April 2011 Monthly Feature

Definition of Corporate Social Responsibility

By

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Michael Hopkins

So many people ask me about the definition of CSR, and many more don't seem to have a clue.  The biggest challenge comes from those who encourage 'Sustainability' and then only focus on purely environmental measures.  Curiously there are those, especially in the USA, who think anything 'Social' means socialising corporations.  Nonsense!  The whole point of this movement is to encourage companies to make profits while subjecting the 'process' to responsible behaviour, i.e. it is not profits at any cost but how profits are made.  Moreover I can buy the term 'Corporate Responsibility' (i.e. CSR without the 'S' )as long as it means the same as my translation of social as in 'social sciences' at most Universities into social, economic and environmental fields of study (plus others).

My own definition is: 

1. Michael Hopkins' Definition of CSR

  1. Corporate Social Responsibility is concerned with treating the stakeholders of a company or institution ethically or in a responsible manner. ‘Ethically or responsible' means treating key stakeholders in a manner deemed acceptable according to international norms.
  2. Social includes economic and environmental responsibility. Stakeholders exist both within a firm and outside.
  3. The wider aim of social responsibility is to create higher and higher standards of living, while preserving the profitability of the corporation or the integrity of the institution, for peoples both within and outside these entities.
  4. CSR is a process to achieve sustainable development in societies.

Original Source: Michael Hopkins (MHCi): A Planetary Bargain: Corporate Social Responsibility Comes of Age (Macmillan, UK, 1998) Updated by author July 2011 (point 4 based upon suggestion by Nadine Hawa, student in my class at University of Geneva)

Briefly, 'CSR is about treating all stakeholders responsibly or ethically.'

This definition is discussed further below but, first, let's have a quick look at other definitions.

2. Other popular definitions of CSR

[Carroll, 1979; 2008, 500]: "The social responsibility of business encompasses the economic, legal, ethical and discretionary expectations that a society has of organizations at a given point in time."

EU Definition of CSR: "A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis." 

Mallenbaker Definition: "CSR is about how companies manage the business processes to produce an overall positive impact on society"

The World Business Council for Sustainable Development (WBCSD): "Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large"

Some comments on these definitions and Sustainability:

Carroll: This describes well what society might expect of a business but, simply, ignores external stakeholders. 

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Carroll's definition is often pictured in the above CSR Pyramid, and is where many CSR practitioners and theoreticians start. As can be seen above, he argued that companies should have economic responsibilities. Obviously, without making a profit then a company will cease to exist and CSR dies. However, the key issue is that CSR is not anti-profits, simply is all about how profits are made!

Carroll then goes on to mention legal responsibilities but doesn't consider those countries where the law is ignored (corrupt Governments for instance) or has been modified to support cronyism.  No easy guide here, but remember that ‘rules are made for the guidance of wise men, and the observance of fools'! 

Ethical responsibilities come next, but it seems that ethical behavior (see, for instance, ..... Business Ethics [Paperback, 2009, Prentice Hall], by Andrew Wicks, R. Edward Freeman, Patricia H. Werhane, Kirsten E. Martin and the discussion below) is not so easy to define.  Perhaps the best is 'do unto others as you would wish to be treated yourself'. 

At the top of the pyramid is ‘philanthropy'.  Prof. Donna Wood, one of the early pioneers in CSR [Adele Santana & Donna J. Wood (2009). Information, Corporate Social Responsibility, and Wikipedia. Ethics and Information Technology, 11 (2), 133-144], has had a fascination with Carroll's pyramid and cites her student who, famously, put the pyramid on its head.  In this way, philanthropy is seen as a first step toward CSR.  Nevertheless, in my above model I would exclude philanthropy (see my thoughts on [INTERLINK]Philanthropy and CSR) and then not treat any of the levels as superior, or inferior, to any of the remaining others. 

