Introduction:

In topic 1, we looked at the shareholder approach and stakeholder approach to the nature of the firm. From the readings on the stakeholder approach who or what might be classed as a stakeholder is the subject of much debate. Regardless of how broad a definition of stakeholder we might like to adopt, the stakeholder approach deals with the idea that firms have responsibilities to a wider set of entities than just shareholders. In this topic 2, we continue this theme of firms having broader responsibilities then merely delivering (or for some, maximising) shareholder value and look at the concepts of the triple-bottom-line and corporate social responsibility.

Learning objectives:

1. Understand the features of, and differences between, the triple-bottom-line and corporate social responsibility views.
2. Purposefully critique these two views and appreciate their implications in how firms go about their activities.
3. Identify the basis on which the business case for corporate social responsibility is proposed and consider the merits of these arguments.

Discussion:

The triple bottom line

The triple-bottom-line (TBL) view proposes that firms have financial, social, and environmental responsibilities (sometimes termed “people, planet, profits”) and all three of these areas need to be addressed in the way a firm goes about its business. The TBL view has a strong link to the idea of sustainability (in the sense of humanity living sustainable on the Earth and, specifically for this course, the role of business in contributing to a sustainable world outcome) and we will look at this in more detail later in the course. The TBL view has, like most of the issues we confront in this course, many different interpretations and views on exactly what it means, how the 3 elements should be prioritised (e.g., should they all be given equal weighting to find a ‘balance’ or, as some claim, is environment the most important as society and business are ultimately both dependent on a healthy environment?), if there are more than just 3 elements (some models have 4 or more elements as opposed to the 3 in the TBL view – some for example include governance as a 4^th element), and so on.

Corporate social responsibility

Corporate social responsibility (CSR) proposes that firms have certain responsibilities in addition to financial ones. In this sense, making a profit (which is also seen as a responsibility of firms in order to meet their financial obligations) needs to be done within the context of a firm’s other responsibilities also being met. What these responsibilities are remains an issue of debate although they pick up issues of social and environmental responsibilities in one form or another. CSR is also sometimes thought of in terms of corporate philanthropy and this view comes from the early days of CSR when much of the behaviour firms engaged in that was classed as CSR had to do with corporate giving. Although the idea of philanthropy remains well embedded in the CSR concept, the agenda is much broader these days.

This difference between CSR as philanthropy (as contributions to social and environmental initiatives that are not part of a firm’s normal business operations) highlights the difference between how a firm uses its money verses how it makes its money.

• How it uses its money: CSR as philanthropy is really about how a firm spends its money. CSR as part of a PR and marketing exercise (which might also classify as philanthropic) is also a 'how a firm uses its money' issue.
• How it makes its money: One definition of CSR shown in the optional reading for this topic by Frankental (2001) is:
  "CSR is about a company's long-term footprint on society. It is about the extent to which a company is prepared to examine and improve its impact on all those affected by its activities and to view its long-term reputation within the context of the social and ecological sustainability of its operations".
  This view is really one of how a firm makes its money.

Critics argue that firms that spend money on CSR activities that are mostly philanthropic in nature (giving to a local environmental group, or to a women’s shelter, or to a school, and so on) but that do not match this behaviour with significant action from a CSR perspective in how a firm actually makes its money in the first place, are engaging in CSR that is little more than a PR activity. The point being made is that CSR viewed in terms of how a firm spends its money does not confront the core issues of the impact a firm has on society and the environment. There are plenty of examples of how firms use philanthropy as a way of gaining public favour while at the same time causing plenty of environmental and social damage in the way they make their money. We will look at some of these issues later in the course.

This isn’t to say that businesses should not engage in philanthropy, or not do PR activities that are good for the firm that also have a benefit to society and the environment. The problem comes when they are used as cover-ups for failing to deal with the negative impact a firm's activities have on society and the environment, or are otherwise used as a substitute for taking meaningful action in dealing with these negative impacts. This is something for you to give some thought to as you work through the case study for this topic, and consider the CSR activities you might come across in your day to day lives.

From this brief overview, you may wonder if the TBL view, the CSR view, and the stakeholder approach (and, as we will discuss later, sustainable business’) really are all that different.

