Corporate Social Responsibility: For societal legitimacy should the ‘caring-face’ of capitalism yield to the moral whims of society?

https://southwales.academia.edu/CarlTaylor

The object of this LLM assignment-based paper was to briefly explore the extent to whether the current voluntary concept ofcorporate social responsibility (CSR), of pursuing shared social values between business and society is a fair and just system or whether it lacks governmental legitimacy and adequate accountability mechanisms. Historically corporate social responsibility’s (CSR) is a mootpoint amidst business entities, governments and academics thatare still unable to agree on how the concept should be defined. Nevertheless critics on both sides of the argument doaccept CSR by its nature is voluntary. The United Kingdom (UK)government in line with Europe distinguishes CSR as a voluntary exercise business takes above and beyond the minimumlegal requirements to enhance and manage their economic, environmental and societal impact.  Therefore by its very nature the definition of the concept of CSR has been precludedfrom the legislative agenda. This in itself has led to dissention to the effectiveness of corporate voluntarism and self-regulation over governmental mandatory regulation to manage and enhance societal needs. The core divergence is ostensibly whether entrepreneurial corporations in search of corporate self-interest and profit can also embrace morality through a strategic approach to integrate shared values for business and society without government intervention. With India paving the way as the first country to mandate CSR activities and expenditure should the United Kingdom (UK) alter their voluntary position and align their legislation accordingly.

by Carl Taylor

More Info: Key Words: Corporate Social Responsibility; Capitalism; Morality; Shared Values and; Self-Interest

Publication Date: May 14, 2014

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Publication Name: USW - LLM Assignment Paper

Research Interests:

Law, Corporate Social Responsibility, Legal Theory, Philosophy Of Law, Capitalism, and 3 more

Table of Statutes

UK Statutes

Companies Act 2006 (2006 c.46)Human Rights Act 1998 (1998 c.42)

National Minimum Wage Act 1998 (1998 c.39)

The Equal Pay Act 1970 (1970 c.41)

Employment Rights Act 1996 (1996 c.18)

Pollution Prevention and Control Act 1999 (1999 c.24)

Health and Safety at Work etc Act 1974 (1974 c.37)

Equality Act 2010 (2010 c.15)

Partnership Act 1890 (1890 c.39)

The Consumer Protection from Unfair Trading Regulations 2008

(2008 No.1277)

The Consumer Protection Act 1987 (Product Liability)

(Modification) Order 2000 (2000 No. 2771)2

International Statutes

The Companies Act 2013, (No. 18 of 2013) India, at

http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf

accessed 19 April 2014

Official Publications

UK

Department of Business and Innovation Skills, ‘Corporate

Responsibility: Good for Business & Society: government

response to call for views on corporate responsibility,’

(April 2014) at

https://www.gov.uk/government/uploads/system/uploads/attachmen

t_data/file/300265/bis-14-651-good-for-business-and-society-

government-response-to-call-for-views-on-corporate-

responsibility.pdf accessed 14 April 2014

Official Publications

EU

The European Commission, ‘Communication from the Commission to

the European Parliament, The Council, The European Economic

and Social Committee and the Committee of the Regions: A

renewed EU strategy 2011-14 for Corporate Social

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Responsibility,’ Brussels, 25.10.2011, COM (2011) 681 final at

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?

uri=COM:2011:0681:FIN:EN:PDF accessed 14 April 2014

Commission of the European Communities, ‘Green Paper:

Promoting a European framework for Corporate Social

Responsibility’ Brussels, 18.7.2001 COM (2001) 366 final at

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?

uri=COM:2001:0366:FIN:EN:PDF accessed 15 April 2014

‘We live in the house we all build’

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- Earthshare Environmental Organisation1

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Society is based upon the collective interaction of peoples’

differing needs and goals brought together through different

organisational forms depending upon individual groups’

desires. These organisations can be labelled based upon their

purpose and common goal. At the most basic classification

organisations fall within one of three categories: for-profit;

non-profit or; governments. The latter form the rules of

society within which the other organisations must operate for

societal legitimacy. The former seeks to maximise gains in the

form of profits for its primary stakeholders being its owners,

shareholders and investors. This is through the interaction of

its secondary stakeholders for example: its employees;

suppliers and; consumers. The non-profit organisations mainly

referred to as non-governmental organisations2 (NGOs) perform a

humanitarian or environmental watchdog role. These voluntary

civil society groups hold other organisations to account when

1 This was published as a full-page advertisement in the New York Times Newspaper by the Environmentalist Action Group, earthshare.org taken from their Summer Newsletter in 2008 at http://www.earthshare.org/psa/earthshare_printpsa_2008.pdf accessed 04 April 2014.2Non-governmental organizations are non-profit, voluntary civil groups organized at either a local, national or international level. They are driven by task-oriented people of a similar common interest who engaged actively within the debates surrounding CSR. See the inter-active site of world NGOs at http://www.wango.org/resources.aspx?section=ngodir accessed 04 April 2014.

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either the political will or profit motivation negatively

impinges on the social good of society.

Society’s existence is dependent upon this mix of different

organisations co-existing and interacting to provide social

capital through exchange transactions. Providing this process

of exchange interaction is executed in a socially responsible

way, the expected result is a well-functioning society. The

benchmark of what constitutes social responsibility of

business exchanges is referred to as corporate social

responsibility (CSR). For many proponents of CSR this

principle should embrace ‘…the economic, legal, ethical and

discretionary expectations that society has of organisations

at a given point in time.’ 3

Achieving a consensus to what is socially responsible

behaviour is proving to be problematic. This is attributed to

global societal differences for example: culture; wealth;

poverty and; governance. Such idiosyncrasies can influence

societal expectations: for what one sees as responsible

behaviour another may view the same action not only socially

irresponsible but morally repugnant too.

Still, such difficulties within the process of exchange

interaction have easily been overcome by the majority of 3 A B Carroll, ‘Corporate Social Responsibility: Evolution of a Definitional Construct’ (1999) Business & Society 38 (3) 268-295, 283 at https://www.academia.edu/419517/Corporate_Social_Responsibility_Evolution_of_a_Definitional_Construct accessed 31 March 2014 citing from his previous article; A B Carroll ‘A three-dimensional conceptual model of corporate social performance’ (1979) Academy of Management Review 4, 497-505, 500.

