The Boundaries of

Strategic Corporate Social Responsibility

Geoffrey P. Lantos

Professor of Business Administration

Box D-55

Stonehill College

North Easton, MA 02357

June 2001

Phone: 508.565.1205

Fax: 508.565.1444

E-mail: glantos@stonehill.edu

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The Boundaries of

Strategic Corporate Social Responsibility

Keywords Corporate social responsibility (CSR), Roles of business, Stakeholder theory, Ethical CSR,

Responsibilities and duties, Altruistic CSR, Strategic CSR,

Abstract Reviews the development of the corporate social responsibility (CSR) concept and its four

components: economic, legal, ethical, and altruistic duties. Discusses different perspectives on the proper

role of business in society, from profit making to community service provider. Suggests that much of the

confusion and controversy over CSR stem from a failure to distinguish its ethical, altruistic, and strategic

forms of CSR. On the basis of a thorough examination of the arguments for and against altruistic CSR,

concurs with Milton Friedman that altruistic CSR is not a legitimate role of business. Proposes that ethical

CSR, grounded in the concept of ethical duties and responsibilities, is mandatory. Concludes that strategic

CSR is good for business and society. Advises that marketing take a lead role in strategic CSR activities.

Notes difficulties in CSR practice and offers suggestions for marketers in planning for strategic CSR and

academic researchers in further clarifying the boundaries of strategic CSR.

Introduction

It is no news that today’s business organizations are expected to exhibit ethical behavior and moral

management. However, over the past half century the bar has been steadily raised. Now, not only are

firms expected to be virtuous, they are being called to practice “social responsibility” or “corporate

citizenship”(Carroll 2000, p. 187), accepting some accountability for societal welfare. Marketers, as

boundary spanners responsible for the enterprise’s dealings with various publics, have a primary interest in

and should take a major role in defining and implementing their firm’s social responsibility efforts.

Unfortunately, too frequently marketers still focus solely on their products and markets while neglecting

the social impact of their activities (Flores, 2001).

Perhaps this is because the concept of corporate social responsibility (CSR) is a fuzzy one with unclear

boundaries and debatable legitimacy. The purpose of this paper is to clarify the CSR concept by offering

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an historical perspective on CSR, reviewing the different viewpoints on the role of business in society, and

distinguishing three types of CSR: ethical, altruistic, and strategic, thereby establishing parameters for its

practice. I argue that for any organization ethical CSR (avoiding societal harms) is obligatory, for a

publicly-held business altruistic CSR (doing good works at possible expense to stockholders) is not

legitimate, and that companies should limit their philanthropy to strategic CSR (good works that are also

good for the business). I conclude with suggestions for marketers and others responsible for strategic CSR

as well as for further research.

The legitimacy of CSR relates to a set of fundamental and crucial questions: Why do corporations exist?

Should enterprises also be concerned with their social performance as well as economic results? If so, what

does it mean to be “socially responsible”? Should economic performance be sacrificed for social

performance? To whom do businesses owe “responsibilities” (a.k.a. “duties” or “obligations)? What kinds

of activities and programs should CSR include? To what extent should social responsibility activities

consume the company’s precious resources? How can we measure social performance and thereby know

when companies have fulfilled their societal obligations? What are the interests of consumer marketers in

CSR efforts? This paper will offer suggestions for answering these questions based on a synthesis and

analysis of the literature, while recognizing that empirical research is needed for definitive answers to

many. .

History of corporate social responsibility (CSR)

Society’s rising expectations for business

The notion that business has duties to society is firmly entrenched, although in the past several decades

there has been a revolution in the way people view the relationship between business and society. Archie

Carroll (1979) and other researchers believe that we should judge corporations not just on their economic

success but also on non-economic criteria. Carroll (1979) proposed a popular four-part definition of CSR,

suggesting that corporations have four responsibilities or “four faces” (Carroll, 2000, p. p. 187) to fulfill to

be good corporate citizens: economic, legal, ethical, and philanthropic (which I call “altruistic” or

“humanitarian” CSR). I believe that much of the uncertainty about the legitimacy and domain of CSR

stems from failure to distinguish the ethical and philanthropic dimensions as well as from the misguided

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notion that it is somehow objectionable for business to prosper from good works (what I call “strategic

CSR”).

Economic responsibilities. Ever since the industrial revolution, we have depended on business as a

major economic institution for producing want-satisfying goods and services; providing jobs and fair pay

for workers; seeking raw materials supplies; discovering new resources, technological improvements, and

products; paying taxes for public needs; generating the investment capital necessary for economic growth;

all while earning a profit for the owners and serving as an investment opportunity. Previously, if a firm did

all of this while obeying the law, it was praised.

Eighteenth-century Scottish philosopher Adam Smith, in The Wealth of Nations, provided us with a

framework for modern business and its relationship to society. Smith proposed that capitalism, by

encouraging the pursuit of gain and efficiency, works to create greater wealth than any other economic

system, and maximizes liberty by allowing individuals freedom of choice in employment, purchases, and

investments, thereby benefiting the common good. Endeavoring to beat one’s rivals, and toiling to produce

better work to earn the next promotion, if done ethically, will result in high personal development and

therefore excellent use of one’s time and talents and the firm’s treasury (Johnson, 1990). The manager’s

role is to act as a fiduciary or trustee to a principal, the owners or shareholders, being their steward in

effectively and efficiently managing the organization’s assets.

Economic responsibility, then, is to be profitable for principals by delivering a good quality product at a

fair price is due to customers. Novak (1996) more fully delineated a set of seven economic responsibilities.

These are to: (1) satisfy customers with goods and services of real value, (2) earn a fair return on the funds

entrusted to the corporation by its investors, (3) create new wealth, which can accrue to nonprofit

institutions which own shares of publicly-held companies and help lift the poor out of poverty as their

wages rise, (4) create (and, I would add, maintain) new jobs, (5) defeat envy though generating upward

mobility and giving people the sense that their economic conditions can improve, (6) promote innovation,

and (7) diversify the economic interests of citizens so as to prevent the tyranny of the majority. I call these

duties economic CSR. Societal expectations in this realm have appeared to hold steady over the years.

Legal responsibilities. Legal duties entail complying with the law and playing by the rules of the game.

Laws regulating business conduct are passed because society does not always trust business to do what is

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right. However, laws have certain shortcomings to ensure responsible behavior: they are of limited scope

(they can’t cover every possible contingency); merely provide a floor or moral minimum for business

conduct; are reactive, telling us what ought not to be done, rather than proactive, telling us what ought to be

done; and might be followed involuntarily out of fear of punishment rather than voluntarily out of internal

moral conviction.

Ethical responsibilities. Ethical duties overcome the limitations of legal duties. They entail being

moral, doing what is right, just, and fair; respecting peoples’’ moral rights; and avoiding harm or social

injury as well as preventing harm caused by others (Smith and Quelch, 1993). Ethical responsibilities those

policies, institutions, decisions, or practices that are either expected (positive duties) or prohibited (negative

duties) by members of society, although they are not necessarily codified into law (Carroll, 2001). They

derive their source of authority from religious convictions, moral traditions, humane principles, and human

rights commitments (Novak, 1996). Today, virtually all members of the business system agree, at least in

theory (although, unfortunately, often not in practice) with this third set of “social responsibilities.” I call

ethical duties ethical CSR.

Prior to the 1960s, business ethics was not a major concern of businesspeople. Rather, it was left to

theologians to discuss issues of fair wages, unfair labor practices, and the morality of capitalism. The

Protestant work ethic taught people to work hard and be successful—this was the essence of business’

social responsibility.

Beginning in the 1960s ethical issues in business were raised on an unprecedented scale. There was a

heightened realization that repressive labor practices could be found at even some of the most admired

corporations, unsafe products were being sold, the business system was taking a toll on the natural

environment, society was not succeeding in elevating those most economically deprived, bribery was

occurring on an international scale, and morality was being compromised in the pursuit of money and

power. Liberal consumerist media portrayed business as evil, implying that almost any business activity is

morally reprehensible. Consequently, we heard consumer outcries against insensitive and immoral

business practices. As a reaction to the negative publicity, by the mid-1970s, the concept of raising

corporate America’s consciousness was in vogue in both corporate boardrooms and college classrooms.

The idea was that enterprises should not single-mindedly pursue profit without regard to morality.

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Thus, since the 1970s, society’s expectations of business ethics have been climbing. Unlike yesteryear,

productivity alone is no longer considered sufficient to morally justify a business organization. Also

important is how wealth generation affects non-economic aspects of society, such as the welfare of

employees, customers, and other members of the business system, as well as other outside groups and the

natural environment.

Altruistic responsibilities. Carroll’s discretionary or philanthropic responsibility—“giving back” time

and money in the forms of voluntary service, voluntary association, and voluntary giving—is where most

of the controversy over the legitimacy of CSR lies. Over the past half century, business increasingly has

been judged not just by its economic and its moral performance, but also by its social contributions. Henry

Ford II identified this when he spoke at the Harvard Business School as far back as 1969: “The terms of the

contract between industry and society are changing…Now we are being asked to serve a wider range of

human values and to accept an obligation to members of the public with whom we have no commercial

transactions” (Chewning et. al, 1990, p. 207).

CSR actually has its roots in the thinking of early twentieth century theologians and religious thinkers,

who suggested that certain religious principles could be applied to business activities. For example,

Andrew Carnegie devised a classic twofold statement of corporate social responsibility based on religious

thinking. First, was the charity principle, which required more fortunate individuals to assist less fortunate

members of society. However, by the 1920’s community needs outgrew the wealth of even the most

generous wealthy individuals, with the result that some people expected business organizations to

contribute their resources to charities aiding the unfortunate. Second, was the stewardship principle, a

biblical doctrine that requires businesses and wealthy individuals to see themselves as stewards or

caretakers, not just of shareholders’ financial resources, but also of society’s economic resources, holding

their property in trust for the benefit of society as a whole.

Thus, there was a concern for the macro-level outcome of business decisions in ways that went beyond

the loyal agent's argument that a manager's duty is solely to loyally serve the employer by contributing to

profit maximization. Now, it was suggested that stewardship of the corporation’s resources somehow be

melded with a view of stewardship of society’s resources to more broadly serve society. Business was said

to have stewardship responsibilities not just to shareholders, but also to so-called "stakeholders" (a.k.a.

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constituencies or publics) , notably employees, customers, competitors, suppliers, distributors, the local

community in which the enterprise operates, the general public, and the natural environment. When

corporations make business decisions they have both short- and long-term effects on many sectors of

society.

During the latter half of twentieth century there arose the idea of the corporate social contract, which

today underlies the CSR concept. Given the sometimes-adverse effects of business decision-making on

society as well as corporate reliance upon society, the notion of an implied corporate social contract was

conceived by social and economic theorists. This contract spells out society’s expectations of business as

well as (although much less discussed) business’ expectations of society. The social contract theory of

business is widely held today by both business ethicists and business decision-makers (Bowie, 1983).

The corporate social contract concerns a firm’s indirect societal obligations and resembles the “social

contract” between citizens and government traditionally discussed by philosophers who identified the

reciprocal obligations of citizen and state. Originally, this social contract focused solely on economic

responsibilities. Social progress and quality-of-life advancement were assumed to be a by-product of

economic growth. Business’ social responsibility was to maximize profits, subject to the constraints of the

law. Private business had no accountability for the general conditions of life or the specific conditions in

local communities. (Anshen, 1988).

