Arguments For and Against Corporate Social Responsibility

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26th Feb 2020 Business Assignment Reference this

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Corporate Social Responsibility (CSR), as a concept, has attracted much debate from academics and industry professionals alike - particularly over the last half century (Friedman, 1970; Mintzberg, 1983; Freeman, 1984; Stout, 2002; Ciepley, 2018). Though CSR lacks a single, concrete definition, in its broadest terms it can be defined as an organisation’s responsibility to account for, and remediate, the externalities caused by their activities (Garriga & Melé, 2004). Many of the debates surrounding CSR argue whether or not a corporation should have a social responsibility – largely through an ethical lens. The highest profile of said debates is between Friedman’s Shareholder Theory (1970) – posing a corporation’s only responsibility is to maximise the returns for it’s shareholders – and Freeman’s Stakeholder Theory (1984) – arguing that a firm must act responsibly for the impacts its business activity has on wider societal stakeholders. Although both sides have compelling arguments, broadly based on the perceived purpose of a corporations, their theories may not necessarily reflect how corporations actually behave in the real world (Garriga & Melé, 2004). The flexibility in both terms, ‘corporation’ and ‘social responsibility’, ensures that one cannot argue conclusively that corporations should or should not have a social responsibility. Therefore, in order to assess if corporations do have a social responsibility one must explicitly define these terms and analyse cases which prove or disprove the notion. This essay will outline the various conceptions of the corporation and discrepancies in their definitions, as well as arguing that the social responsibility of a firm depends largely on the expectations of external bodies. Historically, a corporation has been defined as “a body created by law for the purpose of attaining public ends, through an appeal to private interests” (Adams, 1897: 16). Though many still subscribe to this definition, in order to fully evaluate whether or not corporations do have a social responsibility, one must define the notion of a ‘corporation’ (Millon, 1990). Four principal theories are regularly cited in literature, each presenting different views of a what a corporation is (Millon, 1990). The earliest corporations were incorporated by decree of the respective government (Philips, 1994), only in circumstances where the corporation would provide a public good or service. This led to the conception of Artificial Theory – suggesting that corporations had been created artificially, for a specific purpose (Philips, 1994). Therefore, as the earliest corporations existed only to provide a public benefit which, by default, must be provided in a socially responsible manner, the corporation would otherwise risk losing its corporate status. This could be argued as State-enforced CSR, as the corporations was accountable to wider stakeholders rather than only shareholders. As such, any executives and managers who view their corporation under Artificial Theory would argue that there is indeed a social responsibility (Millon, 1990).  The process of incorporation no longer involves the State and as a result other systems of regulation and corporate governance have come into play (Philips, 1994).  Sir Adrian Cadbury stated that the purpose of corporate governance was to hold corporations to account for the externalities arising from the use of the resources which the corporation has control over (Cadbury, 2000). This would lead to one arguing that any corporations whose activities impact wider society do have a social responsibility as these impacts are a result of their use of resources. Therefore, one must readjust the judgement of whether or not corporations do have a social responsibility, depending on the context of their business environments. Once incorporation became general, not state granted, Aggregate Theory took over from Artificial Theory (Philips, 1994). Aggregate Theory views a corporation merely as an aggregation of individuals in pursuit of its own purposes similar to its human constituents. As corporate governance is widely accepted as the systems guiding the direction of the organisation (Ciepley, 2018), under Aggregate Theory, one might argue that corporations only have social responsibility if their human constituents choose. Similarly, if a corporation’s managers take a view of their firm under that of Agency Theory, which explicates that it is the duty of the organisation to create profit on behalf of the shareholder, it can be argued that corporations do not have a social responsibility as any responsibility is restricted to that of preserving shareholder interests (Lan & Heracleous, 2010). As such, the corporate governance procedures in these organisations will ensure the firm is steered in such a manner that protects shareholders and maximises returns (Lan & Heracleous, 2010). In the case of Agency Theory, it is the managers who act as agents, rather than the organisation and as such the organisation is still viewed as an artificial entity (Lan & Heracleous). Even in Lan & Heracleous’ (2010) reconceptualization of Agency Theory, they argue that actions are carried out by the managers or directors rather than by the corporation as a separate, autonomous entity. However, under the fourth principle theory of the corporation, Real Entity Theory, it is acknowledged that having many shareholders means that the corporation forms its own set of goals and characteristics and as such becomes a discrete legal entity from the shareholders and managers (Philips, 1994). Thus, under the legal framework of Corporate Citizenship, the corporation carries a legally binding personhood and as such must behave morally and justly – similar to all other “good citizens” (Dodd, 1932). This means the organisation can be held accountable just as a citizen would be for their actions in society – both legally and through governing bodies (Ciepley, 2018). Thus, it can be seen that arguments relating to a firm’s responsibilities are entirely subjective in terms of how the firm is governed and how the managers, and the wider population, conceive of the “corporation”. Although three of these four primary theories hint at a lack of social responsibility from the firm, the shareholder view does note several characteristics of profit creation which are present in CSR theory (Carroll, 1991).  Garriga & Melé (2004) note that in reality, CSR practices encompass elements from each of these four theories of the corporation. Carroll (1991) poses further that these can be constructed into a hierarchy of perceived importance by organisations – with the instrumental elements of profit creation acting as the bedrock on which corporations and their CSR practices are built (Carroll, 1991; Stout, 2002). Even Friedman (1984) acknowledged the requirement for profit to be made ethically, legally and economically – all pillars of a social responsible firm (Carroll, 1991). As such, it is possible to argue that corporations do acknowledge their social responsibility, even if it is not explicitly defined in those terms. Therefore, when considering whether or not a corporation has a social responsibility, one must explicitly define the parameters of what CSR actually is. In reality, a corporation can be defined as a business with the amalgamated goals of Aggregate Theory, Agency Theory and Real Entity Theory (Carroll, 1991). Therefore, this compilation should lead to an equally integrative view of CSR.  