Theoretical and practical aspects of CSR implementation by foreign investors

The authors of this book represent multinational group interested in studying the activity of foreign investors in implementing corporate social responsibility program in less and medium developed host countries at three levels: local, regional as well as national one. CSR is today one of the essential “products” accompanying nearly any investment activities. This is why foreign investors, equipped with modern tools, should be the leaders of this process.

The concept of CSR in the management sciences is often misunderstood because it is usually seen as one of the means of the struggle to achieve a better competitive position. On the other hand, for the development sciences CSR is an effective instrument of income redistribution and  as the additional support for the unprivileged social groups.   

             The authors verify the main hypothesis formulated for the monograph purposes that the readiness of multinational corporations to serve local communities depends on the maturity of national and local legal framework. The more developed country with better legal standards the more benefits for local communities is. On the contrary, in poor countries with weak institutions the multinational companies are not obliged to respect local needs and desires of local population. It will be interesting to know if the hypothesis was positively verified.

            For many decades capitalist enterprises had mainly one aim: the maximization of profits regardless of social and environmental impact linked to the activities of an enterprise. The aim began to change in the late XIX century. Andrew Carnegie popularized the principles of charity and stewardship in 1899 when he published The Gospel of Wealth. At the time, Carnegie’s ideas were the exception rather than the rule.

Idea, that an enterprise is not only responsible for its finance had evolved and eventually got the name: Corporate Social Responsibility, which means that a business organization takes responsibility for the impact of its activities on its employees, customers, the community, and the natural environment.

            Corporate Social Responsibility has become one of the most significant and important concepts of modern management. The literature on this topic provides a variety of definitions of this phenomenon, but it has been generally considered as a broad construct that comprises actions aimed at stakeholders and social issues.[1] This means that company’s managers and owners are not only responsible for the finance management and legal aspects of their activity, but in some aspects they are also responsible for  the society as a whole (McGuire 1963, p. 144).

Corporate Social Responsibility is often defined as a concept in which companies integrate social and environmental elements with business operations, management and relations with stakeholders. That kind of understanding of CSR has been recognized by the EU. The European Commission defines Corporate Social Responsibility as “the responsibility of enterprises for their impacts on society”. To fully meet their social responsibility, enterprises “should have in place a process to integrate social, environmental, ethical human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders (European Commission 2011).

Philippe Kotler defines Corporate Social Responsibility as “continuous commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large” (Kotler, Lee 2005, p. 3).

Kotler, one of the most important modern management lecturers, stressed the discretionary character of the activities. According to him “corporate social responsibility is a commitment to improve community well-being through discretionary business practices and contributions of corporate resources” (Holme, Watts 2000, p. 6).

There are two main and substantially different approaches to this concept. These are self-regulation approach and legal regulation approach.[2]

Of course, between those two extremes, there can be many alternative approaches of co-regulation. All these dimensions are defined and characterized as follows:

1. the self-regulation approach, in which companies decide by themselves how far they engage in CSR and which CSR activities they want to implement. The role of the state is limited;
2. legal regulation, in which the government plays the most important role. This is reflected in multinational initiatives which are based on binding legal commitments.
3. co-regulation approaches, in which stakeholders are involved in a company’s CSR policy-making process. In this “third way” NGOs, business associations, governmental organizations and multilateral institutions work together in a constructive manner to achieve complementary goals in the CSR process.

            Increasing complexity makes it impossible to extract a single coherent model of CSR. In research on Corporate Social Responsibility, there are two the main models: the first one is an After Profit Obligation model, referring to Maslow's pyramid of needs, and described by the American economist A.B. Carroll. This model divides the company responsibility into four levels (responsibilities): the economic, legal, ethical and philanthropic. The economic level is elementary and the most important for the company, therefore, philanthropic activities appeals as a responsibility of a higher order (Carroll 1993, p. 28).

            The primary and overarching objective of the company is to achieve a profit, which allows to implement other targets. In the case of incurring losses or no profits, society obviously cannot require from the company to incur responsibility in other areas. These are additional areas of responsibility, which can be implemented only when an organization reaches a satisfactory level of profitability.

After profit obligation model assumes that in the area of economic responsibility there is a choice between profit and risk. Proponents of this approach recognize that difficult market conditions force entrepreneurs to care firstly about their own interests, which also maximize the social wealth. Milton Friedman believed that the contribution of a certain company to the general welfare lies in the efficient and effective production of goods and services, conducted so long as the society finds it useful, leaving issues of the social responsibility to the state (Grzegorzewska-Ramocka 2009, p. 63).

