Corporate social responsibility (CSR) is a heavily researched and much discussed topic—and a controversial one. Companies exist to provide products and services to customers; in order to survive, they must do so in a manner that generates sustainable profits. When successful, companies are capable of producing considerable social good. In addition to satisfying a wide range of consumer and commercial needs, they employ and train millions of people, offer health and retirement benefits to many employees, pursue new inventions and improvements that enhance the quality of life, pay billions in taxes, and invest in infrastructure. They also develop solutions for important social challenges (e.g., alternative energy sources, devices to reduce factory emissions, drugs to fight COVID-19).
Of course, some companies also produce defective products, collude on prices, abuse employees, mislead customers, defraud investors, and damage the environment. As a result, there are ongoing pressures to regulate more and more facets of their operations—sometimes for the better and sometimes in ways that hinder the social good they are able to provide.
Beyond the letter of the law
Many expect more from the business community than compliance with regulatory requirements. They expect companies to engage in ethical behavior and go beyond the letter of the law to do what is right. Yet the standard for what is ethical varies widely. Debates ensue around the ethics of pricing practices, sourcing from certain suppliers, sharing customer data, paying a given wage rate and making questionable claims in advertising. How a firm handles thinly regulated or unregulated matters—family leave, diversity in hiring, employee safety—is also a marker of its ethical compass. Some critics deem it unethical for retailers to pull their operations out of poor neighborhoods, for companies to earn large profits and pay no taxes, or for CEOs like Elon Musk, Mark Zuckerberg, or Jeff Bezos to make billions of dollars.
This is where CSR enters the fray. As these ethical expectations have expanded, particularly over the past sixty years, so too has emphasis on the need for companies to be “socially responsible.”
Reacting to such demands, Nobel Prize-winning economist Milton Friedman famously suggested the sole social responsibility of business is to generate returns for its shareholders or owners within the confines of the law. Maximizing profits is the ultimate good for a business. The return on investment generated by the firm reflects the value to society it has created. A sizeable return rewards risk-taking and innovation.
In Friedman’s classical (and popular) view, shareholders are the only stakeholders that matter. In practice, however, many companies identify three sets of key stakeholders: returns to shareholders are greater if the company first invests in employees, who are then better able to serve customers.
The contemporary understanding of CSR takes this formula a step further. It embraces a social contract according to which many other stakeholders must be considered, including suppliers, labor unions, ethnic and racial minorities, local community members, different levels of government, activist groups, and society at large. Businesses thus become responsible for combating climate change, providing disaster relief, and fighting social injustice in its many forms. This significant broadening of responsibility is reflected in the priority some CSR advocates place on the triple bottom line, whereby companies become responsible for profits, people, and the planet.
Pressure is now coming from many quarters, including segments of the investor community, advocacy from the Vatican for the concept of inclusive capitalism, and initiatives such as the United Nations Global Compact which pushes universal principles on human rights, labor, the environment and anti-corruption. In response some very large companies now establish environmental, social and governance (ESG) goals, produce annual sustainability reports, and seek to integrate the notion of shared value (company and community) into their operations.
Negotiating moral complexity: three levels
As the scope of CSR grows broader, it becomes challenging from both a conceptual and practical vantage point. In the contemporary environment, CSR has evolved to include such questions as: Should Coca-Cola openly embrace the Black Lives Matter organization? Should the NBA stand against repression in China? Should Saturday Night Live (NBC) refuse to feature people such as Elon Musk as a guest host because they are controversial? And in all three cases, how does the company decide? What should be the criteria?
The calculus involved in a company pursuing a social agenda can be quite complex. Consider the analyses of costs versus benefits of a particular social action. By reallocating available resources to social causes, can we know the long-term costs of not investing those resources in employees, equipment, technology, and research? Benefits are even tougher to quantify. What kinds of trade-offs are acceptable? To what extent is it acceptable to lose customers and profits by standing up for the issues meaningful to current company leaders? What if we have to lay people off or eliminate operations in order to pursue certain social goods?
And how are such decisions to be taken? Do companies decide based simply on a vote by the corporate board? Should current employees be surveyed? What about customers and other stakeholders? Given the potential alienation of some, how much of a majority is needed to act? And what if employees vote one way and customers vote differently?
These complications make a universally applicable concept of social responsibility difficult in practice. As an example, let us consider poverty alleviation. Is business in any way responsible for addressing poverty and, if so, to what extent? To address this question, three levels of responsibility would seem possible.
Level one: market-based responsibilities
If the company adopts Friedman’s concept of CSR, it does not worry about addressing poverty directly. Rather, the business seeks to maximize long-term profitability within legal and ethical boundaries. But this approach might also reduce poverty to the extent that economic development results from company growth. Development creates more jobs and affordable goods and services through innovation and competition. Governments collect more taxes (allowing them to do more for the poor).
