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Word Count – 1,763 / PIN – 10362

The Synthesis of Corporation and Society

The turn of the century has brought with it numerous changes to the world of

business management. For one, new trends are arising in consumer society every moment

according to which firms must adjust their strategies. One new trend in the business world

that has caught the eyes of many is corporate social responsibility (henceforth CSR) and

social entrepreneurship. The public is taking ever more interest in the social responsibility of

companies. In a study conducted by McKinsey & Company in January 2006, results show that

an overwhelming majority of the executives surveyed agree as to the importance of CSR in a

company’s management but they also replied that they were nervous as to how they should

carry it out. With the way that CSR and social entrepreneurship is defined now, issues

concerning their validity are likely to rise. The current viewpoints on CSR and social

entrepreneurship are impediments to more benefits that can be achieved through their

effective implementation.

CSR and social entrepreneurship as in the minds of many limit the scope of actions

that corporations can take, thereby reducing the potential benefits that the society can gain.

Philip Kotler defines CSR to be “a commitment to improve community well-being through

discretionary business practices and corporate resources”, and according to Professor Dees

social entrepreneurs play the role of change agents in the social sector by: a) adopting a

mission to create and sustain social value (not just private value), b) recognizing and

relentlessly pursuing new opportunities to serve that mission, c) engaging in a process of

continuous innovation, adaptation, and learning, d) acting boldly without being limited by

resources currently in hand, and e) exhibiting a heightened sense of accountability to the

constituencies served and for the outcomes created. These are along the line of definitions that

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the general public would have of the two terms, and according to these definitions, one can

see that both CSR and social entrepreneurship involve the act of good-will on the behalf of

corporations. There are four basic justifications as to why we need CSR in the first place:

moral obligation, sustainability, license to operate, and reputation (Porter, 2). To a certain

degree, each of these arguments helps the case for the practice of CSR. However, none guides

the corporate leaders as to what choices they must make. In his book Capitalism and Freedom,

Nobel laureate Milton Friedman states that “there is one and only one social responsibility of

business–to use it resources and engage in activities designed to increase its profits”

(Colorado). In the most basic sense, the social responsibility of corporations is to create goods

and services which would satisfy the needs and wants of consumers. However, although what

Friedman states is true, we cannot rule out the fact that customers, and hence the society in

which the corporations operate, determine whether a company is successful in the end. Hence,

the definitions of CSR and social entrepreneurship we have now must be modified in order to

bring about the maximum benefits for both the society and the businesses.

Problems arise out of CSR due to the two seemingly conflicting desires of companies

and consumers. First, we always pit business against society, and second, we consumers force

companies to come up with generic, not company-specific, methods of fulfilling CSR (Porter,

1). As such, CSR becomes a cost, a constraint, or a charitable deed, for companies with these

views, because they cannot reconcile the differences, and the capacity of corporations to

produce more social benefit or profit is greatly reduced. Take the case of General Electric’s

program to adopt underperforming public high schools near its major U.S. facilities. In a

study of ten schools, nearly all showing significant improvement, with graduation rates in

four of five worst-performing schools doubling from an average of 30% to 60% (Porter, 9).

However, in order to achieve this, General Electric has had to contribute between $250,000

and $1 million over a five-year period to each school, with no significant benefits for the

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company itself (Porter, 9). What the General Electric truly needed is to have developed a

program that is aligned with its direction of goal and value. Another common implementation

of CSR comes as a defense or mitigation of adverse effects from business activities. CSR

takes on a passive role in the business management, a problem which must be addressed in

order to completely integrate CSR into corporations.

In order to solve the problem mentioned, we first need a new measure of CSR or

social entrepreneurship and its impact on the consumer society. Porter argues that “measuring

and publicizing social performance is a potentially powerful way to influence corporate

behavior” (Porter, 3). Many of the rankings used today, such as the Dow Jones Sustainability

Index and FTSE4Good Index, are inconsistent in the criteria they use to judge whether a

company is socially more responsible than another. The Dow Jones Sustainability Index

includes weights customer service almost 50% more heavily than corporate citizenship,

whereas FTSE4Goood Index contains no measure of economic performance or customer

service (Porter, 3). Some criteria are even worth questioning the validity of, such as the size of

a company’s board as a measure of community involvement which is a criterion used by the

Dow Jones Sustainability Index. When corporations are spitting out CSR reports, it seems that

the most common response to the problem of CSR is merely cosmetic, playing its role only in

public relations and media campaigns. Of the 250 largest multinational corporations, 64%

published CSR reports in 2005, aggregating anecdotes about uncoordinated initiatives (Porter,

2), and in addition, most of these reports put too little emphasis on the actual impact made on

the society. With incoherent measuring and ranking of CSR, corporations are left directionless

as to how they should go about engaging in socially responsible actions while maintaining

their profits, at the least. One solution to solving the problem raised is to devise a new method

of measuring CSR of corporations and the impact they make on the society.

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A second solution to this problem is for companies to redefine CSR such that the

definition is situation-specific. Corporations opened their eyes to the idea of CSR only after

the public responded to issues the corporations had previously thought unrelated to business

management. For example, Nike faced extensive consumer boycott after The New York

Times reported abusive labor practices in the early 1990s (Cushman), realizing that they could

no longer disregard the social responsibility. So far, corporations have focused, not on the

integration of the social values into their mission statements, but on a superficial treatment of

what the society wants. In other words, CSR often serves as a method of covering up the

wrongdoings of the corporations after they have caused enough damage to bring about public

attention. In order to turn CSR so that businesses and entrepreneurs can be more proactive, we

need to redefine CSR. Corporations may come to realize that CSR can become a source of

tremendous social progress, as the business applies its considerable resources, expertise, and

insights to activities that benefit society (Porter, 1). In order to do so, corporations must first

realize that corporations and society are interdependent, and do not exist at the cost each other.

