This blog post was contributed by Jennifer Arosio, a student in the MSc Leading Innovative Organizations at JKU Linz, and is based on the lecture “CSR and Stakeholder Relations” by Prof. Dr. Nora Lohmeyer (class #8 of Course II)

The concept of corporate social responsibility (CSR) emerged in the 1950s when Howard Bowen advocated for more ethical and responsible businesses and for responsiveness to societal stakeholders (Bowen, 1953). However, the idea has long been relegated to classrooms or to academic debates, and it has only recently gained attention from both corporations and the general public. CSR is a broad concept that includes different theories and meanings and there is no universal consensus on its characterization or a magic formula that will turn an organization into “the responsible organization”. However, it has been noted that CSR’s main theories are focused on one aspect of social reality, namely economics, politics, social integration and ethics (Garriga and Melé, 2004). In this post, I will compare a position that sees companies as purely economic actors with one that recognizes the interconnection between them and society[1]. I will then discuss my thoughts on the topic.

The shareholders’ perspective is probably the most known theory when discussing an organization’s economic responsibility. In 1970, the New York Times Magazine published Milton Friedman’s piece, in which he stated that the primary responsibility of corporations should be to return money to their shareholders and pursue economic growth as long as they remain within the law (Friedman, 1970). This idea had a long-lasting impact on how corporations conducted their daily operations. Even today some scholars and executives agree with this view and business schools continue to stress that the overarching agenda of organizations should be profits maximization. A representative example of this behavior could be the fierce competition for short-term trading, hostile takeovers, and purely financial figures that dominated Wall Street, and the “finance world” in general, up until at least 2008. The financial crisis exposed how faulty the perception of firms as isolated entities with no interests other than their own short-term profits was. It became then apparent (again) that businesses were embedded in society and that their activities could influence it. 

A different perspective emerged in the mid-1980s. It emphasizes the relationship between business and society and acknowledges how diverse stakeholders can affect or be affected by a company (Freeman, 1984). In addition to shareholders, stakeholders include suppliers, governments, communities, employees, non-governmental organizations, etc. According to this perspective, an organization’s long-term success depends on the support of these stakeholders. Therefore, management should actively tend to the interests of all stakeholders in order to develop effective company strategies (Freeman, 1984). However, the interests of organizations and those of society not always align and this is when CSR comes into play. As a result, today’s social responsibility is not only concerned with how businesses spend their money (e.g., donations) but also with how they make that money and in which activities they actively engage to further the common good, even when those activities may not result in a financial benefit. And this view is becoming dominant in modern society.  Organizations are no longer regarded as entities that operate in a vacuum; on the contrary, it is widely accepted that their actions have political, ethical, environmental, and social consequences. We could even take this one step further and say that a rising part of the general public is demanding that corporations take action in response to societal issues. In the past few years, in addition to ongoing concerns about climate change, the world went through Covid-19, the Black Lives Matter movement, Russia’s invasion of Ukraine, and now the overturn of Roe v. Wade in the United States. Businesses were expected to take a stand in all these situations. Let us take a closer look at each of them individually.

I believe that Covid illustrates how society influences corporations and vice versa. On the one hand, businesses were required to put the public health interests above their own, to stop conducting business in person, and to modify their operations for the societal good. On the other hand, some corporations implemented their own policies in addition to the ones imposed by governments. For instance, Walmart introduced flexible schedules, a special emergency COVID-19 leave policy for its employees and opened vaccine clinics in support of the community.

Following the killing of Georg Floyd by a Minneapolis police officer in May 2020, corporations were openly urged by their employees and customers to support the Black Lives Matter movement and join the fight for racial equality. One of the first streaming platforms to release a statement in support of the protests was Netflix. In addition to that, the company pledged $100 million in support of Black communities in the US, and its CEO donated $120 million to historically black institutions and universities. 

On March 1, 2022, just a few days after Russia’s invasion of Ukraine, Apple issued a press release stating that the company had halted product sales and exports to Russia, restricted access to its services like Apple Pay, and even taken steps to increase safety for Ukrainian citizens by blocking access to real-time events in Apple maps. This is an excellent illustration of how certain major corporations are demanded to intervene in geopolitical concerns because they are seen as having more influence (and longevity) than some governments.

