Corporate Social Responsibility1

: A marketing gimmick, an enemy of a free society or the business of business?

- Practical responses to criticism from both sides: CORE activities2 and Socially Responsible Investment

Introduction
Like it or not, Corporate Social Responsibility (CSR) has clearly gained momentum as one
of the most important issues across the business and academic community, as well as among
various stakeholder groups. Triple bottom line accounting3 becomes common practice, so
does publishing an annual CSR report. While the Dow Jones Sustainability Index and the
FTSE4Good Index are chasing the financial performance of the leading sustainability-driven
corporations, Beyond Grey Pinstripes is announcing the ranking of business schools based on
their curricular and research related to social and environmental issues.
However, strong criticism from both the left and the right makes us hesitant to declare the
whole new era of corporate social responsibility. Many critics believe that most of so-called
CSR activities are nothing but a deceptive marketing tool, such as greenwashing. Can British

In this paper, the terms Corporate Social Responsibility (CSR) and Corporate Responsibility are
used somewhat interchangeably. Although the term Corporate Social Responsibility sometimes
refers to only one part of Corporate Responsibility, in tandem with Corporate Environmental
Responsibility and Corporate Financial Responsibility, CSR is often understood at a broader
level, including environmental concerns. At a first glance, this general usage is probably acceptable
regarding the expanded definition of society. But even more importantly, it is becoming harder to
draw the line between the responsibilities of business to its shareholders and/or stakeholders and
those to the society as a whole, coupled with the emergence of institutional investors. This point
will be discussed further through the section about Socially Responsible Investment (SRI).

For the distinction between those two terms: World Business Council for Sustainable Development,
Meeting Changing Expectations WBCSDs first report on Corporate Social Responsibility, 1999
2

The term CORE activities is coined by the author in this paper, in order to address the
commitment by business to behave in socially and environmentally responsible ways through its
core activities, as opposed to add-ons or philanthropic activities. The dual meaning of CORE
emphasises the link between core activities of business and COrporate REsponsibility.

The idea of this term is originated from the name of CORE (COrporate REsponsibility) Coalition,
comprised of WWF (UK), Amnesty International, Action Aid and Friends of the Earth. But the
author injected the dual meaning with her own idea about the link with core activities, and has not
come across the same or similar kind of usage during her research.
3

A measuring and reporting framework to take into account environmental and social performance of
an organisation, in addition to its economic (financial) performance. Also known as People, Planet,
Profit

American Tobacco4 be a responsible cigarette manufacturer? Is Nestle really moving

towards social values, or simply trying to wash its image around the baby milk and other
ethical issues by putting a Fairtrade label on its 0.2% of coffee product line? From the green
policy of oil giants BP and Shell to the childhood obesity research fund of McDonalds, the
list of controversial CSR examples is not exhaustive.
On the other side, Milton Friedman's famous maxim remains still strong; there is one and
only one social responsibility of business to use its resources and engage in activities
designed to increase its profits so long as it stays within the rules of the game, which is to say,
engages in open and free competition without deception or fraud.5 Despite a great deal of
research to demonstrate a positive impact of CSR on the financial bottom line in the long run,
the correlation is often arguable, partly due to the difficulty in measuring the impact.
Therefore, many people think there is a trade-off, or at least a tension, between CSR and
shareholder value just as Friedman criticized CSR as doing something good at the expense
of stakeholders, especially shareholders thirty-seven years ago.
Not surprisingly, there are many advocates of CSR who have come up with the
counterargument against criticism from both sides. But practical responses are often more
powerful than theoretical ones, and I am convinced that special attention should be given to a
couple of practices CORE activities and Socially Responsible Investment (SRI). The efforts
to organise core activities of business in more responsible ways suggest the potential of CSR
beyond corporate philanthropy and/or a marketing technique. SRI poses a fundamental
question about corporate responsibility and shareholder value. What if investors actually
want socially responsible practices as well as a decent rate of return? If this is the case, the
underlying assumptions of the Milton Friedman argument will be significantly challenged.
Although it is hard to tell or predict the future of CSR, these trends present one possible
scenario about CSR as the core business of business. This essay will discuss some recent
examples related to these practices, the reason why these trends are particularly significant,
and the potential implications on the new paradigm of CSR.

CORE: COrporate REsponsibility through core activities of business

When people say that the business of business is business only, obviously the primary
emphasis is put on the profit-generation activities of corporations, but it also reflects the
assumption that CSR activities are pretty independent from the core operations of business.
In other words, corporate philanthropy and charitable donation are often regarded as a big
4

BAT is the only tobacco company which was included in the Dow Jones Sustainability World Index.

