Corporate Social Responsibility: Ethics, Identity & Risk

Introduction to Corporate Social Responsibility

Given the heightened level of international operations and globalization, pressure is mounting for corporations to behave ethically. Corporations are compelled to develop standards, policies, and behaviors that demonstrate their sensitivity to stakeholder concerns. These policies, behaviors, and standards are what the European Commission termed corporate social responsibility. The Commission defined corporate social responsibility (CSR) as "a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis" (Commission, 2001).

Complementing this definition, McWilliams and Siegel (2001) stated that CSR includes all actions intended to forge, beyond the firm's interest, a social good — and that it exists as a requirement in law.

Composition of Corporate Social Responsibility

Corporate social responsibility entails developing solutions specific to a given society. A corporation is not, however, forcefully charged with the obligation to take on all of society's burdens. Proactive social responsibility calls upon the corporation to assume a share of society's burden and contribute to resolving it — perhaps by launching initiatives that target a particular burden or by making resources available to address a difficulty (McWilliams & Siegel, 2001).

The fundamental question is whether corporate citizenship — that is, participation in the social sphere — generates a competitive business edge. From a citizen's perspective, it is understood that involvement in social life is guided by a social contract; citizens expect to receive a higher quality of life in return (Wilson, 2000). Whether this applies when a corporation acts as a corporate citizen is assessed through the kinds of benefits and the reputation directly attributable to CSR (Buckley & Ghauri, 2004).

Consider a corporation that opts to reduce its emissions as both a CSR commitment and a regulatory obligation. The immediate benefits accrue to society through reduced pollution and cleaner air, while the corporation may benefit later when its operations become more sustainable. By meeting regulatory requirements, the corporation may also qualify for certain tax relief provisions (Balmer & Dinnie, 1999).

Beyond meeting minimum emission standards, the corporation is driven to innovate and advance its production technology for efficiency. New emissions-reduction technology can subsequently be sold to other corporations or applied in other locations where the firm operates. The benefits arising from corporate citizenship can multiply to the point of attracting talented and dedicated employees, while the corporation's image in society can rise to even greater heights (Buckley & Ghauri, 2004).

For a corporation to become a fully fledged corporate citizen, its external environment must set conditions for it to meet. Just as in broader society, where roles and obligations are defined and membership is contingent on meeting those obligations, society is expected to establish conditions — through formal regulatory bodies or through informal implied norms — that either foster or constrain corporate citizenship (Mehra, 1996).

Meeting the social values established within a society forms part of corporate social responsibilities and constitutes an important requirement for corporate citizenship (Wan-Jan, 2006). Cultural practices, values, and beliefs in a society ought to be considered in a corporation's operations. Failing to appreciate these values and cultural practices can deal a severe blow to the corporation: it risks being perceived as an outsider, facing intolerable hostility, and seeing its products receive a poor reception in the market (Langman, 2005).

Direct vs. Indirect Corporate Social Responsibility

Corporations must therefore identify ideal measures both for embracing and being embraced by societal values. This social responsibility generates tolerance from society and opens avenues for productive relationships (Wan-Jan, 2006). Respect for a society's culture and values will increase the corporation's worth through the reciprocal respect society offers — expressed through product performance in the market and through motivation in employment participation (Langman, 2005).

Corporate social responsibilities can be grouped into two categories depending on the contributions they make to an organization: direct and indirect benefits. Direct benefits are obtained from the generation of products that raise revenue for the corporation. Indirect benefits involve the development of products or services specific to the firm that require additional steps before revenue can be captured (Commission, 2001).

Direct benefits related to CSR act as a tool for innovation and serve as a market test for products. For example, launching a community banking service to provide financial services to a marginalized group of people may initially appear purely social in orientation. Consider the case of BankBoston, which now provides financial services through more than 47 branches under the name First Community Bank — a clear example of CSR that directly contributes to revenues. The idea of serving and benefiting the community evolved and grew to encompass service provision at an economic and business scale. BankBoston's development also incorporated multilingual ATMs, products for newcomers, equity investment vehicles, and a broad range of services for marginalized individuals, demonstrating how CSR can evolve into shared value creation.

Conclusion

Corporate social responsibilities are now integrated into society, and the internationalization of world business is propelling the trend further. It is unavoidable that corporations will continue venturing into new territories, and equally inevitable that those same corporations will face increasing operational costs in diverse communities. The ideal position is for corporations to uphold their end of the bargain and consider ways to enrich the communities in which they operate. The value added to a community should not be viewed as a total loss, as it yields positive outcomes in the long run.