The second model, popularized primarily in the work of D. J. Wood, is called Before Profit Obligation. This model is, in some aspects, a reverse hierarchy. It is considered that the highest and most important values are moral values and that they are subordinated to all other values. So, the base of the pyramid is the moral responsibility, which is taken regardless the conditions in which the organization operates.[3]

According to this model moral attitude of owners, managers and ordinary employees create value added, which affects the formation and depths of relationships with stakeholders and gives the company a competitive advantage. It is made of an assumption that the company is a part of more differentiated whole, consisting of functionally interdependent and liquid structures. The primary purpose of an enterprise belonging to this structure is therefore, in compliance with the applicable rules, supporting the socio-economic order, recognition of certain values for a common framework and implementing the basic objective of economic development. The idea of mutual solidarity means that a company, looking for profits, should not harm the society.

Corporate Social Responsibility can be thought as an element of a wider area of economic sciences, called the social economics and, in some cases, social enterprise.

There is a close relationship between CSR and social economics, since the former is aimed at supporting selected target group (jobless, poor, handicapped, socially excluded), while the latter one contains identical political objectives.

There is also the concept of the social market economy, widely used in European Union, introduced to Polish Constitution (article 20 says: “A social market economy, based on the freedom of economic activity, private ownership, and solidarity, dialogue and cooperation between social partners, shall be the basis of the economic system of the Republic of Poland”). The very concept is a heritage of the Freiburg school, defined by advocates of liberal approach as liberal one (no state intervention means “social”) or – on the contrary -recognized as having the features of the welfare active state. G.W. Kołodko characterizing the principles of a social market economy writes about the need to reconcile efficiency with justice (Kołodko 2000). Regardless the difference between the supporters of the welfare state and liberal approach, the common element is the issue of sensitivity to the problems plaguing contemporary societies: unemployment, poverty, exclusion. This is why the above mentioned article 20 refers to the „solidarity dialogue and cooperation of the social partners”. CSR and social economics fit to the wider philosophy of social market economy, that should be treated as superior value.

Social economics can also be treated as the response to the irregularities in the functioning of national economy and the failure of neoliberal model.

There are various interpretations of CSR, as it is difficult to clearly identify its standards. Relativism apparent in the determination of the scope of CSR activities depends on social norms, cultural factors and the level of economic advancement. However, it should be pointed out that particularly important determinant of CSR is an attempt to move away from an exclusive priority to maximize profits.

Popularity of CSR increases, especially in advanced economies, partly because it is treated as an additional incentive for broadening the market or as media acclaim, in the long term, CSR activities contribute to gain competitive advantage, anyway.

The relationship between CSR and the idea of sustainable development should also be emphasized. Although the concept of sustainable development was developed later, CSR deals with the philosophy of sustainable development, especially if the third pillar, i.e. as far social justice is concerned. The company that wants to implement the principles of sustainable development must respect the CSR expectations. This is popularized by the World Bank, which treats the CSR as a commitment of business to contribute to sustainable development in collaboration with employees, their families and the local communities, in order to improve the quality of life, for both business and social development (Zapała, Kazimierczak 2011, p. 165).

Explanations and critiques of Corporate Social Responsibility appear regularly in the media and academic literature. Many of these discussions are repetitious, but one that added to the analysis of the concept was a special section in „The Economist”, The good company: A survey of corporate responsibility.[4]

The thesis of the section was that the corporate social responsibility movement dominates most management thinking, and that this is unfortunate because it is not necessary if the functioning of capitalism is understood. Furthermore, CSR is practiced in many different ways, creating confusion regarding what it really means.

Some economists argue that there is no need to impose CSR on corporations, as they are acting in a responsible manner already. The point is made that capitalism has been the driving force behind unparalleled economic and social progress, but unfortunately it is still suspected, feared, and deplored. Two reasons are given for this fear of capitalism: the idea that profit is inconsistent with the public or social good, and the belief that in their pursuit of private gain corporations are placing crippling burdens on society and the environment. „The Economist’s” article does not consider either of these reasons to be appropriate.[5]

The text  says that enlightened self-interest and ethical conduct work well together. But, two values must be understood in relation to the proper good of the corporation, and without these two values business is not possible. The first value is ordinary decency—that is, being just, honest, and fair. The second value involves distributive justice where the benefits within the corporation are aligned to the contribution made in adhering to the aims of the corporation—for example, pay is linked to performance and promotion to merit. With regard to stakeholders, corporations should take them into account without being accountable to them.[6]

 Today, there  is a new very serious dilemma: what are the  expected limits of CSR, how far can go in their demands local communities?  There are many well known cases when local authorities go too far in their expectations (the typical example is Sierra Gorda community which threatens to block the production of copper  companies if their demands are not met.

