C

Canadian Business for Corporate

Social Responsibility
Samuel O. Idowu
London Metropolitan Business School, London
Metropolitan University, London, UK

A nonprofit, member-led organization, CBSR

mobilizes Canadian companies to make powerful
business decisions that improve performance and
contribute to a better world. It offers practical
tools, research, learning events, programs,
and solutions to advance CSR in Canadian
companies.

Synonyms
Brief History
CBSR

Address with Web Link

Vancouver: 205535 Thurlow Street. V6E 3 L2,
Canada
Toronto: 300360 Bay Street, M5H 2 V6, Canada
Calgary: 225, 4046, Avenue SW, T2P OR9,
Canada
www.cbsr.ca

Introduction
The reason for the establishment of the CBSR is
harnessing the Power of Business to create
a better World.
Founded in 1995, Canadian Business for
Social Responsibility (CBSR) is the globally recognized source for corporate social responsibility
(CSR) in Canada and is part of a worldwide network that believes business success and responsibility go hand-in-hand.

With over 15 years of experience, CBSR is

Canadas oldest organization dedicated solely to
helping businesses build and advance their
corporate responsibility agenda. Founded in
Vancouver by a group of mission-based businesses, CBSR has grown to support a network
of over 100 active companies across Canada.

Mission/Objectives/Focus Areas
CBSR is dedicated to providing thought-leadership, leading-edge research, and executive level
support that helps its members drive successful
CSR initiatives today and in the future. It works
collaboratively with business associations, government, academia, and NGOs to advance the
CSR agenda in Canada.
CBSRs dedicated Advisor team, through
Member Services and its Advisory Services consultancy, provides candid counsel on:
CSR strategy and performance measurement
Stakeholder engagement

S.O. Idowu et al. (eds.), Encyclopedia of Corporate Social Responsibility,

DOI 10.1007/978-3-642-28036-8, # Springer-Verlag Berlin Heidelberg 2013

292

CSR reporting and communication

Climate
change
and
environmental
management
Strategic community investment
Employee engagement
Ethical sourcing
Social risk assessment

Structure of Governance
CBSR governance model works with a Board of
Directors, President, and Chief Executive
Officer.

Capabilities Approach

confirm the link between employee engagement and CSR.

The Business Case for an Integrated Approach
to Water Management This guide offers
practical insights to help companies identify
and manage the water-related risks and opportunities that impact their business includes
a tool, best practices, and resources.
CBSR Transformational CSR Framework and
Approach Launched at the 7th Annual
Summit on CSR, this framework describes
the continuum of CSR performance and
characteristics of each stage of development.

References and Readings

Activities/Major Accomplishments/
Contributions
The CBSR major activities, accomplishments,
and contributions to all its stakeholders are in
the following areas:
Research and Events, Annual Summit on
CSR, the premier CSR conference in Canada,
Member and Advisory Services.
CBSR produces, solely or in partnership,
a variety of research on the range of issues that
make up corporate social responsibility. Recent
publications include:
CSR Governance Guidelines The Guidelines,
Assessment Tool and Roadmap Towards
Good CSR Governance assist corporate
boards, senior management, and CSR
professionals in managing both risks and
opportunities, and providing guidance to get
started or continue advancing in CSR
governance.
Embedding Sustainability in Corporate Culture
A five-point framework for incorporating
sustainability into organizational culture,
illustrated by Canadian company examples,
and written in partnership with Network
for Business Sustainability (NBS) research
network based at University of Western
Ontario.
CSR as a Driver of Employee Engagement Key
CBSR/Hewitt Associates findings from 2010
Hewitt Best Employers in Canada Study

www.cbsr.ca/resources.

Capabilities Approach
View on the Ground: CSR from a Capabilities
Approach

Carbon Capture
Aysen Muezzinoglu
Department of Environmental Engineering,
Dokuz Eylul University, Buca, Izmir, Turkey

Synonyms
Carbon capture and geological storage (CCGS);
Carbon capture and sequestration (CCS); Carbon
capture and storage

Definition
Carbon capture and storage abbreviated as
CCS refers to the method developed to stop carbon dioxide build-up in the atmosphere, the main
greenhouse gas that creates adverse effects on the

Carbon Capture

Earths climate. Carbon capture is the first step of

the method of mitigation. In this first step, carbon
dioxide (CO2) is scrubbed by means of suitable
solutions from gas streams or ambient air. For
reasons of economy, it may work rather with
large point sources such as fossil-fuel-fired
power plants and some industries that are some
large emitters of CO2.
This technique is presently under development. Therefore, it is of importance to the corporations of today and the future.

Introduction
Rapidly increasing quantities of carbon dioxide
(CO2) emissions contributed largely to global
climate change due to fossil fuel use and industrial processes during the last two centuries.
Carbon dioxide has the highest responsibility in
this although it is not the most powerful greenhouse gas for climate warming potential on a
molecule-by-molecule comparison. But because
of the relative significance of quantities of carbon
dioxide emissions, it is usually carbon dioxide
(CO2) that needs to be controlled.
It is known that the fossil energy sources will
not be altogether depleted soon. Even the oil,
although it is proposed that the peak oil year has
already passed on 2005, will continue to be used
for some more decades. That means that carbon
will continue to be emitted and must be held out
from the waste gas emissions. Besides the CO2
concentration in the atmosphere even today is too
high to be sustainable and must be sequestered to
avoid further detrimental changes in the natural
climatic balances. Finally some industries such as
cement, iron, and steel, etc., emit high CO2
concentrations, which are more easily captured
in more economical processes. Among all
carbon control techniques, carbon capture and
storage in geological formations (CCGS) is the
most commercially proven one, thanks to the
experiences of oil extraction and natural gas
processing sector. Several CCS plants of pilot
and demo sizes work in the world and try to
generate feasibility data in energy sector and
industrial plants.

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But, may be the most important decision about

carbon capture is to accept the need for it, the
requirements for its applicability at least for
a transient period and merge this technique in
the overall carbon reduction plans all over the
world. This is what has been studied and proposed in International Energy Agency carbon
mitigation models. In other words, according to
IEA, carbon capture is an important component
in the climate change mitigation plans to be used
in combination with other options such as renewable fuels, chemical binding and energy efficiency enhancement projects, reforestation,
etc. CCS, unlike some other options is amenable
to cleaning the CO2 already increased in the air
and not only applicable to the emission streams.

Key Issues
Carbon Cycle
Carbon is the basic element in life forms on the
Earth. It is continuously transported between
the atmosphere, oceans, soils, rocks, etc., and
in biotic or abiotic forms in inorganic and
organic compounds. Thus, carbon continuously
undergoes physical/chemical or biological
changes through photosynthesis, respiration, and
decay in biological and physical/chemical pathways; this very powerful circulation is called the
carbon cycle. Carbon cycle is the most significant natural phenomenon on the Earth and it
includes many critical steps with different rates
determining the successive levels of energy and
food for life.
Carbon normally exists as carbon dioxide CO2
in the atmosphere. Although it is present at a very
small percentage in the air mixture (less than
0.03% before two centuries and presently nearly
0.04% by volume), it has a vital role. There are
also other carbon containing gas constituents of
natural origin in the air such as methane, carbon
monoxide, and vapors of resins. Particulate
matter may contain carbon in elemental (black
carbon, BC) or several different organic or inorganic forms, too. Although they are very active in
atmospheric physics and chemistry, too, they
exist in much smaller concentrations than CO2.

