Contents

1. Introduction

2. Criticisms and concerns

A] CSR and the nature of business

B] CSR and questionable motives

3. Corporate behavior

4. Corporate benefit

5. Corporate governance

6. Economic value

7. Criticism of the doctrine of positive responsibility

8. Can a business socially responsible

9. Conclusion

Corporate social responsibility (CSR, also called corporate

responsibility, corporate citizenship, responsible business and corporate

social opportunity) is a concept whereby organizations consider the

interests of society by taking responsibility for the impact of their

activities on customers, suppliers, employees, shareholders,

communities and other stakeholders, as well as the environment. This

obligation is seen to extend beyond the statutory obligation to comply

with legislation and sees organizations voluntarily taking further steps to

improve the quality of life for employees and their families as well as for

the local community and society at large.

The practice of CSR is subject to much debate and criticism. Proponents

argue that there is a strong business case for CSR, in that corporations

benefit in multiple ways by operating with a perspective broader and

longer than their own immediate, short-term profits. Critics argue that

CSR distracts from the fundamental economic role of businesses; others

argue that it is nothing more than superficial window-dressing; still

others argue that it is an attempt to preempt the role of governments as a

watchdog over powerful multinational corporations

Criticisms and concernsCritics of CSR as well as proponents debate a number of concerns

related to it. These include CSR's relationship to the fundamental

purpose and nature of business and questionable motives for engaging in

CSR, including concerns about insincerity and hypocrisy.

A] CSR and the nature of business

Corporations exist to provide products and/or services that produce

profits for their shareholders. Milton Friedman and others take this a

step further, arguing that a corporation's purpose is to maximize returns

to its shareholders, and that since (in their view), only people can have

social responsibilities, corporations are only responsible to their

shareholders and not to society as a whole. Although they accept that

corporations should obey the laws of the countries within which they

work, they assert that corporations have no other obligation to society.

Some people perceive CSR as incongruent with the very nature and

purpose of business, and indeed a hindrance to free trade. Those who

assert that CSR is incongruent with capitalism and are in favor of

neoliberalism argue that improvements in health, longevity and/or infant

mortality have been created by economic growth attributed to free

enterprise.

Critics of this argument perceive neoliberalism as opposed to the well-

being of society and a hindrance to human freedom. They claim that the

type of capitalism practiced in many developing countries is a form of

economic and cultural imperialism, noting that these countries usually

have fewer labor protections, and thus their citizens are at a higher risk

of exploitation by multinational corporations.

A wide variety of individuals and organizations operate in between these

poles. For example, the REAL leadership Alliance asserts that the

business of leadership (be it corporate or otherwise) is to change the

world for the better. Many religious and cultural traditions hold that the

economy exists to serve human beings, so all economic entities have an

obligation to society (e.g., cf. Economic Justice for All). Moreover, as

discussed above, many CSR proponents point out that CSR can

significantly improve long-term corporate profitability because it

reduces risks and inefficiencies while offering a host of potential

benefits such as enhanced brand reputation and employee engagement.

B] CSR and questionable motives

Some critics believe that CSR programs are undertaken by companies

such as British American Tobacco (BAT), the petroleum giant BP (well-

known for its high-profile advertising campaigns on environmental

aspects of its operations), and McDonald's (see below) to distract the

public from ethical questions posed by their core operations. They argue

that some corporations start CSR programs for the commercial benefit

they enjoy through raising their reputation with the public or with

government. They suggest that corporations which exist solely to

maximize profits are unable to advance the interests of society as a

whole.

Another concern is when companies claim to promote CSR and be

committed to Sustainable Development whilst simultaneously engaging

in harmful business practices. For example, since the 1970s, the

McDonald's Corporation's association with Ronald McDonald House

has been viewed as CSR and relationship marketing. More recently, as

CSR has become mainstream, the company has beefed up its CSR

programs related to its labor, environmental and other practices[17] All

the same, in McDonald's Restaurants v Morris & Steel, Lord Justices

Pill, May and Keane ruled that it was fair comment to say that

McDonald's employees worldwide 'do badly in terms of pay and

conditions' and true that 'if one eats enough McDonald's food, one's diet

may well become high in fat etc., with the very real risk of heart disease.'

Similarly Shell has a much-publicized CSR policy and was a pioneer in

triple bottom line reporting, however, this did not prevent the 2004

scandal concerning its misreporting of oil reserves—an act which

seriously damaged its reputation and led to charges of hypocrisy. Since

then, the Shell Foundation has become involved in many projects across

the world, including a partnership with Marks and Spencer (UK) in three

flower and fruit growing communities across Africa.

Critics concerned with corporate hypocrisy and insincerity generally

suggest that better governmental and international regulation and

enforcement, rather than voluntary measures, are necessary to ensure

that companies behave in a socially responsible manner.

Corporate Behavior

Members are expected to respect human rights and to

conduct themselves in a socially

responsible manner toward the creation of a sustainable

society, observe both the spirit as

well as the letter of all laws and regulations applying to

their activities both in Japan and

abroad in accordance with the following ten principles

Character of corporate behavior

1. Members, by the development and provision of socially

beneficial goods and services in a

safe and responsible manner, shall strive to earn the

confidence of their consumers and

clients, while taking necessary measures to protect

personal data and customer related

information.