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national businesses and/or multi-national enterprise (MNEs).4

This is because not only is a corporation’s participation in

CSR entered into voluntarily5 but also, the fluidity of the

concept of CSR as having ‘both a means and an end’6 is

nebulous. In other words, adoption of CSR initiatives to

maintain societal legitimacy is corporate driven. That is to

say, the corporation is free to choose the means on how it

will deliver its goods or services and how to achieve the end

result of profit maximisation.7

In Europe, the Commission of European Communities encourages

corporations to embrace this voluntary perspective. The

Commission envisaged ‘…companies are investing in their future

and, they expect that the voluntary commitment they adopt will4 These multi-national enterprises are also often referred to within various academic literature as transnational corporations (TNC’s) or even multi-national corporations (MNC’s) but all have the same function of the ability to globally trade and set up operations in different countries. 5 Department of Business and Innovation Skills, ‘Corporate Responsibility: Good for Business & Society: government response to call for views on corporate responsibility,’ (April 2014), 3 para1.1: ‘Corporate responsibility (CR) is the voluntary action businesses take over and above legal requirements to manage and enhance economic, environmental and societal impacts.’ at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/300265/bis-14-651-good-for-business-and-society-government-response-to-call-for-views-on-corporate-responsibility.pdf accessed 14 April 2014; Seealso, The European Commission, ‘Communication from the Commission to the European Parliament, The Council, The European Economic and Social Committee and the Committee of the Regions: A renewed EU strategy 2011-14 for Corporate Social Responsibility,’ Brussels, 25.10.2011, COM(2011) 681 final, Introduction, 3 para 1: ‘a concept whereby companies integrate social and environmental concerns in their business operations and in theirinteractions with stakeholders on a voluntary basis.’ at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0681:FIN:EN:PDF accessed 14 April 2014.6 W B Werther Jr., and D Chandler, Strategic Corporation Social Responsibility: Stakeholders in a Global Environment, (2nd edn, Sage Publications, 2011) 7.7 ibid 7.

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help to increase their profitability.’8 The Commission further

expected that CSR would ‘help to tackle child poverty...’9

Nonetheless, Rhys Jenkins10 in a special issue of International

Affairs11 questioned such claims by suggesting ‘despite the

enthusiasm of many development agencies…it is also doubtful

whether reform of CSR can make it more amenable to achieving

this objective.’12 In his conclusion he felt ‘CSR …is unlikely

to play a significant role in reducing poverty in developing

countries…’13 In his support further critics argue whether the

‘current CSR agenda may be inappropriate for addressing social

problems in developing countries and may divert attention from

broader political, economic and social solutions for such

problems.’14 The overall underlying message from the

contributors of the International Affairs special issue was it

is unlikely CSR could alleviate poverty therefore such claims

by CSR proponents were unwarranted.15 Moreover, contributors

felt the ‘need for a [more] critical approach to the strengths

8 Commission of the European Communities, ‘Green Paper: Promoting a European framework for Corporate Social Responsibility’ Brussels, 18.7.2001COM(2001) 366 final, Executive Summary, 3 para 1 at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2001:0366:FIN:EN:PDF accessed 15 April 20149 ibid 14 para 57.10 A Professor of Economics at the School of Development Studies in the University of East Anglia.11 ‘Globalization, Corporate Social Responsibility and Poverty’ (2005) International Affairs 81(3), 499-671.12 R Jenkins, ‘Globalization, Corporate Social Responsibility and Poverty’(2005) International Affairs 81(3) 525-540, 540.13 ibid 540.14 J G Frynas, ‘Globalization, Corporate Social Responsibility and poverty’ (2005) International Affairs 81(3) 580- 598, 583.15 M Blowfield and J G Frynas, ‘Setting new agendas: critical perspectives on Corporate Social Responsibility in the developing world’ (2005) International Affairs 81(3) 499-513, 499.

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and limitations of CSR’16 especially in developing countries

which are impoverished and marginalised: ‘one that poses

questions that hitherto have been unasked or neglected.’17

Such postulations are underpinned by the claim that CSR

mainstream approaches ‘underestimate the importance of power

in the relationship between corporations and the communities

in which they invest.’18 It is this underestimation of power

in the relationship that permits corporations to manipulate

the use of CSR as an effective strategy to overcome

operational negativity. As Peter Newell19 argues:

“Voluntarism and self-regulation suggest dangerous

precedents where state regulation remains unenforced or

actively subverted, where compliance needs to be

established before ‘beyond compliance’ initiatives can

sensibly be contemplated.”20

Professor Newell’s argument of regulation over voluntarism and

self-regulation is a moot point amongst academics, governments

and business entities. One school of thought argue self-

regulation and voluntary CSR is clearly inadequate to protect

16 ibid 499.17 ibid.18 N Garvey and P Newell, ‘Corporate accountability to the poor? Assessing the effectiveness of community-based strategies’ (2005) Development in Practice 15(3&4) 389-404, 389.19 Professor of International Relations (International Relations, Centre forGlobal Political Economy, International Development) at University of Sussex.20 P Newell, ‘Citizenship, accountability and community: the limits of the CSR agenda’ International Affairs 2005, 81(3) 541-556, 556.

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stakeholders’ interests such as fair pay, safe working

conditions, exploitation of child labour and the environment to

name but a few. Advocates of this reasoning call for stricter

regulatory control. Proponents of the other school of thought

disagree by warning regulation of CSR is not only dangerous but

undesirable as ‘mandating CSR…would render [it] meaningless.’21

Dr Raymond Broomhill22 examined these key issues and debates

and identified a similar dichotomy amongst the observations of

competing socio-political writers. He deduced from a Liberal

perspective23 there was generally a ‘taken-for-granted

assumption…CSR initiatives will be voluntary.’ 24 Whereas Neo-

Keynesian writers25 questioned whether governmental mandatory

regulation is needed and whether corporate adoption of

voluntary CSR initiatives could ensure sufficient benefits to

the wider stakeholders. The latter group apparently argue for

governments to take a more proactive position towards voluntary

CSR through improving ‘civil and market regulation of

corporations, and also…strengthen corporate law.’26 This

approach is framed on the claim global governmental trend to 21 J Fox, ‘CSR in perspective’(2006) Business Community Intelligence, February, 22-23 cited by R Broomhill, ‘Corporate Social Responsibility: KeyIssues and Debates’ (2007) Dunstan Papers No.1, 1-59, 1722 Associate Professor in Labour Studies at the Australian Institute for Social Research, University of Adelaide, South Australia.23 A school of thought advocating individual rights and civil liberties within the political, social or economic spheres whereby, such institutionsassure unrestricted development of human enterprise.24 R Broomhill, ‘Corporate Social Responsibility: Key Issues and Debates’ (2007) Dunstan Papers No.1, 1-59, 17.25 The Neo-Keynesian economics is a contemporary school of macroeconomic thought that has synthesised John Maynard Keynes economic writings established during the post-war period.26 N Hertz, ‘Corporations on the Front Line’ Corporate Governance, 2004, 12(2), 202-209, 202.

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encourage voluntary CSR initiatives or self-regulation by the

corporation is inadequate.

Critics believe there is too much governmental ambivalence

towards corporate irresponsibility and criminal behaviour

because there is ‘a desire not to ruffle the feathers of its

tax-paying citizens.’27 Nonetheless, commentators call for

voluntary CSR to be ‘beefed up’28 on the foundation corporate

behaviour can cause far greater harm than any single dangerous

human being.29 There may be some headway with this argument as

recently India became the first country to mandate CSR.

