TYPES OF CORPORATE SOCIAL RESPONSIBILITY

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INTRODUCTION

Corporate Social Responsibility (CSR) is old but dynamic concept which cannot be given any straight-jacketed definition. It emerged in 1930s to 1940s but was formalized by Howard Bowen in his book “Social Responsibilities of a businessman” in 1953. However, the term CSR was popularized in 1990s. Broadly, it is a concept whereby organizations being a part of Society has to participate & take responsibility for their actions towards society. It is a business strategy where Company undertakes to analyze the impact of its activities on customers, investors, creditors, employees & environment.

Corporate entity utilizes resources available in society (Human resources, planet’s resources etc) for developing its wealth[1], hence, it is its responsibility to return those profits by way of contribution in the improvement of society. The objective of setting up a Company is to ensure that benefits arising from the business can be reaped in long-term, if a company neglects the needs of society & focuses on profit-making, its survival in the long run cannot be guaranteed. CSR practices are adopted all over the world, it has become an integral part of business strategies. The media & consumer awareness have subjected corporations to a higher transparency. It has remarkable impact on the brand recognition & profit generation of Companies.

Some Critics argue that CSR is just a method to divert the Corporate organization from its primary role as economic entity, & it is nothing more than artificial window-dressing or a strategy to cover evil-actions. But, still the impact & importance of CSR could not be undermined just because some out of many organizations choose foul play.

The types of CSR are evolving since the inception of this idea. In 1950’s, the roots of CSR can certainly be seen before World War II, Clark argued that the basic structure of modern society does not rest in competitive economic development but rather in social control. Bowen in his book Social Responsibilities of the Businessman published in 1953, argued that it cannot be seen as panacea to all social problems. He is considered as the “father of corporate social responsibility” since this work marks the beginning of the modern period of literature on CSR. Further in 1960s, the literature on CSR expanded considerably due to academic deliberations. Joseph McGuire proposed that idea of social responsibilities supposes that the corporation has not only economic and legal obligations but also certain responsibilities to society which extend beyond these obligations. This established a link between business & society.

Later, in 1970s Carroll’s three-dimensional model of CSR postulated by Carroll incorporates four layers which he labelled economic, legal, ethical and discretionary (philanthropic) responsibilities. This provided a transition from conventional approach to much more dynamic approach towards CSR.

There are several types & methods of practicing CSR, but Carroll’s four-part definitional framework[2] upon which the pyramidal model is constructed standalone covers almost every aspect of it. That is why it is the most popular & critically acclaimed form encompassing every responsibility associated with CSR. The Article discusses the same in detail.

TYPES OF CSR

Carroll’s four-part definition of CSR was originally stated as follows: “Corporate social responsibility encompasses the economic, legal, ethical, and discretionary (philanthropic) expectations that society has of organizations at a given point in time”. According to Carroll, corporate is responsible to fulfil its obligations at four levels to qualify as a good corporate citizen-

  • Economic Responsibilities: The bottom level, yet the first responsibility of corporate represents obligation to generate profit for its stockholders.As a fundamental condition of existence businesses have an economic responsibility towards society. Profits are necessary both to reward investor/owners and also for business growth when profits are reinvested back into the business. CEOs, managers, and entrepreneurs will attest to the vital foundational importance of profitability and return on investment as motivators for business success. To ensure financial effectiveness businesses give attention to revenues, cost-effectiveness, investments, marketing, strategies, operations, and a host of professional concepts focused on augmenting the long-term financial success of the organization. To survive in market for long-run, it has to generate certain economic benefits for society i.e., employment, profit, goods & services etc. In today’s competitive world economic performance is the basic form of consideration. Firms with low economic or financial sphere go out of business.