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Increased injection of carbon compounds into

the atmosphere is known to have serious impacts
on ecological balances both globally and locally
even in minute quantities. Completely synthetic
compounds of chlorofluorocarbons causing harm
to ozone layer at the upper atmosphere and also
taking part in the climate change is a good example to this. But the most important carbon injection occurs through CO2 emissions mainly due to
fossil fuel burning and partly from the industrial
processes. In the carbon cycle, photosynthetic
organisms such as the terrestrial plants and
aquatic or marine life forms convert CO2 gas
into organic compounds as they inhale or use
the carbonate/bicarbonate ions in water solutions.
These organics include cellulose, proteins, lipids
(oils), carbohydrates (starch and sugars) that are
stored and either used up by the same organism
for energy or others for food. These compounds
are the starting points for the food web and part of
the energy or raw material needs of industrial use.
Photochemical conversion of inorganic carbon occurs with the help of chlorophyll or other
pigments in the plants. This reaction utilizes
water and solar radiation of a certain wavelength
(PAR, photochemically active radiation) range.
Thus, carbon dioxide is consumed and converted
into food and oxygen is produced and released.
An opposite mechanism occurring in all living
organisms is respiration, defined as the oxidation
of stored organic carbon to generate CO2 and
energy for life. All living organisms in the carbon
cycle respire and generate CO2, although only
photosynthetic organisms such as algae and
plants can fix the CO2 to form organic
compounds.
Some of the natural constituents of the atmosphere such as water vapor, carbon dioxide, and
much smaller quantities of methane, nitrous
oxide, ozone are known as greenhouse gases.
These altogether impart to Earths atmosphere
the unique property of absorbing part of the infrared radiation emitted from the earth. The energy
of this captivated part would otherwise be
reflected from the Earth, should the atmosphere
be lacking these gases. This absorbed part of the
energy is converted into heat at an amount
corresponding to the concentrations of the

Carbon Capture

greenhouse gases in the atmosphere and increases

the global temperatures thus creating a very convenient and warm climate. This natural phenomenon is known as the greenhouse effect and is
the main reason why living creatures could survive and civilizations emerged. The strength of
the greenhouse effect is a result of the overall
radiative properties of greenhouse gases existing
in the Earths atmosphere. Thus, any change in
their concentrations necessarily causes a change
in the global climate.
Excess of these atmospheric greenhouse constituents that are in fact man-made pollutants add
to the extremely delicate mechanism of normal
greenhouse warming and cause imbalances in
climate. The global temperature rises because of
the additional heat released by more infrared
energy absorbed by excess greenhouse gases
quantities. As increase of the greenhouse gas
concentrations result from human activity since
the industrial revolution, this additional global
warming is anthropogenic in nature. In fact
there are many other factors affecting the climate,
too. For example, other anthropogenic constituents such as clouds containing more sulfates or
black carbon from several combustion sources
may negatively or positively interfere thus ending
in local cooling or heating effects. On the other
hand, wildfires or volcano eruptions that are natural contribute to the cloud cover and might cause
cooling. So climate change is a very complex
phenomenon varying in global and local extents
as well as in seasonal weather expectations.
When we study the respective contributions of
the greenhouse gases, water vapor and carbon
dioxide are the ones with highest impacts.
Water vapor by far is the highest impact greenhouse gas; however, it is formed by secondary
reactions. In other words, as the climate gets
warmer, water vapor increases in amount but it
is not possible to directly control its increase
without stopping the warming. Next greenhouse
gas that is emitted more and more everyday by
anthropogenic sources is carbon dioxide, CO2.
It is mainly generated by combustion of fuels
of fossil origin.
The natural sinks in the carbon cycle for
excess CO2 in the air exist in three broad groups:

Carbon Capture

photosynthesis by plants (both aquatic and terrestrial, also including the plankton masses), oceanic
capture in the carbonate chemistry, and
weathering of silicate rocks. These mechanisms
might be applied in enhanced forms by incorporating CO2 into the oceanic part of the carbon
cycle (Rau et al. 2007), or geochemically binding
with serpentinic rocks to transform it into carbonate minerals (Krevor and Lackner 2011).
Although the natural sinks mentioned have
very big capacity to uphold CO2 in the carbon
cycle, the pace of the chemical and biochemical
reactions at different layers of the oceans and
terrestrial rocks is not as high as the rate of
increase of emissions. Therefore, many decades
and even centuries is needed until the excess CO2
will eventually be captured only with these natural mechanisms. Until then increased atmospheric CO2 concentrations will go on for many
decades and even centuries at ever-increasing
rates. It is an inescapable result of heavy use of
carbon containing fuels that were buried under
the ground since geological times and it will
continue costing us the global climate change.
To cope with the increasing carbon dioxide
emissions of human activities it is imperative
that the high quantities of CO2 emissions must
be controlled. It has been shown that such high
and ever increasing levels of emissions of CO2
cannot be neutralized in any natural way within
a short period of time. Thus, the human activities
such as fossil fuel burning for heat and power,
transportation, industry, waste handling, space
heating, and cooling, etc., as well as existing
land-use practices are not sustainable. This is
severed by the deforestation and loss of green
areas for competitive uses.
The significance of added carbon as carbon
dioxide in the carbon cycle due to energy conversion and use, as well as industrial and similar
activities is very high. Therefore, mitigation of
CO2 emissions is of highest importance in our
efforts of preserving the natural climatic balances. Climate can be protected only by limiting
the quantity of anthropogenically emitted CO2.
Therefore, either the CO2 emissions must be
diminished and/or these natural mechanisms
must be enhanced to increase their rates by way

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of engineering technology. Alternative techniques of energy efficiency upgrading, chemical

CO2 capture from emissions, changing the way
fossil fuels are exploited and burned, catalytically
converting CO2 into other compounds, or totally
abandoning the fossil fuels to replace them with
renewable energy forms are next to improving the
natural sinks of CO2. Also among the fossil fuel
types, CO2 release per unit available energy is
ranked from coal to gas forms; so converting into
more gaseous fuels generate less CO2 per unit
activity.
Specifically following options exist for fixing
the atmospheric levels of carbon dioxide and
therefore stabilizing the global temperatures
without damage to the climate and existing life
on the Earth:
1. Increasing the energy use and production efficiencies, therefore less use of fossil fuels
2. Switching into less carbon-intensive sources
of energy and consumption, using carbonneutral or even carbon-negative resources,
such as biofuels or other renewable energy
forms
3. Using techniques of carbon capture and geological storage (CCS)
4. Using nuclear energy
5. Devising more sustainable land-use practices
for better management of more CO2 consuming plant growth
Each one of these different alternatives has its
own successes, difficulties, and limitations in use.
Some are commercially available techniques but
none of them should be expected to replace others
completely. For example, biofuels is a good
method to capture CO2 either from stack gas
emissions or from the air although it has
a number of economic and technological hurdles,
but it can better be used as a transportation fuel
mix or replacement. Energy efficiency upgrading
is a must-be method but its success will not
completely stop increases in carbon dioxide in
the air. CCS with its high coverage in technology
and high-energy expenses is a method suitable to
large-scale fossil fuel power plants and some
industrial stack gases. There are enough fossil
fuel resources left to continue with older combustion technologies, which will last until some more

296

time. However, it is not possible to overlook the

CO2 problem and for the fossil fuels remaining to
be used carbon capture is the only acceptable way
out. The same is true for cement, iron-steel, lime
industries, etc., which are responsible for moderately high CO2 emissions. Among these five categories, nuclear energy is possibly the only one
that must be taken into consideration with utmost
care considering the opinions against it.
Yet, the best strategy to stabilize the atmospheric concentration of CO2 could result from
a harmonized approach, where sequestration of
CO2 into geological formations is combined with
increased efficiency in electric power generation
and utilization, careful industrial management,
increased conservation of energy and resources,
use of lower carbon-intensity fuels, and increased
use of renewable resources. In this section, only
the third option is evaluated although it must
strongly be emphasized that for success, options
must be used in combination and with harmony.
There are also many questions in mind as to
the safety, economy, and sustainability of CCS in
a given application. One answer to the question
do we really need a carbon capture technology
is that yes, we do, and this answer is based on
the reality that the fossil fuels will not be totally
depleted very soon. But it might be in the form of
physically purifying the stack gas CO2, liquefy it
and convey it to injection sites to be buried underground. An alternative site of injection could be
depleted oil and gas wells. Carbon capture will be
needed for at least a transient period of time.
Besides more fossil fuels will have to be used
per specific work as the quality will be more
inferior and their extraction will be more and
more difficult. This will add to the CO2 emission
per unit amount of work to supply the energy use
in extraction, refining, and using of these fossil
fuels.
Methods of Carbon Capture
Methodologically, this first step of CCS can be
grouped into three main categories:
(a) Postcombustion capture of CO2 from combustion gases
(b) Capturing the carbon from fuels by
precombustion methods thus avoiding