India amended its Companies Act 201330 (the Act) for the first

time in fifty years. Within ‘the Act’ there is now a mandatory

requirement a corporation must set up a CSR Board Committee

consisting of at least three directors of which one must be

independent.31 Additionally the corporation’s committee must

ensure the corporation spends at ‘at least 2 per cent of the

27 J Gobert and M Punch, Rethinking Corporate Crime, (1st edn, Butterworths, 2003) 37.28 T Royle, ‘Realism or idealism? Corporate social responsibility and the employee stakeholder in the global fast-food industry’ Business Ethics: A European Review, 2005, 14(1), 42-55, 21 para 2 at http://aran.library.nuigalway.ie/xmlui/bitstream/handle/10379/2606/Royle_RealismOrIdealism.pdf?sequence=1 accessed 19 April 2014.29 Gobert and Punch [n27] 37.30 The Companies Act 2013, (No. 18 of 2013) India, at http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf accessed 19 April 2014.A more user-friendly version of the salient points has been written by Chhavi Ghuliani, ‘India Companies Act 2013: Five key points about India’s ‘CSR Mandate’ Eco-Business: Asia Pacific’s Sustainable Business Community, published 28 November 2013 at http://www.eco-business.com/opinion/india-companies-act-2013-five-key-points-about-indias-csr-mandate/ accessed 19 April 2014.31 The Companies Act 2013 (India), Part II s135(1).

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average net profits of the company made during the three

immediately preceding financial years’32 on CSR activities33.

Failure by the corporation to spend this amount will need

justification through the disclosure within the CSR Board

Annual Report.34 Amid other requirements this corporate law

amendment affects any company incorporated in India whether

domestic or a foreign subsidiary.

Meaningfully, these additional CSR activities have come on the

thirtieth anniversary of the cataclysmic Bhopal industrial

disaster which killed over five thousand of India’s citizens

with an estimated further two million injured:35 Debatably,

Union Carbide were neither prosecuted nor convicted of any

corporate negligence after reaching a settlement with India’s

government.36

Nonetheless, India’s CSR inroads will fuel the debates of

mounting concern of the increasing pressure upon all

governments, especially within developing countries, to replace

voluntary CSR for mandatory regulation. There is clear support

for such corporate mandatory regulation progression, like

32 ibid s135(5).33 ibid Part II s1 schedule VII: Lists ten CSR activities for example; eradicating hunger and poverty; gender equality and empowering women; promote vocational skills; reduce child mortality and environmental sustainability. 34 The Companies Act 2013 (India), Part II s135(5).35 BBC “1984: Hundreds die in Bhopal chemical accident” (BBC NEWS, 03 December 1984) at http://news.bbc.co.uk/onthisday/hi/dates/stories/december/3/newsid_2698000/2698709.stm accessed 10 May 2014.36 Gobert and Punch [n27] 37.

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India, on the grounds it is in ‘our collective interest’.37 In

opposition the claim is ‘the greatest potential for harm…[is]

to regulate the world as a whole…It is liable to hold back the

development of poor countries through the suppression of

employment opportunities within them.’38

Therefore the academic debate seems polarised between two

points of issue; firstly, whether corporations should continue

with voluntary CSR and self-regulation whilst pursuing their

economic goals without independent scrutiny; or secondly,

should corporations be made more accountable through

legislative requirements so to curtail individual profit-making

without individual responsibility. Thus the sum and substance

of the debate ostensibly falls on who is best placed to enforce

CSR’s incorporation so capitalism is capable of having a caring

face whilst pursuing self-interest.

‘Neither the claims of ownership nor those of control can stand against theparamount interests of the community. It remains only for the claims of the community to be put forward with clarity and force.’

- A A Berle & Gardner C Means39

37 Hertz [n26] 202.38 D Henderson, Misguided Virtues: False Notions of Corporate Social Responsibility (1st edn, Institute of Economic Affairs 2001) 17.

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II

Although the concept of CSR per se is not a legal requirement

its norms can be made legally binding through the back-door.

This claim is premised on a business’s fundamental

responsibility to comply with any country or local community’s

legal or regulatory obligations: ‘[to] break these regulations

is to break the law…which does not constitute socially

responsible behaviour…’ 40 Hence, national and international

countries, through their legislative powers, can impose

society’s expectations towards acceptable social and

environmental standards on corporations.

Such standards are achieved through governmental and judicial

decision-making. These governmental institutions enforce

legitimate enactments of various strict regulatory strictures

and laws to restrict corporate irresponsible behaviour. In the

United Kingdom (UK) corporations must comply not only with

national corporate laws and legislation but European

regulations and directives too, for example: fair wages; 41 39 A A Berle, handwritten research notes, 1929-1930. Special Collections, (1931, Columbia UniversityLaw Library) cited in R L Grossman and F T Adams, Taking Care of Business: Citizenship and the Charter of Incorporation, (1st edn, Cambridge, Mass, Charter, Inc. 1993) 1 at http://web.stcloudstate.edu/lroth/mgmt451/Charter%20of%20Incorporation.pdf accessed 07 May 2014.40 Werthers [n6] 8.41 National Minimum Wage Act 1998; an Act to make provision for and in connection with a national minimum wage; to provide for the amendment of certain enactments relating to the remuneration of persons employed in agriculture; and for connected purposes. The Equal Pay Act 1970; this Act is to prevent discrimination, as regards terms and conditions of

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workers’ rights protection;42 pollution control;43 health and

safety measures;44 consumer protection;45 product safety;46 and

equality47 to name but a few. Indeed, these strictures are imposed to enhance corporate

social and environmental standards of responsibility aimed to

protect societal and environmental interests. Such visible

legal strictures set minimum moral and ethical standards of

behaviour expected by any business wishing to operate within

the country’s borders. This therefore enables corporations to

make the economic decision of whether or not it is viable to

set up operations. Cost implications of any stricture

adherence, implementations or future transgressions leading to

threat of litigation can be fiscally factored in to the

manufacturing or product cost more effectively. Given the

increase in corporate globalisation it is in the interest of

the government policy-makers to keep such corporate legal

strictures to a minimum. employment, between men and women.42 Employment Rights Act 1996; this Act is to consolidate enactments relating to employment rights.43 Pollution Prevention and Control Act 1999; an Act to make provision for implementing Council Directive 96/61/EC and for otherwise preventing and controlling pollution; to make provision about certain expired or expiring disposal or waste management licences; and for connected purposes.44 Health and Safety at Work etc Act 1974; An Act to make further provision for securing the health, safety and welfare of persons at work, for protecting others against risks to health or safety in connection with the activities of persons at work, for controlling the keeping and use and preventing the unlawful acquisition, possession and use of dangerous substances, and for controlling certain emissions into the atmosphere; to make further provision with respect to the employment medical advisory service; to amend the law relating to building regulations…45 The Consumer Protection from Unfair Trading Regulations 2008.46 The Consumer Protection Act 1987 (Product Liability) (Modification) Order2000.47 Equality Act 2010.

