Business Ethics and CSR: Impact on Organizational Performance

Introduction and Historical Origins of CSR

"To act in a socially responsible way requires organizational leaders to consider the effect of their decisions on the well-being of society; thus, managers must ask themselves what their actions do to society and what their actions do for society." — Ronald Sims (2003, p. 66)

Corporate social responsibility and business ethics have become the focus of an increasing amount of attention from the business sector and from academicians following the scandal-ridden era of Enron and others during the 1990s. Although the findings from the research to date are mixed, there is a growing body of research in this area that has lent support to the notion that ethical business practices and corporate social responsibility initiatives have a positive impact on companies in terms of profitability as well as other less quantifiable areas. This review of literature examines these issues systematically to identify current trends and to describe the positive impacts that ethical business practices and corporate social responsibility programs can have for companies of all sizes and types.

There is a growing recognition among the business community that organizations have a fundamental responsibility to "give back" to the communities in which they compete, but this concern is certainly not new. The informal concern for social responsibility dates to antiquity, but formal concerns emerged during the late 1930s and early 1940s following the publication of Chester Barnard's book, Functions of the Executive, and Theodore Krep's Measurement of the Social Performance of Business, which outlined the social responsibilities of executives and businesses (Kumar & Sabharwal, 2013).

The origins of the modern era of corporate social responsibility date to the mid-1950s following the publication of Howard Bowen's book, Social Responsibilities of the Businessman, which was the source of the term "corporate social responsibility" (Kumar & Sabharwal, 2013). In his book, Bowen asked: "What responsibilities to society can business people be reasonably expected to assume?" He offered an early definition for corporate social responsibility, which he said "refers to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society" (cited in Kumar & Sabharwal, 2013, p. 70).

Defining Corporate Social Responsibility

More recently, corporate social responsibility (hereinafter alternatively "CSR") has been defined in various ways, emphasizing its different aspects and intended outcomes. For instance, CSR has been alternatively described as "a function that transcends but includes making profits, creating jobs and producing goods and services" and "the positive actions that a company takes to help discharge its responsibilities to external stakeholders" (Smith & Langford, 2009, p. 97). Although there is no universally agreed-upon definition for CSR, some of the activities that have been associated with corporate social responsibility include the following:

Based on these definitions and activities, a number of different practices have been included under the corporate social responsibility umbrella, including sponsoring charitable events, cause-related marketing, making charitable donations, offering employee volunteerism programs, utilizing environmental initiatives, and demonstrating a commitment to health and safety issues (Smith & Langford, 2009).

In addition, there has been a four-part conceptualization of corporate social responsibility that includes economic, legal, ethical, and philanthropic components (Smith & Langford, 2009). This model holds that all business responsibilities are dependent on an organization's economic responsibility to remain viable — a responsibility that includes maximizing profitability and maintaining a strong competitive position (Smith & Langford, 2009). There are also legal responsibilities associated with corporate social responsibility, such as complying with all relevant laws and regulations (Smith & Langford, 2009).

Likewise, the ethical responsibilities of organizations extend to societal standards, expectations, and norms that are not specifically covered by relevant legislation (Smith & Langford, 2009). Finally, an organization's philanthropic responsibilities include actions aligned with social expectations that companies should be good corporate citizens and "give back" to the communities in which they compete, and more generally to simply "do the right thing" (Smith & Langford, 2009). According to Smith and Langford, philanthropic responsibilities are "distinguished from ethical responsibilities in that they are of a charitable nature and, as such, a company is not considered unethical if it does not provide them" (2009, p. 98).

Taken together, the origins of corporate social responsibility and the foregoing definitions provide a useful framework for evaluating the sources of and implications for practitioners today. The four-part conceptualization of corporate social responsibility can also be viewed as a hierarchy — often depicted as the CSR Pyramid — with the satisfaction of the economic component serving as a prerequisite for achieving the legal, ethical, and philanthropic aspects.

