Corporate Social Responsibility

Is No Responsibility

Jawad R Zahid
Institute of Business Administration
University of Dhaka

Abstract

On the web, in the media, amongst the academia everywhere CSR is either wrongly defined or
incompletely represented or misnamed. From selfless owner’s personal charity to corporate marketing
strategy all are claimed as CSR. In this state of ambiguity, in guise of CSR, corporations may be harming
the society in most irresponsible way. This paper made a humble effort to propose working definitions of
CSR issues to clear the ambiguities. Because of the failure of various sophisticated approaches of analysis
to get consensus an all new approach of semantics is taken in this paper to trigger more debates to
crystallize all nuances of CSR.

Introduction

Corporate Social Responsibility (CSR) is a buzz word in the corporate world now. So much so that rising
only recently to prominence as serious discipline in management it is running the risk of being a cliché
soon before all nuances of it are crystallized.

CSR though is not a new issue (Hopkins, 2003). It has been there since late 1770s when Adam Smith
introduced the expression ‘the invisible hand’ to demonstrate how businesses contribute to social
welfare inadvertently as a by-product of capitalists’ activities. Impact of corporate activities on society
has been debated by practitioners and researchers since then (Wan-Jan, 2006).

CSR was never a problem from Adam Smith’s time to the Great Depression (Hopkins, 2006). Since then
social responsibility has grown in importance increasingly in stages over time with the occurrences of
some economic and political events like: frenzy atmosphere of hostile takeovers in 1980s; collapse of
communism and globalization in 1990s; and collapse of Twin Tower, Enron and World Com at the turn of
the century. All these events in the history caused dent in the repute of corporations that made citizens
distrustful of government and of business. Along the way since the renaissance of 1960s people got
more and more conscious about consumer rights, vulnerability of earth’s ecology and human rights
(Hopkins, 2006). The result is the prominence of CSR.

Electronic copy available at: http://ssrn.com/abstract=2604982

But the concept of CSR is still developing and has not reached the maturity stage (Ghobadian et al, 2006)
and unfortunately, ambiguities still abound in how we conceptualize CSR (Mishra and Schmidt, 2013).
On the web, in the media, amongst the academia everywhere it is either wrongly defined or
incompletely represented or misnamed. From selfless owner’s personal charity to corporate marketing
promotion all are claimed as CSR.

In this back drop I would like to propose an operational definition of CSR and an objective measure of
socially responsible corporation and a scheme of categorization of corporate philanthropic activities.
This should kick-up tons of dust in the literature settling of which, hopefully, will clear all the ambiguities
about the concept of CSR and we will be able to evaluate and calibrate corporations as socially
responsible or irresponsible citizens.

It is essential to have a clear understanding of CSR for national and human interest; because in this
ambiguous state of definition, in guise of CSR, corporations may be harming the society in most
irresponsible way. For example: British American Tobacco Bangladesh (BATB) distributing huge number
of saplings in tree plantation season while in other seasons it is contract growing (I would call that
bribing the poor cultivators) tobacco destroying the biodiversity and fertility of the land. Sahara Group
of India through their local subsidiary sponsored Bangladesh Cricket Board (BCB) for a lofty amount of
dollar while in India their Chief ends up into jail deceiving their investors billions of Rupees. Unilever
Bangladesh provides rural health care facilities and school feeding programs while they boast running
their operation with negative net working capital (running the operation at the cost of the suppliers).
Nike uses recycled materials to be environment friendly while they are accused of using sweatshop in
their production facilities (Banarjee, 2007).

Commercial banks in Bangladesh including the foreign banks like Citi N.A. and Standard Chartered Bank
pay depositors on average 5-7 percent while they charge borrowers on average 15 percent. While the
entrepreneurs and the economy are bleeding through nose paying high interest on borrowing, owners
take up to 30-35 percent dividend after paying 40-45 percent tax. Then they pay a fraction of their
profits to government relief fund and student’s scholarship to appease the government and the central
bank. Bangladesh Bank has set up a CSR department in 2013 to oversee the CSR activities of the banks.
They have issued number of directives encouraging the banks to spend for philanthropy especially for
health and education. Now when the directors have started taking out money unaccounted for in the
name of CSR, Bangladesh Bank wakes up to get those money back in the bank and recently they have
issued a directive restricting the spending for CSR; that the banks can spend only from the profits.

While these corporations spend in the name of CSR masking their ugly face, the government or some
CSR NGO’s or the media houses may be awarding them as the champion of CSR. Do we call these
organizations in the example above socially responsible corporation?

CSR is a multidisciplinary issue discussed and debated in the literature of law, politics and economics
(Mckie, 1974) besides management. It being very broad, complex and challenging issue quite a large
literature is generated (for an expansive review see, e.g., Kraus and Brtitzelmaier, 2012). Many views
and sophisticated approaches have been taken in the literature to discuss, debate, and summarize in

Electronic copy available at: http://ssrn.com/abstract=2604982

order to have a clear understanding of CSR. Unfortunately we ended up nowhere to get a working
definition. Devinney (2009) termed it a potential oxymoron; so it is difficult to have an all agreed
definition. He further says --- “Although to be all-encompassing lead to overly complex, fuzzy
conceptualizations that are virtually impossible to validate or refute empirically”.