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If strictures become too repressive it may cause corporations

to relocate in a low-cost environment in a developing country

overseas. Such a decision by a corporation to implement a cost

minimization strategy has a knock-on effect on the original

host country. Not only does the country lose domestic jobs but

also fiscal revenue to the local community and the government

itself.48 In this worst case scenario a corporation can

withdraw its operations altogether, de-stabilising the local

economy.

Thus to prevent this and maintain some sort of status quo

governments are best suited to incorporate minimum repressive

legal standards. In return, governments expect corporations to

maintain a moral and ethical duty to embrace voluntary higher

standards of responsibility as in the UK. 49 Failure to do so

means corporations run the risk of mandatory strictures

initiated in the future.

48 Werthers [n6] 279.49 Companies Act 2006 Pt 10 Ch 2 s172 (1)A director of a company must act inthe way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—(a)the likely consequences of any decision in the long term,(b)the interests of the company's employees,(c)the need to foster the company's business relationships with suppliers, customers and others,(d)the impact of the company's operations on the community and the environment,(e)the desirability of the company maintaining a reputation for high standards of business conduct, and(f)the need to act fairly as between members of the company.

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These legal strictures are spread throughout a multitude of

corporate legislation and regulations whereby their collective

purpose is to influence corporate social behaviour. Therefore

one can logically deduce the norms of CSR can legally be

enforced albeit indirectly under various labelled legislative

classifications.

Nonetheless, it does not matter how social responsibility is

labelled for ‘legal compliance is merely a minimum condition

of CSR.’50 Therefore, in return for minimum legal strictures

governments aim for corporations to voluntarily adopt CSR so

to benefit their operational communities. This aim is

ostensibly achieved through the corporations’ ability to re-

evaluate their own CSR initiatives in light of their growing

demands upon their operational communities and environment. By

doing so corporations are envisaged to rise alongside societal

expectations. Accordingly, providing businesses stay within

the legal rules they should be left to choose on whether to

adopt a higher standard of social responsibility.

Theoretically this is achieved through self-regulation of

either adopting a pro-active or reactive attitude towards

voluntary CSR.

Adoption of proactive CSR is hypothetically considered as

fundamentally the most moral and ethical approach for a

corporation. Prior to entering into its operational field the

for-profit corporation will not only considers its gains but

will also focus beyond profit. The corporation will factor in 50 Werthers [n6] 8.

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mitigation costs of any foreseeable impact upon the local

community’s social and environmental well-being. Such

mitigation costs can improve an impoverished community’s

social welfare through such forms as new or improved schools;

medical centres; water irrigation; or even improving the

transport infrastructure.

The thought behind this proactive approach is business is not

only seen as a “good citizen” acting morally and ethically

responsible but, its inward investment is believed to be

sustainable within its operational community. Supporting this,

the former Chief Executive Officer (CEO) for Hewlett-Packard,

Carly Fiorina stated: ‘I honestly believe that the winning

companies of this century will be those who prove with their

actions that they can be profitable and increase social value

– companies that both do well and do good…’51

Still, the claim that capitalists can achieve economic

sustainability by being “good citizens” is dubious to say the

least. This proactive approach is questionable on the grounds

it is no more than buying social legitimacy through an

indirect form of incentive pay-outs. This results in corporate

justification to operate with only one objective in mind:

procuring viable profit maximisation for its shareholders. One

critic purported this is an unfortunate and shameful

51 C Fiorina, ‘A World of Change.’ Speech to the APEC CEO Summit in Shanghai, China, October 2001 at http://www.hp.com/hpinfo/execteam/speeches/fiorina/apec_01.html under heading THE DIGITAL RENAISSANCE para 7 accessed 02 April 2014.

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development by capitalism.52 Moreover ‘[t]he idea pushed by

advocates that pursuit of private profit is inconsistent with

public good does not stack up…’53

Besides, there is a further claim the unclear definition of

proactive CSR within corporate governance is inherently

paradoxical.54 Such inconsistencies arise from the paucity of

formal mechanisms capable of holding corporations accountable

for their so-called ethical reasoning on prioritising social

responsibility.55 It is also claimed until such paradoxes have

been addressed then CSR is no more than an illusion

‘legitimately…branded an invention of PR.’56 In such

occurrences corporations are using proactive CSR as a form of

‘window dressing’57 or ‘greenwashing’58 to promote their image

as being “good citizens”. Such PR exercises give an impression

the corporation is taking the moral and ethical lead within

their operational field of proactive CSR incentives when in

reality, it is concealing irresponsible corporate behaviour.

52 J Albrechtsen, “This business of moral coercion is just a hoax” (The Australian, 29 March 2006) 12, 123 cited in R Broomhill, ‘Corporate Social Responsibility: Key Issues and Debates’ (2007) Dunstan Papers No.1, 1-59, 753 ibid. 54 P Frankental, ‘Corporate social responsibility – a PR invention?’ (2001) Corporate Communications: An International Journal 6(1)18 – 23, 18-19.55 ibid.56 Frankental [n54] 23.57 ibid 20.58 F Pearce, “Green advertising rules are made to be broken: A UK governmentchecklist of claims for advertisers will fail to stop cynical greenwash without a legally enforceable framework” (The Guardian 23 March 2010) at http://www.theguardian.com/environment/2010/mar/23/green-claims accessed 20 April 2014.

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On the other hand, corporations whom adopt the narrower

reactive approach to CSR are not driven foremost by the moral

expectations from society. Instead, to retain societal

legitimacy the corporation attempts from the outset to operate

within the society’s legal and regulatory framework. At the

same time, the corporation will exploit to their advantage any

loopholes found within these frameworks: thus, attempting to

maximise the corporation’s strategic goals, mainly profit,

whilst avoiding societal sanctions. Therefore, it is in the

self-interest of such corporations to avoid confrontation so

to maintain social legitimacy. Any loss of public goodwill may

lead to social activism, strictures or mandatory compliance

resulting in constraints of the corporation’s freedom to

accomplish its economic goals.59

Once the corporation’s operational venture has been exposed by

NGOs and/or social activists as being socially irresponsible,

the corporation will react according to its self-interest. If

cost-effective, it may decide to commit voluntarily to select

CSR to appease public admonishment and prevent government

initiating mandatory strictures. If the latter is imminent

then, whilst waiting for the mandatory requirement, the

corporation’s deployment of CSR to regain public confidence

can be advantageous.60

59 A Murray “Twelve Angry CEOs – The Ideal Enron Jury” (Wall Street Journal 15 Feb 2006) cited in W B Werther Jr., and D Chandler, Strategic Corporation Social Responsibility: Stakeholders in a Global Environment, (2nd edn, SagePublications, 2011) 17. 60 A B Carroll ‘A Three-Dimensional Conceptual Model of Corporate Performance’ (1979) Academy of Management Review 4(4) 497-505, 500-502.

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Due to the slow uptake of governments and the very nature of

the process to impose laws and strictures, time is in the

corporation’s favour. A corporation can exploit this timely

process to their advantage so to maximise its profits,

regardless of the moral or rational arguments to deploy CSR.