First, corporations rely on the society for its operations in the normal course of business, and

second, external social conditions affect internal corporate management.

From the fundamental law of economics, a healthy society creates more demand for

business as the human needs and aspirations grow along with it, while a healthy society needs

successful companies to create jobs, wealth, and innovation. However, entrepreneurs often do

not recognize the mutual relationship between a corporation and the society it operates in.

They spend too much trying to analyze the friction between the too, and not enough analyzing

the shared values. As such, for a more successful implementation of CSR, we can turn to the

basic rule of design: satisfy both sides, turn it into a win-win situation. When a company can

come up with a strategy that will move beyond good corporate citizenship or mitigating

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harmful value to initiatives whose social and business benefits are large and distinctive (Porter,

10). For example, Toyota’s Prius, the hybrid vehicle, is a great example of innovative car

models that not only produce competitive advantage over rivals but also produce

environmental benefits. By emitting as little as 10% of the harmful pollutants or consuming

only half the amount of gas when compared with conventional vehicles (Porter, 10), Prius has

helped elevate Toyota to a unique position. It is important to note that this practice did not

come as a result of a defensive response to public uproar, but as an innovative strategy on the

behalf of Toyota to gain competitive advantage over its rivals. It just happens that Prius’s

specifications help benefit the society tremendously. Another example of such shared-value

opportunity is Microsoft’s Working Connections partnership with the American Association of

Community Colleges (AACC) (Microsoft). By investing in community colleges which do not

have standardized IT curricula, Microsoft’s $50 million five-year initiative not only had direct

impact on the society, but Microsoft also benefitted from the expanded influx of professional

IT workers who graduate from the community colleges. The best example is yet to come:

Nestlé’s Milk District (Nestlé). Nestlé exemplifies a symbiotic relationship between social

progress and competitive advantage. When Nestlé wanted to enter the Indian market in 1962,

it received permission to establish a dairy in Moga, a region with severe poverty. Although it

was not Nestlé’s intention to carry out philanthropy in Moga, their value depended on

obtaining local source of milk from a large base of small farmers. Nestlé’s practices

eventually led to Moga having a significantly higher standard of living than other regions in

the vicinity (Porter, 11). Hence, we must recognize that CSR can be of tremendous benefit to

both players once they learn to build upon their mutual existence and attempt to make the best

out of it.

CSR and social entrepreneurship are crucial ideas in today’s business world, as a

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larger majority of the public is coming to the opinion that corporations are no longer

exempted from the law. Corporations exist because the society can provide them with the

resources they need, and a society is sustained by the operations of corporations. Once we

learn to recognize this mutual dependence, we will help solve the problem of fragmented

engagement in CSR. CSR is no longer just mitigation for the wrongdoings of corporations.

CSR must become an integrated element of business management for the benefit of all.

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Works Cited

Cho, Hyungjoon. Corporate Social Responsibility: A Case Analysis of Community

Relations in Samsung Group. Thesis. Korea Advanced Institute of Science and

Technology, 1997.

Cushman, John H. "INTERNATIONAL BUSINESS: Nike Pledges to End Child

Labor And Apply U.S. Rules Abroad." The New York Times 13 May 1998, sec.

D: 1.

Dees, Gregory J. "The Meaning of "Social Entrepreneurship"" Center for the

Advancement of Social Entrepreneurship. 30 May 2001. Duke University:

Fuqua School of Business. 1 Apr. 2009

<http://www.caseatduke.org/documents/dees_sedef.pdf>.

Kotler, Philip, and Nancy Lee. Corporate social responsibility doing the most good

for your company and your cause. Hoboken, N.J: Wiley, 2005.

"The McKinsey Global Survey of Business Executives: Business and Society."

McKinsey Quarterly (2006). The McKinsey Global Survey of Business

Executives : Business and Society - The McKinsey Quarterly. Jan. 2006.

McKinsey Quarterly. 1 Apr. 2009

<http://www.mckinseyquarterly.com/The_McKinsey_Global_Survey_of_Busin

ess_Executives__Business_and_Society_1741>.

Microsoft Corporation. "Microsoft Announces Working Connections "Class of

2002"" Press release. Microsoft Announces Working Connections "Class of

2002": More Than $2 Million in Grants Support. 26 Jan. 2000. Microsoft. 1

Apr. 2009

<http://www.microsoft.com/Presspass/press/2000/jan00/classof02pr.mspx>.

Nestlé. "Milk collection in Caquetá, Colombia." Press release. Milk collection in

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Caquetá, Colombia. 1 Apr. 2009

<http://www.nestle.com/SharedValueCSR/FarmersAndAgriculture/Milk/Milk+

collection+in+Caquet%C3%A1.htm>.

Porter, Michael E., and Mark R. Kramer. "Strategy & Society: The Link Between

Competitive Advantage and Corporate Social Responsibility." Harvard

Business Review 84 (2006): 78-92.

"The Social Responsibility of Business is to Increase its Profits, by Milton

Friedman." University of Colorado at Boulder. University of Colorado. 31 Mar.

2009 <http://www.colorado.edu/studentgroups/libertarians/issues/friedman-

soc-resp-business.html>.