EU: Here we have a consideration of both internal and external stakeholders. But it does not say how social values are to be addressed i.e. responsibly or ethically, simply says to interact. This could mean simply reading a newspaper to a full-fledged approach. But, the main issue is the word ‘voluntary'. In early discussions of CSR, the fear was that CSR meant that there would be a new set of standards followed by laws on all aspects of CSR. Today, there is concern that too many standards could bring industry to a halt. What we believe (see section below on ‘should CSR be compulsory') is that each law (or standard)needs to be carefully treated so as to ensure that serious abuses are illegal while others do not interfere with local customs and culture. Clearly, such a statement raises a whole host of questions as to whether, for instance, women should be forced to wear headscarves or forced not to in some countries? What do you think?

Mallenbaker Model: Mallen Baker is included here because of his interesting blog and discussion on CSR definitions (see: http://www.mallenbaker.net/csr/definition.php). His graph, below, has also appeared quite frequently as well. His definition is limited in that he only looks at the impact ‘on' society. But his graph extends his shorter view, as does the text on his website, where he states that ‘Companies need to answer to two aspects of their operations. 1. The quality of their management - both in terms of people and processes (the inner circle). 2. The nature of, and quantity of their impact on society in the various areas.'Yet he does not explore his graph further in terms of internal stakeholders, preferring to note that ‘Outside stakeholders are taking an increasing interest in the activity of the company. Most look to the outer circle - what the company has actually done, good or bad, in terms of its products and services, in terms of its impact on the environment and on local communities, or in how it treats and develops its workforce. Out of the various stakeholders, it is financial analysts who are predominantly focused - as well as past financial performance - on quality of management as an indicator of likely future performance.'

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The World Business Council: (see: http://www.wbcsd.org/templates/TemplateWBCSD5/layout.asp?MenuID=1) is a CEO-led, global association of some 200 companies dealing exclusively with business and sustainable development. It simply mentions ethics and contribution to economic development as two key components of CSR. Thus most of its members tend to see CSR as promoting economic development, particularly in emerging (developing) countries. Which is one of the reasons why CSR tends to be sometimes misunderstood as essentially focusing upon development.

Sustainability: 

Probably worth at this point a digression on 'sustainable' or 'sustainability'.  Many use the adjective or the noun, as substitutes for CSR or CR.  Are they right? If the word "sustainable" is seemingly everywhere, it was made possible by the World Commission on Environment and Development report Our Common Future published in April 1987 by a team led by Gro Harlem Brundtland.  The report was a landmark  document that brought environmental concerns and their link to social and economic development to the forefront of understanding of global problems. Our Common Future launched the notion of"sustainable development", defining it as "development which meets the needs of the present without compromising the ability of future generations to meet their own needs".

Indeed, corporate sustainability is increasingly being taking up by corporations leading one to wonder what is the relation between corporate social responsibility and corporate sustainability? As noted above, the term sustainability first came to widespread acceptance in  1987 and at that time the concept and study of sustainable development had hardly left the domain of environmentalists and ecologists. More recently, the term ‘sustainability' has grown to encompass social and economic components as well as its historical work on the environment. Thus the sustainability school has split, rather confusingly into two. The first being the conservationist school described above (which I denote by ‘Sustainability 1') and the second that has moved out into the social and economic field (which I denote by Sustainability 2).

PricewaterhouseCoopers define corporate sustainability as 'aligning an organisation's products and services with stakeholder expectations, thereby adding economic, environmental and social value'. And the Global Resources Initiative (GRI), that grew out of environmental work by the Coalition for Environmentally Responsible Economies (CERES) and the United Nations Environment Programme (UNEP), produces, since June 2000, the GRI Sustainability Reporting Guidelines that cover economic and social performance as well as the more ‘traditional' environmental ones.  The world of business is embracing the notion of sustainability and many are now producing ‘sustainability reports'. Yet, Zadek warned[1] that "It is simply inaccurate and misleading to talk about ‘sustainable business'. The ‘sustainable' in sustainable development is just not the same as the ‘sustaining' of a particular business, irrespective of its social and environmental; performance".

The confusion with what is meant by ‘sustainability' leads me to prefer the term CSR with its more lofty goals since it talks not only about issues that will sustain a corporation but also those for which a corporation is responsible. Whether there are additional concerns in the CSR toolbox that will, ultimately, provide for longer-term sustainability than those in the Sustainability toolbox is a point worthy of further discussion.  Especially as many business confuse Sustainability 1 (mainly environmental concerns) with Sustainability 2 (CSR as I define it).


