key employees.

Thanks to today’s tight labour market, some employees feel empowered to demand more
from their employer and its overall culture via strategies such as increased flexibility,
transparency and fairness. This increased importance of the employee’s role in the business's
culture helps workers to stay engaged in the mission of the business and perhaps makes it less
likely that they would look elsewhere for employment.

Finally, rapidly changing technology used in today’s workplace continues to shift the
learning and development component of the employer–employee contract, causing immense
challenges to both business and workers. It may be more difficult to identify the employee
skills that

will be critical over the next several years, causing employers either to improve the training
of current workers or to look outside the business for other individuals who already possess
the technical skills needed to get the job done.

5.5.3 Global social responsibility

When expanding into global markets, South African businesses must take their policies on
corporate social responsibility with them. As a citizen of several countries, a South African
business operating abroad has several responsibilities. These include respecting local
practices and customs, ensuring that there is harmony between the business's staff and the
host population, providing management leadership and developing a solid group of local
managers who will be an asset to their community. When a South African business operating
abroad makes an investment in a foreign country, it should commit to a long-term
relationship which means involving all stakeholders in the host country in decision-making.
Finally, a responsible South African business operating abroad will implement CSR policies
and guidelines within the business in the host country. By fulfilling these responsibilities, the
business will foster respect for both local and international laws. A South African business
operating abroad must often balance conflicting interests of stakeholders when making
decisions on social responsibilities, especially in the area of human rights. Questions
involving child labour, forced labour, minimum wages and workplace safety can be
particularly difficult.