This new social contract postulated that social progress should weigh equally in the balance with

economic progress. The idea that corporations as organizations have “social responsibility” and

obligations tying them to a wider society became popular in the 1950s, and continued through the 1960s

and 1970s, when American businesses rapidly gained in size and power (Davis, 1983). Several groups

were responsible for this heightened social consciousness, including the feminist movement and those

advocating for the mentally and physically challenged, for native people, and for minorities. Much of the

public embraced the concerns of these groups because unfortunate events brought the realization that some

special-interest groups were worth listening to, such as environmentalists , consumer advocates, and anti-

apartheid supporters.

Thus, it was suggested that business, as a social institution, should join with other social structures like

the family, educational system, and religious institutions, to help enhance life and meet needs (Chewning

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et. al, 1990). Whereas in Adam Smith’s model, property was owned by individuals who directly decided

how it was to be used, the modern corporation is characterized by professional managers who make

decisions on behalf of the stockholder owners, and these decisions affect tens of thousands of citizens

(Miller and Ahrens, 1993). Moreover, corporations need the resources of society if they are to survive and

thrive. Corporate taxes are supposedly not sufficient to pay for these resources, and so the corporation

should, out of a duty of gratitude, assist in solving social problems (Bowie, 1995).1 Moreover,

multinational corporations control a tremendous amount of economic and productive resources, such as

technology, finances, and labor power on a scale that no adequate accounting of their duties should ignore

(Lippke, 1996). Therefore, social contract theorists feel these resources should have some use beyond

producing more brands of household cleaners for consumers and wealth for stockholders. The corporate

social contract holds that business and society are equal partners, each enjoying a set of rights and having

reciprocal responsibilities.

According to social contract thinking, the enterprise’s responsibilities should be commensurate with its

economic, social, and political power (Bowie, 1983; Davis, 1983; Lippke, 1996). Some even say that,

because of its size and special legal status, the modern corporation should be considered as a public

institution, a creature of the state, rather than a private organization, so that it can be held to a higher legal

and moral accountability than the traditional business enterprise. In any case, social responsibility

proponents argue that corporations must be held to higher standards of social responsibility than mere

individuals (Miller and Ahrens, 1993). However, the social contract is a rather vague concept, however, as

it is not written in one place, varies from one region to another, changes as society changes (Chewning et.

Al, 1990), and does not specify to what extent the corporation should be considered a public vs. a private

enterprise and how that might vary with the size of the enterprise

Concern about CSR prevailed through the “kinder and gentler” 1990s, due to the growing recognition

that governments had failed to solve many social problems as well as the diminished scope of governments

(Smith, 2001). Also, for most of the period since 1960, disposable incomes and leisure time have been

sufficiently high to allow the public to focus on issues beyond earning a living. Additionally, due to

1 However, some observers suggest that, like citizens, corporations pay their fair share of taxes to cover thecost of using of these resources, and so they should not have responsibilities beyond those of othertaxpayers (Lippke, 1996).

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advances in satellite communications, which have allowed virtually "live" coverage of worldwide

problems, the thinking of the North American public has become less inner directed and parochial, and

more sensitive to the shortcomings of business exposed by wide-ranging investigative reporters.

Interest in doing good for society regardless of its impact on the bottom line is what I call altruistic or

humanitarian CSR. I shall argue that genuine philanthropy, rather than that which is public relations

driven, is not proper for corporate responsibilities to practice. On the other hand, philanthropic CSR used

as a marketing tool to enhance the firm’s image—what I call strategic CSR—is legitimate since it helps

achieve the firm’s financial obligations.

Defining Corporate Social Responsibility

According to proponents of CSR, then, the large American corporation is inherently a social institution

as well as economic enterprise, and so businesses should weigh the social consequences of their activities,

balancing carefully conflicting responsibilities to various stakeholders. CSR has been variously defined

as:

• “An organization’s obligation to maximize its positive impact and minimize its negative effects in

being a contributing member to society, with concern for society’s long-run needs and wants. CSR

means being a good steward of society’s economic and human resources (Journal of Consumer

Marketing call for papers for special issue on social responsibility for consumer marketing practice,

http://www.literaticlub.co.uk/news/call18.html, 1/24/01);

• “The obligations of the firm to its stakeholders—people and groups who can affect or a who are

affected by corporate policies and practices. These obligations go beyond legal requirements and the

company’s duties to its shareholders. Fulfillment of these obligations is intended to minimize any

harm and maximize the long-run beneficial impact of the firm on society” (Bloom and Gundlach,

2001, p. 142);

• “The intelligent and objective concern for the welfare of society that restrains individual and corporate

behavior from ultimately destructive activities, no matter how immediately profitable, and leads in the

direction of positive contributions to human betterment, variously as the latter may be defined”

(Kenneth R. Andrews, quoted in Hartman, 1998, p. 243).

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In summary, CSR entails the obligation stemming from the implicit "social contract" between business

and society for firms to be responsive to society's long-run needs and wants, optimizing the positive effects

and minimizing the negative effects of its actions on society. Note the focus on both minimizing harms

(ethical CSR) and promoting benefits for society (altruistic CSR if the firm does not reciprocally benefit

and strategic CSR if management plans for the firm to profit too).

Conflicting pressures for CSR

Social responsibility is a balancing act: business must balance economic performance, ethical

performance, and social performance, and the balance must be achieved among various stakeholders. This

suggests a dual bottom line with economic criteria and noneconomic criteria. In fact, many companies

have multiple objectives. For instance, at Ben & Jerry's employees are evaluated on both financial

contribution and social contribution to the community.

In the 21st century the public demands that businesses make social issues a part of their strategies.

Today, managers continually meet demands from various stakeholder groups to devote resources to CSR.

Such pressures come from constituencies enumerated above, even including some stockholders, especially

institutional shareholders. (McWilliams and Siegel, 2001). Examples of employee pressures include

recognition of certain employee rights in the workplace, including provisions for worker health and safety

as well as nondiscrimination in hiring, firing and promotion; tying pay to performance; a zero-layoff

policy; family-friendly leave programs; and stock ownership by employees. Consumer pressures include

withholding price increases to cover rising costs, production of safe products, and greater amounts of

consumer information. Community and environmental pressures encompass ensuring that the business’

operations do not threaten the safety of the local community, giving financial assistance to minority

neighborhoods, providing special training and jobs for the hard-core unemployed, investing in pollution-

abatement equipment, contributing to charitable and not-for-profit organizations, and making executives

available to serve without compensation on public boards or other non-business assignments. The mandate

is clear: “Decades of studying business’ corporate social performance…lead one to conclude that corporate

citizenship is real—it is expected of business by the public, and it is manifested by many excellent

companies” (Carroll, 2000, p. 187, italics in the original).

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Yet, at the same time, there is the competing pressure for improved financial performance from

institutional investors, notably mutual and pension fund managers, who have a fiduciary duty to their

investors to earn a maximum return on investment. The wealth of many American households is now

closely tied to the stock market, and so corporate managers are under the gun by both individual and

institutional investors to do whatever it takes to increase the stock price (Boatright, 199). This leads to the

push and pull of forces arguing for strict profit maximization vs. those pushing for better social

performance.

We should note that such a dilemma does not exist to a great extent within privately-owned businesses

(sole proprietorship or partnership) since there is no issue of economic agency where the manager, as a

loyal agent of his or her employer or stockholders, has a duty to maximize profits for them. The owners of

an unincorporated business are accountable only to one another regarding their business performance; they

are not subject to the market for corporate control. They may define their mission and goals of their

organization as they wish. For instance, no one takes issue with the well-known fact that Tom’s of Maine

engages in many practices that voluntarily restrict profit in order to promote the general welfare.2

The controversy over CSR arises when publicly held companies undertake “socially responsible”

activities that might restrict profits. Although there are different types of corporations with differing

perspectives, such as family, closely held, not-for-profit, and public, this paper will take the perspective of

the publicly held corporation since the debate over CSR generally rages in companies held by many

individual and institutional investors, where ownership is divided from management, control, and

responsibility. Some managers disdain demands for CSR, believing that such efforts clash with profit

maximization and the interests of shareholders, whom they believe have primacy above all other

stakeholders.

Popular perspectives on business’ role in society

Figure 1 shows a spectrum of opinions regarding the appropriate role of business in society. At one end

are those who say business only has an economic responsibility to make a profit while obeying the law (the

pure profit-making view or economic CSR). In the middle are people who simply want corporate

2 A philosophy of altruistic CSR for a privately held firm is a subject for a follow-up article in this journal.

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management to be more sensitive to the societal impact of their decisions, especially regarding potential

harms to stakeholders (the socially aware view or ethical CSR). At the other end of the spectrum are those

who want to see corporations actively involved in programs which can ameliorate various social ills, such

as by providing employment opportunities for everyone, improving the environment, and promoting

worldwide justice, even if it costs the shareholders money (the community service view or altruistic CSR).

At one end of the spectrum the basic concern is with economic values such as productivity and efficiency,

while avoiding social involvement. At the other end of the spectrum the primary concern is societal

welfare even at the expense of profits (Miller and Ahrens, 1993).

Another way of envisioning the spectrum is that at one end is property rights theory—the corporation is

viewed as the private property of its stockholders, while at the other end—the social institution theory—the

firm is considered a public institution sanctioned by the state for some social good (Boatright, 2000). A

moderate and relatively recent view which now dominates thinking in financial economics and public

law—the contactual theory of the firm—holds that a company’s assets are provided by many groups in

addition to shareholders, such as employees, customers, suppliers, and the like, and so the company arises

from the property rights and right of contract of every corporate constituency, not just stockholders

(Boatright, 2001).

Author Position on Business’ Role in Society

Albert Carr Pure profit-making view—economic CSR: Business has lower standards of ethics

than society and no social responsibility other than obedience to the law.

Milton Friedman Constrained profit-making view—economic CSR: Business should maximize

shareholder wealth, obey the law, and be ethical.

R. Edward Freeman Socially aware view—ethical CSR: Business should be sensitive to potential

harms of its actions on various stakeholder groups.

Archie Carroll Community service view/corporate social performance perspective—altruistic

CSR: Business must use its vast resources for social good.

Figure 1. Spectrum of viewpoints on the role of business in society

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The pure profit-maximizing view

The most extreme position on economic CSR was taken by Albert Carr (1996) in his classic Harvard

Business Review article “Is Business Bluffing Ethical?” Carr said that the sole purpose of business is to turn

out a product at a profit. Due to the prevalence of competition and negotiation, he viewed businesspeople

as having a lower set of moral standards than those in the rest of society have. He argued that business has

the impersonal nature of an isolated game, like poker, in which anything goes within the accepted rules of

the game (legally set by the government and the courts). Thus, the lower business ethics standards permit

things like misstatement and concealment of pertinent facts during negotiations, lying about one’s age on a

resume, automobile companies' neglect of car safety—in short, “bluffing,” i.e., deception. Those who don't

play by the "rules of the game" will not be very successful in business. One’s duties to the employer as a

loyal agent override her other moral obligations. Carr’s only standard of social responsibility above

economics was obedience to the law.

However, almost all commentators agree that business as a game is a bad metaphor. Whereas games

are isolated from the rest of our lives, business is an integral part of society. Also, business competition is

not always voluntary, and there are other involuntary players, viz. the firm’s various stakeholders.

Carr subscribed to the all-too-common fallacy that the morality of one's business life should be

compartmentalized from the morality of the rest of his or her life. However, the dichotomy between one’s

business life and personal life is nonexistent. One cannot partition life into work and personal, or business

and pleasure. Nothing that we spend so much time and energy on can be separate from the rest of our lives

(Johnson, 1990). To ignore this and to encourage us to develop a different and sometimes contradictory set

of priorities, preferences, and values on the job can produce schizophrenia and multiple personalities, a Dr.

Jekyll and Mr. Hyde phenomenon (Sikula, 1996).