[1] Simon Zadek: The Civil Corporation: The New Economy of Corporate Citizenship, Earthscan, 2001, London, p. 122.

 Well, you have seen a number of widely quoted definitions.  Let us now return to the definition of choice that I believe fits well to what the early pioneers of CSR advocated. 

Hopkins' definition de-constructed into different parts

a. What is corporate?

Corporate means any group of people that work together in a company or organisation, whether for profit or non-profit. Thus, interpreted in this way, means that 'corporate' means any 'body' of individuals and therefore can include NGOs, Public Institutions and Social Enterprises (increasingly known as the Third Sector).

b. What is a stakeholder?

Stakeholder theory had its roots in the work of Ed Freeman [see: Strategic Management: A Stakeholder Approach (Boston, Pitman,1984)] who argued that "...I can revitalize the concept of managerial capitalism by replacing the notion that managers have a duty to stockholders with the concept that managers bear a fiduciary relationship to stakeholders. Stakeholders are those groups who have a stake in or claim on the form. Specifically I include suppliers, customers, employees, stockholders, and the local community, as well as management in its role as agent for these groups. I argue that the legal, economic, political, and moral challenges to the currently received theory of the firm, as a nexus of contracts among the owners of the factors of production and customers, require us to revise this concept. That is each of these stakeholder groups has a right not to be treated as a means to some end, and therefore must participate in determining the future direction of the firm in which they have a stake."

Note that stakeholder theory has moved on.  I, for instance, include the environment as a stakeholder and, in that way, his social, economic and environmental model of the firm is complete. Some argue that the environment is not a ‘person' but that can be sidelined since there are representatives of the ‘environment' such as NGOs and/or the communities in which people live.

The choice of stakeholders, and how to consult them, is an art in itself and no one theory covers all aspects. A widely cited article on this is by Mitchell et. al. [Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts Author(s): Ronald K. Mitchell, Bradley R. Agle, Donna J. Wood Source: The Academy of Management Review, Vol. 22, No. 4 (Oct., 1997), pp. 853-886 Published by: Academy of Management].

These authors argue that stakeholder theory must account for power and urgency as well as legitimacy, no matter how distasteful or unsettling the results. Managers must know about entities in their environment that hold power and have the intent to impose their will upon the firm. Power and urgency must be attended to if managers are to serve the legal and moral interests of legitimate stakeholders.

c. What is Ethical behaviour?

Following on from above, what is meant by business ethics?  An interesting source is: Rosamund Thomas [in Ramon Mullerat (ed.) ‘Corporate Social Responsibility - The Corporate Governance of the 21st Century', Kluwer Law International (revised edition, 2010)]. She says that there are many definitions of ‘Business Ethics' in the same way that there are numerous different ‘Codes of Ethics' and this variety and looseness of terminology, methodology and ‘best practices' can cause confusion. She argues that ‘Business Ethics' comprises:

1. The values underlying the business corporation, such as ‘integrity', ‘honesty', ‘fairness' and others.

2. A corporate ‘Code of Ethics' which goes beyond separate values to become a set of principles that makes a clear statement of what the business corporation is willing to do or not to do, like forbidding staff to take bribes or other financial incentives.

3. Corporate Governance which is the framework for the policies and procedures which govern the Board of Directors in a business corporation, including non-executive Directors and others who advise the Board. Corporate governance is a key part of Business Ethics' since the morality of the Board and its individual Directors does, or should, underlie these policies and procedures.

5. Concluding Remarks

Definitions are, of course, tedious to plough through.  Yet the area of CSR (and probably just about every other area of management theory) must have a clear definition so that we know what we are talking about and can then develop and implement clear programmes.  Any anarchy leads to confusion as, possibly do attempts such as the one here to make some sense out of many competing views.  My advice?  Use either CSR or CR and remember my shorthand definition - 'C(S)R is about treating stakeholders responsibly or ethically!.

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