Level two: societal engagement providing mutual company and social benefit
According to this approach, the business makes an overt effort to address poverty, but does so in ways that can add substantive value to company operations. Specific actions might include:
- mentoring potential employees and suppliers who grew up or live in poverty
- employing the disadvantaged (e.g., ex-cons, the unskilled)
- supporting employees mired in poverty (flex work schedules, childcare, transport, literacy training, skills training)
- providing internships for young people from low-income families
- offering procurement set-asides for entrepreneurs from disadvantaged backgrounds
- serving on community boards that assist the poor
- locating operations in low-income neighborhoods
- building infrastructure that poor community members can use (e.g., roads, water, sewage) that the company also uses
Level three: societal engagement requiring investment with nominal corporate benefit
At this level, the company takes actions that involve costs that well exceed any direct benefit to the company. The benefit is principally in the area of public relations. Examples include:
- corporate financial donations to poverty causes
- sponsorship of community events serving those in poverty
- providing business services (e.g., logistics, bookkeeping, marketing) to community organizations, including low-income entrepreneurs, for free
- offering release time for employees who support causes that assist the poor
- giving free products to those in poverty
- sharing company facilities, equipment, staff or other resources with organizations that serve or are run by low-income individuals
- maintaining a market presence in poor neighborhoods in spite of losses
- building infrastructure that the poverty community uses but company does not (e.g., roads, schools, internet access)
Levels of responsibility and integral human development
All companies must be responsible at level one. Beyond this, the question of responsibility depends on the nature of the company in question, as the business sector is quite diverse. Less than one percent of businesses are large multinational players that employ thousands of people and generate billions in sales (e.g., Google, Amazon, Delta Airlines, and McDonalds). Firms with fewer than ten employees make up the overwhelming majority of businesses worldwide. Further, some larger companies are struggling to survive, or find themselves in decline. As a result, many firms may lack the resources to go much beyond level one activities.
We might conclude that the level of responsibility should be tied to an organization’s capacity to make social contributions. However, this capacity can vary significantly over time based on the strategic challenges a company is experiencing, changes in its business model, its rate of expansion and internal needs for major capital reinvestment, and a number of other factors.
The company itself, regardless of size or circumstances, must define its concept of social responsibility. To do so, firms need a framework for addressing CSR; this is where integral human development (IHD) might be useful. IHD centers on the whole person: individual well-being in the context of just and peaceful relationships and a thriving environment is the priority. The emphasis is on wholeness, a condition whereby people are able to participate in the fullness of life, including its five (economic, social, cultural, political and spiritual) dimensions.
Using an IHD lens, corporate social responsibility can be approached as a vehicle for enabling individuals to earn a dignified living, learn continually, and contribute to civic life. Activities at all three levels of social responsibility can contribute to IHD. At level one, IHD can serve as a guide as the company addresses regulatory and ethical issues surrounding pathways to profitability and growth. Operational decisions would be made with an eye towards the developmental implications for those involved with and affected by these decisions. Hence, diversity in hiring practices, truth in advertising, efficiency in resource utilization and decisions on employee safety would reflect human development concerns without compromising the firm’s profit potential.
As a company moves to level two and three responsibilities, an IHD-based approach would suggest activities be undertaken that are person-centered, local, stakeholder-based, with a sustainable human impact, and tied to the company’s abilities to create value. IHD requires more than companies merely checking a social responsibility box (e.g., by donating to a cause); they must engage in a qualitative and temporal process.
Company engagement in CSR would begin with a concern for enhancing individual well-being, and so must be people-centered. A priority would be placed on those affected by the company who are less able to participate in one or more of the five life dimensions (e.g., low income employees, minority suppliers, disadvantaged customers). It would also emphasize activities where the firm can have the greatest impact, and these are often based in the immediate communities where the firm has operations. The firm’s primary stakeholders, beginning with employees, customers, suppliers and distributors, would play critical roles as both contributors to and benefactors from the firm’s efforts. Finally, the company would pursue activities that play to its capabilities and strengths, as this is where it can have a disproportionate impact on enhancing human development. Hence, strengths would be leveraged in such areas as logistics, supply chain management, technology, production, marketing, human resources management, or finance.
An IHD frame of reference finds firms spending more time on level two than level three activities, as they highlight mutual engagement and benefit. As a social need is addressed while the company benefits, a dyadic perspective is required. It can take some creativity to uncover the range of internal and external possibilities here.
Looking to the future, there are exciting challenges in integrating CSR and IHD. For its part, integral human development occurs over time and can be difficult to measure. But it can bring a focused and strategic approach in guiding what for some companies may be a random mix of activities approached in a somewhat reactive fashion. Strategically addressing CSR will become all the more critical as the environments surrounding companies grow in complexity and demands for responsibility continue to escalate.
Michael H. Morris is professor of the practice in the Keough School of Global Affairs at the University of Notre Dame. He is a faculty member of the Keough School’s McKenna Center for Human Development and Global Business.
This article is part of a series of blog posts published by the Keough School of Global Affairs. Dignity and Development provides in-depth analysis of global challenges through the lens of integral human development.