Corporate social responsibility standard - Pros and Cons

Seminar Paper, 2007

28 Pages, Grade: 1,3


Table of Contents

List of Abbreviations

List of Figures

List of Tables

1 Introduction

2 Corporate Social Responsibility
2.1 Historical Review
2.2 What is CSR today and why is it needed?
2.2.1 Paternalism versus Philanthropy
2.2.2 Definition of Corporate Social Responsibility

3 Corporate Social Responsibility Standards
3.1 Overview of CSR Standards
3.2 Pros of CSR Standards
3.3 Cons of CSR Standards

4 Conclusions



List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1: Scheme of sustainable development

Figure 2: Performance of DJSI World compared to MSCI World

Figure 3: Performance of DJSI STOXX 40 compared to DJ STOXX 50

Figure 4: Performance of DJSI EURO STOXX 40 compared to DJ EURO STOXX 50

Figure 5: How does the businesses’ CSR engagement look like?

List of Tables

Table 1: Paternalism versus Philanthropy

Table 2: Key CSR codes and Standards

Table 3: CSR initiatives, codes and standards overview and references

1 Introduction

“There is one and only one social responsibility of business – to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."[1]

According to Friedman there are no reasons for businesses for social engagements. Such activities rather contradict to the real purpose of a company that is the maximization of the shareholder value. The abatement of social problems and difficulties lay in the hands of the state and the society themselves, so Friedman, also because they can address these issues more efficient.

Do businesses therefore not have any social responsibilities, should they really not operate social? This mindset changed in the last years and the concept of Corporate Social Responsibility (CSR) of companies became more important worldwide in the areas of economy, society and politics in recent years. A lot of incidents like corruption and accounting affairs, nontransparent management compensations, mass layoffs despite increasing profits, questionable production and employment methods in subcontracting firms or hygienic impairment of consumers did shake tremendously the confidence of the people in the economic system. Socially acceptable and environmentally compatible actions beyond governmental regulations shift into the focus of the people again.[2]

Corporate Social Responsibility describes the actions of organizations and especially corporations which contribute to the good of their stakeholders that are its employees, customers, shareholders, the environment and the society as a whole. The upcoming belief that corporations have a greater responsibility to civil society than merely generating profits has put pressure on them to integrate social and environmental considerations into their business models. This process has led to a re-thinking of businesses to meet the arising values, interests and expectations of society, no matter whether this process is driven internally through corporate leadership or externally through stakeholder pressure.[3] According to Gazdar et al. CSR will become a crucial strategic success factor. In a fast changing environment the societal commitment of corporations is to be seen as future investment which also contributes to their financial and economic performance.[4]

This paper deals with the concept of CSR and its standards. First the concept of CSR is described. Then some common CSR standards are introduced and characterized. In the last part of this paper the advantages and disadvantages of Corporate Social Responsibility Standards will be discussed and assessed.

2 Corporate Social Responsibility

This chapter introduces the notion of CSR from its historical roots to what is happening today. The academic discussion about the social responsibility of corporations started in the USA in the 1950s. The today’s concept of CSR is slightly different in the USA and Europe. In the USA the understanding of CSR is closely linked to active measures and practical programs. In Europe the meaning of CSR still has to be defined taken into account the ideas of social market economy and the understanding of a wealth increase for everyone.[5]

2.1 Historical Review

In the medieval times already, private as well as public models of social responsibility could be observed. Mutual bonds existed between the landlord, who owned the land, and the ones who lived on his land. The church was the controlling institution at that time and business was done in the interest of the common welfare – the society ranked before the individual.[6] Later in time, with the beginning of industrialization, the individualism replaced the collectivism. Free competition led to the profit maximization of the individual which finally was of use for the whole society. The role and function of the state was circumcised to fulfill only the basic ordinal functions. The exploitation of natural resources began which led to a reduction of working costs and to a multiplication of production. In contrast to the medieval times, when charity was the whole purpose of society, the industrials now have seen charity as being evil which did not result in profits. The exploitation of the workforce and natural resources proceeded and reached unseen dimensions in the second half of the nineteenth century. For the first time rich people started to think about how to mobilize their implicit power for society wisely. Henry Ford, just to take one example, who was the founder of the Ford Motor Company and lived at the turn of the century (1863-1947), provided a pragmatic answer about the social role of corporations. He was responsible for more rational arrangements of workplaces and he took care about his workers by doubling their wages and providing an 8h day which raised productivity and lowered training costs additionally. He also opened training schools for mainly people from poorer social levels.[7] Concluding it can be noticed that first personal wealth has been accumulated and then it has been distributed caring. The entrepreneurial success prepared the basis of conscientiousness for donations which is considered social responsibility.