Although there are several arguments for social involvement by business corporations, there also are many arguments against business social involvement - including the following (Sexty 2011, pp. 143-144):

• Profit maximization is the primary purpose of business, and to have any other purpose is not socially responsible (as argued in Responsibility for Ethics 7.2). To have anything other than a profit maximizing goal is to sabotage the market mechanism and distort the allocation of resources. Generally, then, it is contrary to the basic function of business to become involved in social matters. It should not be forgotten that business is an economic institution, not a social one, and its only responsibility is to manage efficiently within the law. The corporation would be irresponsible if it did not pursue profits and operate in the efficient market.
• Business corporations are responsible to the shareholders and, in effect, have no authority to operate in the social area. When a corporation becomes involved in social matters, there is a question of legitimacy. Even if corporations are sufficiently competent and powerful to bring about social changes in matters considered beyond the range of their immediate involvement, there is a real question as to whether such endeavors are appropriate. Managers should let shareholders decide whether or not they wish to become involved in social issues.
• Social policy is the jurisdiction of governments, not business.
• Business lacks training in social issues, and lacks social skills necessary to carry out social programs. In other words, business is not competent to undertake social responsibility tasks.
• Social responsibility is viewed by some as another excuse to let big business increase its power. The increase in power comes as a result of business becoming involved in social as well as economic matters. Imposing business values on social issues may lead to inappropriate domination: business already has sufficient power, and it would be inappropriate to extend that power to other matters.
• Business involvement in social matters increases costs - not only costs to the organization, but also possibly even social costs - instead of decreasing them. This in turn may lead to business failures.
• There is no acknowledged source of reliable guidance or policy for business in social responsibility questions, and it is not easy to make the choice between responsible and selfish action in social issues. Social responsibility is an elusive concept for which few standards are available to evaluate and control the actions of corporations.
• As institutions in society, business corporations cannot be held accountable for their actions in a way sufficient to satisfy demands for social involvement. Institutions involved in social matters should be accountable to society for that involvement. At the present time, there are few mechanisms available to ensure that business corporations are accountable for their social activities.

In the years 2020-2021 we witnessed very crucial and fundamental events connected with the Covid 19 pandemia and the conduct of the leading pharmaceutical companies producing the  vaccines against the coronavirus (like Pfizer, Moderna, Astrazeneka, Johnson&Johnson, Russian, Chinese, Indian etc.). Pfizer benefited from huge 6.5 billion euros financial subsidies.  The main question is still open and unanswered: did these  enterprises act mainly in the interest of the international community or they grasped the opportunity to enrich themselves in a brutal manner (looking for better prices, stopping suddenly production of vaccines, refusing to deliver vaccines at lower prices  to the poor countries etc.).  It seems that this debate is endless because of the valid arguments  in both the sides.

[1]    See M.B.E. Clarkson, A stakeholder framework for analyzing and evaluating corporate social performance, The Academy of Management Review, 20(1) 1995, pp. 92-117, A.J. Hillman & G.D. Keim, Shareholder value, stakeholder management, and social issues: what's the bottom line? Strategic Management Journal, 22(2) 2001, pp. 125-139, D.L. Swanson, Addressing a theoretical problem by reorienting the corporate social performance model, The Academy of Management Review, 20(1) 1995, pp. 43-64, D.J. Wood, Corporate social performance revisit, Academy of Management Review, 16(4) 1991, pp. 691-718.

[2]    See T. Chahoud, Internationale Instrumente zur Förderung von Corporate Social Responsibility (CSR), Analysen und Stellungnahmen No. 2/2005, Deutsches Institut für Entwicklungspolitik, Bonn 2005, p. 2. P. Utting, Rethinking Business Regulation: From Self-Regulation to Social Control, Technology, Business and Society Programme, Paper 15/2005, United Nations Research Institute for Social Development Geneva 2005.

[3]    See: World’s 10 Biggest Refined-Copper Producers in 2013: http://www.bloomberg.com/news/2014-02-17/world-s-10-biggest-refined-copper-producers-in-2013-table-.html; KGHM International, Corporate Social Responsibility 2013, pp. 7-10.

[4]    The Good Company: A Survey of Corporate Responsibility, “The Economist”, January 22, 2005: Special Section.

[5]    “The World According to CSR: Good Corporate Citizens Believe That Capitalism Is Wicked But Redeemable,” The Good Company: A Survey Of Corporate Social Responsibility, The Economist (January 22, 2005), pp. 10–14.

[6]    “The Ethics of Business: Good Corporate Citizens, and Wise Governments, Should Be Wary of CSR,” The Good Company: A Survey of Corporate Social Responsibility, The Economist (January 22, 2005), pp. 20–22.