Besides, this timely process gives the corporation the ability

to try and influence the government’s position to either

weaken or withdraw any mandatory strictures. Such is the power

of the corporation, it can threaten to destabilise the host

country’s economy if mandatory measures are imposed by moving

its operation to another country. This form of corporate

‘[c]osmopolitan globalism weakens national boundaries and the

power of national and subnational communities, while

strengthening the relative power of the transnational

corporations.’61

Most governments in developing host countries are therefore

caught between a rock and a hard place – a moral or economic

dilemma. A dilemma that many host governments would find

difficulty in justifying to their people why they took the

decision to place moral obligations before poverty resulting

in the loss of prosperity. Furthermore, such governments would

not relish the task of being held to account by their people

for the destruction of its valuable culture and environment so

to attract such big companies. Such candidness to this form of

devastation is found in an advertisement published by a

Philippine government:

61 Herman E Daly, Farewell lecture to the World Bank, January 1994 at http://www.whirledbank.org/ourwords/daly.html accessed 21 April 2014.

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“To attract companies like yours…we have felled

mountains, razed jungles, filled swamps, moved rivers,

relocated towns…all to make it easier for your business

to do business here.” 62

Nevertheless, all this social and environmental devastation is

meaningless to a corporation in search of self-interest. It

can withdraw its operations altogether then watch ‘…a

civilisation destroy itself because it is unable to re-examine

the validity under totally new circumstances of an economic

ideology.’ 63

Such is the proficiency of the corporation’s capability to

move money globally at an instance gives it the ability to

make or break a developing host country’s economy overnight.

For that reason corporations are seen not only as economic

powerhouses but a serious political force which can influence

governmental policies and decision-making to their favour. As

Business Week Magazine accentuated:

“In this new market money moves faster than ever…

billions can flow in or out of an economy in seconds.

So powerful has this force of money become that

observers now see the hot-money set becoming a sort of

62 Philippine government advertisement (Fortune Magazine 1975) cited in D C Korten, When Corporations Rule The World: Towards a Green Revolution. (Reprint, Kumarian Press, San Fransisco 1999) 159.63 J Goldsmith, “Free Trade, up to a point” (The Times Newspaper 05 March 1994) 18.

22

shadow world government – one that is irretrievably

eroding the concept of the sovereign powers of a nation

state.”64

This imbalance of power gives corporations aptitude to hold

the upper-hand in negotiating their position with governments

when threatened with mandatory impositions resulting in profit

loss. Governments are more likely to yield to its corporate

tax-payers demands not to impose moral obligations than risk

the loss of the economic benefits generated by a corporation

to another country. Such is the competition between developing

countries to attract global corporations there is a

willingness not to fetter corporations with any societal moral

expectations and demands for CSR. Therefore for profit

maximisation corporations in developing countries are more

likely to adopt a reactive approach to CSR than proactive.

Thus benefiting only the corporations at the detriment of the

impoverished population of developing countries:

“The recent quantum leap in the ability of

transnational corporations to relocate their facilities

around the world in effect makes all workers,

communities and countries competitors for these

corporations’ favor. The consequence is a “race to the

bottom” in which wages and social conditions tend to

fall to the level of the most desperate.”65

64 Business Week, “Hot Money’ Cover Story” (Business Week Magazine 19 March 1995) para 10 at http://www.businessweek.com/stories/1995-03-19/hot-money accessed 15 April 2014.65 J Brecher, ‘After NAFTA: Global Village or Global Pillage?’ (1993) The Nation 06 December, 685-688, 685 col.2 at http://thenation.s3.amazonaws.com/pdf/globalvillagepillage1993.pdf

23

No better unfortunate example of this claim is the 2013 Rana

Plaza factory building collapse in Bangladesh killing over one

thousand impoverished garment workers.66 The building was

declared unsafe but due to competition abroad and the threat

of losing global corporations business factory owners ignored

safety concerns at the detriment of 1,130 workers. Furthermore

planning regulations, quality control of building materials

and environmental impact was almost non-existent. Moreover, at

that time Bangladesh had the lowest wages in the world.67 It

was this amalgam that created the economic driver for many

global garment corporations to base operations there. In such

circumstances the promise of financial opportunity to the

impoverished leads to an imbalance of power favouring the

corporations’ self-interest of profit over social

responsibility. Thus, globalization has created a loss of

democratic control weakening the ‘power of individuals and

communities to shape their destinies.’68

This power imbalance gives corporations the ability to

minimise their social responsibilities from the onset of

economic operations. Only when the corporation is exposed for

socially irresponsible behaviour will it react accordingly.

This is more akin to a symbolic response to overcome societal

accessed 28 March 2014.66J Burke, “Rana Plaza: one year on from the Bangladesh factory disaster” (The Guardian 19 April 2014) at http://www.theguardian.com/world/2014/apr/19/rana-plaza-bangladesh-one-year-on accessed 04 April 2014.67 ibid.68 Brecher [n65] 685 col 2.

24

denunciation. The corporation will attempt to renegotiate its

position by offering to adopt voluntary CSR measures to

prevent mandatory strictures being imposed: thus salvaging not

only reputation but societal legitimacy.

But then, certainly in the advancement of economic liberalism

within a free market economy this emblematical reactive

approach to CSR would be considered the best way forward. This

postulation is centred on voluntary participation and self-

regulation being economically safer and more profitable than

further repressive mandatory strictures initiated. Thus,

sanction avoidance can be claimed as the primary economic

driver over moral expectation.

Is self-interest a bad thing?

We want our leaders to be pure and good,

but at the same time we want them to be

25

effective, and to be effective you often

have to be ruthless and not bound by

ideology or the same morals that we

pretend to hold ourselves to.’

- Beau Willimon69

III

On the surface, whether one agrees a corporation should commit

voluntarily to either proactive or reactive CSR so to achieve

a desired outcome, will mainly depend on one’s school of

thought. The CSR debate can be divided between two sets of

opposing thoughts. These are either a free market economy

giving greater autonomy to corporations or, greater societal

intervention and governmental control.70 Although both

arguments assumingly fall towards the philosophical

standpoints of utilitarianism or rights, the core divergence

is seemingly the interpretation of corporate self-interest and

profit.

By taking a utilitarian-based approach then the argument is

profit must be more than a means to an end in itself. In other

words, the strategic benefits must not only benefit the

corporation’s economic viability’s end result but must also

69 Beau Willimon is an American playwright and screenwriter http://www.brainyquote.com/quotes/quotes/b/beauwillim590835.html#SzGfzGlu969Yqblr.99 accessed 24 April 2014.70 D Crowther and L Rayman-Bacchus (eds), Perspectives on Corporate Social Responsibility (1st edn, Ashgate Publishing Ltd 2004) 13: Introduction.

26

achieve the means of accomplishing social responsibility. This

concurs to Jeremy Bentham’s71 utilitarian position that to

maximise the pleasure of collective human well-being then,

certain individual rights will undoubtedly be painfully

overridden:72 in this instance the painful element is corporate

autonomy within the free market economy. Yielding such rights,

proponents claim corporate activities can therefore be morally

good through providing collective maximisation of the well-

being of humanity.