The concept of sustainable economic responsibilities is now acknowledged in the International Pyramid model of CSR by introducing the regional and national economic value-added performance together with value creating investments as key issues. Responsibility is not only viewed through economic indicators, but also through ecological and social performance which implies looking beyond economic functions to community functions. Hence, the practical cost/benefit calculation should not be the only factor used when determining how much and to whom one should contribute.[3]

  • Legal Responsibilities: The third layer from bottom represents Corporate’s responsibility to obey laws. Society has not only sanctioned businesses as economic entities, but it has also established the minimal ground rules under which businesses are expected to operate and function. These ground rules include laws and regulations and in effect reflect society’s view of “codified ethics” in that they articulate fundamental notions of fair business practices as established by lawmakers at federal, state and local levels. It has to adhere to various laws pertaining to labor laws, competition laws, tax regulations, health & safety laws etc.  As not adherence can lead to several serious repercussions which are not beneficial for business.
  • Ethical Responsibilities: The normative expectations of most societies hold that laws are essential but not sufficient. The second layer represents that corporates should adopt such policies that are “ethically” correct. In addition to what is required by laws and regulations, society expects businesses to operate and conduct their affairs in an ethical fashion. The distinction between legal and ethical expectations can often be tricky. Legal expectations certainly are based on ethical premises. In essence, then, both contain a strong ethical dimension or character and the difference hinges upon the mandate society has given business through legal codification but, ethical expectations carry these further. Best interests of stakeholders should be kept in mind & actions avoiding harm to anyone should be ensured. If corporates need to go beyond law to protects its ethical responsibility, it is allowed to do so. This CSR aspect encompasses the enactment of fair workforce practices, erecting reasonable trade norms, and denouncing child labour not by virtue of them being provided under law or statutes but because it is ethical duty of businesses to fulfil its responsibility towards protection of Human Rights. Here, it can be argued that it’s the law which is the driving force, but in essence it is the ethical requirement which had formed basis for such laws & corporate practices.
  • Philanthropic/Discretionary Responsibilities: The top layer of pyramid represents the responsibility of businesses to return what they have gained from society. Corporate philanthropy embraces business’s voluntary or discretionary activities. Philanthropy or business giving may not be a responsibility in a literal sense, but it is normally expected by businesses today and is a part of the everyday expectations of the public. This is not enforced by law or driven by ethical sense, it is perceived by Company itself. If its natural resources, & corporate is involved in increasing carbon footprints, then to balance the ecosystem, corporate must reduce pollution & formulate such CSR strategies, that would “give back” what it has taken from society. Providing aid in times of disaster and contributing to environmental conservation are also viable forms of corporate social responsibility. These two acts also help to reduce the company’s carbon footprint while helping people in need. These are completely dependent upon Company’s discretionary powers.

Although there is sometimes an altruistic motivation for business giving, most companies engage in philanthropy as a practical way to demonstrate their good citizenship. This is done to enhance or augment the company’s reputation and not necessarily for noble or self-sacrificing reasons. The primary difference between the ethical and philanthropic categories in the four-part model is that business giving is not necessarily expected in a moral or ethical sense. Society expects such gifts, but it does not label companies as “unethical” based on their giving patterns or whether the companies are giving at the desired level. Hence, this kind of responsibility is much more discretionary & voluntary.

Within the International Pyramid model of CSR, philanthropy is given the lowest priority since the discretionary nature of such responsibilities means that most companies will attend to them after having ensured that they have discharged the others. Particularly, in developing countries, it is not feasible to suggest that all companies have the means to consider philanthropical activities.[4]

In summary, the four-part CSR definition forms a conceptual framework that includes the economic, legal, ethical, and philanthropic or discretionary expectations that society places on businesses at a given point in time. And, in terms of understanding each type of responsibility, it could be said that the economic responsibility is “required” of business by society; the legal responsibility also is “required” of business by society; the ethical responsibility is “expected” of business by society; and the philanthropic responsibility is “expected/desired” of business by society.

  • Care  for all Stakeholders:  The  companies  should  respect the interests of, and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project  affected  people,  society at large etc.  and  create value for all of them. They should develop mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur.
  • Ethical  functioning: Their  governance  systems should be underpinned by Ethics, Transparency and Accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive.
  • Respect for  Workers’ Rights  and Welfare: Companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of  employees. They  should provide all  employees with access to training and development of necessary skills for career advancement, on an equal  and  non-discriminatory  basis.  They  should  uphold  the  freedom  of association and the effective recognition of the right to collective bargaining of labour,  have an  effective  grievance redressal  system,  should  not  employ child  or forced  labour  and  provide  and  maintain  equality  of  opportunities without  any  discrimination  on  any  grounds  in  recruitment  and  during employment.
  • Respect  for  Human  Rights:  Companies  should  respect  human  rights for  all  and avoid complicity  with human rights abuses  by them  or  by third party. Care  for all Stakeholders:  The  companies  should  respect the interests of, and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project  affected  people,  society at large etc.  and  create value for all of them. They should develop mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur.
  • Ethical  functioning: Their  governance  systems should be underpinned by Ethics, Transparency and Accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive. 3. Respect for  Workers’ Rights  and Welfare: Companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of  employees. They  should provide all  employees with access to training and development of necessary skills for career advancement, on an equal  and  non-discriminatory  basis.  They  should  uphold  the  freedom  of association and the effective recognition of the right to collective bargaining of labour,  have an  effective  grievance redressal  system,  should  not  employ child  or forced  labour  and  provide  and  maintain  equality  of  opportunities without  any  discrimination  on  any  grounds  in  recruitment  and  during employment.
  • Respect  for  Human  Rights:  Companies  should  respect  human  rights for  all  and avoid complicity  with human rights abuses  by them  or  by third party.