Contrary to the pure profit-maximizing view, there is nothing special about business that somehow sets

it apart from our ordinary ethical obligations. Businesspeople are not professionals with a different set of

moral standards.

The constrained profit-maximizing view

The best-known argument for a purely profit-based position on CSR was laid out by neoclassical

economist Milton Friedman of the conservative Chicago School of Economics, although Adam Smith was

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probably the first to espouse this perspective (Hartman, 1998). Outlined in Friedman’s 1960 tome

Capitalism and Freedom as well as in his seminal 1970 article “The Social Responsibility of Business Is to

Increase It Profits” (1996), Friedman’s “custodian-of-wealth model” asserted that, "[In] a free

economy…there is one and only one social responsibility of business—to use its resources and to engage in

activities designed to increase its profit so long as it stays within the rules of the game, which is to say,

engages in open and free competition without deception and fraud," (p. 245) i.e., act subject to the

constraints of the law and morality. Like Carr, Friedman too advocated just economic values, not social

values, which he felt to lie beyond the company’s mandate to maximize shareholder value while acting

legally, ethically, and (unlike Carr) honestly. He felt that solving social problems is part of the role of

government and social agencies, not the role of business. Friedman advised corporate managers to avoid

interjecting personal values into matters such as environmental concerns or community interests if

shareholder wealth is threatened. Thus, for instance, the responsible manager will close or relocate plants

whenever he can improve the profitability of his operations by so doing, even if this causes hardship to

employees. In marketing, “buyer beware” is the tocsin.

Friedman recognized legal and ethical responsibilities for business, and so his conception of economic

CSR goes further than Carr’s to includes a fairly extensive range of moral duties to other stakeholders:

maintaining open and free competition, abiding by the rule of law, avoiding deception and fraud, and

exemplifying fair play within the rules of the game (Boatright, 2000). This is important to note since many

of his disciples as well as his critics claim that he advocated a bare-knuckled, no-holds-barred business

environment. Likewise, Theodore Levitt (1983), even earlier in his 1958 Harvard Business Review article

“The Dangers of Social Responsibility,” said that the only social responsibility of business beyond seeking

material gain is “to obey the elementary canons of everyday face-to-face civility (honesty, good faith, and

so on)” (Levitt, 1983, p. 86). Corporate managers, business schools, and the financial community

embraced this dictum, and to this day some still do.

The socially aware view and the stakeholder model of CSR

What Friedman ignored was that a businessperson's decisions in the ethical and social responsibility

realms could affect many different people, groups, and institutions, which, in turn, can influence the

organization’s well being. Whereas Friedman said that the primary stakeholder of concern in business

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decision making is the stockholders/owners, subscribers to the idea of a corporate social contract take the

short- and long-term interests of other parties into account too. Social contract theorists observe that

business decisions often impact large numbers of individuals, groups, or institutions, i.e., stakeholders.

Stakeholders include: (1) any individuals or groups affected by the organization's actions, policies, and

decisions. (they have a stake in outcome of the company’s decisions), as well as (2) any individual or group

who is vital to the survival and success of the enterprise (Freeman, 2001).

The stakeholder model is a reaction to Friedman’s shareholder paradigm where no entity other than shareholders has a

claim on the business. Stakeholder theory explains that there is more than just a relationship between an agent who has

fiduciary responsibility to a principal—there are also third parties to whom the corporation owes morally significant non-

fiduciary obligations. “These duties exist because, like stockholders, these other stakeholders also make investments in

enterprises: employees invest their time and intellectual capital, customers invest their trust and repeated business,

communities provide infrastructure and education for future employees as well as tax support, and so on” (Graves et. al,

2001, p. 17). In other words, we need to go beyond profit maximization to trusteeship, or the multifiduciary stakeholder

concept , whereby management sees itself as responsible for achieving balance among all stakeholders' interests

(Goodpaster, 1996), especially in avoiding harm to any groups or rectifying any injuries caused. In fact, today’s corporate

mission statements often pay homage to contribution to society in addition to the traditional product, market, and

technology dimensions (Rae and Wong, 1996).

How many stakeholder groups and individuals there are depends on whom you ask. However,

stakeholders can be envisioned as existing at four levels. First, is the systemic/macroenvironmental/general

environment level—larger societal factors, including the entire business system, the social system, plus

society at large, which consists of institutions and forces, such as economic, legal, political, technological,

natural, media and sociocultural forces. The second level of stakeholders is the corporation’s

microenvironment/operating/task environment— its immediate environment, consisting of exchange

relationship partners (such as suppliers and distributors), plus competitors, customers, the local community,

and the financial community (stockholders, bondholders, and creditors). A third level of stakeholders is

found within the business organization , notably superiors, subordinates and other employees, and labor

unions. The final level of stakeholder is significant others of business decision makers, such as peers,

family, friends, etc.

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The Community Service View

This most-developed version of CSR demands that corporations help alleviate “public welfare

deficiencies,” i.e., problems such as drugs, poverty, crime, illiteracy, underfunded educational institutions,

chronic unemployment, etc. (Brenkert, 1996). Whereas the economic, legal, and ethical obligations are

mandatory, philanthropic responsibility is desired by society, i.e., it is optional in that it is not expected

with the same degree of moral force (Carroll, 2001) since corporations are not causally responsible for the

deficient conditions they are attempting to rectify. However, there are increasing pressures and rising

expectations for such altruistic CSR because there has been a decline in the social institutions that have

traditionally tied communities together, viz. families, religious organizations, and neighborhoods, along

with higher mobility, and so it many people believe that it is business’ obligation to help fill the void

(Carroll, 2001).

Distinctions needed: ethical CSR vs. altruistic CSR vs. strategic CSR

To decide on the parameters and legitimacy of CSR for a publicly held enterprise, we need to draw

distinctions between three different types of CSR a business can practice. Although the threefold

classification of CSR I propose does not explicitly appear in the literature, there appear to be three mutually

exclusive types of CSR based on their nature (required vs. optional) and purpose (for stakeholders’ good,

the firm’s good, or both): ethical CSR, altruistic CSR, and strategic CSR. Ethical CSR is morally

mandatory and goes beyond fulfilling a firm’s economic and legal obligations, to its responsibilities to

avoid harms or social injuries, even if the business might not benefit from this. There is nothing especially

commendable about this level of fulfillment of “social responsibilities” since it is what is ordinarily

expected in the realm of morality. Ethical CSR entails a “negative injunction” to avoid and correct

activities that injure others (Simon et. al, 1983, p. 87).

Some would say that CSR is most noble when it fulfills alleged altruistic responsibilities. Altruistic

(humanitarian, philanthropic) CSR. involves contributing to the common good at the possible, probable, or

even definite expense of the business. Humanitarian CSR has firms go beyond preventing or rectifying

harms they have done (ethical CSR) to assuming liability for public welfare deficiencies that they have not

caused. This includes actions that morality doesn’t mandate but which are beneficial for the firm’s

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constituencies although not necessarily for the company. This is the pursuit of “affirmative duties,” i.e., the

affirmative pursuit of some good” (Simon et. al, 1983, p. 87). However, like Friedman, I shall conclude

that altruistic CSR, although appearing noble and virtuous, lies outside of the firm’s proper scope of

activities. It is probably for this reason that altruistic CSR is probably relatively rare (Smith and Quelch,

1993).

Strategic CSR—the fulfillment of a firm’s “social welfare responsibilities”—is, however, admirable

since it creates a win-win situation in which both the corporation and one or more stakeholder groups

benefit. I shall focus primarily on the nature and problems of strategic CSR, which I believe most firms

practice instead of humanitarian CSR, whether they profess to or not.

Ethical CSR

The nature of ethical CSR

Ethical CSR involves fulfilling the firm’s ethical duties. This is “social responsibility” in the sense that

a corporation is morally responsible to any individuals or groups where it might inflict actual or potential

injury (physical, mental, economic, spiritual, and emotional) from a particular course of action. Even when

the two parties to a transaction aren't harmed others parties (stakeholders) might be.

Any organization not adhering to its ethical responsibilities would be acting as a morally irresponsible

agent. Although harms cannot always be avoided, they should be minimized where feasible. For example,

when a company decides to close or relocate a plant because the product is no longer selling or the source

of raw materials has changed, this would seem sound. While the shift might cause temporary difficulties

for some employees and their community, it makes more efficient use of resources and therefore benefits

society as a whole, i.e., it is the socially responsible thing to do so long as injuries to workers are

minimized as much as reasonably possible via means such as advance notification and severance pay.

Ethical edicts must be adhered to even at the firm’s expense in terms of possible foregone profits since

by definition, ethics deals with moral standards that override self-interest. Sometimes actions need to be

taken because they are right, not because they are profitable (Chewning et. al, 1990; Goodpaster, 1996;

Miller and Ahrens, 1993). Managers of a corporation do not have an obligation to maximize profits for

shareholders without regard to the means used. As in all social responsibility decisions, there are tradeoffs,

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and with ethical CSR it is often between short-run profitability and moral actions. For instance, money

spent on product safety or pollution control might reduce shareholder profits, but the alternative is to

unethically threaten the welfare of others in society (Boatright, 2000). As another example, it would seem

that owners of long-distance phones are doing the morally correct thing by not charging for emergency 911

calls.

However, experience, anecdotal evidence, and empirical evidence reveal that in the long run “good

ethics is good business.” First, moral behavior builds trust and enhances the firm’s reputation, which

attracts customers, employees, suppliers, and distributors, not to mention earning the public’s goodwill.

Second, ethical actions minimize the cost of fines and litigation, not to mention the bad publicity that

unethical actions often attract, especially with today’s instantaneous, global communications and media.

For instance, we all know that several well-known firms came under fire for running or letting their

suppliers manage “sweatshops” in overseas manufacturing facilities in order to cut costs.

Clearly, the boundaries of ethical CSR are not clear; otherwise we would not have so many interesting

ethics discussions in corporate boardrooms and college classrooms. However, the parameters for ethical

responsibilities are beyond the scope of this paper, which focuses on why altruistic CSR is wrong and

strategic CSR is right.3 Here, I shall restrict the discussion of ethical CSR to that of ethical responsibilities.

The nature of ethical duties and responsibilities

In order to better distinguish ethical CSR and altruistic CSR, I now survey the moral concept of

responsibility, which looms large in the ethics literature. The terms duty and obligations are used

synonymously with responsibility, suggesting its mandatory nature. In fact, responsibility has been

described as “the cornerstone of ethics” (Solomon, 1994, p. 114). The term suggests both accountability

and usually a position of trust and authority (Solomon, 1994).

In the context of ethical CSR, corporations are said to have special moral obligations to their various

stakeholders outside of the organization. So as to determine the nature of corporate duties to these

constituencies, it is helpful to understand both ordinary language and philosophers give the term

3 In a forthcoming paper on the boundaries of ethical CSR for this journal I shall argue that a properunderstanding of the various ethical theories actually results in a narrower range of mandatory ethicalresponsibilities and a wider range of optional strategic social responsibilities than many people believe.Here, I shall restrict the discussion to that of duties and responsibilities.

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“responsibility” three usages (Goodpaster and Matthews, 2001; Shaw and Barry, 1992). First, there is a

capability usage—someone has the ability to accomplish something. Examples would be an individual

assuming responsibility for the success of a project since it falls within her area of expertise, or declaring

that a marketing manager is not responsible for the death of a brand in the marketplace since she had no

control over the heavy competition which contributed to the product’s demise. Capability responsibility is

a major argument for humanitarian CSR—the enterprise has the resources to solve societal ills and

therefore should do so.