This persuasive argument was highlighted through the lengthy

but poignant postulation of Charles Handy73:

“The purpose of a business….is not to make a profit,

full stop. It is to make a profit so that the business

can do something more or better. That “something”

becomes the real justification for the business….It is

a moral issue. To mistake the means for the end is to

be turned in on oneself, which Saint Augustine called

one of the greatest sins…It is salutary to ask about

any organization, “If it did not exist, would we invent

it?” “Only if

71 English philosopher, jurist and, social reformer (1748-1832): a brief account is available at http://www.utilitarianism.com/bentham.htm accessed 05 May 2014.72 J Bentham, An Introduction to the Principles of Morals and Legislation’ (first published 1789) reprint by J H Burns and H L A Hart (eds) (Oxford University Press, 1996).73 Charles Handy is a professor, accomplished author and philosopher in the field of organisational behaviour. He was also a co-founder of the London Business School.

27

it could do something better or more useful than anyone

else” would have to be the answer, and profit would be

the means to that larger end.”74

This clearly captures the moral argument for CSR whereby a

corporation has a moral obligation to move beyond the

capitalists’ goal of maximising profits for its shareholders.

Professor Handy advocates a corporation is indebted with a

moral duty for the benefits bestowed upon it from society.

Therefore the corporation is morally obliged to repay such debt

by means of corporate social responsibility. Profit is

therefore only part of the means to the end. As Peter Drucker75

articulated, ‘[p]rofit for a company is like oxygen for a

person. If you don’t have enough of it, you’re out of the game.

But if you think your life is about breathing, you’re really

missing something.’76

Drucker’s assertion again is framed within the moral boundaries

of a given society. It is this society that makes it possible

for a corporation to prosper therefore establishing a

reciprocal obligation on part of the corporation. In return for

74 C Handy, ‘What’s a Business For?’ (2002) Harvard Business Review 80(12), 49-55, 54: also cited online at page 5 col2 para 2at http://actoolkit.unprme.org/wp-content/resourcepdf/Handy%20What%5C's%20a%20Business%20For.pdf accessed 29 April 2014.75 P F Drucker was a writer, professor, management consultant and self-described social ecologist at http://www.druckerinstitute.com/link/about-peter-drucker/ 76 T Henderson, “What type of brand are you?” (The Brand Mine Blog 20 April 2012) citing Drucker at http://wbranddevelopment.com/profit-for-a-company-is-like-oxygen-for-a-person-if-you-dont-have-enough-of-it-youre-out-of-the-game-but-if-you-think-your-life-is-about-breathing-youre-really-missing-something-peter/ accessed 29 April 2014.

28

social legitimacy the corporation is expected to offer jobs in

a safe and healthy environment or contribute towards the

enhancement and well-being of its local communities.

Transgressions of these obligations can bring loss of societal

legitimacy. It is therefore argued this loss of social

legitimacy will result in loss of long-term viability and

sustainability of the corporation.

Nevertheless there is seemingly a straightforward flaw within

the aforementioned moral argument. The shortcoming is simply

the unenforceability of any moral boundaries defined by

societal expectations with which the corporation is obliged to

operate. The reasoning behind this opinion is any reciprocal

obligation entered into by a corporation is done so on a

voluntary basis only. Any overbearing governmental

intervention to enforce such voluntary obligations will

arguably be seen as repressive to the individual’s right to

exploit profit within a free market economy.

Therefore, unlike the utilitarian-based position, rights-based

proponents believe rights and property are paramount to

individuals thus any intervention by government should be kept

minimum.77 Under this theory the government’s legitimacy only

arises from the power entrusted by its citizens.78 Therefore

any governmental intervention judged to be failing its citizens

77 Crowther and Rayman-Bacchus [n70] 13.78 John Locke (1632-1704) English philosopher and social contract theorist acclaimed to be the father of classic liberalism: see R Wacks, UnderstandingJurisprudence: An introduction to Legal Theory (2nd edn, Oxford University Press 2009) 23-24.

29

can result in the removal of power and thus loss of government

legitimacy.79 Therefore the moral argument for voluntary CSR

seemingly underestimates the power disparity between societal

expectations and a corporation’s capitalistic right to search

for profit as a means to an end in itself.

To believe collectivist ends can be achieved without

collectivist means is profoundly subversive according to Milton

Friedman80 who critically suggested:

“[T]here 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 open and free competition without deception or

fraud.”81

Friedman ostensibly argues, providing the corporation abides

by the host country’s commerce laws and international

regulations then it can freely operate, without a moral

conscience, with only profit in mind.

Ironically, Friedman’s claim that corporations have no moral

content just self-interest has been argued as being unsound. 82

79 ibid.80 M Friedman, “The Social Responsibility of Business is to Increase its Profits” (The New York Times Magazine, 13 September 1970) 1-4, 4, para 8 at http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html accessed 30 April 2014.81 ibid 4, para 8.82 J Friedman, ‘Milton Friedman was Wrong about Corporate Social Responsibility’ (Huffington Post: Business Blog, 25 February 2014) at http://www.huffingtonpost.com/john-friedman/milton-friedman-was-

30

For one to remain within the ‘rules of the game’83 and engage

‘without deception or fraud’84 suggests that corporations must

act within the parameters of a moral conscience of right and

wrong. Therefore it is claimed the statement from the

forefather of the movement against CSR holds integral elements

of today’s corporate responsibility – ‘integrity and ethics’.85

Drawing from this it is contended capitalistic self-interest is

not a bad thing providing it has moral content.

Can capitalism be “caring”?

- Juan Jose Palacios86

wrong_b_3417866.html accessed 30 April 2014.83 M Friedman (n80).84 ibid.85 J Friedman (n82) para 2. 86 J J Palacios, ‘Corporate citizenship and social responsibility in a globalized world’ (2004) Citizenship Studies 8(4), 383-402: article discusses whether corporations can transform themselves through inducement so to accept compatible ways to exist within desirable moral and ethical principles.

31

IV

The difficulty and uncertainty surrounding corporate social

responsibility is how the definition can vary depending on

one’s moral, societal, environmental or economic perspectives.

However, the common ground established within most literature

agrees CSR is problematic because it is conceptual. As

Professor Devinney’s passage clearly encapsulates;

“One can make or disparage a claim that any corporation

is or not socially responsible by the definition of CSR

that one believes is relevant and the level of

specificity at which it is applied…Attempts to be all

encompassing lead to overly complex fuzzy

conceptualizations that are virtually impossible to

validate or refute empirically. The science of

corporate social responsibility suffers thereby.”87

Such complex conceptualizations are nebulous due to the

unpredictable shift in opinions concerning the increasing

expectations and demands from society for corporations to

adopt socially responsible behaviour. This is further

87 T M Devinney, ‘Is the socially responsible corporation a myth? The good, the bad, and the ugly of corporate social responsibility’ (2009) Academy ofManagement Perspectives May 44-56, 45 col.2 para3 at http://aom.org/uploadedFiles/Publications/AMP/May09CorpSocialRespbyDevinney.pdf accessed 16 April 2014.

