Explaining Corporate Social Responsibility: between hype and harmony

Article

The concept of Corporate Social Responsibility (also referred to as CSR) is transforming the traditional, capitalistic model of doing business.

Capitalism and Corporate Social Responsibility

Securely at the heart of contemporary capitalism, is situated the limited liability company. Boldly heralded as “the greatest single invention of modern times”, the advance of the limited liability and separate legal personality features of the modern corporation has greatly reduced the risk of setting up a company, thereby stimulating innovation and entrepreneurship. Most - if not all - countries globally know at least one form of the limited liability company.

Shielded from personal liability, investors are enticed to invest in riskier ventures as their exposure is limited to their investment. Yet, there is a pitch-black side to the boom of the limited liability company and ensuing wealth maximization. Namely, corporations started to make a profit at all costs, thereby neglecting the rights and the well-being of their workers, the environment, and completely abandoning the sense of morality that a non-legal person would have.

It is precisely in response to the worrying phenomenon of the unchecked limited liability company that the concept of Corporate Social Responsibility became of importance. 

Defining Corporate Social Responsibility

 It is difficult to define exactly what CSR is. The European Union Commission has defined CSR as:

“A concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis.”

Alternatively, the International Organization for Standardization (ISO), the body that has set multiple international standards on a variety of issues, has defined CSR in its ISO26000 standard on social responsibility as:

 “The responsibility of an organization for the impacts of its decisions and activities on society and the environment, resulting in ethical behaviour and transparency which contributes to sustainable development, including the health and well-being of society; takes into account the expectations of stakeholders; complies with current laws and is consistent with international standards of behaviour; and is integrated throughout the organization and implemented in its relations.”

At LoudLaw, we maintain a definition of Corporate Social Responsibility as follows:

Corporate Social Responsibility is a (legal) person’s voluntary initiative to assume responsibility for those stakeholders affected by its operational and governance practices, leading to the implementation of an organization-wide ethical, sustainable, and conscientious strategy.

Why should companies implement CSR?

Currently, CSR is perhaps one of the trendiest topics in the corporate domain. Yet, neither academia nor corporations seem to be able to settle on the question: What is corporate social responsibility? Even more so, notwithstanding its popularity, there have been contradictory conclusions as to whether or not CSR is even financially beneficial to a company. That was until 2012, when Barnett & Salomon in their research found that the relationship between a company’s social performance and its financial performance is U-shaped. One of the conclusions that can be drawn from the Barnet & Salomon research, is that a company’s ability to profit from its social responsibility strategy is greatly dependent on the extent to which relevant stakeholders are able to influence the social strategy of the company.

How can we help you?

Implementing an appropriate, effective, and efficient CSR strategy is hard in and of itself. CSR is incredibly multifaceted and may require far-reaching measures to be implemented throughout your corporation, perhaps even your supply chain. Yet, knowing that a CSR strategy may not be cost-effective after you have taken such measures, implies that the most well-meant ideas and strategies may do more harm than good. As such, LoudLaw can assist you with figuring out who your relevant stakeholders are in the first place. Having established that, we are well-equipped to develop and implement a legal CSR strategy that benefits your business and those affected.