Carbon Capture

formation of CO2 in the stack gases (such as

IGCC-Integrated Gasification Combined
Cycle)
(c) Oxy-fuel combustion techniques and carbon
looping plants
There are several more techniques that can be
counted among CCS technologies but many of
them are not in commercialization stage, yet.
Rather they are in research and development
stages or just new concepts.
(a) In a postcombustion system, the stack gas
mixture coming from combustion of the fuel
with air contains a relatively small fraction of
CO2. For separation, this mixture is contacted
with a liquid solvent that selectively absorbs
the CO2. Nearly pure CO2 can be obtained
upon stripping the CO2 from this absorbing
solution. Such separation processes are
already in use on large scale to remove CO2
from natural gas.
(b) In a precombustion system, the primary fuel
is subjected to gasification by first converting
it into a gas by using steam and air or oxygen.
The conversion ends in a gas mixture
containing mainly hydrogen and CO2 that
can be quite easily separated out. Remaining
hydrogen may be used for energy or heat
production.
(c) Oxy-fuel combustion uses pure oxygen
instead of air to burn the fuel. It results in
a gas mixture containing mainly water vapor
and CO2. Water vapor is easily removed from
this mixture and CO2 is obtained.
Directly capturing the CO2 from stack gases of
large sources such as coal-fired power plants into
solvents is a postcombustion CCS method. This
method has many advantages, such as suitability
to retrofit the existing power plants. However,
recycling of the solvent is necessary and it
requires desorption at high temperatures, ending
in subsequent cooling and heating cycles. At the
end, nearly pure CO2 gas is obtained which must
be compressed/liquefied for easy transfer to the
injection site. This makes solvent operations
a high cost step of the CCS because of high
amount of energy required. Higher energy
requirement of the power plant with CCS compared to a power plant of the same size is called

Carbon Capture

energy penalty and it may constitute nearly

30% of the power generated at the plant. Also
the stack gas operations take place in large
absorber reactors, as the combustor stack gas
volumes are high. Such difficulties and diseconomies as well as higher energy costs of liquid
CO2 added by extra cost of transfer high distances
to the site of injection must be taken into consideration in deciding for postcombustion CCS.
Carbon capture by postcombustion as the first
step of CCS technologies is based on rather
mature engineering knowledge. This is mainly
thanks to the petroleum drilling and natural gas
cleaning operations that are already using it in
commercial scale for many years. Therefore,
postcombustion method is more applicable to
large-scale plants in contrast to many other carbon mitigation technologies.
It has been estimated that there are more than
8,000 large-scale CO2 point sources in the world.
They contribute to two thirds of the overall
anthropogenic CO2 emissions. For any success
in carbon abatement, it is proposed that in at
least one-third of these point sources CO2 must
apply CCS (Mills 2011). Remaining one-third of
CO2 emissions originate from smaller scale
sources, households, transportation etc., which
are difficult to economically apply CCS. Other
carbon mitigation methods are more applicable to
those diverse sources.
Contrary to the general belief postcombustion
CCS is not the only CCS method; there are many
different technological alternatives to it.
For example, coal (or alternatively biomass) can
be burned in fluidized combustion systems that
have much higher thermal efficiency and can
integrate pollution control techniques more easily
compared to conventional pulverized coal
burning.
Oil- and gas-fired power plants and large
industrial or space heating boilers are in the
same category as coal-fired power plants from
the CCS respect. But gas-fired or combined
cycle power and heat plants that are firing gasified coal have higher thermal efficiency of conversion. Also they produce waste gas mixtures
primarily of nitrogen oxides and CO2, which
make them suitable to CCS applications. Natural

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gas power plants are the smallest contributors of

CO2 compared to the other fossil fuels.
Industrial Carbon Capture
Some industries such as glass, lime, cement,
petroleum, oil shale and crude oil refinery, and
open-heart iron furnaces and steel mills are
known to emit large volumes of stack gases
with higher concentrations of CO2. Therefore,
these industries are easier and more feasible to
apply carbon capture technologies. But it must be
remembered that the emissions of CO2 totally
exceed 200 million tons per year from these sectors only contribute about 0.7 per 100 in the
global CO2 emissions (Mills 2011). It might
seem unimportant at the first site, but for large
point sources in these sectors it might be feasible
to apply CCS.
In the future, share of CO2 emissions from
industry may be expected to increase because of
the hydrogen and syngas production.
When CCS in industries are discussed it might
be added that some solid wastes from metal
industries such as iron scrap, aluminum wastes,
iron and coal slags, concrete waste, mineral
industry tailings, fly ash from oil shale burners,
incinerators, etc., capture CO2 from the air. This
capture is either natural and occurs by itself in
piles or in engineered systems.
In relation to industrial CCS, an alternative
capture process based on the chemical reactivity
ofCO2 especially with hydroxide or carbonate
solutions are exploitable to end in a low cost
CO2 mitigation method. As an example, the
waste metal oxides produced in cement klinker
manufacture (cement kiln dust) can be hydrated
and used to absorb CO2.
CO2 Purification and Reuse
The separation of CO2 from stack gas emissions
is possible by using traditional or novel techniques such as scrubbing, sorption, membranes,
cryogenics, and other advanced concepts.
After separation, CO2 can also be purified and
reused in industry. For purification leading to
reuse of concentrated or purified CO2 the wellknown process of monoethanolamine (MEA)
process exists.

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The Enhanced Oil Recovery (EOR): Beneficial use of CO2 in oil recovery is another
method involving beneficial use of CO2. This is
also a type of carbon capture in geological formations briefly mentioned above. Several pilot
programs are underway in various stages to test
the long-term storage of CO2 in non-oil producing geologic formations, too. Also known as
geo-sequestration, this method involves injecting
carbon dioxide, generally in supercritical form,
directly into underground geological formations.
Oil fields, gas fields, saline formations,
unminable coal seams, and saline-filled basalt
formations have been suggested as storage sites.
Algae cultivation: There is ongoing discussion on the economics and effectiveness of algal
carbon capture. Some researchers indicate that
algae may constitute a partial solution for carbon
capture either for an individual point source emitter or as a passive CO2 absorber from the air.
Carbon capture from the air: Carbon dioxide sequestration is possible from the atmosphere. This passive kind of mitigation is in fact
quite basic in the nature; CO2 is utilized by terrestrial and aquatic plants, algae, etc., or transfer
into the ocean to be used by biota or inclusion into
the aquatic carbonate chemistry or chemically
combined by serpentinic minerals containing silicates to transform them into carbonate formation
on land. However, when engineered systems with
enhanced physical and chemical reactions can be
used, it will be another option of carbon capture.
Chemically bound CO2 injection into the
oceans: Post capture operations leading to final
CO2 sequestration are also new techniques which
must be carefully investigated and designed.
Among them is the alternative of fixing the carbon in ionic forms and dispose it into the oceans.
Methods of deep sea or underground injection of
wastes are well known and applied in various
different fields of engineering. Our knowledge
from these applications will help the final sequestration process for safe CCS operations. However, in each case monitoring of CO2 gas
leakage into the air must be carefully planned
for safety reasons.
Injection of CO2 into coal beds and saline
aquifers: Sequestration in deep unminable coal