Carroll et al (2010) suggest that these terms are all linked to a similar field of the responsibilities of business. One way to look at this issue is that:

• The stakeholder approach begins by asking which parties have some form of relationship with the firm, considering what the interests of those parties might be, and then proposing how managers might go about meeting those responsibilities. We could say this is a bottom-up approach.
• The TBL view, the CSR view, and the sustainable business view approach things from a responsibilities perspective – more of a top-down approach. That is, these views seek to determine what general responsibilities a firm has (picking up in some way, financial, social, and environmental responsibilities), and identifying actions that need to be taken to meet those responsibilities. The meeting of responsibilities may also include attending to stakeholder interests.

In short, the TBL, CSR and sustainable business views mostly refer to the same thing when looked at in their broadest application. The stakeholder approach is a little harder to tag as being similar to these other three views unless the definition of who/what is a stakeholder is taken to be very broad (i.e., to include things such as society in general, the environment, and even future generations).

Corporate social responsibility vs corporate accountability

There is also a difference between CSR and corporate accountability.

This is an important issue as often CSR is promoted as a 'voluntary' activity for organisations (although some dispute that it should be seen as voluntary but rather ethically and morally obligatory) and the more this 'voluntary' line is pushed, then the harder it is to make firms accountable for their actions other than what might be required by law.

Here is an overview of the differences between corporate responsibility and corporate accountability – hopefully it gives a feel of things.

"There is a great deal of confusion around the terms "corporate responsibility" and "corporate accountability." Corporate responsibility refers to voluntary measures for environmentally and socially beneficial behavior, while corporate accountability refers to holding companies to societal norms or having them face consequences. Examples of corporate responsibility would include a company eliminating child labor, improving working conditions or reducing toxic waste emissions on its own. The motivation for the new behavior might be cost savings, improved reputation or simply that the managers thought it the ethical thing to do. Commonly, corporate responsibility advocates emphasize the "business argument," meaning that corporate responsibility is also good for the bottom line. The financial benefit can be from savings on direct costs, avoiding bad publicity and boycotts or finding a niche market for a product perceived as socially beneficial by a sufficient number of customers. …

Corporate responsibility is the approach advocated by the WBCSD (World Business Council for Sustainable Development), the ICC (International Chamber of Commerce), the BASD (Business Action for Sustainable Development) and the [UN] Global Compact. Yet it is important to underscore that corporations themselves regularly acknowledge that promotion of corporate responsibility in environment, human rights, poverty alleviation and community service is, at least in part, a tactic aimed at avoiding accountability measures—that is, legislation and regulation of corporate behavior.

An example of corporate accountability would be if a company causing harm or breaking the law is sued and forced to pay a fine or forced to change the illegal behavior. Another example of accountability is the requirement of reporting toxic emissions. Under U.S. law for example, companies are required literally to "account" for their emissions. A third example would be a group of corporations, such as the manufacturers of ozone-depleting chemicals like CFCs or methyl bromide, being forced by an international U.N.-brokered accord to phase out these harmful chemicals. A fourth example is when a company is forced to alter its behavior or pushed out of a certain line of business by a consumer or investment boycott. In this last example, the accountability is not to the government, but to consumers and investors. The line between "responsibility" (the company chooses to do the right thing) and "accountability" (the company is forced to do the right thing because it will lose money if it does not) is slightly blurred in this last case, but the essential difference is still clear - the company is being held accountable for its actions.

A major limitation of the corporate responsibility "movement," as it is sometimes known, is that the definition of responsible behavior is usually left to the company itself. In a few cases, independent bodies like the Global Reporting Initiative are set up to evaluate reporting by companies, but the reporting itself is voluntary. When corporate responsibility is not good for the bottom line, there is no recourse for government or citizens”. (Bruno & Karliner 2002, pp 63-64) (pp. 63-64)"

The business case for CSR

The business case arguments for firms adopting CSR (i.e., CSR as good for the firm as well as good for society and/or the environment) are ones we will come back to later in the course. For now through, it is worth raising the question as to whether the business case argument is sufficient to drive firms to act in ways that meet CSR/TBL/sustainable-business objectives and help society transition to a sustainable way of living.