Friedman, M. The Social Responsibility of Business is to Increase its Profits, The New York Times
Magazine, 13 September 1970

part of CSR, which is separable from the business and nothing but an add-on for the good
cause. Although there might be nothing wrong with corporate giving or individual
philanthropic actions6, these are often criticised as hypocritical programmes, to distract the
public from the ethical issues around their core operations.
For instance, Samsung Group is often cited as a responsible company in Asia, through its
wide range of grants and philanthropic programmes. But at the same time, Samsung is
notorious for its anti-labour union policy and brutal suppression of workers rights, and
therefore heavily criticised for having two faces. Another widely-known example is Shell, a
pioneer in triple bottom line reporting and an enthusiastic promoter of the sustainability
report. Despite its CSR propaganda, the 2004 scandal (the companys overstating of its oil
and gas reserves by 20 per cent) and other activities around its core operations led to the
sharp criticism of NGOs, environmental activists, media and the public, as can be seen on the
Lessons Not Learned The Other Shell Report 20047.
But recently, there is a noticeable trend which incorporates CSR into the companys core
business and everyday operations. Qualcomm, the pioneer of 3G services and a leading
developer of CDMA technology, is an outstanding example. It has a long history of
community involvement and philanthropic giving, but has recently reshaped its corporate
citizenship programmes around the idea of technology for development. In 2005, Qualcomm
launched Wireless Reach Initiative, under the slogan Empowering underserved communities
worldwide through 3G technologies, by combining its third generation wireless technology
with microfinance and other development programmes in developing countries. It operates
programmes in a large number of countries from China, India and Vietnam to Mexico and
Peru, South Africa and Democratic Republic of the Congo, in partnership with a number of
NGOs including PlaNet Finance and USAID.
Similarly, some of the leading financial institutions are developing their financial products
and services aligned with corporate social responsibility. Citigroup, ABN AMRO, Barclays
and many more commercial banks already launched their own microfinance programmes,
hoping to improve both their social and financial performance; microfinance is expected to
provide a new market opportunity with a huge potential and a unique risk management tool.8
The HBOS group is heavily involved in the development of socially responsible investment,
through its asset management arm Insight Investment.

But again from Friedmans point of view, it is simply doing something good at the expense of
shareholders.

Published by Friends of the Earth et al, available at:

http://www.foe.co.uk/resource/reports/lessons_not_learned.pdf

Although the idea of lending loan to low-income borrowers might be considered as a high-risk
proposition, the large number of borrowers and a very small amount of loans to each individual
create a unique diversification effect that help reduce the portfolio risk.

In addition to those efforts to operate the core business in responsible ways, companies are
also trying to bring CSR into all the aspects of everyday operation, from accounting to human
resources and supply chain management. One interesting example is SwedTech AB, a large
Swedish Telecommunications equipment manufacturer which exercised corporate social
responsibility in the context of workforce reduction. In SwedTech, around 10,000 workers
lost their job in 2001 in the face of severe financial crisis, but around 85% of them were
transferred to new solutions under the career change programme named Forum of the Future
2.9 This case suggests that CSR can be embedded in every aspect of business, even in the
extreme situation such as workforce reduction. In this sense, the ultimate goal of a CSR
department can be defined as creating the environment where CSR is embedded across the
whole organisation and therefore there is no need for CSR departments.
All these examples show the organisation-wide and more systematic initiatives of CSR,
rather than one-off, ad-hoc, community-type investment. Although the development of
CORE activities is at its early stage, it should be given enough credit for raising the potential
of CSR beyond a marketing gimmick or a handout.

Socially Responsible Investment: What is the interest of shareholders?

Socially Responsible Investment (SRI) in a broad sense, especially screening certain
companies and/or industries, is not a whole new concept in the modern history of investment.
Since 1970s, there have been a number of screening initiatives against specific firms, from
companies profiting from the Vietnam War to those related to apartheid in South Africa.
Nevertheless, a huge growth of the SRI market, diverse investment strategies beyond
simple screening such as shareholder activism and positive investing, the growing
involvement of traditional financial services and the emergence of socially responsible
mutual funds are all relatively recent phenomena. The European Broad SRI market is now
valued at over 1 trillion10, and SRI assets in the US rose more than 258 percent from $639
billion in 1995 to $2.29 trillion in 2005.11 Research findings from the Pacific Rim and
emerging markets also present an increasing awareness of, and a growing demand for SRI.12
9

Bergstro, O. and Diedrich, A. Constructing corporate social responsibility: a study of workforce

reduction in a Swedish high-tech company, www.mire-restructuring.eu, 2006

10

European Social Investment Forum, European SRI Study 2006, http://www.eurosif.org

11

(US) Social Investment Forum, 2005 Report on Socially Responsible Investing trends in the United
States: 10-year review, January 2006,
http://www.socialinvest.org/areas/research/trends/SRI_Trends_Report_2005.pdf

12

(US) Social Investment Forum, Ibid.