OTHER MODELS OF PRACTICING CSR

  • Redman’s Environmental Integrity & Community Model

This model is based on the ideology that businesses have moral & environmental obligations that extent beyond financial limits. The environmental & socio-economic aspects of society are interconnected with Corporate’s own goals & objectives. Corporate’s contribution in environmental integrity & community benefits will benefit the corporate itself in the long run, hence, it should participate in CSR.

  • Corporate Citizenship Model

Carroll tried to synthesize the concept of Corporate citizenship but with strategic progression in CSR, it has unlocked new horizons. When we endow the status of “citizenship” to a “corporate”, it is essentially endowed with certain rights & duties.[5] Further, it has to channelize these rights & duties in such method that it enables corporates to address needs of society at large & individual as unit, in a socially responsive manner.

  • Stakeholders Model[6]

Edward Freeman propounded that Corporate owes responsibility to not only its stockholders but also to a wide range of other stakeholders including consumers, employees, government, society, environment etc. It focuses on those groups without which the organization will cease to exist. This model suggests that all the groups are interlinked & they share responsibility to ensure long-term survival of a Corporate. Hence, their needs & requirements should be addressed by corporates in efficient manner.

CONCLUSION

Each of the four components of responsibility addresses different stakeholders in terms of the varying priorities in which the stakeholders might be affected. Economic responsibilities most dramatically impact shareholders and employees because if the business is not financially viable both of these groups will be significantly affected. Legal responsibilities are certainly important with respect to owners, but in today’s litigious society, the threat of litigation against businesses arise most often from employees and consumer stakeholders.

Ethical responsibilities affect all stakeholder groups. Shareholder lawsuits are an expanding category. When an examination of the ethical issues business faces today is considered, they typically involve employees, customers, and the environment most frequently. Finally, philanthropic responsibilities most affect the community and non-profit organizations, but also employees because some research has concluded that a company’s philanthropic involvement is significantly related to its employees’ morale and engagement.

It is important to note that the development of Carrolls’ Pyramid Model of CSR is not immune to loopholes. Hence, it has been subjected to empirical research & criticism from time to time.

  1. Prioritization of economic responsibility; the model recognizes & gives priority to economic aspect of business entity.
  2. It is based on the scenario of West (especially, American Capitalist Society), it has not been effective as an analytical tool for the developing world.
  3. Philanthropic domain is hard to determine and evaluate.

But these limitations do not hinder its application & acceptance across the globe. It has laid down the framework for effective CSR. A number of Global Institutions have developed frameworks & guidelines that specify the types of CSR required pertaining to Corporate’s requirements & information. CSR ecosystem is still at developing stage. Hence, just like its definition, its types & scope cannot be limited.


[1]Milton Friedman, “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine, September 13, 1970.

[2] Carroll, A. B. (1991). The pyramid of corporate social responsibility: toward the moral management of organizational stakeholders. Business Horizons.

[3] Masoud, Najeb (2017): How to win the battle of ideas in corporate social responsibility: The International Pyramid Model of CSR, International Journal of Corporate Social Responsibility (JCSR), Vol. 2, Issue. 4, pp. 1-22.

[4] Supra Note 3.

[5] Freyedon Ahmadi, Hassan Zarei Matin, Hassan Alvedari, Naser Tavreh (2013), Comprehensive model for Corporate Citizenship, Interdisciplinary Journal of Contemporary Research in Business, Vol. 4, No. 11.

[6] R. Edward Freeman, (1984), Strategic Management: A Stakeholder Approach.

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