Tian Boon Law

Tian Boon Law

Word Count: 1,873/ PIN: 10627

1

Reconciling Economic and Social Imperatives in Corporate Social Responsibility (CSR) and Social

Entrepreneurship (SE)

Introduction

Tremendous attention has surrounded the concepts and practices of corporate social

responsibility (CSR) and social entrepreneurship (SE) due to a normative dimension in

economies at various geographical scales that highlights forms of persistent and episodic

marginalization of society by various capitalistic business practices. Some has heralded CSR

and SE as the messiah to better business practices that will alleviate problems of

marginalization while others have reservations towards these nascent and contested

ethical/moral business approaches. This essay adopts a critical approach towards CSR and

SE, arguing that one main problem – the inherent tension between economic and social

imperatives – continues to challenge the efficacy of both approaches in reconciling business

and social objectives as a means of ethical/moral corporate practice. Some conceptual and

practical solutions are later suggested.

Corporate Social Responsibility and Social Entrepreneurship

CSR has its antecedence in corporate social intervention or corporate philanthropy.

However, what we are familiar with as CSR today has much more to do with the anti-

corporate activism that sought and continues to seek to reveal the ‘atrocities’ of corporate

practices and behavior, e.g. labor exploitation in ‘sweat shops’, use of child labor, unethical

production processes etc. CSR arose as a response to such conflicts between firms and the

society (Sadler, 2004). In today’s business environment, firm success is

as much about a corporation’s ability to build a sense of shared values with key stakeholders as it is about the technical quality of products and services. Corporations that achieve this will extract the maximum premium for their branded, lifestyle products, get the best employees on terms that secure their committed labor to the business, and most effectively offset criticism from increasingly globalised networks of NGOs.

Tian Boon Law

Global Initiatives Symposium in Taiwan 2009

Tian Boon Law

2

(Zadek, 2001: 8; emphasis added)

Hence, CSR can be seen as a business approach that addresses issues raised through anti-

corporate activism, although the exact motivation(s) behind this practice may vary across

corporations and temporal dimensions.

Yet CSR as a business practice faces several challenges, especially with regard to

conflicting responsibilities towards shareholders and the society. For example, enterprise

managers who direct income towards performing ‘social responsibilities’ actually infringe

upon stockholders’ share of the firm’s residual income. And in such cases, the managers are

actually more inclined to fulfill their responsibility towards stockholders who have provided

the capital for business operation in the first place. Yet the negative social impacts of their

operations may be undeniable, and this creates a dilemma between two groups of people that

managers could feel responsible towards. Moreover, social objectives often clash with

economic objectives of the firm (e.g. diverting capital to perform CSR rather than to grow the

firm), resulting in superficial practices of CSR that tend to be transient and of low levels of

commitment, especially during times of financial difficulties for the firm.

Evidently, the challenges faced by CSR practitioners stem mainly from the

established ownership structure of stockholders vis-à-vis society that receives the (negative)

impacts of business operations. Seen in this light, SE can be said to be an innovative business

approach that seeks to reconcile the abovementioned dilemma by starting on a clean slate. SE

is about ‘social entrepreneurs’ who identify unmet social needs and seek to meet those needs

through an entrepreneurial approach, i.e. starting a business with the purpose of ‘making a

difference’ in society.

While SE seems to be conceptually more viable in that its primary objective is to meet

social needs in a sustainable manner, i.e. through a business model that generates income to

Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship

3

fund the meeting of those needs, Cho (2006) criticizes it to be a business concept that is both

tautological and monological. SE is tautological in that while “entrepreneurship” is well

defined in most working definitions of SE, the “social” is very much left undefined. Being

able, then, only to understand SE as a sustainable business approach to meeting social needs

without knowing much about what exactly is ‘social’ about SE, the tautological nature of SE

becomes apparent. In addition, it has been argued that SE is monological because “[s]ocial

entrepreneurs have their own, divergent, subjective visions for the rest of society and

rationally mobilize resources in order to enact their agendas” (Cho, 2006: 46-47; emphasis

added), without taking much into account the pluralist nature of society and the multiplicity

of visions different segments of the society or even different individuals have for themselves.

A Key Problem – The Dialectics between the Economic and the Social

From the brief account of CSR and SE above, it is clear that both business approaches

face many challenges in their execution. Yet, all these challenges are merely symptoms of a

more fundamental problem undergirding the execution of CSR and SE – the inherent tension

between economic and social imperatives.

There are some ways to resolve this tension. While it is not the intention of the paper

to create a utopia or idealized capitalist world dominated by CSR and SE, it is hoped that

with the realization of some or all of these proposed solutions the apparent incompatibility

between profit maximization and social welfare can be reduced or resolved at best. Two of

the possible solutions would be dealt with in detail here: one, strategic alliance and the other,

sustainable value.