Carbon Capture

beds with recovery of methane and sequestration

in deep saline aquifers are being investigated.
Both techniques require a thorough estimation
of the potential storage capacity, the storage
integrity, and the physical and chemical processes that are to be used for injecting CO2 underground (White et al. 2003). Several projects
have been initiated in which CO2 is injected
into deep coal seam or saline aquifers. In spite
of some large-scale carbon sequestration
applications, substantial research and development is needed to reduce the cost, decrease the
risks, and increase the safety of carbon elimination in these techniques. Therefore, field studies
are needed to generate data for discussion of
possible problems such as the safety concerns
that need to be addressed because of the possibilities of leakage to the surface and induced
seismic activity.
Carbon capture on land: This method
involves the net amount of CO2 transferred from
the atmosphere into soils and land vegetation.
In other words, it includes both the removal
of CO2 from the atmosphere and reduction of
the CO2 emissions from terrestrial ecosystems
into the atmosphere. Latter is due to the respiration and CO2 release into the atmosphere when
trees are cut down, crops are harvested and their
residues are decayed, and when the soil is disturbed, tilled, or eroded.
A considerable amount of carbon originally
contained in soils and vegetation has been
released already as a result of deforestation and
traditional agricultural practices. The goal of terrestrial sequestration is to reduce the amount of
CO2 that is released while enhancing the storage
capacity of soils, meadows and farmlands, and
trees through changes in forest management
practices.
Terrestrial plants fix carbon dioxide during the
daytime when there is sufficient solar radiation of
correct wavelength, but respire all the time to
give off some of this CO2 back to the atmosphere.
The carbon taken up by the plants is converted to
plant carbon and either stored or respired. The net
amount of CO2 in the air varies with the seasons
as duration of daytime varies. For agricultural
plants, the same goes on but after harvest the

Carbon Capture

collected and residual biomass decays and converts to soil carbon and atmospheric carbon dioxide. However, although decaying parts of trees
return partly into the carbon cycle, woody parts
continue storing the carbon for many years until
the tree dies or cut off. Smaller plants participate
in a smaller loop of the carbon cycle by returning
CO2 back to the atmosphere in a few years, but
trees may store some carbon that is not returned
to the atmosphere for sometimes a century or
longer. Cutting the forests interrupts this natural
cycle and puts carbon stored in the trees back into
the atmosphere before the natural life cycle is
completed. Thus decaying takes over and returns
CO2 into the atmosphere. Therefore, sustainable
forestry with reforestation policies must be
regarded as one of the most promising carbon
sequestration operations.
Carbon Capture in the Oceans
Absorption of carbon dioxide by the ocean is one
of the main natural sinks for carbon. Rates of
circulation of carbon through air-sea and seabottom sediment interfaces have important role
in this process. Sequestration of CO2 by the
oceans may occur via physicochemical and biological processes. Oceanic carbon capture and
storage occurs in two compartments: upper and
bottom compartments. Upper compartment is
euphotic, oxic, and rich in living organisms, contain more bicarbonates and nutrients, so is very
complex compared to the bottom compartment. It
takes less time for storing the carbon in this layer
in contrast to much longer time required in storage at the bottom. That is really the final sequestration step.
Depending on physical conditions, oceans
may act as both source or sink for atmospheric
CO2. At about 390 ppm by volume of CO2 concentration in the atmosphere today, oceans are net
carbon sinks. In fact they are presently the largest
active carbon sinks on Earth, absorbing more
than one-fourth of the CO2 that is put into the
air anthropologically. The solubility mechanism
mentioned above is the primary reason driving
this, with the biological elements playing a less
significant role. Because of the abundance of
inorganic carbon in the ocean, CO2 does not

299

limit primary production in the oceans, but the

darkness and lack of certain nutrients do.
Ocean pH is defined by the action of ocean
water chemistry and physical conditions such as
temperature and pressure in equilibrium with
respective partial pressures of CO2 in air
and water. Although due to buffering ions of
salinity in the ocean water, there is a natural
resistance to acidification, but in the long run
oceans might have reduced pH, too, thus ocean
acidification (Rau 2011). Carbonates in the
saline waters form salts of low solubility, such
as calcium carbonate and depending on the pH
and temperature of the system carbonates tend to
precipitate.
Enhanced Oceanic Processes for Carbon
Sequestration
Because of the strength of the natural oceanic
sink mentioned above, one might think of adding
certain limiting nutrients into the ocean in order
to improve sequestration of carbon through biological cycles. Nutrients such as nitrates, phosphates, and silica, as well as iron may cause ocean
fertilization. Therefore, it was hypothesized in
the 1980s that one way to increase the carbon
sequestration efficiency of the oceans is to add
micron-sized iron particles (iron oxides or sulfates) into the ocean.
It was expected that the presence of iron in
waters having sufficient quantities of all other
nutrients, plankton populations quickly grow,
a phenomenon called blooming. This enhanced
biomass productivity helps removing significant
quantities of CO2 from the atmosphere via photosynthesis. There have been some proposals for
adding iron in pulses for fertilization of the
oceans, for obtaining effective growth so that
carbon can be sent rapidly to ocean floor.
Although some large-scale tests were conducted,
there are conflicting views about the iron addition
for carbon capture. Risks are still unknown and
there is no consensus about its benefits and risks.
As the effect of such small-scale phytoplankton
blooms on ocean ecosystems is unclear, more
studies are certainly needed to evaluate the environmental effects of the enhanced ocean capture
of carbon. There are strong scientific opinions

300

against the iron addition into the ocean for carbon

sequestration (Long and Caldeira 2010).
Disposal of CO2 into the Ocean (Ocean
Storage of Carbon)
Another option for sequestering CO2 is the deep
ocean storage.
This is a kind of storage of carbon rather than
purely a capture function and therefore also
called ocean storage. Ocean storage can be
worked out into a geophysical or geophysicalchemical engineering operation. Several different ideas are under discussion in this field:
1. In one of the discussions, it is proposed that
CO2 is injected either by dumping from ships
or by pumping through pipelines into the
water column at depths of 1,000 m or more,
and let to stay stagnant there. CO2 there is to
dissolve. This is called CO2 dissolution
method. It is suggested that by injecting CO2
directly into the ocean instead of the atmosphere, the oceans natural uptake processes
are accelerated, thus reducing the global
warming (NERSC website).
2. Alternatively, deposits of CO2 are formed by
directly dumping it onto the sea floor at depths
greater than 3,000 m. Because of hydrostatic
pressures at these depths, CO2 is denser than
water and is expected to form a lake that
would delay dissolution of CO2 into the environment. This is also called CO2 lake
method.
3. Another idea for sequestration is converting
the CO2 to bicarbonates in the ocean by adding
suitable reagents such as limestone after injection. Although, under natural conditions, this
process is expected to take millennia, chemically enhancing this dissolution has been
thought as a way of sequestering significant
quantities of CO2. This would involve bringing mineral carbonates and water into direct
contact with CO2-rich waste gas effluent from
centralized industrial or municipal sources;
thus, at least partially, consuming the CO2 to
form relatively long-lived cations and bicarbonate in equilibrium which would directly or
indirectly be added to the already large pool of
these ions in the ocean (Rau et al. 2007). It was

Carbon Capture

also proposed that the bicarbonate approach

would help control the ocean acidification and
enhance the retention of CO2 in the ocean.
Although it seems rather promising, largescale oceanographic studies are needed to
provide data to show the benefits of this
method.
4. Storage of CO2 in the form of solid CO2/seawater/CO2 hydrate composite particles
obtained from liquid CO2 at depths below
500 m has been proposed as another method
(Tsouris et al. 2004).
5. In oceanic capture methods, adding limestone,
quicklime, or dolomite at quantities to fix manmade CO2 in the air is another novel concept.
And mineralization of the additional CO2 in the
form of bicarbonates in the ocean by adding
alkali cations into seawater in engineered reactors at the coastal facilities is another idea.
6. A conceptual method for long-term oceanic
carbon sequestration is to deposit carbon-rich
agricultural crop residue in the form of heavy
bales into the alluvial fan areas of the deep
ocean basins. These biomass residues in alluvial fans would cause them to be quickly buried
in silt on the sea floor, sequestering the biomass
for very long time spans. Alluvial fans exist in
all of the worlds oceans and seas where river
deltas fall off the edge of the continental shelf.
As a result, the environmental effects of oceanic carbon storage are either negative or poorly
understood. Large concentrations of CO2 in
solution may kill aquatic organisms. Another
problem is that dissolved CO2 in water would
eventually equilibrate with the free CO2 in the
atmosphere, so the storage would not be permanent. So any technique of carbon storage must
involve the elimination of risk of leakage of
stored CO2. Leakage through the injection pipe
is another risk and the injection pipeline must be
equipped with special valves to prevent release
on a power cut. There is still a risk that the pipe
itself could tear and leak.
Although carbon capture and storage projects
help reducing the CO2 emissions from industries
and power plants, additional energy is usually
required for CO2 capture. This means that more
fuel has to be used, depending on the method,

Carbon Capture and Sequestration (CCS)

therefore sustainability of methods of carbon capture are to be evaluated from this perspective, too.