In the first half of the twentieth century the social responsibility of businesses can be described as a task which primarily concentrated on labor rights and internal affairs. Through the collection of taxes the state took over the responsibility of cultural and social matters. Since it was not possible – despite the individual engagements – to eliminate the inequity of the industrial era, the state took over the control of health care, infrastructure and education. However in the second half of the twentieth century the pressure of the public towards the social responsibility of businesses increased amongst other things due to better and more professional organized interest groups, such as environmental organizations and trade unions.[8] These postulations intensified when the state reduced the expenses for its social welfare. This led to the need of a new definition of roles of the state and its economy. Deregulation and privatization processes shifted the responsibility more and more towards the private businesses. In the future, the promotion of social development issues must increasingly be shared in a partnership between the government and private and non-governmental actors, as well as the corporations in particular. This is proven by figures showing that the turnover of the largest multinational corporations (MNC) today exceed the gross domestic product (GDP) of many developing countries. Of the world’s 100 largest economies, 51 of it are now corporations.[9] This makes businesses to more and more powerful players in the world economy than in the past.

2.2 What is CSR today and why is it needed?

Today corporations are more and more exposed to the public and are target of severe critics due to their careless behavior towards society. Especially large corporations are asked to show more societal and caring engagement. If corporations do not follow these demands they have to face negative headlines in the press and product boycotts as well as public denunciations. There are lots of examples where MNCs abused their economic might at the expense of the communities and the environment, e.g. GAP, Levi Strauss or Adidas, who used child labor to make clothing and sporting equipment in South and East Asia.[10] But the expansive educational policy and the fast distribution of information enabled through the rapid development the Internet led to an increased control of the public over corporations. Also globalization increased competitive pressures on businesses and made MNCs more vulnerable to consumer boycotts and campaigns – as e.g. Shell found out when they tried to sink their oil platform Brent Spar in 1995 into the Northern Sea, and faced as a consequence of public boycotts sales collapses of up to 50% at their German gas stations.

It is therefore more important than before that businesses no longer only look after profit maximization and solely think that the creation of employment and the payment of taxes are sufficient. Corporations additionally have to incorporate the needs of a lot of interest groups that are their shareholders and stakeholders, and react accordingly. Especially for businesses working in politically sensitive industries such as pharmaceuticals or oil, CSR is becoming a central element of their business strategies.[11]

2.2.1 Paternalism versus Philanthropy

The social activities of corporations can primarily be distinguished into two concepts that are paternalism and philanthropy. Whereas paternalism is mainly concentrating on the internal stakeholders, the philanthropic concept is focusing on the external stakeholders.[12] The next table gives a quick overview:

Paternalism versus Philanthropy

Table 2: Key CSR codes and Standards

Table 3: CSR initiatives, codes and standards overview and references

Table 1: Paternalism versus Philanthropy

2.2.2 Definition of Corporate Social Responsibility

There are a variety of definitions and terms used to describe CSR and there is no commonly accepted definition. These terms include Corporate Accountability, Corporate Citizenship, Corporate Environmental and Social Responsibility, Corporate Ethics, Corporate Responsibility, Corporate Social Responsibility, Corporate Sensibility, Ethical Compliance, Good (Corporate) Governance, Organizational Responsibility, Sustainable Development and Triple-Bottom Line. This variety of terms is a reflection of the wide range of perspectives on what is meant by CSR.[13] In practice corporations tend to replace the term CSR with Corporate Responsibility (CR) in order to explicitly avoid the emphasis on terms like “social”, “sustainable“ or “corporate” which concretizes the area of responsibility of businesses.[14]

The World Business Council on Sustainable Development (WBCSD) defines CSR as “the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life.”[15] According to the WBCSD, CSR is the third pillar of sustainable development, along with economic growth and ecological balance.