Carroll’s (1991) Pyramid of Corporate Social Responsibility successfully combines the purposes of the firm, including the economic purpose of the firm as advocated by Friedman (1970), as well as philanthropic responsibilities of a firm, arising from Corporate Citizenship highlighted in Real Entity Theory (Dodd, 1932). Garigga & Melé (2004) note the four main CSR perspectives; instrumental, political, integrative, and ethical. Like the term ‘corporation’, ‘social responsibility’ carries a different meaning between those who are interpreting it (Garriga & Melé, 2004). Under the instrumental view of CSR, it is noted that activities of benefit to society are carried out in order to produce profit (Garriga & Melé, 2004). Rangan, Chase & Karim (2015) argue that this instrumental view should not be a motive for CSR practices but instead profits resulting from CSR activity should be treated as a welcome side-effect – again hinting that corporations do have a social responsibility, regardless of the economic outcome for the corporation. Political theories of CSR note that the size and resources of a corporation make it a powerful entity and as such, this power should be used responsibly in order to lobby for social change in society (Garriga & Melé, 2004). Mintzberg (1983) argues that said power means business decisions have social and economic repercussions, each of which are synonymous with the other.  As such, CSR can be deemed as a duty of corporations due to their ability to cause societal change (Mintzberg, 1983). This is not dissimilar to the Ethical theories of CSR which emphasise the ethical and moral responsibility of corporations to serve society or act in a way which does not negatively affect society (Garriga & Melé, 2004). Integrative theories act as a mid-point between these views, finding it necessary for organisations to at least satisfy social demands (Garriga & Melé, 2004). Garriga & Melé (2004) again find that in reality organisations encompass each of these perspectives in different and unique measures, but all adhere to the notion of corporations, indeed, having social responsibility. The commonality across CSR perspectives is that though motives may vary, corporations, due to their position do have a social responsibility (Ciepley, 2018). Ciepley (2018: 2) notes the expectation of the provision of a public benefit arising from the “privilege” access to resources which corporations receive. Stout (2002) notes that this expectation is seldom put into explicit formal contracts. Therefore, it is difficult to hold organisations to account when they fail to provide public benefit as they are not contractually obliged to do so in many cases (Stout, 2002). Thus, although it can be argued that corporations do have a social responsibility, there is a lack of formality to this responsibility. This argument that corporations do have a social responsibility has been reflected in a number of high profile cases in the last decade. Notably, in 2015 it was discovered that Volkswagen (VW) had been fitting vehicles with devices to detect emissions testing and alter exhaust performance to artificially lower CO2 emissions (Hotten, 2015). This blatant disregard for the environmental impact of their cars shows Volkswagen’s lack of adherence to the perceived social responsibility imposed on them. The fallout of this exposé hit VW, not only in hefty fines from governing bodies but also from the consumer in an exponential fall in sales and the VW’s share price, as well as protests and demonstrations (Kasperkevic, 2015; Thielman, 2015; McGee, 2018). This backlash from the public shows that it is the perception of the public that corporations do indeed have a social responsibility. Furthermore, this shows that the sanctions are inflicted on the corporation as a discrete legal entity, rather than individuals within the organisation – emphasising the notion of a corporation as a ‘citizen’ (Stout, 2002). VW had been deliberately fabricating emissions readings on new cars for over half a decade before being exposed, highlighting that corporations may appear socially responsible even when this is not the case (Hotten, 2015). The perception of the consumer that corporations do indeed have a social responsibility, is reflected in Bowman & Haire’s (1975) research that profits were higher in those corporations with substantial CSR policies. However, Bowman & Haire (1975) also noted that an over emphasis on CSR actually proved to be counterproductive in profit making for the firm. This may be due to the consumer’s understanding of the economic purpose of a corporation (Ciepley, 2018). It should be noted that the notion of social responsibility is not limited only to corporations. The public outcry and the subsequent shunning of the charity by donors, following Oxfam’s sexual misconduct scandal emphasises the public expectation of all organisations to act responsibly (Gayle, 2018). Therefore, one can convincingly argue that corporations, and indeed all organisations do have a social responsibility. It can be seen that acting without social regard, particularly in mitigation of their own externalities, attracts both formal and informal sanctions from the consumer as well as governing bodies (Kasperkevic, 2015; Thielman, 2015; Gayle, 2018; McGee, 2018). Thus, the difficultly in determining whether corporations do have a social responsibility stems firstly from the ambiguity in the purpose of corporations, and then much more broadly from how we define ‘social responsibility’. However, in the broadest terms, one can define a corporation as a discrete legal entity which is guided by directors in order to pursue its unique purpose and goals (Adams, 1897; Philips, 1994; Ciepley, 2018). Equally broadly, social responsibility can be termed as the obligation of the corporation to account for the impacts on community, society and the environment (Stout, 2002; Ciepley, 2018). The case studies provided highlight that this responsibility is an expectation, not only from governing bodies but also the wider general public (Kasperkevic, 2015; Thielman, 2015; McGee, 2018). Therefore, one can argue that corporations do have a social responsibility as it can be seen that neglecting this expected responsibility attracts both legal and informal sanctions. However, it must be noted that the bounds of this social responsibility fluctuate depending on the context of each corporation and the unique environment which they operate in. Although corporations do indeed have a social responsibility, the debate over whether or not they can be held accountable for such responsibility continues (Ciepley, 2018). The stream of bad press resulting from CSR malpractice shows that attempts to hold corporations accountable are not necessarily futile (Hotten, 2015; Gayle, 2018).

References

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