2. Members shall promote fair, transparent, free

competition and fair trade. They shall also

ensure that their relationships and dealings with

government agencies and political

bodies are of a normal and proper nature.

3. Members shall engage in active and fair disclosure of

corporate information, not only to

shareholders but also to members of society at large.

4.Members shall strive to respect diversity, individuality

and differences of their employees,

to promote safe and comfortable workplaces, and to

ensure the physical and mental well

being of their employees.

5.Members shall recognize that a positive involvement in

environmental issues is a priority

for all humanity and is an essential part of their activities

and their very existence as a

corporation, and should therefore approach these issues

positively.

6. As "good corporate citizens," members should actively

engage in philanthropic and other

activities of social benefit.

7. Members shall reject all contacts with organizations

involved in activities in violation of the law or accepted

standards of responsible social behavior.

8. Members shall observe all laws and regulations

applying to their overseas activities and respect the

culture and customs of other nations and strive to

manage their overseas activities in such a way as to

promote and contribute to the development of local.

Corporate benefit

Corporate benefit (sometimes referred to as commercial benefit) is the

requirement under some legal systems that the directors of a company

must exercise the powers of the company for the commercial benefit of

the company and its members. At common law, transactions which were

not ostensibly beneficial to the company were set aside as being void as

against the company.

Perhaps the best illustration of this principle is to be found in Hutton v

West Cork Railway Co (1883) 23 Ch D 654, where the English Court of

Appeal held that the paying of a gratuity to employees prior to their

dismissal was an improper exercise of the powers of the company,

because the company was no longer a going concern, and thus stood to

obtain no benefit (and no furtherance of its objects) through the payment

of the gratuity; as Bowen L.J. memorably remarked: "there are to be no

cakes and ale except such as are required for the benefit of the company.

Any transaction which the directors enter into which is outside the

powers of the company (and thus outside the scope of their authority)

may nonetheless be ratified by the shareholders of the company, and will

thereby be binding upon the company

Corporate governance

In A Board Culture of Corporate Governance business author

Gabrielle O'Donovan defines corporate governance as 'an internal

system encompassing policies, processes and people, which serves the

needs of shareholders and other stakeholders, by directing and

controlling management activities with good business savvy, objectivity,

accountability and integrity. Sound corporate governance is reliant on

external marketplace commitment and legislation, plus a healthy board

culture which safeguards policies and processes'.

O'Donovan goes on to say that 'the perceived quality of a company's

corporate governance can influence its share price as well as the cost of

raising capital. Quality is determined by the financial markets,

legislation and other external market forces plus how policies and

processes are implemented and how people are led. External forces are,

to a large extent, outside the circle of control of any board. The internal

environment is quite a different matter, and offers companies the

opportunity to differentiate from competitors through their board culture.

To date, too much of corporate governance debate has centred on

legislative policy, to deter fraudulent activities and transparency policy

which misleads executives to treat the symptoms and not the cause.

It is a system of structuring, operating and controlling a company with a

view to achieve long term strategic goals to satisfy shareholders,

creditors, employees, customers and suppliers, and complying with the

legal and regulatory requirements, apart from meeting environmental

and local community needs.

Report of SEBI committee (India) on Corporate Governance defines

corporate governance as the acceptance by management of the

inalienable rights of shareholders as the true owners of the corporation

and of their own role as trustees on behalf of the shareholders. It is about

commitment to values, about ethical business conduct and about making

a distinction between personal & corporate funds in the management of

a company.” The definition is drawn from the Gandhian principle of

trusteeship and the Directive Principles of the Indian Constitution.

Corporate Governance is viewed as ethics and a moral duty.

Economic Value

Economic value is one of many possible ways to define and measure value.

Although other types of value are often important, economic values are

useful to consider when making economic choices – choices that involve

tradeoffs in allocating resources.

Measures of economic value are based on what people want – their

preferences.  Economists generally assume that individuals, not the

government, are the best judges of what they want.  Thus, the theory of

economic valuation is based on individual preferences and choices.  People

express their preferences through the choices and tradeoffs that they make,

given certain constraints, such as those on income or available time. 

The economic value of a particular item, or good, for example a loaf of bread,

is measured by the maximum amount of other things that a person is willing

to give up to have that loaf of bread.  If we simplify our example “economy”

so that the person only has two goods to choose from, bread and pasta, the

value of a loaf of bread would be measured by the most pasta that the

person is willing to give up to have one more loaf of bread. 

Thus, economic value is measured by the most someone is willing to give up

in other goods and services in order to obtain a good, service, or state of the

world.  In a market economy, dollars (or some other currency) are a

universally accepted measure of economic value, because the number of

dollars that a person is willing to pay for something tells how much of all

other goods and services they are willing to give up to get that item. This is

often referred to as “willingness to pay.”