Business for Social Responsibility (BSR) views CSR “as a comprehensive set of policies, practices and programs that are integrated into business operations, supply chains, and decision-making processes throughout the company […] and includes responsibility for current and past actions as well as future impacts.”[16]

Christian Aid defines CSR “as an entirely voluntary, corporate-led initiative to promote self-regulation as a substitute for regulation at either national or international level. CSR is a catch-all term increasingly used by business, which encompasses the voluntary codes, principles and initiatives companies adopt in their general desire to confine corporate responsibility to self-regulation. Increasingly, corporate self-regulation in the form of CSR is also being embraced beyond the business world by, among others, governments, and multilateral institutions such as the World Bank and UN.”[17]
Hopkins’ definition of CSR is that it “is concerned with treating the stakeholders of the firm ethically or in a responsible manner.”[18] Thereby he means by stating ‘ethically or responsible’ that stakeholders are treated in a manner deemed acceptable by society.

All definitions seem to revolve around the concept of the “Triple-Bottom Line” (TBL), which is a framework for measuring and reporting corporate performance against economic, social and environmental parameters. TBL means literally three lines below the financial statement. It means triple reporting of a business according social, economic and environmental aspects (the success is therefore not only measured by the traditional financial “bottom-line”).

illustration not visible in this excerpt

Figure 1: Scheme of sustainable development[19]

Both CSR and TBL recognize that business decision-making is linked to ethical values. Sustainability is no longer only limited to environmental aspects, but is the goal of a long-term social and economic policy. The match between economic, social and environmental goals is the central goal of all sustainability concepts (see Figure 1).[20]

Traditionally in the United States, CSR has been defined much more in terms of a philanthropic model. They make profits, fulfilling their duty to pay tax and then they donate a share of their profits to charitable purposes. However, the definitions of CSR emphasize that it means much more than just charitable donations. It is about how a company manages relationships with all its stakeholders, as the various definitions mentioned above name.

The European model is more focused on operating the core business in a socially responsible way by working more closely with social partners (government, trade unions, etc.). Social responsibility becomes a more integral part of the wealth creation process which increases the competitiveness of the business. This makes the European model in the author’s view more sustainable compared to the US concept. Second, CSR pays off even when times get hard. If CSR follows a philanthropic concept which is a side-line of the core business, it will always be the first thing that is being cut off when push comes to shove.[21]


[1] Friedman (1970), p.236

[2] Schmitt (2005), p.V

[3] Gawel (2006), p.5

[4] Gazdar et al. (2006), p.VI

[5] Wieser (2005), p.25ff

[6] Wieser (2005), p.26ff

[7] Wieser (2005), p.27ff

[8] Wieser (2005), p.32ff

[9] CER (2003), p.2

[10] CER (2003), p.2

[11] CER (2003), p.2

[12] Wieser (2005), p.33

[13] Sullivan (2004), p.11-12

[14] Schmitt (2005), p.19

[15], Report “Making Good Business Sense”. Accessed 5 March 2007

[16] Accessed 5 March 2007

[17] Christian Aid (2004), p.5

[18] Hopkins (2006), p.1

[19], Accessed 5 March 2007

[20] Wieser (2005), p. 44

[21] Wieser (2005), p.73ff; CER (2003), p.

Excerpt out of 28 pages


Corporate social responsibility standard - Pros and Cons
University of applied sciences Frankfurt a. M.
Master of Business Administration
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ISBN (eBook)
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Corporate, Pros, Cons, Master, Business, Administration
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Thomas Vogt (Author), 2007, Corporate social responsibility standard - Pros and Cons, Munich, GRIN Verlag,


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