Future Directions
Almost anything discussed in this entry has something to do with future technologies, as CCS itself
is a futuristic concept. There are many alternative
carbon capture methodologies encountered in this
discussion. But it is almost impossible which one
of them has more chance than others.
One thing for sure is that as the fossil fuels will
continue to be used for some more time, there
will be a definite need to CCS. And R&D projects
show that there will be successful carbon capture
technologies in the near future for use. Definitely,
business as usual for fossil fuel use with no regard
to CO2 mitigation will not be a sustainable way of
life on the Earth.
Among the promising technologies for the
future, oxygen separation for use in oxycombustion energy facilities, CO2 absorption in
better solvent processes, membrane processes for
oxygen and CO2 diffusion, solid sorbents, biotechnologies, cryogenic separation of CO2 from its
mixtures can be counted. Future techniques in relation to power generation using combustion technologies with high temperature and pressure thanks
to newly developing materials are promising, too.
When R&D projects will start giving results,
CCS might prove itself as a low risk, scalable and
therefore very helpful way of controlling the climate change.

301

Lackner, K. S. (2010). Capturing carbon dioxide

from air. www.netl.doe.gov/publications/proceedings/
01/carbon. . ./7b1.pdf
Long, C., & Caldeira, K. (2010). Can ocean iron fertilization mitigate ocean acidification? Climatic Change.
doi:10.1007/s10584-010-9799-4.
Mill, R. (2011). Capturing carbon, the new weapon in the
war against climate change. New York: Columbia
University Press.
NERSC Nansen Environmental and Remote Sensing
Center a non-profit research institute affiliated with
the University of Bergen. http://www.nersc.no/main/
nansen_group/coto/disposal.html
Park, A. H. A., Jadhav, R., & Fan, L.-S. (2003). CO2
mineral sequestration: Chemically enhanced aqueous
carbonation of serpentine. Canadian Journal of Chemical Engineering, 81, 885890.
Rau, R. H. (2011). CO2 mitigation via capture and chemical conversion in seawater. Environmental Science &
Technology, 45, 10881092.
Rau, G. H., Knauss, K. G., Langer, W. H., & Caldeira, K.
(2007). Reducing energy-related CO2 emissions using
accelerated weathering of limestone. Energy, 32,
14711477.
Stolaroff, J. K., Lowry, G. V., & Keith, D. W. (2005).
Using CaO- and MgO-rich industrial waste streams for
carbon sequestration. Energy Conversion and Management, 46, 687699.
Tsouris, C., Brewer, P., Peltzer, E., Walz, P., Riestenberg,
D., Liang, L., & West, A. (2004). Hydrate composite
particles for ocean carbon sequestration: Field verification. Environmental Science & Technology, 38,
24702475.
White, C. M., Straziser, B. R., Granite, E. J., Hoffman, J. S.,
& Pennline, H. W. (2003). Separation and capture of
CO2 from large stationary sources and sequestration in
geological formations coalbeds and deep saline aquifers. Journal of the Air & Waste Management Association, 53, 645715.

Cross-References

Carbon Capture and Geological

Storage (CCGS)

Carbon Capture
Carbon Emissions
Carbon Footprint

Carbon Capture

References and Readings

Krevor, S. C. M., & Lackner, K. S. (2011). Serpentine
dissolution kinetics for mineral carbon dioxide sequestration. International Journal of Greenhouse Gas
Control Enhancing, 5, 10731080.

Carbon Capture and Sequestration

(CCS)
Carbon Capture

302

Carbon Capture and Storage

Carbon Capture

Carbon Capture and Storage

riskrelated decisions in their investment process. Based on the data it has gathered, the CDP
also publishes in-depth analyses on various environmental subjects every year, covering a wide
range of geographical regions. It has created the
worlds largest database of its kind, which provides the data to its partner Bloomberg.

Carbon Cost
Carbon Footprint

Carbon Dioxide Emissions

Carbon Footprint

Carbon Disclosure Project

Annett Baumast
Baumast. Culture & Sustainability, Lenzburg 2,
Switzerland

Synonyms
CDP

Definition
The Carbon Disclosure Project (CDP) is an independent nonprofit organization collecting and
providing exhaustive environmental information
on issues such as climate change and water use in
order to promote transparency and work toward
a more sustainable economy. It is supported by
more than 655 institutional investors worldwide,
representing more than US $78 trillion in assets
(as of July 2012). Through sending out questionnaires to businesses in the name of the investors
backing the initiative, the Carbon Disclosure Project gathers information on the companies environmental activities such as the monitoring and
reduction of carbon emissions. This information
serves the investors to make informed, climate

Introduction
The Carbon Disclosure Project (CDP) was
launched in 2000 in London in order to drive
disclosure of carbon emissions and reduction initiatives in the worlds largest public companies
(for this section cf. http://www.cdproject.net).
The first questionnaires the CDPs instrument
of choice were sent out in 2002 (CDP1),
targeting all FT500 companies. Signatories of
the accompanying letter were 35 institutional
investors who gave this initiative weight, seeking
disclosure of the data in order to improve the risk
management of their own investments. The
response rate was clearly high with 235 companies providing the requested information or at
least attempting to do so. In 2003, the first report
by the CDP on the results of the survey was
published. Since then, the CDP has not only
extended its scope to other environmental issues
but also built up a rather elaborate reporting
structure with a wide variety of reports available
every year.
Currently, there are five programs the CDP
covers with its surveys:
Investor CDP
CDP Cities
CDP Supply Chain
CDP Water Disclosure
CDP Public Procurement Program
Investor CDP
Investor CDP was the first and still is the most
important program that the organization has
started to date. The above-described CDP 1 that
simply covered the FT500 companies has, over
the years, developed into a much broader program, covering as well as providing different
indexes. The main focus of the program is to

Carbon Disclosure Project

provide information on climate changerelated

company data to investors worldwide. This is
done with the objective to drive transparency on
the issue of greenhouse gas (GHG) emissions and
promote measures to reduce these emissions,
which have been found to contribute to manmade climate change. For investors, this data
means that they can include climate change
related and therefore risk-related information
into their investment decisions on a broad scale,
which is one of the approaches of Socially
Responsible Investments (SRI).
In 2011, more than 3,000 companies that had
been requested to disclose data on climate change
completed one of CDPs questionnaires. This
includes 81 % of the Global 500 as well as 68 %
of the S&P 500. Table 1 gives an overview of the
original sample size.
The questionnaire for the annual survey comprises questions covering three areas:
1. Governance, strategy, and measures with
regard to carbon emissions
2. Risks and opportunities of carbon emissions
3. Carbon emissions (carbon accounting)
For emissions reporting, the CDP recommends using the Greenhouse Gas Protocol
(GHG Protocol, http://www.ghgprotocol.org/),
developed by the World Resources Institute
(WRI) and the World Business Council for Sustainable Development (WBCSD), that has
emerged as a quasi-standard for carbon emission
reporting over the past years.
The process of gathering and analyzing data
follows a simple timeline (Table 2).
In 2011 alone, based on the data gathered, the
Carbon Disclosure Project published 32 reports
next to the two major surveys of S&P 500 and
Global 500 companies. The focus was on single
countries (e.g., Korea, Turkey, or South Africa),
regions (such as Iberia, Latin America, or the
Nordic region), indexes (FTSE 350), or sectors
(e.g., energy, consumer staples, or information
technology). CDP provides the reports as well
as the detailed information reported by the companies for free, if the participating companies
agree to the publication of their input.
As of today, a large number of asset managers
and financial institutions, creating and selling