Second, causal responsibility means that someone caused something to happen and is therefore morally

responsible or accountable for its consequences. Therefore, causal responsibility is most closely tied to

ethical CSR—the organization is responsible for correcting harm it has done or preventing possible damage

it could cause. For example, we could say that management is responsible for the failure of the business,

given its poor planning, or that the ad agency is responsible for the decline in brand awareness because

their ads are not memorable. It can at times be controversial where the boundaries for causal responsibility

lie. For example, jury verdicts in recent years have held manufacturers responsible for injurious effects of

their products. Should cigarette and gun manufacturers be held liable for who buys their products and how

they are used, or is that the responsibility of the retailer, or perhaps (in the case of minors) of parents? In

fact, often causal responsibility is shared, not just among members of a business but also among members

of society (Solomon, 1994). Consequently, buck-passing does occur. For instance, recently

Bridgestone/Firestone and Ford fought very publicly about who was responsible for at least 174 deaths and

700 injuries resulting from vehicles crashing after losing tire tread, with Ford officials blaming the tires and

Bridgestone/Firestone representatives blaming Ford for dangerous trucks and giving bad advice about tire

pressure, with both sides losing consumer trust in the process (Kiley, 2001).

Third, is role-related responsibility—the duties or proper behavior that go along with a given role or

particular position within a social group or society (Solomon, 1994). For instance, accountants are

responsible for the independence and objectivity of their judgments and must report the financial

misconduct of clients, journalists are duty-bound to print fair and accurate accounts of newsworthy items,

and marketers are obliged to serve and satisfy their customers. A person who shirks his role-related

responsibilities is also violating standards of ethical CSR.

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A complication is sometimes caused by role conflict—a given role sometimes has irreconcilable

conflicting duties. Consider the salesperson who is expected to help maximize the company’s profits while

simultaneously maximizing the customer’s well being or engage in prospecting while also building

customer relationships, or the boss who must keep employees loyal while criticizing them for poor

performance. It is this type of conflict that proponents of altruistic CSR set managers up for, pitting the

shareholders against society’s welfare. How does one resolve the conflicts inherent in serving these two

masters?

To answer this question we must know whether the proper or legitimate role of a business organization

is merely economic or also social. Those who suggest that a corporation is not a private entity but rather is

a public institution that interacts with and affects many stakeholders advocate the social role.

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In addition to the proper role of business as an institution, we also need to investigate the societal role of

professionals, as business managers are generally considered professionals in their fields. In order to do

this, we need to distinguish general duties from special duties. General duties or civic responsibilities are

widely accepted ethical requirements for how people should treat one another in a civilized society. They

are a kind of cement to the implied social contract that people in society all have with one another.

Examples include, "Do no harm (ethical CSR) and "If possible, do good "(altruistic CSR). Special duties

are situational—we are required to do something given our circumstances. Managers and professionals are

said to have special duties due to their privileged position within society.

In the study of professional ethics, it is often claimed that professionals have these special duties

because society has granted them various privileges, including meaningful work experiences, high incomes,

prestige, high social status, work autonomy, access to massive resources, and, in many cases, self-

regulation and licensing. In turn, these privileges carry with them various special duties or social

responsibilities—society expects professionals to conduct themselves in a way that will yield some benefits

to society beyond economic and legal duties, to moral and quality-of-life obligations. In other words,

professionalism carries with it an extra burden of accountability—the special duty of "professional

reciprocity,” i.e., the social obligation to act in ways which benefit society. Thus, the social contract model

of business can be used also to justify the social duties of business as an institution, as well as of

professionals as individuals within those institutions.

Specifically, these special social responsibilities include provision of nondiscriminatory access to

professional services, fairness in setting fees, service to clients in a fiduciary manner, maintenance of

professional competence, diligence and avoidance of negligence, preservation and protection of the values

of the profession, and obedience to professional codes of conduct (e.g., the American Marketing

Association Code of Ethics) (Cottell and Perlin, 1990). A quick review of the codes of conduct in the

professions would confirm the important role attached to the notion of social service in professional life.

Every such code itemizes the social aspects of professional work, suggesting that rendering service to

society should be a high priority in the professions. Given that the American Marketing Association has

recently established professional credentialing, such special duties will likely become increasingly

important to marketers.

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Altruistic CSR

The nature of altruistic CSR

The terms altruistic or humanitarian CSR I have coined to suggest genuine optional caring, even at

possible personal or organizational sacrifice. Humanitarian CSR is Carroll’s “fourth face” of CSR—

philanthropic responsibilities—to be a “good corporate citizen” by “giving back” to society, furthering

some social good, regardless of whether the firm will financially reap what it has spiritually sown. It

demands that corporations help alleviate “public welfare deficiencies” (Brenkert, 1996, p. 525), such as

urban blight, drug and alcohol problems, poverty, crime, illiteracy, lack of sufficient funding for

educational institutions, inadequate moneys for the arts, chronic unemployment, and other social ills within

a community or society. The business has no “moral obligations,” only alleged “social obligations”

(DeGeorge, 1990, p. 168). Humanitarian CSR is based on capability responsibility—the company has the

resources to be able to do social good. In some peoples’ thinking it is also founded on role-related

responsibility—companies and their professionals are participants in the social contract, as we have just

seen. However, there is no causal responsibility.

Humanitarian CSR includes all philosophies, policies, procedures, and actions intended to enhance

society’s welfare and improve the quality of life, and it involves linking core corporate competencies to

societal and community needs. Altruistic CSR, then, goes beyond ethics to somehow making the world a

better place by helping to solve social problems.

Unlike strategic CSR, where it is believed that the money put into good works will yield a return on

investment for the business, with altruistic CSR this is not the motive (although the firm could conceivably

benefit as a byproduct). For instance, if a firm adopts an inner-city school and pours resources into it, there

is no guarantee that the business will immediately gain when tomorrow’s workers are better educated, as

they could work for other area organizations or even move away (Singer, 2000). Or, if a firm provides job

training for the hardcore unemployed, there is no certainty that they will be productive employees or even

end up working for that organization. Indeed, some firms can free ride off the efforts and expenditures of

other companies.

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In the past decade or two we increasingly have seen such activities as charitable contributions, community

service programs, employee voluntarism, environmentally friendly policies, executive loan programs, and

various quality-of-life efforts. Regarding charitable giving, companies increasingly strive to align

charitable giving with the hearts of workers and customers. For instance, LensCrafters donates eye exams

and glasses to the needy; Avon, with a rep force that is 98% women, raises money for breast cancer

research; and Ben & Jerry's gives 5% of pretax profits to politically correct causes that its founders believe

in, such as antinuclear campaigns, gay rights groups, etc. Endowing universities doing research in the

firm’s field is another common example of charitable giving.

In the realm of community service programs, Stride Rite opened the first corporate on-site day care

center in 1971 at the company's factory in Roxbury, a poor section of Boston, and the nation's first on-site

fitness center for employees.

Employee volunteerism programs grew in the 1990s, including mentoring students. (e.g., some Stride

Rite employees tutor inner-city students two hours a week), painting low-income houses, and distributing

food to the needy. Reasons for involving employees included increased employee mobility, creating a

desire to quickly get to know one’s coworkers and community, and the inability of local governments to

keep pace with the demand for services. For instance, at Tom's of Maine, 5% of an employee's work time

can be donated to community outreach at the regular pay rate. The Body Shop requires employees to do a

certain amount of community service on company time.

Quality-of-life issues include rebuilding inner cities, providing job training for the hardcore

unemployed, helping renovate parks, sponsoring cleanup programs, establishing manufacturing plants in

ghetto areas, offering seminars to high school students on how to effectively seek employment, supporting

minority business ventures, fighting illicit drug traffic, funding cultural programs, and providing

educational videos, instructors, and tutors to public schools.

The debate over altruistic CSR

The case for altruistic CSR. There are a number of arguments for altruistic CSR, all of which contain

some truth but none of which, individually or collectively, builds a strong case for the practice. The most

basic justification for humanitarian CSR is the social contract argument previously discussed. “Business is

a major social institution that should bear the same kinds of citizenship costs for society that an individual

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citizen bears” (Davis, 1983, p. 95). It is said that just as you and I have an obligation to take into

consideration all of the parties that we directly and significantly affect, so too are businesses required to

take into consideration all parties that they will affect.

In the moral realm this is true. For example, businesspeople have the same obligation to tell the truth in

their advertisements that you and I do when we are talking with strangers who stop by at a garage or a yard

sale. And, just as you have to take special care when you are dealing with children that come by your

garage sale, advertisers must take special care when designing advertisements aimed at youth audiences.

This is an argument for ethical CSR—avoiding harms or social injuries

However, the argument doesn’t extend to humanitarian CSR—mandating doing good works—because

the analogy between people as individuals and business organizations as institutions breaks down when we

discuss providing for social welfare . First, he idea of you and I doing good works in our role as

compassionate persons as an analogy for an enterprise to also do good work as a compassionate corporate

creature is fallacious. It is true that a “socially responsible” individual is one who takes active part in the

community, helps those who are less fortunate, participates in the civic life of the community, and so forth.

However, whereas human beings are multifaceted individuals with diverse interests, corporations are

formed for limited economic ends that do not include good works and social welfare.

Second, while it is true that in American culture individuals with wealth are expected to share it with

those less fortunate (Trevino and Nelson, 1999), it is a different story when we are talking about

corporations whose stockholders might not be particularly well-to-do and who are counting on the funds

for needs such as their retirement or college for their youngsters. It is the individual and institutional

stockholders’ funds that are being expended, not those of some amorphous creature known as “The

Corporation.” It is true that society provides businesspeople with resources such as an education, training,

and other nurture. Especially executives from less privileged backgrounds who got help from others in

pulling themselves up by their bootstraps are justified in feeling the need to “give back.” However, they

can best do this as private individuals, not as corporate humanitarian ambassadors.

A rebuttal to this is that when a corporation views itself as acting only with its stockholders’ financial

interests in mind, stock market pressures often result in the achievement of short-term financial interests at

the expense of long-term financial and societal welfare. However, this only argues for ethical behavior,

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which should not be sacrificed for ill-gotten financial gain, not acts of charity, which Robin-Hood style rob

from the rich to give to the poor.

Another point made by champions of humanitarian CSR is that, as the two most powerful institutions

in the U.S., business and government are obliged to address and rectify problems of social concern ("Power

begets responsibility."). They say corporate philanthropy is a preferable substitute for government welfare,

or at least is necessary in the face of deficient public welfare, which, indeed, is partially due to corporate

opposition to higher taxes (Benkert, 1996). The public is apparently transferring its expectations for

solving social problems from failed “Great Society” government programs to business (Carroll, 2001).

Also, humanitarian CSR is favored over government welfare in that the aid is voluntarily, more personally

and perhaps more efficiently bestowed, whereas state contributions come via the inefficiency and plodding

pace of government bureaucracy and legislators through faceless bureaucrats. Granted, taking money out

of the cash registers and paychecks of businesspeople to pay for inefficient, wasteful, centralized, bloated

government programs is not a good idea. However, just as government welfare coerces taxpayers to hand

over a generous portion of their income to “compassionate” legislators, altruistic CSR forces stockholders

to sacrifice part of their income so managers can be “generous” with shareholders’ funds. Moreover, there

is a false dichotomy in saying that only either business or government (neither of whose proper role is

charity) can solve social problems. We also have private individuals (many of whom are businesspeople)

and the collective efforts of these individuals through charitable and social service organizations,

foundations, and not-for-profit organizations.

A final and purely pragmatic argument for humanitarian CSR is enlightened capitalism. Being socially

responsible does not necessarily mean profits will fall—indeed, they might rise because of the favorable

publicity and goodwill, enhanced employee morale leading to higher productivity, and less government

intervention, which historically has led to excessive power, tyranny, corruption, and abuse of rights

(Novak, 1996). However, if business prospers, this means we are discussing strategic CSR, nor altruistic

CSR.