One of the most important assumptions that underlie Milton Friedmans argument is that
(shareholders) desires generally will be to make as much money as possible13. I regard
SRI as a very important, practical response and challenge to this assumption.
It might be argued that SRI decision is ultimately based on the return on investment
consideration, with the belief that socially responsible companies will be also financially
sustainable and successful in the long run. It is absolutely true that investors value the
potential of responsible corporations, and getting a decent return on investment is an
important motivation factor which distinguishes SRI from donation or other charitable
actions. Nonetheless, SRI cannot be entirely explained by pure financial motives, regarding
that SRI does not always guarantee a higher rate of return, and a large number of investors
actually choose SRI portfolios even if the expected rate of return is slightly lower than other
portfolios. Perhaps it is time to admit the fact that at least some investors actually care CSR
in addition to financial concerns, and the number of these investors is significantly growing
at this moment.
It is important to note that this trend cannot be discussed without mentioning the
emergence of institutional investors. The SRI market is conspicuously dominated and driven
by institutional investments; in most countries, institutional investors account for the absolute
majority of SRI investors.14
As widely known, the change in shareholder ownership has brought a significant impact on
corporate governance; institutional investors tend to have a longer time horizon for
investments with active engagement, as opposed to the conventional Wall Street walk
behaviour. It is known that institutions own 50% of all US equities and over 70% of all UK
equities, including pension funds which account for around one-third in both countries; this
change in ownership explains a great deal about the huge growth in SRI. Furthermore, as
these pension funds and some other institutional funds are by definition hold by the public, it
is even questionable whether shareholders interests can be really separable from the interest
of the society.
From a companys point of view, this trend can bring a new perspective to see CSR as an
opportunity to attract institutional investors. Since many companies are now concerned about
having a positive influence on their investors profile, which often means attracting more
institutions and long-term investors rather than speculators and hot money, it is interesting to
observe the link between CSR and the characteristics of investors.
13

Friedman, M. op.cit.

14

In the European market, institutional investments have a 94% market share, which overwhelms the
6% retail investments. (figure as of 31st December 2005) European Social Investment Forum,
op.cit.

Conclusion
This paper examined the potential of Corporate Social Responsibility as the core business
of business, by responding two questions from both sides. Is CSR more than a fad or public
relations exercise? And, can it be aligned and reconciled with shareholder value and other
rules of the game in a free market or a free society15? We discussed two noticeable and
relatively recent trends, CORE activities and Socially Responsible Investment, as practical
responses to criticism from both sides. CORE activities suggest that CSR can be embedded in
every aspect of the operation, especially in relation to its core business activities, beyond a
philanthropic giving and another way of advertisement. SRI pretty clearly shows that CSR
does not necessarily set up a conflict with shareholder value, in the context of institutional
investment in particular.
It is not easy to predict whether these trends will realise the potential of CSR in a much
broader business context. Despite some of the remarkable examples and a huge growth,
CORE activities are still a small part of CSR practices, and the SRI market, especially
positive investing is only a fraction of total investment. Nevertheless, the rapid growth of
CORE activities and SRI, as well as their significant message to the whole CSR debate,
should be given enough attention and examined further in both academic and business
community.
References
Bergstro, O. and Diedrich, A. Constructing corporate social responsibility: a study of workforce
reduction in a Swedish high-tech company, www.mire-restructuring.eu, 2006
European Social Investment Forum, European SRI Study 2006,
http://www.eurosif.org/content/download/580/3548/version/1/file/Eurosif_SRIStudy_2006_complete.pdf
Friedman, M. The Social Responsibility of Business is to Increase its Profits, The New York Times
Magazine, 13 September 1970
Friends of the Earth et al, Lessons Not Learned The Other Shell Report 2004, www.foe.co.uk
Lydenberg, S.D. Corporations and the Public Interest: Guiding the Invisible Hand, Berrett-Koehler,
2005
(US) Social Investment Forum, 2005 Report on Socially Responsible Investing trends in the United
States: 10-year review, January 2006,
http://www.socialinvest.org/areas/research/trends/SRI_Trends_Report_2005.pdf
World Business Council for Sustainable Development, Meeting Changing Expectations WBCSDs
first report on Corporate Social Responsibility, 1999
15

What is a free market and what is a free society? What do they exactly mean? This is another whole
important and controversial issue, but not within the scope of this paper and therefore will not be
discussed here.