Here is what two authors have to say about this (which provides a good lead-in to the issues we cover in Topics 3 & 4):

"Corporate environmental responsibility, it is often argued, while sometimes mandated by laws and regulations, is good commercial sense since it placates the environmental concerns of consumers and thereby contributes to increased sales and profits. However, some control problems are apparent when environmental concerns cannot be directly observed by the market or by relevant consumer and other interest groups. For example, inefficient production processes, over-generation of waste, environmentally inappropriate technology, and planned obsolescence, while detrimental to the environment, cannot be effectively observed by markets alone.
In these instances, the credibility of corporate communications as well as its past environmental record and reputation are the only yardstick for evaluation of whether corporate actions are congenial to the environment. But the problems of “fudging” claims and of “free-riding” on reputation do exist. Ultimately, the only guarantee that corporations behave in an environmentally-sound manner with regard to their unobservable internal processes is their own ethical responsibility. Given the fact that perceptions of ethical behaviors vary widely, it is clear that behavior that is unobservable is also one that is externally uncontrollable. Thus, when practices cannot be evaluated, corporate environmental responsibility rests solely on moral principles" (Iyer 1999, pp 267-277).

Is the rationale that good ethics is good business a proper one for business ethics? I think not. One thing that the study of ethics has taught us over the past 2500 years is that being ethical may on occasion require that we place the interests of others ahead of or at least on par with our own interests. And this implies that the ethical thing to do, the morally right thing to do, may not be in our own self-interest. What happens when the right thing is not the best thing for the business?
Although in most cases good ethics may be good business, it should not be advanced as the only or even the main reason for doing business ethically. When the crunch comes, when ethics conflicts with the firm's interests, any ethics program that has not already faced up to this possibility is doomed to fail because it will undercut the rationale of the program itself. We should promote business ethics, not because good ethics is good business, but because we are morally required to adopt the moral point of view in all our dealings—and business is no exception. In business, as in all other human endeavors, we must be prepared to pay the costs of ethical behavior.
There is a similar danger in the environmental movement with corporations choosing or being wooed to be environmentally friendly on the grounds that it will be in their self-interest. There is the risk of participating in the movement for the wrong reasons. But what does it matter if business cooperates for reasons other than the right reasons, as long as it cooperates? It matters if business believes or is led to believe that it only has a duty to be environmentally conscientious in those cases where such actions either require no sacrifice or actually make a profit. And I am afraid this is exactly what is happening. I suppose it wouldn't matter if the environmental cooperation of business was only needed in those cases where it was also in business' self-interest. But this is surely not the case, unless one begins to really reach and talk about that amorphous concept long-term self-interest. Moreover, long-term interests, I suspect, are not what corporations or the new environmentalists have in mind in using self-interest as a reason for environmental action.
I am not saying we should abandon attempts to entice corporations into being ethical, both environmentally and in other ways, by pointing out and providing opportunities where good ethics is good business. And there are many places where such attempts fit well in both the business and environmental ethics movements. But we must be careful not to cast this as the proper guideline for business' ethical responsibility. Because when it is discovered that many ethical actions are not necessarily good for business, at least in the short-run, then the rationale based on self-interest will come up morally short, and both ethical movements will be seen as deceptive and shallow” (Hoffman 1991, pp 176-177).

References

Bruno, K & Karliner, J 2002, Earthsummit.biz: The Corporate Takeover of Sustainable Development, Food First Books, Oakland, California.

Carroll, AB & Shabana, KM 2010, 'The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice', International Journal of Management Reviews, vol. 12, no. 1, pp. 85-105.

Frankental, P 2001, 'Corporate Social Responsibility – a PR Invention?', Corporate Communications: An International Journal, vol. 6, no. 1, pp. 18-23.

Hoffman, WM 1991, 'Business and Environmental Ethics', Business Ethics Quarterly, vol. 1, no. 2, 1991/04, pp. 169-184.

Iyer, GR 1999, 'Business, Consumers and Sustainable Living in an Interconnected World: A Multilateral Approach', Journal of Business Ethics, vol. 20, pp. 273-288.