Corporate Social Responsibility and Corporate Sustainability
A Pro-active Approach will eventually pay off
Over the years many researchers have found it hard to define exactly what Corporate Social Responsibility encompasses. It is important not to see CSR as a separate and definite concept. It overlaps greatly with many other ideas like business ethics, environmental management, social performance and corporate sustainability. Subjects of research have not only been exact definitions of concepts but also overall benefits, extend of responsibility for businesses and impacts of adopting different CSR measures.
In the early years of CSR, mainly after the 1960s, social consciousness of CSR started to spread. The awareness of the need to balance competing claims to corporate resources in years to come and a first recognition of responsibility of companies and managers to get more involved in community affairs led to an era of corporate philanthropy. By donating large sums to charity and letting the public know about it, most companies felt absolved of their responsibility to society and rather spent their time and money making profits for their shareholders. In the following years, however, after more and more studies were conducted on CSR topics, researchers slowly started to question the benefits and impacts of philanthropic CSR and new ideas like innovation-oriented and impact-oriented CSR began to appear.
In the last few years the term CSR has become even more widespread and it is now generally agreed that businesses should take on a certain responsibilities to society and the environment while also focusing on making profits, adding value without exploiting anyone in return. Not only businesses in developed countries have adopted CSR initiatives, also emerging nations slowly start to show an interest. What is more, the number of published literature on the topic has been increasing steadily in the last 60 years, which helps more and more companies to realise the importance and benefits of CSR. Looking at annual reports and websites of all kind one can see topics of environmental and social issues being discussed on a big scale.
Interestingly many ambiguous definitions for CSR can be found. A commonly used and often cited definition for Corporate Social Responsibility, was defined by Carroll (1979), which states that “the social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time”. Also a few newer definitions exist, one example being “Corporate Sustainability & Responsibility” with the same abbreviation CSR, or to avoid confusion also known as CSR 2.0. This definition tries to combine the concept of Corporate Sustainability (CS) with CSR.
The term CS has always encompassed social and environmental issues and since environmental issues were also integrated in CSR in recent years, it is difficult to draw boundaries between CS and CSR. It can be said that the general objectives of the two are very similar and they work towards a common overall goal. The research on CSR and CS differs though, in the belief of how independent social and economic components are. CS describes the economy as part of society, which is part of the ecological system. Therefore economic, social and environmental performance should be simultaneously integrated without emphasising one over any other.
This integrative view comes with a firm’s presupposed acceptation of tensions in CS and its willingness to pursue seemingly contradicting sustainability aspects. It can still be widely observed, however, that the economic dimension is prioritised over the other two and certain social measures will only be taken if they can be aligned with financial outcomes. Decision-makers should acknowledge, understand and address situations that contain tensions and paradoxes in order achieve a consistency between financial, environmental and social dimensions.
Researchers have found that firms play a key role in sustainable development because they have the resources (capital), the long-term viability and the functional expertise to make a difference. Even though sustainability can only be achieved if many firms strive for it and a single organisation cannot become sustainable according to Jennings and Zandbergen (1995), it is still necessary that every firm tries its best to add to the overall trend of sustainability. Another thing that has to be considered is that in many situations a decision for long-term orientation might not have been the best course of action for the short-term performance, financially or socially. It is not always easy to choose the intergenerational equity over a momentary interest or short-term benefits.
This brings me to the importance of pro-acting versus reacting.
It can be observed in many everyday situations that Pro-acting (anticipating, planning and initiating) is more practical and less costly than simply reacting to social problems once they have appeared. This is definitely a point in favour for CSR and easy to understand with our common sense. Also studies, like Berman et al. (1999) have found that ‘being proactive on environmental issues can lower the costs of complying with present and future environmental regulations… and…enhance firm efficiencies and drive down operating costs’.
The problem with implementing a strategy of pro-active CSR is that often the employees are not encouraged enough to spend their time on it. It can generally be said that employees need to be encouraged by their management, not forced to adopt CSR measures. Their commitment and willingness plays a big role in the success of CSR initiatives. An approach to strengthen pro-activity regarding CSR is a focus on creating positives instead of just avoiding negatives. If people get the feeling that doing good (for others, for the environment etc.) will help them to do well, they are much more likely to be motivated and come up with innovative, self-developed ideas to further strengthen Social Performance.
Many research questions have been addressed in the past years but researchers acknowledge the fact that we still have major gaps in our knowledge in certain areas of CSR.
Herman Aguinis and Ante Glavas have found that CSR literature is fragmented because different levels of analysis are used to study CSR. Whereas a lot of literature can be found where CSR is studied at a Macro level (institutions, organizations), they suggest also focusing on the micro level (individual) and multilevel approach. The choice of a level of analysis also comes with basing it on different theoretical orientations. Anguinis and Glavas have therefore provided a new classification for predicators and outcomes of CSR as well as mediators and moderators of CSR relationships in order to make the different levels of analysis more comparable.
They have categorised the predictors into reactive and proactive, depending on the willingness of a firm to engage in CSR. Outcomes of CSR actions where classified as either external or internal depending on the effect on stakeholders. They also studied why certain measures lead to certain outcomes and summed these mediators up in two categories: relationships between parties (firm-stakeholder, employee-supervisor) and values (individual, firms, stakeholders).
One study found that a manager emphasising on CSR values is likely to be seen as a visionary leader and can then better encourage employees to extra effort which leads to the company’s improved performance. People are therefore considered an important moderator of CSR-outcomes relationships and fall into the „four Ps”: People, place, price and profile (Anguinis and Glavas). Not only employees’ commitment but also management tactics and CSR awareness fall into the people category. The Place category refers to the environment of a firms location, the country, the international diversification and the community they operate in. It is also very important to consider how much money a firm is willing to invest into CSR. Research and development costs can be considered moderators in the price category. The profile category includes variables like a company’s size or its resources.
It was also found that Studies at the institutional and organizational levels focus more on financial outcomes, potential risks for the company, stakeholder interest while acting within official regulations and standards. Business people, in particular, like to think of their financial performance as something that they are doing not only for themselves, but also for society, as they fulfil their institutions’ mission to provide goods and services for society. These people are likely to object to CSR on the basis that businesses do not have the necessary social skills to handle social activities or that CSR dilutes businesses’ primary purpose. Then again, others argue that ‘through a competence orientation, companies may align their philanthropic activities with their capabilities and core competencies. In so doing, they avoid distractions from the core business, enhance the efficiency of their charitable activities and assure unique value creation for the beneficiaries’ (Bruch and Walter 2005, p. 50).
A direct relationship between CSR and financial performance has not always found in studies (e.g. Surroca, Tribo, and Waddock 2010). Some argue that the relationship is dependant on firm’s resources; others say it depends on how well the taken measures suit the company. Barnett (2007) believes that the impact of CSR on CSP even varies from one firm to the other. It has also happened that the effect of CSR activities on firm financial performance can be seen clearly and directly. In other cases the effect of CSR activity on firm performance may only be seen through the understanding of mediating variables and situational circumstances. As a result, more and more researchers appreciate the complexity of the relationship between CSP and CFP while still pursuing to establishing a positive relationship between the two.
It is important to recognize the interdependence between businesses and society and every firm needs to understand that it is absolutely necessary to act now, better than later. I hope that research will continue in many of these areas and awareness will continue to grow.