32

compounded by the lack of consensus on what is deemed

reasonable criteria to evaluate such corporate behaviour as

being either adequate or appropriate.

According to David Sigurthorsson:88

“This uncertainty and confusion subsequently create and

sustain the susceptibility of the concept to

opportunistic interpretations and manipulation by

charlatans and opportunists in the practical realm.”89

Sigurthorsson suggests the main opportunists are companies.

These companies drive forward commercial activities outlining

their perception of what society expects as socially

responsible behaviour. Sigurthorsson believes this is serious

because it empowers corporations to ‘mould and manipulate

society’s expectations in the first place.’90 This manipulation

is debatably hidden under the cloak of CSR. This tenet is

based on the fact the very nature of a for-profit corporation

has conflicting virtues and vices which make it impossible to

be sincerely socially responsible.

The reasoning for this claim is two-fold:

88 Ethics Researcher at the Centre for Applied Ethics, LinkÖping, Sweden.89 D Sigurthorsson, ‘The Icelandic Banking Crisis: A Reason to Rethink CSR?’(2012) Journal of Business Ethics 04 February 1-10, 3 para 2 at http://csringreece.gr/files/research/CSR-1331564022.pdf?user=bd31a3168ebac47053af2648943f5351 accessed 17 April 2014.90 ibid.

33

Firstly, corporations are artificial creations by law which

empowers them with a legal personality capable to enforce

similar rights and obligations as human beings. In fact, these

corporations ‘have won more rights under law than people have

– rights which government has protected with armed force.’91

Nevertheless, one must agree such artificial personalities are

devoid of the basic human instincts of autonomous thoughts,

feelings and emotions and the concept of right or wrong.

Therefore it goes without saying corporations by their very

nature are incapable of having a conscience to decide what

constitutes as moral or ethical social behaviour.

That being said, one could argue the “collective conscience”

of the Board of Directors or the Chief Executive Officers

(CEO), whom act as agents between the legal personality

(corporation) and the owners (shareholders), give the

artificial legal entity a conscience to act in a socially

responsible way. Unfortunately, most small-to-middle size

companies are run by directors who are also the owners who

arguably are in business first and foremost for self-interest.

Take the Partnership Act 1890’s92 definition of a legal

partnership being two or more persons setting up a business

with the view to make a profit.93 Nowhere within the

legislation does it state in view of making such economic 91 R L Grossman and F T Adams, ‘Taking Care of Business: Citizenship and theCharter of Incorporation (Cambridge, Mass, Charter Inc. 1993 online) 1-21, 3 at http://web.stcloudstate.edu/lroth/mgmt451/Charter%20of%20Incorporation.pdf accessed 18 April 2014.92 Partnership Act 1890 section 1(1): Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.93 ibid s1.

34

profit it must be made responsibly so to be legally

accountable to society in a socially and sustainable way.

The second part of the claim is the fiduciary relationship the

agents (directors) owe to the shareholders to act in their

best interests at all times. Amongst other duties, this

includes ‘promot[ing] the success of the company for the

benefit of its members as a whole.’94 Disputably, this can be

interpreted to imply a further duty to maximise shareholders

dividend payments through continually increasing company

profits. Thus, failure to maintain profit maximisation will

result in directors being held accountable to their

shareholders. Therefore in theory, directors should not adopt

views looking beyond profits to manage the company’s

operational impact to protect society at the expense of the

shareholders. To do so, it could be considered an act of

economic irresponsibility causing a reduction in profit

maximisation. Such an act may possibly be not in the best

interest of the shareholder. Consequentially, this could lead

to a claim of a breach of director fiduciary duties for going

beyond their legal obligations as agents.

The counter-argument for the agent’s act of corporate social

responsibility resulting in profit loss in the short-term

could be CSR increases reputation and therefore maximises the

company’s sustainability. Hence, in the long-term, operational

validity through societal legitimacy maximises profit.

Nonetheless, not all agree for according to Devinney the ‘holy94 Company Act 2006 [n49] s172(1).

35

grail of CSR—“doing well by doing good”—is an illusory goal

that is noble in spirit but unachievable in practice.’95 It is these types of highly charged claims that fuel the

debate. This results in CSR being a lively contested but a

difficult concept to pin down. Any definition will inevitably

be challenged by those who promulgate differing versions of

application of CSR.96 This is because the CSR concept has

various overlapping conceptual influences such as corporate

citizenship; stakeholders’ theory; the triple bottom line

which consists of social, environmental and business ethics

accountability; together with the concept of sustainable

business. Together with CSR, these concepts are not only

controversial but critical because the ‘for-profit sector is

the largest and most innovative part of any free society’s

economy.’97

Such companies’ influences are entwined within the very fabric

of the communities they operate within. There is a further

mutual understanding that both the companies and society will

benefit because ‘businesses are the engines of society that

propel us toward a better future.’98 Corporations from multi-

national enterprises (MNE) to small business firms bring

employment; pay taxes; make charitable donations; even 95 Devinney [n87]45-46.96 J Moon, ‘Government as a Driver of Corporate Social Responsibility’ (2004) University of Nottingham, International Centre for Corporate Social Responsibility, Research Paper Series, No.20, 1-27, 2: Models of CSR at http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.198.8346&rep=rep1&type=pdf accessed 02 May 2014.97 Werther [n6] 4, para 3. 98 ibid.

36

influence governmental policies. Thus, without their

participation a society could see a significant decline which

‘negatively [affects] the wealth and well-being of society as a

whole.’ 99

Then again, many commentators advocate such threat of

negativity to the well-being of society should not mean a

corporation has a carte blanche approach to its operational

economic responsibility. Archie B Carroll100 was the first to

develop a thesis identifying the pyramid of corporate social

responsibility. He believed a corporation does not only have

an economic responsibility but a legal, ethical and

discretionary responsibility too.101 His suggestion purports a

corporation must look beyond its profits to its moral and

ethical responsibilities within the society in which it

operates. By doing so the corporation should rise alongside

societal expectations. Any lapse in CSR brings prohibiting

sanctions imposed by the stakeholders namely such penalties

as, naming and shaming or boycott of products or services.

In contrast, according to Friedman102 the only ‘social

responsibility of business is to increase its profits.

[S]ociety benefits most when businesses focus on maximising

99 ibid.100 Archie B. Carroll is professor emeritus in the Terry College of Business, University of Georgia, USA.101 A B Carroll, ‘The Pyramid of Corporate Social Responsibility: Towards the Moral Management of Organisational Stakeholders’ (1991) Business Horizons 34(4) 39-48, 42.102 Milton Friedman was an economist, statistician, and writer who taught atthe University of Chicago.

