The Challenge of Corporate Responsibility
To augment the Essential Knowledge Project, this essay discusses the perplexities and challenges of corporate social responsibility (CSR). The essay features the “what,” “why,” and “how” of CSR. As they help formulate CSR standards and give voice to organizations, public relations practitioners can use experts’ carefully considered thoughts as well as research findings to determine the best plan of action. Internally and externally, practitioners can help build a foundation for image/reputation management, brand equity, relationship management, issues management, and crisis management.
“Are you a good corporate citizen?” That rhetorical question was asked by Ben W. Heineman Jr., senior vice president for law and public affairs at General Electric Corporation, writing in the Wall Street Journal (6/28/2005). His question helps set the tone for the topic of corporate social responsibility as a vital part of the Essential Knowledge Project. The column explained how GE sets a challenging goal—high performance with high integrity—for successful companies and, indeed, for 21st-century capitalism” (p. B2). High performance and high integrity are good for the bottom line. Citizenship requires a “rigorous, unwavering compliance with the law.” It blends strict adherence to capital performance with integrity to never allow that commitment to corrode those principles. Quality judgments support, rather than defeat, a commitment to financial standards and to the globe where the organization works, including commitment to “reduce greenhouse gases and increase energy conservation” (p. B2).
What is CSR?
When discussing CSR, some prefer corporate responsibility (CR) to avoid the assumption that it is limited to “social” concerns (strategic philanthropy and community relations). Others use “social” responsibility to avoid the stigma that this topic only relates to businesses driven to place profit over social principle. Those who prefer “social” without the modifier “corporate” recognize that non-profits and governmental organizations are and should be held to responsibility standards. By whatever name, interests of organizations cannot long be at odds with mutual interest and common good.
Consideration of corporate social responsibility is as old as organizations themselves. The central question always has been this: Does each organization, as it strives to achieve its mission and vision, add value to the society which franchises its existence? Long before consideration focused on business, especially large corporations, questions about CSR addressed the rationale and acceptability of government and church.
History: A Long-term Perspective
Despite this timeless concern, the topic came to receive serious discussion and management policy development during the 1950’s in nations with large corporations—or those working to overthrow governmental and capitalist colonialism. In developed nations, social movement activism and principles of social democracy offered not only a rationale but also a voice for the concern that mass production/mass consumption societies had spawned large corporations that were slowly dominating the standards of business performance in ways that distorted not only their rationale in society but also the wholesomeness of the private sector. Efficient and rational business practices could in fact harm the society that franchised the organizations to operate.
In the 1960s, interest in CSR became feverish as activists at all points of the ideological and geographical compass called for higher standards of business and government performance. Non-profits asked to share business profits. Academics argued over the differences between the modern and post-modern organization.
As Basu and Palazzo (2008) observed: “The last three decades have witnessed a lively debate over the role of corporations in society” (p. 122). This scrutiny revealed how CSR standards are defined by the ideology of each society. Public relations practitioners contribute to this ideology as they discuss business performance internally and externally. Critics have reasoned that CSR can become insulated, self-serving, and self-affirming—often to the detriment of the society where it was supposed to be a social, political, technical, and financial benefit. Public relations can help organizations craft their standards and implement them through actions and statements.
One of the primary discussants in that 30 year-long dialogue, Freeman Freeman & Liedtka, 1991) observed 17 years ago: “The idea of corporate social responsibility has failed to help create the good society. Long seen by academics and managers alike as the missing link in capitalism, the concept of corporate social responsibility has not delivered on its promise” (p. 92). Convinced of its failure, they reasoned that it is a “dangerous idea” (p. 92), which led them to agree in principle but not detail with Freidman (1970).
Debate Around Friedman’s Arguments
In one way or another, all discussions of CSR recall the famous, or infamous, claim of economist Milton Friedman (1970) that CSR is bunk. He sparked decades of controversy by arguing that the only responsibility of publicly held companies is to increase profits—the efficiency paradigm of organizational excellence. Companies should pay only as much wage/salary as necessary to operate efficiently and pay taxes reluctantly. Some today laud his sentiments, and indeed many empirical tests have not found a positive relationship between CSR activities and major corporate financial performance indicators such as profit (e.g., Agle, Mitchell, & Sonnenfeld, 1999; Auppede, Carroll, & Hatfield, 1985). Agle et al. (1999) stressed the methodological challenge: “Corporate social performance is notoriously difficult to quantify” (p. 515).
Others argue that Friedman’s view of the role of companies too narrowly addresses the key issue. Stovali, Neill, and Perkins (2004) fought the traditional interpretation of the Invisible Hand of Adam Smith, which serves to legitimize the maximization of shareholder wealth, and as a result, shareholder-dominant corporate governance. A broader view of the Invisible Hand considers a “sympathy principle,” or the ability and propensity of human beings to consider the interests of others. This view may be more aligned with the dominant concept of CSR and promote a broader, multiple stakeholder approach to corporate governance. If sympathy suggests only philanthropy, we add that CSR demands empathy, an outside-in way of thinking and planning to help management reflect on its role in and impact on the society where it operates. Critics believe that Friedman failed to understand the positive advantages to be gained from CSR: Reduce business costs and bolster profits (See the section on Profits and CSR).
Public Relations Practitioners’ Views
Public relations practitioners added their voices to this controversy. Senior public relations practitioner, John L. Paluszek (1995) reasoned that advocates of CSR can be committed to profits and the community where they are generated,
Business is increasingly in society not only in its traditional role of improving the standard of living—by generating jobs, offering products and services and paying taxes—but also via an overlay of sensitivity that supports employees, empowers customers and investors, and relates to the needs of local, national and international communities. (p. 49)
The daunting question raised by this debate is this: Does the price of enjoying the franchise to operate in a society where profits are generated include increasing operating standards so that the organization adds value to that society beyond merely making a profit? Clark (2000) quoted public relations giant Arthur Page: “All business in a democratic country begins with the public’s permission and exists by public approval” (p. 364). In fact, he might say the same of business in “undemocratic countries.” If it lacks public support, it operates on a questionable franchise.
The legendary John W. Hill (1958) (co-founder of Hill & Knowlton) advised us to understand sound management as the initial step toward appreciating the roles and challenges facing public relations professionals.
It is not the work of public relations—let it always be emphasized—to outsmart the American public in helping management build profits. It is the job of public relations to help management find ways of identifying its own interests with the public interest—ways so clear that the profit earned by the company may be viewed as contributing to the progress of everybody in the American economy. (p. 21)
Another senior practitioner, Raymond Ewing (Allstate Insurance) (1987) reasoned, “A corporation exists for the optimization of the satisfactions of its stakeholders” (p. 32).
This history of CSR discussions leads to many conclusions, including the following ones:
- Knowing and achieving legal and ethical standards are not inherently opposed to one another, but they are not one and the same (Bowen & Heath, 2005);
- Knowing and achieving engineering and operating standards that advance quality of work life, product quality and the community well-being where organizations operate is fundamental to CSR;
- Understanding and appreciating that the franchise to operate is granted by and required to serve the positive interests of society;
- Adopting standards that blend the public and private interest is basic to achieving aligned and mutual interest.
Thus, higher standards of employee or consumer safety help manage risks and reduce the likelihood of crisis related to employment and consumption.