Business Ethics and Stakeholder Theory

Just as the origins of social responsibility date to antiquity, so too do the origins of business ethics in general. In this regard, Marcoux (2006) reports that, "Business ethics is either ancient or very new. Construed broadly as moral reflection on commerce, business ethics is probably as old as trade itself" (p. 51). For instance, the Code of Hammurabi (c. 1700 BCE) established prices, tariffs, and rules of commerce that carried severe penalties for noncompliance (Marcoux, 2006). In addition, Aristotle's Politics (c. 300 BCE) outlined the general moral aspects of commerce, and the scriptural texts of the world's mainstream religions include moral rules for commercial activities (Marcoux, 2006).

Modern business ethics focus on organizational life in general and on organizational life within the firm in particular (Marcoux, 2006). According to Marcoux, "This focus on the organization and its management is evident in what is widely regarded among business ethicists as the most significant theoretical construct in their discipline, stakeholder theory" (2006, p. 51). Stakeholder theory holds that a business should be operated in a fashion that attains a viable balance between the various interests of everyone who has a substantial relationship with the business — its stakeholders (Marcoux, 2006). Clearly, the definition of a business's stakeholders can extend to include its stockholders, employees, supply chain partners, consumers, and even the population at large, especially when the enterprise's activities have an environmental impact.

This conceptualization is congruent with the findings of a study by Popa and Salante (2014), which showed, "Corporate social responsibility can be viewed as an organization's attempts to achieve a balance between the economic, environmental and social imperatives without foregoing the expectations of shareholders, and give something back to the wider community" (p. 139).

From a strictly pragmatic perspective, corporate social responsibility would appear to be naturally in a company's best interests because it contributes to the welfare of the communities in which they compete. As Fisher (2007) points out, "Business and community are one and the same; we inhabit a common space and access common resources. Communities house our employees and their families, our company stakeholders, and our neighbors who are dependent on access to pooled resources" (p. 11). Even in highly developed and industrialized nations, there are communities that have been marginalized and which require a significant redistribution of wealth to achieve parity with the mainstream societies in which they exist — and this is one area where corporate social responsibility can play an important role. As Fisher notes, "Access to resources is not always equal or balanced. CSR ultimately requires consideration of, and positive actions towards balancing that access to key resources across communities" (p. 11).

Notwithstanding the growing recognition of the need for corporate social responsibility, there has not necessarily been a corresponding increase in the business ethics that support the process. For instance, Jewe (2008) cites the erosion of ethical practices in recent years as epitomized by Enron and others, and argues that, "The challenge in coming years will be to create corporate cultures that encourage and reward integrity as much as creativity and entrepreneurship. Executives need to start at the top, becoming exemplary managers [and] the moral compasses for the company" (p. 2). The results of the limited research in this area indicate that business leaders who model ethical behaviors reduce misconduct in the workplace compared to those who do not (Jewe, 2008). Although quantifying the specific contributions of a reduction in workplace misconduct is difficult, it is reasonable to suggest that the impact will be positive. Jewe concludes that, "It would appear that the integrity of those leading organizations, and the ethical behavior of such leaders in the workplace, can have a positive impact on their employees and the organization as a whole" (2008, p. 3).

These findings are in sharp contrast to the corporate culture that existed in the not-too-distant past, which placed a higher priority on firm performance than on the company's impact on its stakeholders. As Creel (2011) points out: "Many corporations now routinely engage in socially responsible behavior as a part of their business operations. A generation or two ago, this was virtually unheard of in the United States. In fact, Americans were more likely to hear of what 'Big Business' was doing to spoil the environment rather than repair it" (p. 23). Indeed, Upton Sinclair's The Jungle and other reformist efforts resulted in a wholesale revision in the way businesses operated — including practices that could be viewed as socially responsible today.

References

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Jones, A. & Jonas, G. A. (2011, February). Corporate social responsibility reporting: The growing need for input from the accounting profession. The CPA Journal, 81(2), 65–69.

Kumar, V. & Sabharwal, S. (2013, July–December). Corporate social responsibility: A discourse. Political Economy Journal of India, 22(2), 69–74.

Marcoux, A. M. (2006, Spring). The concept of business in business ethics. Journal of Private Enterprise, 21(2), 50–55.

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Mohr, L. A. & Webb, D. J. (2009, Summer). The effects of corporate social responsibility and price on consumer responses. The Journal of Consumer Affairs, 39(1), 121–129.

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Sims, R. R. (2003). Ethics and corporate social responsibility: Why giants fall. Westport, CT: Praeger.

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