Creating a strong business and building a better world are not conflicting goals - they are both essential ingredients for long-term success."
- Bill Ford
Corporate social responsibility (CSR), is therefore essential for all businesses to pursue. Let's take a look at how CSR can impact businesses and contribute to business strategy.
Corporate social responsibility definition
Corporate social responsibility (CSR) is a set of practices a business undertakes in order to contribute to society in a positive way.
A business may set environmental goals, follow ethical practices and internal governance, or set social objectives - these are all forms of CSR that are integrated into a businesses' operations and interactions with its stakeholders.
A clothing retailer can set out that they will only use sustainable, environmentally friendly materials for production (environmental goal), pay all of their workers a fair wage and guarantee a high-quality working environment (social goal).
Consumers are becoming more aware and interested in business practices through research and digital media. CSR brings about some controversy, as focusing on CSR is considered a popular marketing tactic. Through CSR, companies try to prove to consumers that they also care about social and environmental goals, rather than just profit. Another controversial aspect of CSR is the fact that some people argue that CSR is an essential part of modern business practices, whereas others claim that businesses should stick purely to their economic responsibilities of making a profit.
Corporate social responsibility theory
Caroll (1991) proposed a theory of corporate social responsibility. He suggested that corporate social responsibility can be represented through a pyramid of four different types of responsibility (see Figure 1 below).¹
Carroll's pyramid of responsibilities
The base of the pyramid (bottom layer) is economic responsibilities. This responsibility is based on the idea that a business that is operating should ensure that it is profitable enough to survive - this is required by society.
The next layer of the pyramid includes legal responsibilities. This responsibility is based on the idea that a company should be following laws and regulations set within society - this is also required by society.
The third layer of the pyramid is ethical responsibilities. This responsibility includes the idea that a business should do what is right and fair even if they are not obliged by law to act this way - this responsibility is expected by society.
The final layer of the pyramid is philanthropic responsibilities. This responsibility suggests the business be a good corporate citizen, ensuring that the business contributes towards social, environmental, and cultural goals - this responsibility is desired by society.
Corporate social responsibility example
An example of a company that is a responsible business and has been a leader in CSR is The Body Shop. A couple of years ago, The Body Shop announced that they have “set out 14 targets to help maintain its position as a leader in ethical business and continue to develop the business with a focus on people, products and the planet”. The Body Shop has created measurable objectives which they are planning to implement globally. The program is called 'Enrich Not Exploit'.²
The three main objectives are to:
'Enrich our people'
'Enrich our products'
'Enrich our planet'
Importance of Corporate Social Responsibility
There are multiple reasons why companies are implementing CSR into their business practices.
Advantages and Importance of CSR
One of the main reasons organizations are implementing corporate social responsibility is to become a good corporate citizen (top layer of the pyramid). By being transparent in business practices, companies can benefit in numerous different ways:
Attract more customers: as an increasing amount of consumers are concerned with environmental and social issues, focusing on CSR can help retain existing and attract new customers to the business.
Marketing strategy: CSR can help businesses with their brand positioning strategy (positioning in the market as a responsible brand)
Internal benefits: a company that is known to consider social responsibilities is not only attractive to customers but also to employees. CSR also takes internal governance into account, meaning that the company also has set practices on internal policies (ex. Ethical management or flexible working hours). This can be attractive to new employees and helps to motivate and retain current employees.
Risk management: by being an ethical and responsible company from the very beginning, a company is more likely to avoid future regulatory or legal problems.
Lower production costs: an environmentally conscious company might benefit from lower production costs resulting from lower energy usage or lower packaging costs (less plastic packaging).
Disadvantages
In certain cases, CSR could lead to certain disadvantages within the company:
Trust: if customers think a company is using CSR as a marketing tactic, it may end up damaging the reputation or the image of the company.
Can be expensive: introducing and integrating a new policy into current business operations can be quite costly. The business could be looking at finding new suppliers that are environmentally conscious, paying for staff training and investing in new technology.
The interest of shareholders: some shareholders may be reluctant in spending the company's profits on CSR implementation. This could potentially lead shareholders to reduce investments or invest in other companies.
Corporate Social Responsibility - Key takeaways
Corporate social responsibility is a set of practices a business undertakes to contribute to society positively.
CSR can be controversial as some claim it is part of modern business practices, whereas others claim that businesses should only focus on profitability.
CSR can be represented through a pyramid that ranges from economic responsibilities to philanthropic responsibilities.
The Body Shop is an example of a company that has been a leader in CSR. The company has set out 14 CSR targets to continue growing the business with a focus on people, products and the planet.
Corporate social responsibility could be beneficial for attracting more customers, managing risk and helping with brand positioning. However, implementing CSR could be expensive and collide with the interest of shareholders.
¹Archie B. Carroll, Carroll's pyramid of CSR: taking another look, International Journal of Corporate Social Responsibility, 2016 .
² Andrew McDougall , The Body Shop goes for a green makeover with new CSR strategy, 2016 .
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