This article examines the evolution of corporate social responsibility. The driving forces behind the corporate shift toward responsibility are examined including regulatory issues, social and political activism, marketing, and consumer pressure. The role and activities of several organizations that focus on corporate social responsibility are reviewed. The process of shareholder activism in pushing for corporate social responsibility is explained along with how the shareholder processes work. Reasons for failure in corporate social responsibility campaigns are also reviewed and issues with global efforts clashing with local efforts are explained.
Keywords: Attributional Processing; Corporate Social Responsibility (CSR); Globalization; International Finance Corporation (IFC); International Standards Organization (ISO); Maldevelopmental Outcomes; Multi-stakeholder Initiatives; Nongovernmental Organizations (NGOs); Shareholder Activism; Shareholder-sponsored Resolution
Corporate Social Responsibility (CSR) is a subject of much interest within the managerial world. CSR is also frequently described as social responsibility or community relations (Verschoor, 2003). CSR has been under discussion for several decades. Even Peter Drucker has commented in the past that corporate management has three tasks (cited in Phillips, 2006, p. 69):
- Increase economic performance.
- Make the worker productive and efficient.
- Manage social impacts and responsibilities.
CSR has the attention of the business community, investors, customers, and the business media. The Harvard Business Review, The Economist, and the Wall Street Journal have all run a significant number of articles focused on corporate social responsibility (Bernstein, 2005). Over the years, corporations have voluntary contributed billion of dollars to various social endeavors.
In 1999, only 35 percent of the 250 largest companies in the world reported on corporate responsibility, but in 2011, 95 percent did, an indication of the importance that major companies and their leaders place on the issue of corporate social responsibility (KPMG, 2011).
CSR, like ethics, has no universal definition. Approaches include "a manager's duty or obligation to make decisions that nurture, protect, enhance and promote the welfare and well-being of stakeholders and society as a whole" (Jones, George & Hill, 2000, cited in Phillips, 2006, p. 69). But CSR efforts are global, and in 2010, the International Standards Organization (ISO) launched an ISO standard for CSR: ISO 26000. The ISO Bulletin states that “ISO 26000 provides guidance on how businesses and organizations can operate in a socially responsible way. This means acting in an ethical and transparent way that contributes to the health and welfare of society (ISO, n.d.). Phillips (2006) defines CSR as
Both the philosophy and practice of for-profit organizations voluntarily acting to positively assist society in ways beyond that required to obtain profit objectives (p. 69).
There is a growing acceptance of CSR principles among intergovernmental organizations. One international organization, the UN Global Compact, is a corporate citizenship project has had more than 7,000 companies from 145 countries participate in the program since its inception in 2000. The International Finance Corporation (IFC), which is the World Bank's private lending division has not only accepted CSR principles but is working to perpetuate CSR in general. The IFC has implemented a comprehensive set of labor and environmental standards for all of its loan recipients in order to be eligible for loans (Senser, 2007).
Civil society participation in evolving CSR issues has grown immensely over the last several decades. There are numerous nongovernmental organizations (NGOs) and networks of cooperating organizations spread around the world now deeply involved in CSR. There is also a long list of consumer groups and trade unions that are also mobilized, mostly focusing on the elimination of child labor and sweatshops. Other groups have focused their attention on issues such as fair trade and the rights of indigenous peoples.
Bear in mind that the NGO sector is still growing and for NGOs to succeed they need two things. First they need money to finance their mission. Then, they need to convince enough people that the mission is worthwhile in order to successfully solicit enough money through contributions to support the organization. Many of those contributors feel that government programs have been a massive failure when it comes to addressing social issues and the needs of people. Those people that feel this way have been ready to support an alternative and NGOs stepped into fill the gap.
The diversity in the nature of NGOs is also rather broad. Some focus on human issues while others may focus on environmental issues. This has contributed to the growth of watchdog activism which is a process where an organization becomes specialized in an issue and then takes political as well as social positions about their issue. This appeals to many contributors because it provides an opportunity to support a cause that they believe in and on which they would like to see action and change (Utting, 2005).
CSR also constitutes a development of a new element in corporations' advertising strategy; a new signifier. Corporations make big news out of their ethical actions and socially responsible policies. They issue press releases and prominently display their activities and accolades on their websites. Many feel this contributes to high levels of affinity with their customer base who strongly desire to do right by doing business with those companies that do right (Manokha, 2004).
CSR Via Stockholder Action
When there is a strong business case for CSR both the sponsoring company of a program or initiative and society as a whole can benefit. If socially responsible actions can lead to higher profits the company is more financially viable and shareholders as well as all stakeholders in the company benefit. In many cases, however, a direct profit or benefit may not be realized. However, the secondary benefits such as building goodwill and gaining from positive media coverage also have value.
Another force in the CSR movement has been the rise of the activist investor. CSR activist investors often see corporations as a tool or a means of achieving social change. There have been many such activists who are willing to sacrifice financial gains in order to achieve social goals. These activists have an arsenal of strategies to use in their attempts to influence the actions of corporations even if some of them may not be stockholders. For example, People for the Ethical Treatment of Animals (PETA) actively utilizes publicity seeking tactics including advertising, public outreach campaigns, and even public demonstrations to call attention to their cause. Other activists have become stockholders in companies which they would like to see change and use the shareholder proposal (or a shareholder-sponsored resolution) to push for change and to raise awareness of the importance of their proposed changes.
The shareholder-sponsored resolution can be viewed as an effort to lobby corporate management to implement CSR reforms which range from improving environmental controls to instituting antidiscrimination policies (Tkac, 2006). Shareholder activism is also taking the form of ethical investing where mutual funds, retirement funds, or individuals purchase shares in a company and use the Annual General Meeting of shareholders to propose changes to corporate policy (Utting, 2005).
Securities and Exchange Commission (SEC) Rule 14a-8 establishes the process for submitting a shareholder proposal to be included on a proxy statement. Basically a shareholder is eligible to submit one proposal providing they have continuously held shares in a company for one year that were worth at least $2,000, or 1 percent of firm value. The proposal needs to be 500 words or less and is submitted at the annual stockholders meeting.
Corporate managers are also allowed to petition the SEC to exclude a proposal and will likely have their request granted if the proposal reflects a personal grievance or requires the firm to violate laws. The exclusionary rights are often granted to deter repetitive frivolous proposals that can cost the company unnecessary money without any reasonable outcome being possible. In addition, the proposals submitted by shareholder activists are nonbinding on corporate management.
Types of Shareholders
On average, about 250 different proposals are submitted each year. The shareholder activists that have sponsored CSR resolutions generally fall into one of several different types of groups:
- Individuals — Investors who meet the ownership requirements with their individual stockholdings in a particular firm and that pursue agendas based on personal preferences.
- Pension funds and endowments — mostly public pension funds that are often seeking greater financial returns for their beneficiaries.
- Unions — Labor unions that manage multiemployer defined benefit pension funds which also may be seeking economic benefits for their members.
- Religious organizations — that are pursing changes based on religious values.
- Social organizations — that are pursuing specific changes such as improvements to environmental protection.
- Socially responsible mutual funds — that are pursuing the performance and social criteria that their investors are seeking.
The success that shareholder activists have may influence their choice of target companies. If a firm already has a high profile then a shareholder proposal may attract more media attention. This in turn may further an activist's causes even if the proposal at the annual meeting is a failure. In addition, if a corporation...
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