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In short, all of the pro-altruistic CSR arguments really only hold for ethical CSR or strategic CSR.

There is no foundation for the firm acting out of purely benevolent motives.

The case against altruistic CSR. I will now examine criticisms concerned with what the proper role of

a business organization is, the competence of businesses to effectively contribute to societal welfare, the

difficulty of deciding what is meant by “socially responsible,” the uncertainty over whether business has

an obligation to “give back,” the undue influence which companies might gain over society through their

largesse, and the possibility that philanthropic giving will put the company at a competitive disadvantage.

While the latter two arguments are flawed, together the others build a strong position against altruistic

CSR.

A set of philosophic objections concerns the proper roles of government, corporations, and individuals

in society. Some still view the enterprise as having a purely economic role. Adam Smith’s "invisible

hand" argument says that by giving the public a product it wants at a reasonable price, businesses

unconsciously transfers the profit motive into consumer welfare. If a company makes a profit, employees

will benefit through higher wages (and, in some cases, through stock ownership/profit sharing), and the

company will grow, enabling it to employ more people and contribute to the community in the form of

taxes. Thus, from an economic viewpoint, it is more beneficial for companies to continue expanding rather

than giving money away to charity and good works (Donaldson 1993).

Similarly, the microeconomic theory of Pareto Optimality says that free-market forces ensure that

maximum social benefits will be achieved at minimum social costs when each company tries to maximize

profits. Society's scarce resources are used so efficiently by producing firms, and the goods and services

are distributed so effectively by competitive markets, that it would be impossible to make any single person

better off without making some other person(s) worse off. The maximum economic benefits for society

will be produced, recognizing the full personal and social costs of that production.

However, the assumption of Pareto Optimality breaks down if we do not have perfect competition,

where no market participants can control or influence the marketplace, especially prices. The “invisible

hand” model was reasonably descriptive in an agrarian economy characterized by commodities. However,

“modern corporations bear about as much resemblance to Smith’s self-sufficient farmers and craftspersons

as today’s military complex bears to the Continental militia” (Shaw and Barry, 1992, p. 216). Today,

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successful companies can be less than fully efficient and less than entirely satisfy consumer wants. In

imperfect markets, companies need to go beyond maximizing profits and consider whether their actions

are serving society by avoiding unreasonable harms, since several ways of increasing profits actually hurt

society, such as deceptive advertising, bribery, tax evasion, and price fixing.

Thus, profit is an incomplete measure of social performance and therefore a nonaccurate measure for

resource allocation (Rivoli, 1996). One reason is externalities—deleterious, unintended side effects of

business activities that result in costs to society that are not reflected in the company’s cost structure and

are not considered by the neoclassical economic model. Examples of such unintended consequences of

business activity include pollution, job-related accidents, injuries to customers by defective products, and

even the unintended societal impact of advertising (Pollay, 1986).

Since the industrial revolution, companies have attempted to internalize the benefits and externalize the

costs of their actions where feasible (Freeman, 2001). In economic theory, these are costs of production,

and if they are absorbed by the firm and factored into the prices that companies pay—that is, if they are

internalized— then, economists argue, the market itself takes care of the problem. Thus, a business causing

air or water pollution should dispose of waste in an environmentally safe (albeit more expensive) way or

pay for the damage the waste does downstream. Then the price of this firm’s widgets will reflect their true

social cost. Forced to pay the true cost of pollution, instead of being able to use air and water as free

resources, companies have an incentive to stop polluting. However, the costs of pollution control are often

not internalized but passed on to workers, consumers, and the public as spillover effects or externalities

because government fails to perform its role to police such activities.

When externalities are present, the problem of damage must be addressed directly in business decision

making, either voluntarily (ethical CSR) or via government regulation. For instance, "environmentally

friendly" products reduce pollutants and waste so that pollution costs are not borne by and charged against

the profits of other companies, towns, and entities. Note that the problem of externalities falls outside the

realm of altruistic CSR. Internalizing the externalities voluntarily might also be practicing strategic CSR in

that such companies keep government out of their decision making (Boatright, 2000, p. 344).

Another difficulty with the economic argument is that it assumes that producing whatever the buying

public wants is good. This ignores controversial or “socially undesirable” products like recreational drugs,

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liquor targeted toward children and alcoholics, handguns, and pornography. Nobody but a diehard

libertarian would advocate giving customers whatever their hearts desire. For example, Wal-Mart refuses

to carry CDs with lyrics or cover art it finds offensive (and in the process probably actually satisfies a

customer group larger than teenagers—their parents). Unfortunately, the market does not always correct

such abuses. But, since here we are discussing what is morally good or bad, we are considering ethics, not

altruism.

One other systemic problem with unbridled free markets is the sometimes exclusion of minorities and

the poor. It is observed that these groups, because they lack ownership of any of the factors of production

beyond their unskilled labor, receive inadequate income to participate in many product markets and

consequently cannot maximize their own satisfactions in any meaningful way. In effect, there is

discrimination against the needs of segments that are too uneconomic or small to serve.

The question is, who should provide for their needs? This again raises the question of the relative roles

of business, government, and private individuals in promoting the general good. Friedman (19960 and

Levitt (1983) seem to believe that it is government’s obligation to provide for all kinds of individual and

community needs. However, the proper, limited role of government as found in both the Bible (especially

Romans 13:1-7) and the U.S. Constitution is to preserve peace and order, promote justice and enforce the

law, and to punish evildoers, not to provide all kinds of “public services” and “free lunches.” Although this

suggests that government is responsible for holding companies accountable for the harms they create

(Trevino and Nelson, 1999), civil government should not provide for welfare. Our Founding Fathers

understood that the right to “pursue happiness” meant that others could not infringe on our right to obtain

these things. The right to education, health care, etc. means we have the right to obtain these, either

through our own means or with the help of others, not that the government, or business for that matter,

must provide them to us (at taxpayers’ or stockholders’ coerced expense) (Ahlseen, 2000). It is the duty of

individual citizens, sometimes collectively through dedicated organizations, to voluntarily provide funds

for societal needs. Nowhere in Scripture or the Constitution is there a call for progressive taxation and

forced, governmental redistribution of income, which Friedman’s adherents feel government should

implement as an alternative to corporate benevolance (Boatright, 2000). In fact, such compulsory

redistribution of income violates the 8th Commandment against theft (Ahlseen, 2000).

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To conclude this discussion on the economic role of business, the “Adam Smith’s invisible hand doesn’t

work” arguments, while meritorious, are actually irrelevant to altruistic CSR. Since these arguments

concern harms, they are relevant to ethical CSR and should be taken seriously by managers who would like

to replace the hand of government with “the hand of management” (Goodpaster and Matthews, 1982, p.

74). In the case of provision of welfare, individuals and charities provide a better option to government and

business.

It should be the role of individuals, not business, to provide for such needs since for business to go

beyond profit maximization would not be in shareholders' best interests and would constitute social

engineering, an improper corporate function. The corporation is not a welfare agency, but is rather an

economic association with specific and limited responsibilities (Novak, 1996). Once you add social goals

to the demands of serving customers, employing workers, and making a profit for stockholders, your

business suffers and stockholders starve. Devotion of corporate resources to social causes is contrary to an

implied contract with investors to maximize their profits and is, in effect, tantamount to stealing

stockholders’ money. In effect, you are taxing the owners via deliberations that do not include their

representation ("taxation without representation") and spending these taxes on social causes, (Benkert,

1996; Friedman, 1996). ). There does not appear to be any instances of a corporation deciding which

causes to support and to what extent by polling its stockholders (Bowie, 1995). Alternatively, you must

raise the price to your consumers, thereby taxing them, or lower the wages (price of labor) of your workers,

in the process taxing them (Friedman, 1996). Executives become unelected civil servants with the power to

tax some group(s), and corporations become government agencies, not part of their proper economic role in

the business system (Friedman, 1996

Although polling stockholders on proposed CSR initiatives might help solve the problem of “taxation

without representation,” we would still end up with unelected businesspeople substituting their judgment of

what constitutes the social good for consumers' beliefs or the views of elected policymaking officials.

Corporate responsibility for public welfare threatens to reduce, transform, and even on occasion eliminate

important aspects of public life (Brenkert, 1996). DeGeorge (1990) warns:

“There is great danger in expecting corporations to take upon themselves the production of public welfare,because they already have enormous power and are not answerable for its use to the general public.Politicians are elected by the public and are expected to have the common good as their end. We shouldnot expect corporations to do what they are neither competent nor organized to do…” (p. 171).

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Another cited problem with business assuming the (illegitimate) welfare role of government and the

(legitimate) welfare role of individuals is that those needing welfare assistance tend to be the powerless.

Corporate responsibility for their well being tends to perpetuate their dependency since there is no formal

relationship between the enterprise and the aid recipients, and hence the division between the powerless

and the powerful continues (Brenkert, 1996; DeGeorge, 1990). However, this argument would seem to be

more applicable to CSR in the form of outright grants and gifts rather than CSR involving training workers,

educating children, and otherwise helping people to help themselves (giving a man a fish vs. teaching him

to fish). Nonetheless, at least with the welfare state there are safeguards and guarantees not imposed on

corporations, such as voting, representation, public hearings, and sunshine laws (Brenkert, 1990), although

it many political conservatives argue that state welfare also tends to keep its recipients dependent.

The end of the matter is that altruistic social responsibility is neither in the proper domain of business

nor of government, but only of individuals, often working collectively. The kind of help provided by these

groups is on a "small and human scale," as President George W. Bush remarked during his graduation

speech at Notre Dame (Colson, 2001).

A second major area of concern about the properness of altruistic CSR is competence—it is objected

that corporate executives are "inept custodians," (Shaw and Barry, 1992) i.e., they lack the moral and social

expertise and authority to make noneconomic decisions for improving society (Freeman, 2001). Very few

businesspeople have special qualifications in defining and acting in the public interest, with the result often

being unintended consequences of managers’ well-intentioned actions. For instance, in the mid-1990s

McDonald's responded to pressures from a small but very vocal group of noncustomer environmentalists

who protested the waste of disposable containers, labeled the McFare "junk food," and accused the

company of clogging American arteries and hyping high blood pressure. Consequently, McDonald's

treated the customer who has no health problems as the exception rather than the rule. No one consulted

the customer about tasteless fries with less salt, the unpopular “healthy” McLean Deluxe burger (made

from seaweed extract!), and abandoning foam containers, which keep food hot. Fortunately, the market is

usually able to correct such mistakes when customers are the victims—if one business does not meet

consumer needs very well, this gives rivals the opportunity to jump in and fill the void. However, this

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problem of managerial ineptness in the social realm is not necessarily subject to market forces when the

recipients of “aid” are outside of the firm’s business arena.

Opponents of altruistic CSR also suggest that individual initiatives are preferable to managerial actions

regarding philanthropy because what exactly is "socially responsible” becomes debatable in a pluralistic

society. The question is, “Whose agenda and values should be followed?” For instance, liberals and

conservatives have very different viewpoints on issues such as the value of recycling, supporting “faith-

based initiatives,” providing “safe sex” education to teens, ridding the Internet of “smut,” and fighting for

“gay rights.” Therefore, while most “socially responsible” mutual funds filter out companies involved in

tobacco, alcohol, and gambling, there is little consensus on what other screens are appropriate. Funds with

a liberal worldview (e.g. the Calvert and Domini groups) tend to shun environmentally insensitive

companies, firearms producers, nuclear power generators, or employers of child labor. At the conservative

end of the spectrum is the evangelical Christian Timothy Plan fund, which boycotts companies that provide

health benefits to the partners of gay employees and firms that profit from pornography and abortion.