Finally, moving onto an even more recent issue, on Friday, June 24 2022, the US Supreme Court overruled Roe v. Wade, banning the facto the right to abortion in the United States. While, at the time of writing this piece (June 26, 2022), we have not yet seen a fully-fledged response to the issue, some businesses such as Warner Bros., Condé Nast, Google, etc., have already declared an expansion of their health benefits and travel expenses coverage for abortions. Moreover, I think that it will be difficult for businesses to ignore the problem, and that additional responses will follow.

These were all circumstances in which companies got actively involved in sociopolitical matters, demonstrating their obligations to both their community and society as a whole. Obviously, none of these actions are exempt from critique or skepticism. Walmart is known for low pay and below-average working conditions. Netflix pledged its donation only after some of its stakeholders expressed negative emotions toward a mere press release message. Apple and all the other companies pulling out of Russia might be doing so for future gain, to avoid losing the trust of their customers, or just to avoid governmental sanctions. Not to mention all the situations of “greenwashing” or “ethic washing” where corporations’ CSR statements are only a facade for “business as usual”. Moreover, despite the fact that CSR has several components, organizations typically only handle one of them at a time, depending on the urgency of the situation and the general mood of the public. Additionally, CSR’s critics will argue that businesses operate in a capitalistic market and it would be naive to assume that their actions are completely altruistic. They will remark that a company’s primary objective is always survival (if not supremacy), and that CSR could be a strategic tool to obtain public support and sustain a competitive advantage. 

However, the examples prove how inaccurate it is to think that a corporation’s sole responsibility is to return money to its shareholders. This perspective, in my opinion, is based on the wrong assumption that firms can be taken in isolation from society and it is also too limited in its idea of shareholders. Friedman’s doctrine fails to acknowledge that shareholders are also members of society and their individual interests might go beyond mere profit maximization (Datta, 2021). 

In conclusion, I disagree not just with the idea that firms should simply return profits to shareholders, but also with an overly negative interpretation of their CSR efforts. It is important to be aware of CSR decoupling, which occurs when organizations adhere only superficially to the institutional pressure (Meyer and Rowan, 1977), thus creating a discrepancy between CSR reports and actual practice. However, if reports and practices are aligned, should the general public be concerned with the underlying reasons for which companies engage in those practices? Should we agree with Machiavelli’s dictum that “the end justifies the means” in this case? From the outside, it might be impossible to fully comprehend the root causes that push corporations to be more responsible and critiques might be superficial. While it is true that a lack of real commitment might lead to questionable practices, it is also true that actions that have a positive social impact send a powerful message to the broader public which may, in turn, ultimately reinforce mechanisms for more responsible corporate behavior.

This brief excursus shows how times have changed since Friedman’s essay. Today corporations know that they need society for their survival and growth and recognize the importance of social responsibility. This does not mean that CSR will annihilate the shareholders’ view. However, the only approach that can deal with the complexity of contemporary society is one that is more inclusive and takes into account diverse stakeholders.

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[1] Only American corporations have been included in this essay to give a homogeneous overview of companies’ responses to societal issues.

References

Bowen, H. R. (1953). Social Responsibilities of the Businessman. New York: Harper.

Datta, Y. (2021). Friedman Doctrine: Maximizing profits is neither good for society nor even for the shareholders. Journal of Economics and Public Finance, 7(3), 153-191.

Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Boston: Pittman.

Friedman, M. (1970). A Friedman doctrine: The social responsibility of business is to increase its profits. The New York Times Magazine, 13(1970), 32-33.

Garriga, E., & Melé, D. (2004). Corporate social responsibility theories: Mapping the territory. Journal of Business Ethics, 53(1), 51-71.

Meyer, J. W., & Rowan, B. (1977). Institutionalized organizations: Formal structure as myth and ceremony. American Journal of Sociology, 83(2), 340-363.