303

Socially Responsible Investment (SRI) products,

claim to use the database provided by CDP on
a regular basis. Signatories are granted access to
the database for free. Interested parties also have
free but limited access to the database.
Also based on the data as well as on
established indexes is the FTSE CDP Carbon
Strategy Index Series that focuses on companies
better equipped for the impacts of climate change
than others. Currently, indexes for the UK,
Australia, Europe, and Japan are available in
these series. The date is complemented by
research from ENDS (http://www.ftse.com/
Indices).
CDP Cities
After a pilot in 2009, CDP Cities was first
conducted in 2011. It is a voluntary initiative for
the reporting of carbon emissions and climate
change measures by cities and is mainly
addressed to the C40: the Large Cities Climate
Leadership Group (http://www.c40cities.org).
Additionally, the program invites any other interested cities to join in the survey. The C40 is
a group of large cities from around the world,
working together on reducing climate change by
implementing local climate change initiatives. It
was created in 2005 by the then Mayor of London
Ken Livingstone. Table 3 lists the current members of the C40.
The 2012 CDP Cities report contains answers
from 73 cities, including 75 % of members of the
C40 (45 out of 58), all reporting data on their
climate changerelated initiatives. In total, the
reporting cities are responsible for nearly one
billion tons of CO2e emissions. Questions in the
2012 questionnaire cover areas such as greenhouse gas measurement inventories, review and
management processes for climate change activities, and concrete reduction targets.
CDP Supply Chain
Life-cycle analyses (LCAs) have shown that
depending on the sector, the share of carbon
emissions within the supply chain can easily surpass those coming from a companys operations.
In order to promote transparency in this matter,
the Carbon Disclosure Project launched its CDP

304

Carbon Disclosure Project

Carbon Disclosure Project, Table 1 CDP 2011 samples

CDP Australia/NZ

Sample size (the largest companies, as

measured by market capitalization)
170 largest Asian companies (excluding Japan,
China, India & Korea) Hong Kong (75),
Taiwan (25 companies), Malaysia (15),
Singapore (25), Indonesia (10), Thailand (10),
and Philippines (10)
ASX 200/NZX 50

CDP BeNeLux and France

Benelux 150

Canada
Central &
Eastern Europe
(CEE)

CDP Brazil/Latin America together with the

Brazilian Association of Pension Funds (ABRAPP)
and BANCO REAL partners to CDP
CDP North America
Iparfejlesztesi Kozalaptvany (IFKA Public
Foundation for the Progress of the Industry)
partner to CDP

China

CDP China

Europe

CDP Europe

France
Germany and
Austria
Global

CDP BeNeLux and France

CDP Germany

Brazil 80: 80 largest companies by market

capitalization in the IBrX index, as listed on the
BOVESPA Sao Paolo Stock Exchange
Canada 200
CEE 100: largest companies in CEE Poland
(50), Croatia (9), Czech Republic (8), Romania
(7), Baltics (7), Hungary (6), Slovakia (6),
Slovenia (5), and Serbia (2)
China 100: 100 largest companies by market
capitalization in China based on the FTSE
China A 600 and the FTSE All World Asia
Pacific indexes
FTSEurofirst 300 Eurozone: 300 largest
companies in Europe
SBF 250
Germany and Austria 250

India

CDP India

Iberia 125

CDP Southern Europe together with ECODES and

BBVA partners to CDP

Ireland
Italy

CDP Ireland
CDP Southern Europe, together with Accenture,
Banca Monte Paschi di Sienna and the Kyoto Club
partners to CDP
CDP Japan
CDP Brazil/Latin America together with the
Brazilian Institute of Investor Relations (IBRI)
partner to CDP
Korean Sustainability Investing Forum (KoSIF)
partner to CDP
CDP Nordic, together with ATP and KLP Asset
Management partners to CDP
CDP London
National Business Initiative (NBI) partner to CDP

Country
Office
Asia (ex-Japan, CDP London
India, China,
Korea)

Australia and
New Zealand
Belgium,
Netherlands,
Luxembourg
Brazil

Japan
Latin America

Korea
Nordic Region
Russia
South Africa

CDP Global offices and international partners

Global 500: Top 500 companies within the

FTSE Global Equity Index Series
India 200: 200 largest companies by market
capitalization, as listed on the Bombay Stock
Exchange
Spain 85: 85 largest companies by market
capitalization, based on the IBEX 35, the IBEX
Small Cap and the IBEX Mid Cap
Portugal 40
Ireland 40
Italy 100

Japan 500
Latin America 50: 50 largest companies by
market capitalization in Latin America based
on the S&P Latin America 40 Index
Korea 250 based on the KOSPI and the
KOSDAQ Indexes
Nordic 260: 260 largest companies in the
Nordic region based on market capitalization
RTS Index 50: 50 largest companies in Russia
South Africa 100: 100 largest South African
companies by market capitalization, based on
the FTSE JSE All Share Index
(continued)

Carbon Disclosure Project

305

Carbon Disclosure Project, Table 1 (continued)

Sample size (the largest companies, as
measured by market capitalization)
Switzerland 100: 100 largest companies by
market capitalization in Switzerland based on
the SPIMLC Index
Turkey
Sabanci University Corporate Governance Forum Turkey 100: 100 largest companies by market
Partners to CDP
capitalization, based on the ISE 100 National
Index
UK
CDP UK
FTSE 350
USA
CDP North America
S&P 500
Electric utilities CDP UK and international partners
250 of the largest electric utilities companies
globally
Transport
CDP UK and international partners
100 of the largest transport companies globally
Country
Switzerland

Office
CDP Germany, together with Ethos and Raiffeisen
Schweiz partners to CDP

Source: https://www.cdproject.net/en-US/Programmes/Pages/samples.aspx, February 07, 2012

Carbon Disclosure Project, Table 2 Investor CDP

process and timeline

1 February
31 May
September
December
September
November
November
January

CDP issues a request for information

(questionnaire) to the largest companies
globally by market capitalization
Deadline for companies to respond to
the questionnaire
Findings launched across the globe
Consultation phase for amendments to
annual questions
CDP signatories review and sign the
questionnaire

Source: https://www.cdproject.net/en-US/Programmes/
Pages/CDP-Investors.aspx#timeline, February 07, 2012

Supply Chain program in 2007, which focuses on

carbon emissions in the supply chain of companies. Currently, more than 50 of the largest corporations world-wide are members of the CDP
Supply Chain. The program can be seen as
a concerted action of companies, aimed at gathering and bundling supplier data on carbon emissions. When reported according to the GHG
protocol, supplier carbon emissions fall into the
category of Scope 3 reporting, thus
complementing the companies data. Once
again, the CDP uses a questionnaire in order to
gather the data, which has been developed and
adjusted over 7 years. The survey is undertaken in
close cooperation with the member companies

who have to choose the supplier companies they

wish to be covered by the analysis.
The 2010 report claims that 44 member companies suggested 1,402 suppliers to be
approached by the CDP; 710 of those (51 %)
completed and returned the questionnaire they
had received. More than a third of the suppliers
(597 or 42 %), however, did not send a reply of
any kind.
The report covers the following areas:
1. Strategic awareness with regard to carbon
emissions
2. Carbon reduction ambition
3. Reporting capabilities
4. Implementation practices
The report comes to the conclusion that if
companies want to be on top of carbon emissions
along their entire supply chain, there is still a lot
of work that remains to be done. The CDP Supply
Chain has indeed drawn attention to supply
chain carbon emissions and their contribution to
climate change from smaller, not necessarily
stock-quoted supplier companies worldwide.
The true impact, however, has not yet materialized for all of the relevant suppliers.
CDP Water Disclosure
With the CDP Water Disclosure Program, the
CDP initiated a survey of how companies handle
one of the most important resources today: water.
The idea behind this survey is to once again
increase awareness and transparency and foster