There are also so many debatable issues beyond what constitutes a worthy cause, such as how much

money should be given, whether it should be a certain percent of corporate income (and if so, before or

after taxes) or an absolute amount, and so on. Such questions are virtually impossible to answer to

everyone’s satisfaction for altruistic CSR and are even difficult for strategic CSR, although as we shall see,

in that case optimizing the bottom line underlies all decisions. Although, if individuals are concerned

about their corporations investing in the “wrong” causes, they can investigate for them selves, it appears

that most are unwilling to take the time and effort to do so.

It is generally easier to enjoin and correct an ethical wrong than it is to prescribe affirmatively what is

good for society, although drawing the line between ethical CSR and altruistic CSR is at times difficult—

what some view as affirmative duties might be seen by others as correction of social injury (Simon et. al,

1983). For instance, affirmative action programs might be seen as some as altruistic CSR to promote

diversity in the workplace and, hence, the general welfare, while others might view them as ethical CSR to

right past social injustice in treatment of minority groups.

Whether the issue is altruistic or strategic CSR, companies would be wise to avoid controversial causes,

walking a fine line between conservative and liberal critics of philanthropic giving, as it is becoming

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increasingly difficult to avoid offending at least one important constituency (Carroll, 2001). A well-

publicized example was when retailer Dayton Hudson made a contribution to Planned Parenthood, right-to-

lifers noisily stood outside the stores cutting up their credit cards. When the retailer then contributed to

right-to-life groups in an effort to appease them, Dayton Hudson incurred the wrath of the pro-choicers. In

a similar dilemma, U.S. West gave funds to the Boy Scouts of America and was beat up by gay-rights

activists because the Scouts fought for their right as a private association to exclude openly homosexual

leaders. Upon withdrawing support from the Boy Scouts, U.S. West upset conservative religious groups

(Carroll, 2001). Even “safe” groups with broad public support can at times become controversial, such as

when some local United Way chapters withheld funds from the Boy Scouts over the homosexual issue and

rose out of favor with many conservatives. Companies should support causes that will be favorably

received by their targeted constituencies.

Another argument against philanthropic CSR is that the notion of “returning” something to the

community and "giving back" to society for the firm’s good fortune is fallacious. CSR advocates suggest

that businesses have a special obligation to do more than the rest of us, to do special things for society or to

solve society's problems. Critics reply that the obligations of business extend no further than the

obligations all human beings have to each other. If businesses have obligations to do something for

society, it is because you and I have exactly the same obligations.

However, what this viewpoint overlooks is the previously-discussed notion of special duties. As an

economically and socially powerful institution, perhaps business does have special obligations, as do

professionals as privileged members of society. But recall tat this line of reasoning is only valid regarding

ethical CSR, not social CSR.

Another argument against philanthropic CSR is that shareholders are also consumers, employees

(increasingly so with stock options and profit sharing), environmentalists, and community citizens, and so

stockholders are affected when corporations fail to act responsibly (Boatright, 2000). However, this argues

for ethical CSR but not philanthropic CSR since, as private citizens. stockholders can contribute to causes

of their choosing out of their own pockets.

The final two objections to humanitarian CSR seem to have little basis in fact. One concerns the undue

influence over society it might grant business. Theodore Levitt argued that corporate responsibility for

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welfare threatens to reduce pluralism and to create a monolithic society (Levitt, 1983). This will

supposedly happen because if business starts doing the “government’s job” (Bowie, 1995) the government

will take over business, with Big Government and Big Business merging into one powerful group at the

sacrifice of our democratic institutions. This relates back to the roles-of business-vs.-government problem

in that altruistic CSR could supposedly create demands for public participation in corporate management or

governance (e.g., seats by members of each stakeholder group on the board of directors, election of

managerial social servants through a political process), threatening the private role of the corporation

(Friedman, 1996; Goodpaster, 1996). However, there does not seem to be any evidence of this happening

since Friedman first warned of it over thirty years ago.

Alternatively, it is alleged, business will be granted an excessive concentration of power which would

threaten the pluralistic division of powers among our various social institutions, thereby threatening our

democratic freedoms (Smith, 1998). Moreover, neither business nor government are monolithic institutions

at present, and it is doubtful that they ever will be. In short, the fear that corporate CSR will result in a

radical re-division of power in society seems to be unfounded.

Another objection is that humanitarian CSR will put the firm at a competitive disadvantage since social

action entails costs that competitors need not bear (Smith, 1998). However, this might or might not be the

case as there are possible publicity and goodwill that can accrue to the enterprise from CSR, in which case

it is strategic CSR, not altruistic CSR.

In fact, skeptics say that often, good works are just a publicity stunt or a public relations ploy. There is

no doubt that companies practicing social responsibility often, and probably usually, have ulterior motives.

For example, volunteerism can lead to higher employee morale, which then leads to higher productivity.

Or, "giving back" to the local community might make it easier to attract desirable employees. Companies

usually become good corporate citizens because it makes good business sense. However, the objection

here to is strategic CSR, and the basis for a philosophical objection to business killing two birds with one

proverbial stone (doing well while doing good) is unclear. Somehow the critics find CSR worthy only

when business (stockholders, again, many of whom are individuals counting on the returns to meet future

needs) does not benefit in the process.

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Nonetheless, when such strategic CSR efforts cross the ethical line, then the critics have a point. For

instance, educational materials for the public schools that include a religious message would violate the

constitutional separation of church and state. Grayer but still ethically dubious is liberally sprinkling such

materials with the corporate logo or slogan (Brenkert, 1996). Many such CSR efforts are said to foster the

“materialization of society,” although it can just as easily be said that this is already occurring through

traditional marketing activities such as advertising and retailing (Shaw and Barry, 1992) or, more likely,

that such efforts are merely appealing to an already materialistic society.

Friedman (1996) believed that CSR activities are indicative of an agency problem arising from

separation of ownership and control, i.e., a conflict between the interests of managers and shareholders

where managers use CSR as a means to further their own personal agendas at the expense of shareholders

(McWilliams and Siegel, 2001). Thus, one explanation for some humanitarian CSR activity might lie in

“ego” or agency costs. As a vast literature in economics, finance, and accounting demonstrates, where

there is separation of ownership and managerial control, managers will be tempted to be poor stewards of

corporate resources and consume excessive perquisites, feathering their own nest at the expense of

stockholders (e.g., golden parachutes, nepotism, and accepting "gifts"). An example from strategic CSR is

corporate sponsorships of sporting events, the arts, and such. While participating in these might give the

appearance of corporate caring and thereby generate some goodwill, the major motivation might be the

non-pecuniary benefits which managers enjoy from participating in such events, such as ego gratification

and pleasure (Cornwell et. al, 2001).

Strategic CSR

Strategic CSR or “strategic philanthropy” (Carroll, 2001, p. 200) is done to accomplish strategic

business goals—good deeds are believed to be good for business as well as for society. With strategic

CSR, corporations “give back” to their constituencies because they believe it to be in their best financial

interests to do so. This is “philanthropy aligned with profit motives” (Quester and Thompson, 2001)—

social goals might be profitable in the long run since market forces provide financial incentives for

perceived socially responsible behavior. Stakeholders outside the stockholder group are viewed as means

to the ends of maximizing shareholder wealth (Goodpaster, 1996).

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Such strategic philanthropy grew popular beginning around the mid-1980s (Jones, 1997), and Carroll

(2001) expects it to grow in the years ahead. The idea is that while being socially responsible (and ethical,

too) often entails short-run sacrifice and even pain, it usually ultimately results in long-long-gain.

Expenditures on strategic CSR activities should properly be viewed as investments in a “Goodwill Bank”

(Vaughn, 1999, p. 199) which yields financial returns (McWilliams and Siegel, 2001). These long-term

benefits might not immediately show up on a firm’s financial statements, as is true of economic outcomes

of many marketing activities, such as marketing research and image-building advertising. Also, a company

is wise to make deposits in this bank of goodwill in order to make withdrawals when it comes under fire.

For instance, Ford spent millions of dollars on an advertising campaign to convince parents that most 4-to

8-year-old children should ride in booster seats, which raise children in auto seats so that adult seat belts fit

better, and Ford gave away one million such seats. The goodwill generated among customers, government

regulators, and consumer advocates from such efforts might likely justify the investment.

Providing for good works from the corporate coffer is therefore compatible with Friedman’s

neoclassical economic view so long as the firm reaps indirect financial benefits (Boatright, 2000). As

Douglas W. Leatherdale, chairman and CEO of The St. Paul Companies, said, “We view corporate social

responsibility as an asset [emphasis added] we continue to nurture and grow. It’s a critical part of how we

do business and balances the needs of all our constituents. In the long-term, it will benefit our company

and its shareholders” (Business Ethics, 2001, p. 12). Thus, we might find a corporation practicing strategic

CSR by providing charitable good deeds such as providing shelter for the destitute, building a museum, or

renovating the local park if, as a result, those helped will feel grateful and indebted to that organization, and

will reciprocate in various ways by giving it their business, recommending it to others, asking government

regulators to stay at bay, and so on. And, some of those not directly helped will still look more favorably

on the firm and thereby turn their loyalties toward it (Brenkert, 1996).

Cynics carp that strategic CSR is self-serving and somehow impoverishes the notion of citizenship

(Brenkert, 1996). However, I would argue that this is certainly preferable to politicians “bringing home the

bacon” (theft of other citizens’ bacon) in order to curry voter favor and loyalty. Unlike government

largesse, which is, at best, a zero-sum game, corporate generosity can grow the size of the economic pie

and thereby contribute to generating new wealth. Also, why is it that philanthropic behavior of wealthy

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individuals is usually very publicly recognized, and yet we do not claim that their behavior is less worthy,

whereas if corporations are generous we view this as somehow tainted?

There is nothing morally objectionable to doing well while doing good, to help the stockholders while

aiding other stakeholders. Yet, it is perhaps because of the cynics that most companies say they shun

publicity for fear of making their efforts appear insincere (Jones, 1997). Nonetheless, now the federal

government encourages such publicity via the Ron Brown Award for leadership, which goes to companies

whose programs improve the well-being of employees or enhance the communities in which they live and

work (Jones, 2001).

The wisdom of strategic CSR is seen in the fact that some of the most successful corporations are also

among the most socially responsible, with some of the most prominent examples being the Body Shop, Ben

& Jerry’s, and Tom’s of Maine (Boatright, 2000; Smith, 2001). With all of the media attention focused on

corrupt business ethics over the past two decades, many consumers are eager to do business with businesses

they believe are ethical and have a social conscience (Rae and Wong, 1996).

Types of strategic CSR

Novak (1996) makes a strong case for his seven “responsibilities outside business” (p. 145), suggesting

that all are ultimately necessary for the survival of business as an institution. While he views these as

moral responsibilities, all but the obligation to respect the law seem to be optional altruism that nonetheless

can potentially profit the firm.

Three of Novak’s extra-legal social responsibilities would appear to directly benefit a business. These

are to: (1) communicate frequently and fully with investors, shareholders, customers, employees, and other

constituencies in order to gain their support; (2) establish within the firm a sense of community and respect

for the dignity of persons, which should foster motivation, teamwork, fulfillment, and, hence productivity;

and (3) protect the “moral ecology” (p. 151) by accepting some responsibility for the television programs

(and, I would add, other media environments) in which they advertise, avoiding shows laced with sex,

violence, and denigration of either business or religion. This should help enhance the organization’s

reputation.