Possible Solutions – Strategic Alliance and Sustainable Value


Tian Boon Law

4

The concept of strategic alliance is not a novelty in the financial sector. One notable

example of strategic alliances can be found in the aviation industry, in which corporate

alliances between airliner companies such as Star Alliance, SkyTeam, and Oneworld are

forged. Adopting the concept in the practices of CSR and SE, alliances between business

enterprises (BE) and SEs can be forged as well. In reality, alliances between SEs are common

but not those between them and the BEs. The main reason behind the common SE alliances is

the ease of receiving state funds. Governments or related agencies of countries such as Egypt,

India, and the United States are known to support and finance SE alliances instead of

individual SEs (Wei-Skillern, Austin, Leonard, and Stevenson, 2007: 191-201). The

formation of alliances between BEs and SEs would serve to incubate the latter. Financially,

the SEs can be leveraged and, in the course of being so, possess the initiative and the

opportunity to expand its scale and scope. The BEs can share with the SEs their business

networks, branding as well as marketing strategies during the latter’s incubation period. It

resolves the tension between profit-making and social-involvement by allowing both the BEs

and the SEs to focus on their respective missions. The CSR of the BEs is to incubate the SEs,

much to the BEs’ own image promotion. The BEs can focus on their profit-making business

while incubating the SEs, which in turn would harness their attention and resources on

addressing and meeting social needs.

The sustainable value framework comprises primarily two main values, namely the

stakeholder and the shareholder values. Sustainable value occurs only when a company

creates value that is positive for its shareholders and its stakeholders. Sustainable value is not

about creating stakeholder value at the expense of shareholder value (Laszlo, 2008). It would

be a misconception to think that companies destroy shareholder value when they contribute to

society and the environment. With regard to sustainable value, both the BEs and the SEs can

create this in their respective company missions. For instance, a positive branding effect or


5

image can be fostered by incorporating the concept of CSR into the company mission. The

elevation of social responsibility and brand reputation bears a favorable effect on the brand

equity of the involved firms and hence an overall increase in business revenues. The

importance of brand image to a company should not be undermined. It has led to the concept

of brand equity which can be defined as the added value a given brand name gives to a

product beyond the functional benefits provided (Keller, 2004). A comparative advantage is

provided when the brand name stands for quality, and consumers are often willing to pay a

higher price for a product with brand equity. Therefore, although it may cost to attain a social

value in operations and production, there are “hidden benefits” to be derived from the deal.

For one, Wal Mart has placed its focus on environmental issues and hence manages to claim

its fair share of patrons or consumers who are in support of environmentalist movements, but

it also faces much criticism on how it has been operating on the exploitation of cheap labor in

the developing countries. Other examples include DuPont, The Body Shop, and United

Colors of Benetton. In particular, The Body Shop deserves special mention. Initially, The

Body Shop refuses to venture into China’s consumer market as China requires all products of

any cosmetics companies to practice animal testing before they can be released into the

market, very much against its doctrine and mission. However, Loreal bought over The Body

Shop and practices animal testing itself, capturing both its traditional market share and a new

pool of consumers from the other end of the spectrum. In any case, this justifies the concept

of profit-making by incorporating CSR into the company mission and hence eases the

seemingly irreconcilable tension between economic and social imperatives for both the BEs

and the SEs.

A new dimension has to be added, however, if this is to be successful in the long run.

Harvesting the social capital involves the attainment of proper recognition of CSR in the firm

by state-approved agencies. Such agencies would award a license to firms practicing CSR to


Tian Boon Law

6

label their products a logo indicating the practice. Firms practicing CSR or SEs would then

experience a rise in their social visibility and hence popularity, especially amongst consumers

who are concerned with environmental and social issues. A higher demand for their products

may result and this creates the bacon or incentive for both BEs and SEs to practice CSR in

consideration of commercial motivations and market forces, if CSR alone is not enough to

offer it. This is one way of how economic goals can reconcile with social imperatives.

Conclusion

In short, economic and social values in enterprises are not always antagonistic to each

other. It is possible to achieve CSR without compromising the profits required to remain in

competition and opposition. It offers not just a risk but an opportunity as well to explore and

carve out new market shares while staying socially visible and responsible. Solutions in the

form of sound business strategies may well do the trick for firms which are genuinely

interested in making profits and enhancing their social role at the same time. The sense of

incompatibility and hence the enduring tension between the economic and the social

imperatives of firms are built upon the assumption that the BEs practicing CSR and the SEs

would fail to generate enough profits to sustain themselves on a long term basis, but such

conventional wisdom has to be altered and make way for a more progressive approach in our

discussion of business ethics and corporate responsibility. The utopia of a market economy

consisting of only SEs would be absurd, but having a higher proportion of them around is

realistic and can contribute to the construction and subsequent support of social institutions

geared towards the welfare of the marginalized, the stigmatized, and the victimized.


7

Bibliography

Cho, A.H.B. (2006). Politics, Values and Social Entrepreneurship: A Critical Appraisal.

Social Entrepreneurship. New York: Palgrave Macmillan.

Keller, K.L. (2003). Strategic Brand Management: Building, Measuring and Managing

Brand Equity. Upper Saddle River, NJ: Prentice Hall.

Laszlo, C. (2008). Sustainable Value: How the World’s Leading Companies are Doing Well

by Doing Good? Stanford, California: Stanford University Press.

Sadler, D. (2004). Anti-corporate Campaigning and Corporate Social Responsibility:

Towards Alternative Spaces of Citizenships? Antipode, 36 (5): 851-870.

Wei-Skillern, J., Austin, J.E., Leonard, H., Stevenson, H. (2007). Entrepreneurship in the

Social Sector. Los Angeles, California: Sage Publications.

Zadek, S. (2006). The Civil Corporation: The New Economy of Corporate Citizenship.

London: Earthscan.


Tian Boon Law

Documents

Tian Boon Law