306

Carbon Disclosure Project

Carbon Disclosure Project, Table 3 C40 cities

Steering committee
cities
Berlin
Hong Kong
Jakarta
Johannesburg
Los Angeles
London
New York
Sao Paolo
Seoul

Participating
cities
Addis Ababa
Athens
Bangkok
Beijing
Berlin
Bogota
Buenos Aires
Cairo
Caracas

Tokyo

Chicago
Delhi
Dhaka
Hanoi
Hong Kong
Houston
Istanbul
Jakarta
Johannesburg
Karachi
Lagos
Lima
London
Los Angeles
Madrid
Melbourne
Mexico City
Moscow
Mumbai
New York
Paris
Philadelphia
Rio de Janeiro
Rome
Sao Paolo
Seoul
Shanghai
Tokyo
Toronto
Warsaw

Affiliate cities
Amsterdam
Austin
Barcelona
Basel
Changwon
Copenhagen
Curitiba
Heidelberg
Ho Chi Minh
City
Milan
New Orleans
Portland
Rotterdam
San Francisco
Santiago de
Chile
Seattle
Stockholm
Yokohama

one of the most costly and dear resources for

corporations around the world. The CDP sends
questionnaires to water-intensive industries or
companies that are more than average exposed
to water-related risks in their own business or
along their supply chain. The sample currently
includes:
The largest 500 companies globally (FTSE
Global Equity Index Series)
The largest 100 Australian companies (ASX
100)
The largest 100 South African companies (JSE
100)
The largest 500 US companies (S&P 500)
While the next report is due in 2013, the latest
report from 2011 backed by 354 investors
representing assets of US $43 trillion sums up
results from eight different sectors:
Consumer discretionary
Consumer staples
Energy
Health care
Industrials
Information technology
Materials
Utilities
For the 2011 report, questionnaires were sent
to selected companies from the FTSE Global 500
and, for the first time, to companies from the
Australia 100 and South Africa 100. The response
rates amounted to 60 %, 41 %, and 46 % respectively, providing the CDP with data from 238
companies. Fifty-nine percent of them had identified water as a considerable risk for their business and even more (63 %) had already evaluated
water-related opportunities. Overall, waterrelated issues have not yet been attributed as
much attention as has climate change: only
57 % of the companies report board-level responsibility with regard to water issues while 94 % of
the Global 500 (Investor CDP) claim board-level
attention to climate change.

Source: http://live.c40cities.org/cities, February 07, 2012

the sustainable use of water. According to the

CDP Water Disclosure Program, there will be
by 2030 a demand for (fresh) water that will
exceed supply by 40 %. Hence, water is or will be

CDP Public Procurement Program

The CDP Public Procurement Program was initiated in 2008 but has received less attention than
the other programs, probably due to its currently
narrow geographical focus. The programs

Carbon Disclosure Project

Carbon Disclosure
Project, Fig. 1 Number of
responding companies
(Investor and Supply Chain
programs) (Source: Carbon
Disclosure Project
Information Pack (2011),
p. 2)

307

3500
3050
3000
2456
2500

2204
2000
1449

1500
922

1000

500
235

295

355

2003

2004

2005

objective is the assessment and subsequent reduction of carbon emissions within the supply chain
of public sector organizations in the UK on the
national as well as local level. By analogy with
the CDP Supply Chain, the members of the
Public Procurement Program can request climate
changerelevant information and data from their
suppliers in order to quantify supply chain emissions. The latest report from 2010 covers 25
UK government departments as well as the
Greater London Authority (GLA Group) and
five organizations from the National Health Service (NHS). Two hundred and sixty two listed
and non-listed suppliers from the UK and abroad
took part in the survey.
Across the Investor as well as Supply Chain
Programs, the Carbon Disclosure Project has generated a large growth in the number of respondents since its beginnings (see Fig. 1).
The CDP thus holds a large database of climate changerelated as well as water-related data
from more than 3,000 companies and organizations world-wide with the reporting numbers
likely to grow as more samples get included
over time. The information is made available
not only to the signatories and members, but

2006

2007

2008

2009

2010

also to decision makers from corporations and

politics, investors, etc. The objective is to provide
a sound decision base that takes into consideration the risks and opportunities of climate
change and water-related issues. With support
from its financial partners, the information and
data gathered by the CDP are made accessible to
decision makers in the financial community
through established tools such as Bloomberg Professional. Companies and organizations participating in the CDP benefit from increased clarity
(following a set structure) as well as transparency
(setting a good example) with regard to their own
emissions, strategies, and measures. They can
also compare their performance with other companies from the same sector or country and thus
establish a benchmark.
More than 70 people work at the CDPs headquarters in London, UK, and offices in Brazil,
China, France, Germany, India, Ireland, Italy,
Japan, Sweden, and USA. Partner organizations
working together with the CDP cover more than
60 additional countries. The CDP is a registered
charity and funded by corporate sponsoring, philanthropic donations, government support, membership fees, and fees for special projects.

308

Key Issues
The concept of the Carbon Disclosure Project is
based on the assumption that surveying and publishing carbon- as well as water-related data as
a basis for investment decisions is an approach to
tackling climate change and other environmental
problems by making use of financial market
forces. The fact that a large number of signatories, representing a significant amount of assets,
are backing the CDP lends substance to the cause
and motivates companies and organizations to
participate in the surveys. These companies and
organizations are enabled to derive programs
and measures for the reduction of carbon emissions and water use by measuring, analyzing,
comparing, and reporting carbon- and waterrelated data and information on respective risks,
opportunities, and strategies. The CDP makes
these efforts public and, as Harmes notes, its
primary goal is for disclosed information to be
used by investors to create real financial incentives in the form of share price performance
(2011). In his study on the limits of carbon disclosure, however, Harmes comes to the conclusion that while other applications of CDP data are
highly worthwhile, the creation of financial
incentives for climate change mitigation through
share price performance has clearly been
overestimated.
This is supported by an earlier study from
Kolk et al. (2008), who point out that the information gathered and distributed by the Carbon
Disclosure Project has so far only been of little
use for investors. In their analysis based on
global governance, institutional theory, and
commensuration, they come to the conclusion
that the way carbon emission data is gathered
and reported is not yet generating a type of
information useful for financial investors.
Often, reporting companies and organizations
do not disclose types and meanings of emissions
data, and reliability checks are missing. Generally speaking, the data is still incomprehensible
to some extent, rendering it inaccessible for
thorough financial market application. But
Kolk et al. also point out that while there is
a large potential for improvement, the data

Carbon Disclosure Project

already has its value, in particular with regard

to supporting emerging policy measures
concerning carbon emissions, carbon trading,
and climate change mitigation.
In addition to the criticism of the effectiveness
of the CDPs approach, Renner (2011) discusses
three of the most criticized issues regarding the
setup and process of the project, with a specific
focus on the Investor CDP:
By drawing on the 2009 CDP data, he proves
wrong the assumption that the CDP is particularly prone to greenwashing. The hypothesis
that because the signatory investors are not
required to disclose the own carbon data and
information, they might be tempted to support
the project just for image reasons, cannot be
substantiated by the data: while the overall
response rate of the Global 500 in the 2009
CDP amounted to 82 %, 80 % of the financial
companies in the sample also returned their
questionnaires. As of 2012, however, as
a condition for sign-up to the project, signatories of the CDP are requested to return the
questionnaire if they receive one.
With the development of the CDP over the
years, it has been criticized that over time
and also between companies, results are not
comparable. In addition, there is a lack of
validation of the data the companies disclose.
While 49 % of the 2009 respondents had their
data validated or verified, CDP strengthened
the criteria in 2011, making a year-on-year
comparison impossible. In 2011, 69 % of the
respondents claimed having obtained or being
in the process of obtaining verification for
Scope 1 or 2 emissions, but only 37 % of all
respondents met all new criteria for
verification.
Renner also points out that the CDP does not
provide any concrete climate riskrelated
data, making it difficult for investors to compare financial risk scenarios across different
companies.
Even though there have been noticeable
changes, additions, and adaptations to the CDP
since Renner published his assessment, future
work is still needed to top off this emissions
reporting tool.