The problems with Novak’s (1996) other three responsibilities are that it would appear to be difficult to

directly link them to the firm’s welfare, and rivals could also hitchhike off a company’s efforts. The first of

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these indirectly beneficial social duties is to protect liberty’s political roots, since the survival of business

depends on the survival of free institutions. Thus, businesses should encourage their employees, retirees,

and shareholders to participate in politics. The second indirectly advantageous social responsibility is to

uphold social justice, since for its welfare and survival business depends on its members being active in

civil society. Thus, Novak urges businesses to encourage employees to volunteer for civic activities and to

be good citizens in the local community. If businesses practice these two responsibilities through simple

exhortation and encouragement, they would seem to be low-cost efforts that should not detract from their

bottom line. The third indirectly beneficial responsibility however is potentially expensive and, outside of

its goodwill value, the least likely to earn the firm any financial return; hence, in my view, it should be

practiced only when it can be clearly demonstrated to yield a return on investment. This is the duty to

contribute to making the surrounding society a better place by taking a leadership role in that society.

Especially industry giants can serve as an example and create a standard for others to follow. This

responsibility includes welfare activities such as contributing to not-for-profit institutions and charities,

caring for the environment and the elderly, meeting the needs of marginalized groups such as the homeless

and the poor, and so on. An indirect benefit of this, Novak believes, is less government involvement in

these affairs.

Unresolved issues with strategic CSR

One unsettled difficulty lies in ethically and strategically balancing the tradeoffs among stakeholder

groups. For instance, while customers would prefer that more money be spent on improved products or

that prices be lowered, employees want higher wages and benefits. Although Freeman (2001) argues for

the need for balance in serving the various constituencies, he does not offer clear guidelines on how to

achieve this.

Another issue is that the empirical evidence on the effectiveness of strategic CSR as a good investment

is equivocal—it is not clear whether socially responsible corporations outperform or underperform other

companies (McWilliams and Siegel, 2001; Trevino and Nelson, 1999). Although in any given case it is

difficult to quantify the returns to social responsibility, research studies have found that short-term profits

sometimes increase and at other times decrease when executives include social objectives. Some research

shows that companies that practice social responsibility prosper in the long run, although this these studies

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are neither conclusive nor exhaustive, nor do they clarify causality (Business Ethics, 2001). One researcher

even found a curvilinear relationship, with moderately socially responsible firms being more profitable than

very high CSR and very low CSR organizations (Singer, 2000, p. 195). This suggests that, just as it is

possible to overspend on computers, research and development, advertising, and other investments, it is

also possible to go overboard regarding strategic CSR—as is true of all marketing expenditures, there is

apparently an optimal level of spending on strategic CSR. Nonetheless, the research evidence is

correlational, not causal. Thus, when positive correlations were found, it was not clear whether social

responsibility led to increased financial performance or whether better economic results yielded surplus

funds corporations could devote to social performance (Trevino and Nelson, 1999).

A problem in assessing the effectiveness of CSR efforts is that factors contributing to profits in this

arena are often qualitative and hence difficult to measure and quantify, such as the value of employee

morale, corporate image, reputation, public relations, goodwill, and popular opinion (Miller and Ahrens,

1993). There is plenty of soft, anecdotal evidence of CSR’s effectiveness. For instance, Ray Anderson

built Interface Inc., a billion-dollar international carpet manufacturer by becoming the world’s first

environmentally sustainable manufacturing enterprise, recycling everything possible, releasing no

pollutants, and filling no landfills. When Marriott set up a 24-hour multilingual hotline whom employees

with personal problems could call for help, Marriott’s turnover was cut to 35% compared to an industry

average of 100%, with the human resources director explaining, “We’ve documented increases in

productivity, morale, and better relations with managers and co-workers as a result of the hotline. But

we’re not able to quantify [italics added] the gain in managers’ time” (Daviss, 2001, p.208). Then, there is

the well-known case of the Malden Mills factory in Lowell, Massachusetts that burned to the ground during

the 1995 Christmas season. Nonetheless, owner Aaron Feuerstein continued to pay workers’ salaries and

benefits until a new plant was built. The result: productivity in the new facility rose by 25% and quality

defects dropped by two-thirds (Daviss, 2001, p. 209). 4 Harder evidence of the pecuniary benefits of CSR

can also be found. For instance, returns for the Domini 400 Social Index, a group of 400 publicly traded,

“socially responsible” businesses monitored by the investment advisory firm Kinder, Lydenberg, Domini&

4 This is not to suggest that Feurstein did this with strategic considerations in mind. Although he wasapparently motivated by humanitarian considerations, his good deeds prospered him in the long-run..

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Co., consistently beat those for the Standard & Poor’s 500 (Daviss, 2001, p. 209). Other quantitative

research also attests to the business performance gains from CSR (Daviss, 2001).

The future of strategic CSR

Due to belt tightening and increased pressure for accountability for expenditures, the trend will likely be

toward funding only those good works expected to financially benefit companies (Carroll, 2001).

Nevertheless, in view of rising public expectations for corporate good works, returns to strategic CSR

should rise. The Iron Law of Responsibility will continue: “In the long run, those who do not use power in

a manner which society considers responsible will tend to lose it” (Boatright, 2000, p. 344).

We might also find social audits becoming almost as common as financial audits. More companies are

conducting such audits to rate their social and environmental performance. Social audits are either

conducted internally by company personnel or externally by ethics consultants, social auditing

organizations (e.g., The New Economics Foundation), or a Board of Directors audit committee.

Shareholders and special interest activists will place greater pressure on businesses to be audited by these

entities. (Carroll, 2001). Like corporate ethics codes, they will increasingly be used as public relations

tools.

Reciprocal Stakeholder Responsibilities

One last consideration for strategic CSR planners is the notion of reciprocal stakeholder responsibilities.

Recall that the corporate social contract should spell out society’s expectations of business as well as

business’ expectations of society. Freeman (2001) notes that the “stakes” in the stakeholder model are

reciprocal, since both the corporation and its constituencies can affect the other in terms of rights and

responsibilities. Bowie (1995) suggests that if we are to have a truly comprehensive theory of CSR, we

must be able to determine the parameters for the reciprocal duties of corporate stakeholders to the

organization. What these duties entail has hardly been discussed.

If management has certain duties to its constituencies, it seems reasonable to suppose that these publics

also have responsibilities to the business. Social responsibility is rightly thought of as a shared duty, and

the stakeholder model mandates that each stakeholder has reciprocal duties with others. For example,

while business ethicists frequently discuss the unjust treatment of employees during plant closings, seldom

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do they criticize employees who leave a corporation on short notice to take a better job (Bowie, 1995).

Similarly, perhaps employees have a duty to speak favorably about a company (Freeman 2001), or at least

not denigrate it.

Marketers are especially interested in the consumer’s responsibilities, rarely mentioned in discussions

of CSR (Solomon, 1994). However, customers have an obligation to support socially responsible firms

rather than socially irresponsible or socially indifferent businesses. For instance, it is often possible for

consumers to refuse to support polluting businesses or be willing to pay more for pollution control. In fact,

Friedman suggested, “the people responsible for pollution are consumers, not producers. They create, as it

were, demand for pollution. People who use electricity are responsible for the smoke that comes out of the

stacks of the generating plants” (quoted in Solomon, p. 259). Yet, environmentally friendly products which

cost a bit more or cause consumer inconvenience (such as Downy fabric softener in concentrated form

which requires less packaging but which also is less convenient because it must be mixed with water) have

not been big sellers. In this case, it would seem that the environmentalists, as well as marketers, should

share some of the burden of educating the public about the importance of adopting such products. Other

consumer examples of social irresponsibility include buyers who complain about poor-quality products to

their friends, but not the manufacturer, retailer, or Better Business Bureau; people who do not contact

companies about advertising they find offensive or misleading; and customers who turn a blind eye when

they learn of businesses which engage in any kind of illegal or unethical practices.

Social responsibility for marketing activities, then, is a collective responsibility, to be divided among all

stakeholders, including, outside partners and vendors such as suppliers of materials, parts, and services;

wholesalers, retailers, and other distributors; advertising agencies and other marketing communications

creators; marketing research firms and other information vendors; the media and other marketing

communications carriers; government agencies; consumer protection champions; and even consumers

themselves. Marketers have an opportunity to take a leadership role, encouraging other stakeholders to

take social responsibility too.

Besides consumers, another group with social responsibility is stockholders, who have the duty to

evaluate corporations in which they invest not only in terms of financial security and expected return but

also vis a vis their ethical and social performance, as do “ethical investors.” Even if one’s knowledge of

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the business is limited to news reports or reading the quarterly or annual report, that is usually sufficient to

let one know what he or she is supporting (Solomon, 1994).

Others who share collective responsibility include competitors, who can blow the whistle on others in

their industry who they think are being socially irresponsible; suppliers of services such as advertising

agencies and marketing research agencies, who should recommend that their partners do business in a

socially responsible manner or else refuse to deal with them; and other facilitators such as transportation

agencies and the media, who can also refuse to do business with socially irresponsible or indifferent

businesses.

Suggestions for Managers and Researchers

Managerial implications

Senior management leadership for strategic CSR is vital. One of the most important factors in the

literature on corporate cultures is the influence of leaders within the organization. It is their behavior that

serves as a model and message-sender to all. Therefore, top-management commitment to strategic CSR is

key—commitment is signaled by chief executives (CEO, CFO, COO, CIO, etc.), including chief marketing

officers, president- and vice-president-level executives, including marketing VPs, and affirmation by the

board of directors .

As the business function most closely related to satisfying and communicating with most of the

organization’s constituencies, marketing should take a leadership role in responsibility for CSR. This

consumer marketing social responsibility (CMSR) is marketing’s duty to society to advance life, liberty,

and the general welfare of consumers through value-creating marketing activities that increase the

efficiency, effectiveness, and enjoyment of economic life while benefiting the firm.

Leaders of corporations should discover and communicate a few simple shared values and visions that

form a common ground upon which all ethical and strategic CSR activities can stand, proclaiming them

continuously, and demonstrating devotion to these values and visions by actions (not just words),

encouraging groups and teams to invent and innovate new CSR ideas that conform to these values and

visions, listening to everyone's ideas, rewarding every attempt to advance these values and visions, and

making everyone feel like a winner in these efforts.

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These values and visions and the business’ commitment to strategic CSR should be embodied in a

corporate credo—a succinct statement of the organization's philosophy of business and core values (e.g.,

respect for people, focus on the customer, continuous improvement, etc.) and ethical and social

responsibilities to its stakeholders. These should be sincere, not just public relations fluff stuff to look good

in employees' and the public's eyes, and must be made clear in some sort of a public forum.

Mission and vision statements can be used to make the values and firm’s commitment to CSR clear

among the company’s many external constituencies as well as to motivate employees with a vision worth

getting up out of bed for in the morning. Measurable and achievable goals should be set in each of the CSR

activities, including expected benefits to both stakeholders and the firm (e.g., “To train twenty poverty-

level adults to perform such-and-such by the end of the fiscal year, and to achieve awareness of twenty per

cent in the community regarding our involvement in this activity”).

Targets for strategic CSR. To minimize the problem of pluralism regarding what is, in fact, socially

responsible,” strategic CSR must be targeted to receptive publics. The balancing act among stakeholder

groups is always a tricky one, and solutions to resolving tradeoffs must usually be found on a case-by-case

basis, considering the relative importance of each stakeholder group to the company.

Boatright (2000), following Simon et. al’s (1983) criteria for determining ethical responsibility, suggests

several criteria for establishing groups to target. These are groups: (1) with an urgent need; (2) in close

proximity to a corporation (3) a corporation is capable of responding to effectively; and (4) for which the

likelihood is high that the need will not be met unless a corporation acts (called the “last resort” criterion).