Wan-Jan (2006) though with an aim to provide a working definition of CSR has accepted the definition
provided by Hopkins (2003). To Hopkins (2003) CSR means ‘treating the stakeholders of the firm
ethically or in a responsible manner’. Hopkins (2007) further explains ‘ethically or responsible’ means
treating stakeholders in a manner deemed acceptable in civilized societies. This definition has
operationality problem of finding a measure of “civilized society”.

In this lost in the alleyways of literature I would like to fall back to basics and take a new approach of
naïve semantics of CSR in order to find a way out assuming more sophisticated or philosophical
approach has the risk of making us lost in the sky.

Concepts and Definition of CSR

There are three root words in CSR: Corporation, Society, and Responsibility. In the history of progression
because of limitations of individual’s management and financial capability business forms evolved from
proprietorship to partnership to private or public limited company. Then for large companies it became
corporations where owners are completely separated from the managers in its operation (running the
show). So, a corporation means a business firm having a legal entity operated by managers as the agents
of the owners. Society means a community of interdependent individuals. Responsibility is state of being
accountable. Social responsibility means accountability to the society. Therefore, CSR means ‘run by the
management as the agent of the owners a business firm’s accountability to the society in the process of
operating the firm.’ That is what I call semantic approach of making meaning of a group of words
forming a concept.

We could have another look to CSR this way – CSR means corporation’s accountability to the society.
Now, corporations being inanimate entities who then carry out their accountability to the society? It is
either the principal, the owners or their agent, the management. Owners representing the corporation
have a social responsibility to set up a legal business to produce legal goods and services and create
employment for the people in the society in return to the licensing by the society. (Owners in return are
entitled to make profit.) Once the business is established owners’ social responsibility is over. CSR then
remains to be the managers’ i.e., the managements’ responsibility to society in course of running the
corporation. Management in operating the business do not have any such obligation of doing something
for the society because, as employees, they are paid by the owners and not by the society. The primary
and prime obligation of the managers is to work in the interest of the owners which is to increase profit
for them in return to the salaries and perks they are paid by the owners. That is why Peter Drucker says:
“CSR is a dangerous distortion of business principles. If you find an executive who wants to take on
social responsibilities, fire him fast” (Banarjee, 2007, p.51).

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But as the commander of the operation of a social entity managers cannot ignore the other
stakeholder’s interests in the firm. Other stakeholders are: employees, creditors, suppliers, customers,
competitors, government, and environment, all together I call ‘society’ for the purpose of defining CSR.
(See detail interests of the stakeholders in Table 1.) Managers in running the firm have to take care of
the interest of the society, i.e., these other stakeholders for the sustainability of the firm. Because
ignoring their interests in the firm can jeopardize the existence of the firm. Existence first, then comes
the question of responsibility.

But the problem is that the managers cannot increase both the interest of the owners, the profit, as well
as the interest of the other societal stakeholders because they are conflicting with each other.
Increasing the social interest will decrease the owners’ interest and vice versa. In this conflicting
situation only way to take care of both the interests is to optimize and not maximize the shareholders’
profit preserving the society’s interest at a fair level. In other words, the managers should not make
money for the owners at the cost of the society’s interest. That amounts to say that corporations are not
required to do something (desirable) rather they are required not to do something (undesirable) for the
society as CSR. That gives us the working definition of CSR: CSR is not to harm society in operating a
corporate business firm with the objective of making money for the owners. The focus is on the ‘don’ts’
and not on the ‘do’s’ for the managers in running the show. Do’s are the corporate responsibilities to
the owners and don’ts are the corporate responsibilities to the society. In that sense I say – corporate
social responsibility is no responsibility.

Corporations have no social responsibility to do any kind of charity. They are not required to do
plantation to reduce the adverse effect of global warming. They may not give scholarships to students.
They have no responsibility to give free health care facilities to anybody. They may not sponsor sports
and cultural events. And why should they contribute to the government relief fund? That, of course, if
they are not in that business. (Say for example: as CSR, hospitals but not a bank can give free treatment
to the poor.) Society has its government or its other agencies including the corporations in the trade to
provide those facilities. Other corporations not in the trade are giving tax to government to help
government do these social responsibilities.

If corporations are asked to do these, they may do it either at the cost of the owners or at the cost of
the other stakeholders. It may mean either low profit for the owners or low wages or poor work
environment for the workers; no or less payments to creditors or suppliers; higher price or lower value
for the customers; no or less tax (evasion or avoidance) for the government ; and of course, no concern
for the environment – air pollution, water pollution, land pollution etc. The case may then become like
the Bengali adage – ‘Vikkha chaina maa kutta theka’ (don’t want alms, Madam, please, hold back your
dog).