 

In general, when the price of a good increases, people will purchase less of

that good.  This is referred to as the law of demand—people demand less of

something when it is more expensive (assuming prices of other goods and

peoples’ incomes have not changed).  By relating the quantity demanded

and the price of a good, we can estimate the demand function for that good. 

From this, we can draw the demand curve, the graphical representation of

the demand function.

It is often incorrectly assumed that a good’s market price measures its

economic value.  However, the market price only tells us the minimum

amount that people who buy the good are willing to pay for it.  When people

purchase a marketed good, they compare the amount they would be willing

to pay for that good with its market price.  They will only purchase the good if

their willingness to pay is equal to or greater than the price.  Many people are

actually willing to pay more than the market price for a good, and thus their

values exceed the market price.

In order to make resource allocation decisions based on economic values,

what we really want to measure is the net economic benefit from a good or

service.  For individuals, this is measured by the amount that people are

willing to pay, beyond what they actually pay.  Thus, two goods that sell for

the same price may have different net benefits. For example, I may have a

choice between wheat and multi-grain bread, which both sell for $2.00 per

loaf.  Because I prefer multi-grain, I am willing to pay up to $3.00 for a loaf. 

However, I would only pay $2.50 at the most for the wheat bread.  Therefore,

the net economic benefit I receive for the multi-grain bread is $1.00, and for

the wheat bread is only $.50.  

The economic benefit to individuals is often measured by consumer surplus.

This is graphically represented by the area under the  demand curve  for a

good, above its price. 

The economic benefit to individuals, or consumer surplus, received from a

good will change if its price or quality changes.  For example, if the price of a

good increases, but people’s willingness to pay remains the same, the

benefit received (maximum willingness to pay minus price) will be less than

before. If the quality of a good increases, but price remains the same,

people’s willingness to pay may increase and thus the benefit received will

also increase.

Economic values are also affected by the changes in price or quality of

substitute goods  or complementary goods .  If the price of a substitute good

changes, the economic value for the good in question will change in the

same direction.  For example, wheat bread is a close substitute for multi-

grain bread.  So, if the price of multi-grain bread goes up, while the price of

wheat bread remains the same, some people will switch, or substitute, from

multi-grain to wheat bread.  Therefore, more wheat bread is demanded and

its demand function shifts upward, making the area under it, the consumer

surplus, greater.

Similarly, if the price of a complementary good, one that is purchased in

conjunction with the good in question, changes, the economic benefit from

the good will change in the opposite direction.  For example, if the price of

butter increases, people may buy less of both bread and butter.  If less bread

is demanded, then the demand function shifts downward, and the area under

it, the consumer surplus, decreases.

Producers of goods also receive economic benefits, based on the profits they

make when selling the good.  Economic benefits to producers are measured

by  producer surplus, the area above the supply curve and below the market

price.  The supply function tells how many units of a good producers are

willing to produce and sell at a given price.  The supply curve is the graphical

representation of the supply function.  Because producers would like to sell

more at higher prices, the supply curve slopes upward.  

If producers receive a higher price than the minimum price they would sell

their output for, they receive a benefit from the sale—the producer surplus. 

Thus, benefits to producers are similar to benefits to consumers, because

they measure the gains to the producer from receiving a price higher than the

price they would have been willing to sell the good for.

 

When measuring economic benefits of a policy or initiative that affects an

ecosystem, economists measure the total net economic benefit.  This is the

sum of consumer surplus plus producer surplus, less any costs associated

with the policy or initiative.

 

Abstract

Socially responsible business and ethical behaviour of

companies have been of interest to academia and practice for

decades. But the focus has almost exclusively been on large

corporations while small- and medium-sized enterprises (SME)

have not received as much attention. Thus, this paper focuses on

socially responsible business practices of SME entrepreneurs or

owner-managers in Germany. Based on the assumption that

decision-makers in SMEs are the central point where all business

activities start, members of a German entrepreneurs association

were approached in the course of a qualitative and quantitative

survey. They were asked to assess in what way their social

responsibility is expressed in specific management practices

towards selected stakeholder groups. These practices in turn

were assumed to result in perceived positive reactions of the

respective stakeholders and subsequently to positively influence

the firm's financial performance, i.e. cost reductions and increase

in profits. In the paper, a research model is presented that

elaborates the relationship between an SME executive's social

responsibility and the value creation of a firm, i.e. whether

(personal) values create (economic) value. It was found that

socially responsible management practices towards employees,

customers and to a lesser extent society have a positive impact

on the firm and its performance. As such, values can create

additional value.

Conclusions

 

All these CSR-related activities will shape UNIDO’s further development

towards an ever-stronger position as a competence partner in the field of

sustainable private sector development, focused on small and medium

enterprises. Responding to an emerging demand towards CSR-related

support for SMEs in the developing world, UNIDO is developing further

practical knowledge, which will enhance the private sector in becoming

more competitive in their local markets as well as in global value chain.

Being on the forefront of practical support for SMEs, UNIDO takes up an

important role as a competence partner in helping SMEs to survive and

grow in a changing business environment, which will require the adherence

to an increasing number and complexity of standards, which is most

prominently marked by the advent of ISO 26000.