Because of the danger of assuming someone else will act or not acting because one assumes the need is not

strong since no one else is acting, the last resort criterion is less useful (Smith and Quelch, 1993)

In most cases customers and employees are the two groups whose welfare seems to be most closely

linked to the business and therefore whose needs and wants should generally be given primacy.

Companies can use strategic CSR to boost consumer patronage and loyalty and worker morale and loyalty.

I will also briefly examine government and special interest groups as frequent targets of strategic CSR.

Marketers have a noble calling—to serve and satisfy consumers’ legitimate needs. Socially responsible

marketing boils down to providing consumers with products of genuine value which will enhance their

physical or psychological well-being, pricing them at a level that yields a fair return to the firm but which is

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also done with integrity, distributing products effectively and efficiently (Chewning et. al, 1990), and

promoting them with honesty and in a wholesome environment (Dunkerton, 1990).

Surveys that are periodically reported in the press attest to the fact that consumer responsiveness is a

mandate for CSR. By 1992, a survey by the Public Relations Society of America revealed that one of the

industry’s ten hottest trends was social issues marketing—celebrating a company’s commitment to public

issues as well as to its products and customers (Carroll, 2001). A 1994 study by Walker Research and

Analysis found that 88% of consumers claimed they were much or somewhat more likely to buy from a

firm which is socially responsible and a good corporate citizen if quality, service, and price are all

comparable to those of competitors, while 92% said they would be much or somewhat less likely to buy

from a company that lacks social responsibility (Smith, 2001, p. 155). A 1997 Cone/Roper survey revealed

that 76% of consumers claimed they would switch brands or stores that seem concerned about the

community (Jones, 1997).

Clearly, marketers have an important role to play in strategic CSR designed to enhance customer

goodwill and provide a way of differentiating the company and its products (McWilliams, 2001; Stodder,

1999), notably through “leveraging” these activities via marketing communications such as publicity and

advertising. Very common areas of activity here are sponsorship of the arts and marketing-driven

sponsorships (Quester and Thompson, 2001). Also common is giving to local community endeavors. For

instance, the retailer Target boldly proclaims in their advertising campaigns that they contribute large

percentages of their profits back into their communities. During the 1990’s, many companies practiced

“green marketing” for the goodwill they imagined they would get from touting a brand’s social attributes,

such as being pesticide free and nonpolluting, although abuses have somewhat curtailed that practice.

Cause-related marketing, which involves linking consumer purchases of a firm’s products with fund-

raising for worthwhile causes or charitable organizations, has grown exponentially over the past few

decades. It is effective because of consumers’ growing social consciousness; consequently, consumers now

buy products as an expression of their own social consciousness. Case studies suggest that cause-related

marketing is effective in boosting brand loyalty and preventing the onset of commodity status for a brand

(Dupree, 2000).

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Opportunities are limited only by the marketer’s creative imagination. For instance, Wells Fargo Bank

teamed with Austin, Texas police to offer bank accounts to undocumented workers who are often targets of

violent robberies because they must carry cash. Although the bank’s regional president said they were

doing this because “It is just the right thing to do,” (Garcia, 2001, p. 8B), the marketing value was clear: it

gave the bank an opportunity to tap into the rapidly growing Hispanic market. “This is not a marketing

effort, though we’d hope that people far and wide discover and use the program,” the ban’s regional

president admitted (Garcia, 2001, p. 8B).

The consumer psychology is that companies that actively support CSR are honest, more reliable and,

hence, produce high-quality products (McWilliams and Siegel, 2001). Thus, social attributes such as

“environmentally friendly” or a “caring company” can serve as signals of product quality. Consumers also

tend to think, “Those are pretty good folks, I ought to give them a chance” (Harvey, 2001).

Employees are a second vital target of strategic CSR efforts. An organization's greatest resource is

people, not property, manpower, nor money. The rate of return on human capital can be higher than the

rate of return on physical or technological capital. An old adage in the advertising industry is, "Our assets

go down the elevator every evening." Thus, most efforts to help employees will yield business benefits.

Marketers know the importance of internal marketing, especially to front-line employees: if they are

happy, they will more likely work to satisfy customers. Efforts here can include “progressive” labor

relations policies, workplace safety, financial security, flextime and job sharing, workplace amenities such

as recreational facilities and on-site childcare, and matching employee contributions to charity. In return,

businesses expect to be rewarded with increased worker loyalty, morale, and productivity (McWilliams and

Siegel, 2001). One-third of large companies now have a formal policy whereby they pay workers or give

them release time to do community volunteer work. Studies have confirmed what managers have

suspected: workers who do volunteer work for something they find meaningful return to their job more

motivated and fulfilled, and with stronger community ties, which lessens their propensity to move

elsewhere for a different job and also aids recruitment (Jones, 1997).

Employees should be evaluated on not just financial criteria, but also on ethical and social responsibility

criteria. Employees should see their peers who have modeled ethical and socially responsible behavior

44

recognized and rewarded, even if there was a short-term cost to the bottom line (so long as there is believed

to be a long-run return to the firm’s value).

Legislators and regulators are another important public for strategic CSR. For instance, if a firm is sued

for, say, racial discrimination, it can help their cause to tell the jury about employee volunteer work for,

say, minority literacy programs (Jones, 1997). Strategic CSR might also be done with a view to

minimizing government regulation. For example, in the real estate industry, builders and developers

routinely need zoning clearances in order to conduct their businesses; thus, if these outfits are viewed as

good community citizens, zoning decisions are more likely to be favorable and faster.5

Strategic CSR can also be used to keep at bay public-interest (special-interest) groups—non-profit

organizations that have been founded to promote a cause perceived (at least by their members) to be in the

“public interest.” These groups are important constituencies since they can bring pressure to bear via direct

lobbying of government officials, such as via personal presentations and testifying at congressional

hearings; trying to alter public opinion through activities which will garner public relations, such as

demonstrations, picketing, and letter writing; organizing boycotts; and releasing research results. (Smith,

2001).

Also, it is in a company’s best interests to target those individuals or organizations which promote the

firm’s own values and agenda (Brenkert, 1996). Thus, it might be financially beneficial to donate to

universities doing basic research in an organization’s field, whereas it would be objectionable to support

colleges whose professors denounce the free enterprise system.

Strategic considerations. As Novak (1996) suggests, companies need to clearly communicate with their

various constituencies, including stockholders. They need to state in their investment prospectuses, annual

reports, and other corporate communications the causes they support and provide a breakout of the costs

and benefits of their various CSR efforts. This will give potential and current investors “informed consent”

in deciding to purchase shares (Rae and Wong, 1996). Additionally, management can poll stockholders to

determine their preferences for areas of strategic CSR the company should get involved in or to get them to

specifically approve the company’s CSR activities when they cast their annual proxy vote for the election

5 . Of course, if favoritism is sought, this would violate canons of fairness and hence ethics.

45

of the board and other issues (Bowie, 1995).

Determining the amount to spend on strategic CSR is admittedly difficult, since, as is true for most

marketing communications, it is complex to directly correlate the effort expended with financial

performance measures such as sales and profits. In theory, so long as the marginal contribution margin

exceeds the marginal cost of strategic CSR, CSR activities should be undertaken. In practice, given the

multiplicity of factors causing business performance and in view of the lagged effects of many CSR efforts

(e.g., corporate reputation is slow to build and a function of many variables), this is impossible to do. As is

true for measuring the effectiveness of advertising and other marketing communications, marketers will

need to use surrogates for sales and profits as a indicators of CSR’s value to the firm, such as enhanced

trust and reputation. Nonetheless, especially in view of their added societal benefits, more companies

should consider reallocating funds from traditional marketing communications activities to strategic CSR.

If stockholders derive nonpecuniary benefits from CSR, these should somehow be weighed in the balance

too.

Suggestions for future research

A fuller theory of strategic CSR should be developed, including reciprocal stakeholder responsibilities.

Although I have drawn some general boundaries on appropriate CSR efforts, a full delineation of strategic

CSR efforts, more details on the appropriate boundaries of each of these areas, and the roles of marketers as

well as other functional area involvement is required.

We also need a theory of how to balance the tradeoffs inherent in serving the various corporate

constituencies. While I suggest customers and employees are most critical, stakeholder theory as it now

exists does not prioritize among stakeholder groups (Freeman, 2001). We should determine how certain

stakeholder groups should be weighted in importance for targeting these efforts. For each stakeholder

group we need to learn which types of CSR activities yield the highest payback. We should discover if

there are the general limits that should be set on spending on these activities.

The event study analysis (ESA) technique (Miyazaki and Morgan, 2001) is a useful academic research

methodology which can help provide some answers. ESA originated in and is now widely accepted in the

finance and economics disciplines, and it has also been borrowed in recent years by marketing scholars.

ESA examines the impact of a single event (or series of events) on the value of a business. In marketing,

46

ESA has been used to investigate the influence on the firm’s value of new-product announcements, brand-

extensions, celebrity endorsements (Miyazaki and Morgan, 2001), slogan changes, new advertising agency-

client relationships (Knowles, Mather, and Rangan, 1997), and special event sponsorship (Cornwell, Pruitt,

and Van Ness, 2001).

The idea underling ESA is that stock markets are generally efficient in that stock prices correctly and

rapidly incorporate all publicly available information, and so changes in information valued by the market

should lead to significant changes in stock prices, with information perceived to signal future earnings

increases (decreases) leading to a stock price increase (decrease). ESA entails measuring how a given

event, such as an announcement concerning a change in present and future marketing strategies of a

company, influences movement in a company’s stock price. The impact of the announcement is gauged by

comparing the amount of change in the stock price around the event date with the predicted change in stock

price based on inspecting the past relationship between the stock and the market from time series data

(Cornwell et. al, 2001; Miyazaki and Morgan, 2001). The advantages of using stock price changes as a

measure of CSR effectiveness are that this measure is free of some of the biases of more subjective metrics

such as communication measures (e.g., awareness, attitude, image, etc.) (Cornwell et. Al, 2001), it can

more cleanly be associated with changes in marketing strategies than can communication variables, and it

is directly tied to shareholder interests since CRM activities that move the stock price significantly upward

are defensible from the shareholders’ perspective.

Since ESA data is only correlational, it can be supplemented with field experimental research that

demonstrates cause-and-effect relationships. For instance, sponsorship effectiveness has been studied using

a before-after (pretest-posttest)-with-control-group design, in which “before” and “after” measures of

attitudes toward sponsors and sponsorships were taken, comparing control and treatment groups (Quester

and Thompson, 2001). Because this method would substitute communications measures of the

effectiveness of CSR for the financial measures of event study analysis, I recommend that researchers use

both ESA and field experience simultaneously in order to achieve convergent validity.

Conclusion

47

The jury is in—CSR is increasingly expected and can be rewarding for both societal stakeholders and

the firm. Ethical responsibilities, i.e., ethical CSR, is the mandatory minimal level of social responsibility

an enterprise owes its constituencies. Given the ultimate responsibility of a corporation to its stockholders,

strategic CSR, which financially benefits the business through serving society in extra-economic ways, is

justifiable, and from society’s perspective, should be applauded, not condemned as “self-serving.”

Altruistic CSR, whose benefit to the company is uncertain and even irrelevant, lies outside the scope of

business responsibility. If managers wish to do good works of questionable return to the firm, they may do

them on their own time and with their own dollar. Marketers, as the corporation’s key need satisfiers and

corporate communicators, should be in the vanguard of strategic CSR efforts. While difficult issues

remain, such as balancing conflicting stakeholder interests and measuring returns to strategic CSR, in view

of the public’s rising expectations for CSR, marketers should press ahead. If the future academic research

recommended above is undertaken, and as marketers do their own proprietary research, the task should

become easier.

48

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