Understanding Corporate Social Responsibility (CSR)

According to the European Commission (2001) green paper of promoting a European framework for corporate social responsibility defines CSR as:

“A Concept whereby companies integrate social and environmental concerns in their business operations and their interactions with their stakeholders on a voluntary basis. Being socially responsible means not only fulfilling legal expectations but also going beyond compliance and

investing “more” into human capital, the environment, and the relations with stakeholders”.

Is it enough for corporations to make money or should they also take responsibility for the environment and people`s well-being? Many economic thinkers are acting skeptical about CSR. Those who are in favor of extreme market freedom believe that the only responsibility of corporations is to act so that the owners get the biggest profit. Market freedom supporters assume that the ethical choices of consumers and investors will gradually steer production to an ethical one and corporations do not need rules or controls to guide their operations. So far, the invisible hand of the market has not proven to work, because the ethics of attitudes seem to be moving very slowly to guide consumers and investors` everyday choices. (Tapanainen 2010: 3.)

The firsts CSR theories articulate that corporations have power and power requires responsibility. These theories also emphasize that society gives permissions for the corporations to operate and, therefore, corporations must serve society by contributing to social needs. This does not only mean wealth creation. Corporations are always part of the social environment, so corporate reputation is also linked to the respect of the social community where it operates. This relationship is the basis for the generalization of CSR theory (Crane, McWilliams, Matten, Moo & Siegel 2008: 49-51.)

CSR is a corporate commitment to take care of the environmental, social, and commercial consequences of their operations in a responsible way and line with community assumptions.

CSR is part of corporate governance and every part of the different business units like supply chain, manufacturing, operations, human resources, and safety. Some aspects of CSR are often required by law, however, most of it is voluntary for the corporations. By doing voluntary CSR corporations can make a positive impact on their surrounding society. (Crane et al. 2008: 50-51.)

CSR is widely defined as the practical application of sustainable development in business.

The corporation should stand responsible for their environment, or at least their immediate surrounding because the consequences and responsibilities of doing business in one way or another affect the surrounding nature, the immediate environment, and the whole society.

The content of CSR varies within countries and from one culture to another, for example, depending on the role society plays in providing basic services such as health care or social security. As a rule, CSR refers to activities that go beyond the requirements of the law.

Society expects corporations to at least comply with minimum legal requirements, but more and more, voluntary, transnational social responsibility. (Tapanainen 2010: 3-5.)

According to author Ata Ujan (2019), CSR is behaving like a symbol for corporations. This symbol plays a very essential role in business and implementing CSR to business strategies and processes have the power to make a way for long-run success in business. However, if CSR does not create meaningful impacts on corporate stakeholders the CSR practices can

fail or be not so effective. This means that CSR practices bust be designed to address social problems that are real and are faced by the community and society where the corporation operates. Tapanainen (2010) argued that the biggest and most pressing CSR issues are related to globalization and relocation of production to countries with labor being very cheap and where there are no occupational safety and environmental laws.

As corporations are looking for new ways to boost their performance with CSR, they still face many challenges in integrating CSR into all parts of the organization. Implementing sustainability is fundamentally very different than implementing new business strategies and processes in the organization. These business operational changes are related to increased profit and the link is very clear. For sustainability, the intention is to capture excellence in both financial, environmental, and social performance simultaneously. This creates a paradox because often measuring and managing are very challenging. (Epstein 2018; 23-25.)

For the corporations to implement CSR into their business activities Epstein (2018) argues that sustainability needs to be an essential component of corporate strategy. Corporation performance measurement, management control, and reward systems should support sustainability strategies and the leadership must be devoted to sustainability. Management needs to see sustainability not only as compliance and risk avoidance but also as a possibility for competitive advantage and innovations. Most importantly corporation culture, people, and mission should support sustainability strategies. The motivation for CSR implementation can be diverse because corporations often have different goals. Some corporations try to make the world a better place, however, some can try to achieve a better relationship with stakeholders, improve health and safety standards, or improve their brand image. CSR implementation increases trust and gives a responsible image of the corporation. (Epstein 2018; 24-26.)