Corporate Social Responsibility: A Corporate Governance Perspective

Corporate social responsibility (CSR) is a concept with a growing currency around the world. It overlaps with concepts such as corporate sustainability, corporate sustainable development, corporate responsibility, and corporate citizenship. It does not, however, have a universal definition. Some see it as the integration of the economic, social, and environmental imperatives of business activities. Others see the creation of innovative and proactive solutions to socioeconomic and environmental challenges, involving  both internal and external corporate stakeholders.

It can also understood as a form of corporate self-regulation, whereby businesses accept responsibility for the impact of their activities on the environment, consumers, employees, and communities. This responsibility means balancing the corporate and the public interest by voluntarily eliminating practices that harm the environment and the host community, regardless of the corporate regulatory requirements, and by acting philanthropically to support the socioeconomic and cultural development of the host society

Underpinning CSR is a particular corporate governance perspective: that corporations should conduct their affairs for the benefit of all their stakeholders, to whom they should also be accountable.  This view holds that the authority to govern a corporation is derived from society, in return for which corporations have use of its resources and access to the special privileges, most notably, the granting of corporate legal entity or limited liability status, and the designating legal immunities to managers, without which corporations could not survive. Thus, corporations have not only legal obligations (to comply with laws and regulations) but also a moral obligation to advance their host communities. CSR is one way of meeting those corporate moral obligations. But not everyone agrees with this perspective.

Critics of CSR assert that the only interests that a corporation needs to serve are of those with whom they have a contractual relationship, and even then, only to the extent of the contractual obligation that has been defined. Those stakeholders who are without a contractual relationship are presumed to have their interests protected and promoted by the state, as a matter of public policy, which defines and enforces whatever rights they are given in the public interest. These rights are thus part of the socially determined legal framework that constrains corporate action.  Since the authority to govern corporations is derived from ownership, it is shareholders they should serve not stakeholders. The only corporate moral obligation is to make as much profit as possible in accordance with the laws and regulations of the host society. CSR, at best, should be undertaken if it advances the cause of profit.

The reconciliation of the above mentioned contending corporate governance perspectives on CSR comes only with the integration of CSR strategies into corporate business models.  The scale and nature of the CSR corporate benefits vary, of course, depending on the nature of the corporation and the markets it serves, and, generally, they are difficult to quantify financially thus incorporate into corporate balance sheets and profit and loss statements. A qualitative and long-term perspective needs to be taken.  Clearly, business should not be looking at, or for, short-run financial returns when developing their CSR strategy. Rather, the focus has to be long-term sustainable profits. There  is growing evidence that CSR programs:

•    enhance the  recruitment and retention of staff in competitive labor markets;
•    builds a corporate culture of ‘doing the right or good thing’, which builds over time a corporate reputation that emphasizes good corporate citizenship; and
•    leads to a competitive advantage in a competitive commodity market, by enabling a market positioning that builds customer loyalty on the basis of a set of distinctive ethical values.

As I have only lived in Kazakhstan for 18 months, it would be arrogant in the extreme for me to offer an opinion on local CSR practices and their impact. All can say is that the international evidence is growing that being a good corporate citizen makes good business sense.

July 23, 2010