37

their financial success.’103 As a Liberalist, Freidman

supported economic freedom as an end in itself to political

freedom. Any political beliefs or laws restricting such

economic arrangements were a deprivation of an individual’s

freedom of choice. He felt such freedom of economic

arrangements was essential to the de-concentration of

political power. Therefore Friedman was disparaging towards

corporations which he felt had been cozened to embrace the

principles of CSR by stating; ‘businessmen who talk this way

are unwitting puppets of intellectual forces that have been

undermining the basis of a free society these past decades.’104

Many disagreed with Freidman’s philosophy as did David

Packard, the co-founder of Hewlett-Packard;

“I think many people assume wrongly that a company

exists simply to make money. While this is an important

result of a company’s existence, we have to go deeper

and find the real reasons for our being.”105

Packard’s suggestion clearly falls into the realm of the

persuasive argument towards a corporation’s moral obligation

moving beyond capitalism’s goal to maximise profits for its

103 M Freidman, ‘The Social Responsibility of Business is to Increase its Profits’ (New York Times Magazine 13 September 1970) at http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html accessed 20 March 2014. 104 ibid.105 D Packard, ‘The HP Way: How Bill Hewlett and I Built Our Company’ (2nd edn, Harper Business 2013): includes speech by Dave Packard to HP Managers within introductory pages; also at http://gizmodo.com/5634378/the-hp-way-how-bill-hewlett-and-i-built-our-company accessed 10 April 2014.

38

shareholders: the very same philosophical argument highlighted

by Charles Handy.

However if one accepts both Packard’s and Professor Handy’s

account that a company’s existence has deeper meaning than

existing purely for profit then, one is accepting an

artificial entity must be capable of expressing compassionate

human feelings of morality and integrity. If this is the case

then, to be a “good citizen” the corporation must place

morality before profit – virtue before vice. For, it must

forego its Liberalist roots of a free market economy and

embrace utilitarianism to maximise the greater well-being of

society. In doing so, one can claim capitalism can have a

caring face.

39

‘Corporation: An ingenious device for obtaining individual profit without individual responsibility.

Responsibility: A detachable burden easily shifted to the shoulders of God, Fate, Fortune, Luck or one’s neighbor. In the days of astrology it was customary to unload it on a star.’

- Ambrose Bierce, The Devil’s

Dictionary (1911)106

V

106 A Bierce, ‘The Collected Works of Ambrose Bierce: The Devil's Dictionary’ (Vol. VII, Neale, New York 1911) at http://www.ambrosebierce.org/dictionary.htm accessed 01 April 2014.

40

To achieve such a caring face, the corporation is expected to

yield to the moral whims of society to retain its societal

legitimacy. This notion is justified on the account society

makes it possible for a corporation to prosper. Therefore, it

is morally obliged to repay such debt by means of corporate

social responsibility. For if it does not it could result in

the inherent risk of hostility imposed by its stakeholders

through the phenomenon of a ‘bottom line backlash.’107 This may

result in loss of corporate legitimacy through campaigns of

naming and shaming or boycott of products or services.

However, scepticism surrounds the potential benefits of

stakeholders’ pressure to control corporations in such a

manner. Critics argue many corporations only incorporate

social and environmental initiatives if the inherent cost of

implementing such CSR objectives can be incorporated into

their economic decisions.108 The rationale is corporations are

capitalists at heart therefore are reluctant to forego profit

for moral compliance from stakeholders’ pressure. Moreover, to

maintain profit maximisation at any cost to implement

voluntary moral compliance will result in products or services

being subject to a premium price.

Nevertheless, for compliance, corporations expect a reciprocal

obligation by the stakeholders. The corporation needs these

stakeholders, the majority being consumers, to practice what

107 D Porritt,‘The Reputation Failure of Financial Success: The Bottom Line Backlash Effect’ (2005) Corporate Reputation Review, 8(3) 198-213, 198-199.108 C Valor, ‘Corporate Social Responsibility and Corporate Citizenship: Towards Corporate Accountability’ (2005) Business and Society Review 110(2), 191-212, 197: The First Condition for Accountibility: Changes in the System, para 2.

41

they preach by being “good citizens” too. The consumers’

reciprocal obligation expected is loyalty. Thus, consumers

have a social responsibility to support a morally responsible

corporation by purchasing its premium-priced products or

services.

Therefore, the paradigm of CSR, whether voluntary or

mandatory, is underpinned by the fairness of reciprocity

between the corporation’s economic goals and societal social

and environmental protection: in other words, a mutual trade-

off of price for morals.

Drawing from this exemplar one can concluded socially

responsible behaviour should be a two-way street. However,

the reality is more inclined to lean towards one-way traffic

as the majority of people’s allegiance to corporate products

is driven by price not principles. Thus, corporations adopting

CSR take the brunt of people’s wishes of what is morally and

ethically responsible behaviour without the mutuality of

consumers’ loyalty.

Therefore it is not befitting that only corporations should

change their economic behaviour on the whim of stakeholders’

opinions to what is deemed socially responsible. Especially

when in practice, the stakeholders themselves will not change

their behaviour to support such a socially responsible

corporation – a “good citizen”.

For CSR to work effectively it requires total commitment from

all stakeholders, especially consumers of all types of

affluence. Thus, for corporations to succeed the goodwill of

42

consumers is needed to purchase their brands. As critics

expressed;

‘[c]orporate executives dream of a global market made

up of people with homogenized tastes and needs…Logos on

bottles, boxes and labels are global banners, instantly

recognisable by millions who could not tell you the

color of the U.N. flag.’109

Clearly a for-profit corporation’s brand name if marketed

correctly is not only its reputation but a corporation’s

passport to profit maximisation. Much time, effort and

financial investment needs to be deployed by a corporation for

such a brand to be globally recognised. Thus, corporations are

most likely to react quicker against any negative media

coverage in fear of a stakeholders’ backlash than they would

do to incorporate any mandatory requirements of CSR. Therefore

the power of the people can be mightier than the legislator’s

quill when a corporation has been ousted for unethical

behaviour. However, the burden of responsibility to act

ethically should not be laid at the door of one group as

everybody owes a responsibility to the society because – ‘we

live in the house we all build.’110

On the above foundations the conclusion is laid: CSR is

destined to remain no more than an ideological concept based on

109 R J Barnett and J Cavanagh, ‘Global pop the sound of money: Pop Imperialism moves to a global beat’ (Sojourners magazine, Washington, January 1994) 12 at http://www.aislingmagazine.com/aislingmagazine/articles/TAM25/GlobalPop.html accessed 19 April 2014.110 Earthshare [n1].

43

what people think is morally and ethically right but, in

reality do quite the opposite for self-interest. It is this

self-interest that creates a division in labour.111 It is this

very division that creates an imbalance in wealth which the

corporations need to succeed. We may all live in the house we

build but, we are not of equal wealth. Consequently, this

capital inequality successfully drives the free market economy

because, rich or poor self-preservation is contingent on self-

interest. In closing, one can take heed to the human

observations of Adam Smith:112 ‘[i]t is not from the benevolence of the

butcher, the brewer or the baker that we expect our dinner, but from their regard to

their own self-interest.’ 113

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