Corporations will do these as their CSR if they are in those relevant businesses. As for example: private
universities must give scholarships, and hospitals must provide some free health care facilities to poor
people of the society in order that every entitled individual in the society has equal access to their
services. Other corporations may do these as their marketing strategy. Doing all these may enhance
their public relations ending up to increased revenue and profit. That then will be called neither charity

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nor CSR; that may be called Corporate Philanthropic Marketing. I propose to marketing gurus to add
another P for philanthropy in the P’s of marketing.

Measurement of Socially Responsible Corporation

Based on the discussion on the concepts and a working definition of CSR I propose the following table 1
to work out a score to measure – how socially responsible citizen a corporation is. I suggest it as the first
hand skeleton to put flesh on by further debate, discussion, and research.

Table 1: Measure of Socially Responsible Corporation

Stakeholders Interests Scale Score

Job contract 1 2 3 4 5
Fair salaries and perks 1 2 3 4 5
Employees Work environment 1 2 3 4 5
Friendly corporate culture 1 2 3 4 5
Total XXX
Contract 1 2 3 4 5
Rate of interest 1 2 3 4 5
Credit terms 1 2 3 4 5
Creditors
Interest Payment 1 2 3 4 5
Principal Payment 1 2 3 4 5
Total XXX
S

Marketing communication 1 2 3 4 5
O

Price 1 2 3 4 5
Quality 1 2 3 4 5
Customers
C

Delivery 1 2 3 4 5
After sales service 1 2 3 4 5
I

Total XXX
Fair competition 1 2 3 4 5
E

Monopoly 1 2 3 4 5
Competitors Duopoly 1 2 3 4 5
T

Oligopoly 1 2 3 4 5
Y

Total XXX
Tax avoidance 1 2 3 4 5
Tax evasion 1 2 3 4 5
Government
Tax payment timing 1 2 3 4 5
Total XXX
Land pollution 1 2 3 4 5
Water pollution 1 2 3 4 5
Environment
Air pollution 1 2 3 4 5
Noise pollution 1 2 3 4 5
Community 1 2 3 4 5
Total XXX
How socially responsible is the corporation XXXX

The table is quite self explanatory but details of the interests of the society need to be determined as to:
i. what could be other measurable interests; ii. what should be the measuring scale; iii. should the score
be equally weighted sum of scale or weighed average scale; and v. if weighted, what should be the
weights for importance? At this moment without further deep thought I would like equally weighted

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sum. I have put community in separate line to indicate that it could be a component of environment or a
separate stakeholder. Again, I would prefer it as an interest component of environment.

Classifying Corporate Philanthropic Activities

In the literature we find ambiguity not only in defining CSR and in defining the corporation as socially
responsible or irresponsible, we also find much ambiguity in classifying the philanthropic activities of a
corporation as CSR activities. This paper, therefore, also had an objective of finding a way to classify the
corporate philanthropic activities.

I suggest the following scheme in Figure 1 for the purpose.

Figure 1: Scheme of Categorization of Corporate Philanthropic Activities

Philanthropic Activity

Is it directly related to YES Corporate Social

line of operations? Responsibility

NO

Is it related to Corporate
operating cost YES Philanthropic
deriving business Marketing
benefits?

NO

Related to YES Corporate

distribution of profit Shareholders’
Charity

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A corporate philanthropic activity could be classified as: i. corporate social responsibility; or ii. corporate
philanthropic marketing; or iii. corporate shareholders’ charity depending on its relationship with
corporate line of operation; operating cost earning revenue; and distribution of profit.

For example: Giving poor students scholarship is a CSR for a private university because this philanthropy
is directly related to the line of operation of a university. Educational institutions have a social
responsibility to give equal access to all eligible students. They cannot deprive the poor by putting a high
tuition fees.

When a bank gives scholarship it is not a CSR for them, because, education is not their line of operation.
Students are not their stakeholders. But if the bank does it with a motive of gaining some student
accounts or for improving their corporate image that will earn them some business benefits, then they
can meet the cost of the scholarship as operating cost and become accountable to the shareholders on
the basis of cost-benefit analysis. Then it becomes corporate philanthropic marketing.

If the bank gives scholarship, with no motive of any business gain, by the decision of the owners by
meeting the cost from the distribution of profit entitled to shareholders, then it becomes corporate
shareholders’ charity.

Conclusion

Concluding remarks of Hopkins (2006) commentary was that ‘there was little doubt that CSR was here to
stay’. Mishra and Schmidt (2013) remarked in their conclusion that ‘future CSR work needs to better
tease out and clarify’ the ambiguities around the definition of CSR; definition of CSR activities; and
classification of socially responsible corporations. I made a humble attempt to clarify all the three
ambiguities. I seem to sympathize with the sentiments of two noted scholars Milton Friedman and Peter
Drucker, but not quite agree with them ‘that corporate responsibility is not a responsibility of
organizations at all’. Friedman (1970) argues that the sole social responsibility of business were to
increase its profits. My argument is that if the sole purpose of business is to increase profit,
sustainability of the firm will be jeopardized. Instead, if the owners’ profit is optimized subject to no
harm made to the society, all three parties: the owners, the managers, and the society win.

References

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Corporate Social Responsibility. Academy of Management Perspectives 23(2): 44-56.

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