Carbon Footprint

Future Directions
Since its beginnings in 2000, the Carbon Disclosure Project has developed into a major player
regarding the measurement and disclosure of carbon emissions and, more recently, water-related
data. Many listed companies have now been
confronted with the request to annually assess
and disclose their risks and opportunities related
to carbon emissions and water usage. The sample
of the CDP Programs is ever growing and will be
extended to more stock markets and listed companies around the world. The integration of the
data into investment decisions is also progressing
with Socially Responsible Investment becoming
a more relevant factor on the financial markets,
but the firm and link to financial performance
remains to be proven.
With a number of initiatives such as the Global
Reporting Initiative (GRI) driving the reporting
of sustainability or extra-financial data by listed
as well as privately held companies, the CDPs
objective of pushing the disclosure of carbon
emissions and water-related data can be regarded
as part of a larger development. Already, many
companies rely on their CDP data, where carbon
emissions reporting is part of another company
report, and have integrated the survey process.
With the merger of the Carbon Disclosure
Project and the Forest Footprint Disclosure Project (FFDP), which focuses on pushing company
disclosure of their use of commodities such as
soy, timber, beef, and biofuels, driving tropical
deforestation, in June 2012, the CDP has gained
yet another dimension and might in the future
evolve into an even more all-encompassing disclosure initiative.

Cross-References
Accountability
Carbon Footprint
Climate Change
Communicating with Stakeholders
Disclosure (CSR Reporting)
Greenhouse Gases
Institutional Investors

309

Socially Responsible Investment

United Nations Intergovernmental Panel on
Climate Change

References and Readings

C
Carbon Disclosure Project. (2011). Carbon disclosure project information pack 2011. Retrieved July 2, 2012,
from http://www.flad.pt/documentos/1322500796G7z
UT7ss8No88EZ2.pdf
Harmes, A. (2011). The limits of carbon disclosure.
Global Environmental Politics, 11(2), 98119.
Kolk, A., Levy, D., & Pinske, J. (2008). Corporate
responses in an emerging climate regime: The
institutionalization and commensuration of carbon disclosure. The European Accounting Review, 17(4),
719745.
Labatt, S., & White, R. (2007). Carbon finance: The
financial implications of climate change. Hoboken,
NJ: Wiley.
Nichols, M. (2012). Forest footprint disclosure project to
join CDP. Retrieved June 14, from http://www.environmental-finance.com/news/view/2559
PriceWaterhouseCoopers. (2011). CDP global 500 report
2011. Accelerating low carbon growth. Retrieved July
2, 2011, from https://www.cdproject.net/CDPResults/
CDP-G500-2011-Report.pdf
Renner, A. (2011). Does carbon-conscious behavior drive
firm performance?: an event study on the global
500 companies. Wiesbaden: Gabler.

Carbon Emissions
Carbon Footprint

Carbon Footprint
Nicholas Harkiolakis
Business, Health and Technology, Higher
Colleges of Technology, Abu Dhabi, United
Arab Emirates

Synonyms
Carbon cost; Carbon dioxide emissions; Carbon
emissions; Greenhouse gas footprint

310

Carbon Footprint

Definition

humanitys carbon footprint is the most essential

step we can take to end overshoot and live within
the means of our planet.
While most areas of weakness for using
a carbon footprint metric stem from its definition,
we should also add to this the methodologies used
for its analysis as they come with their own shortcomings and ambiguities. The purpose of the
carbon footprint indicator is to encompass all
traces of carbon gas emissions during the life
cycle of an activity that will result in a product
or a service, including all subprocesses or
derivative activities associated with this primary
activity. To achieve this objective, one can follow
either a bottom-up approach based on analysis of
processes or a top-down approach based on
analysis of environmental inputs and outputs.
The former methodology has been developed to
address manufacturing and development that can
easily been identified in terms of processes, while
the latter is more suited for systems like an
organization or a country.
The advantage of dealing with processes is
that it can clearly identify their primary and secondary components as they refer to products with
clear specifications and requirements. Given that
in general processes belong to systems that are
not closed, we need to also decide how far downstream or upstream processes we consider as contributors to the CO2 emissions of the primary
process. This eventually leads to truncating the
inclusion process for the footprint calculation and
by default will provide us with an underestimate of
the measured quantity. An added disadvantage of
this method is that it is very expensive in terms
of effort and cost.
By adopting a system-like perspective on the
other hand, we eliminate the effects of cutoffs of
the process method and allow for an economicwide approach. The limitations here come when
trying to assess individual products or processes
because its application assumes uniform prices
and carbon-emitting outputs within sectors.
In essence, it provides indicators based on averages more than individual contributions.
Provided we have the appropriate model of
input-outputs, this method can produce realistic
and cost-efficient analysis.

Carbon footprint is widely defined as the amount

of carbon (usually in tons) that is emitted during
a process or by an organization or entity. It is
a popular metric that appeared in media, conferences, and government and environmental institutes reports as pressure from the public
concerning pollution and its impact on human
health mounted. It is generally used as a measure
of atmospheric pollution due to anthropogenic
activities.

Introduction
The concern of the public about the climate
change and the future of our environment led
public bodies and governments to develop metrics for measuring such impact. Footprint frameworks are ideal for such measurements as they
enable us to address the problem in
a comprehensive way that does not simply shift
the burden from one natural system to another.
A case for such framework that preexisted the
carbon footprint is the ecological footprint.
While the ecological footprint for businesses
existed for some time and included carbon
measurements, the concept of carbon footprint
gained popularity as a reference metric for atmospheric pollution after 2005 as more reports
containing it became public.
In practice, the carbon footprint contributes to
about half of the ecological footprint and it is its
most rapidly growing component. Also, the carbon contribution of the ecological footprint refers
to the amount of productive land required to
absorb/sequester the carbon dioxide produced as
a result of human activities (primarily the burning
of fuels). On a practical level, the ecological
footprint can show us how carbon emissions
compare with other elements of human demand,
such as our pressure on food sources, the quantity
of living resources required to make the goods we
consume, and the amount of land we take out of
production when we pave it over to build cities
and roads. Humanitys carbon footprint has
increased 11-fold since 1961. Reducing

Carbon Footprint

To minimize the disadvantages of both

methods, a hybrid assessment approach can be
followed where we preserve the detail and accuracy of the bottom-up approach in the most
significant processes and allow the remaining to
be accessed with the input-output method. Initially, one can conduct an on-site assessment of
the environmental impact of a product or service
system under study. Following that an inputoutput analysis will be performed to cover
higher-order contributions. A preliminary inputoutput analysis can even reveal the most significant process that need to be addressed with the
bottom-up approach, allowing us to optimize our
resource while we achieve the accuracy and
precision required for evaluating the carbon
footprint.
Carbon Footprint Related Terms
Carbon trading is a market-based approach to
control atmospheric pollution. Governments set
up acceptable limits of (CO2e) that organizations
and businesses need to respect. Any entity that
directly pollutes the environment needs to apply
and be granted a permit that allows them to
pollute the environment within certain upper
limits. Beyond those limits, the entity needs to
buy permits from others that have a surplus, while
if it is below the limits, it can sell its excess
permits to those that needed and willing to buy
it. It works like a pollution fine that can be traded
among entities, and its sole purpose is to motivate
organizations to reduce emissions. Companies
that manage to reduce their carbon footprint
and operate below the set cups are rewarded by
making additional profits when selling their
excess.
One scheme that has provided carbon trading
is the European Union Emissions Trading
Scheme (EUETS) that was launched in 2005 as
the European Unions response to combat climate
change. It covers a number of organizations that
collectively contributed to about half of the EUs
CO2 emissions. Based on that scheme, organizations are forced to provide yearly reports of their
CO2 emission levels. The average over a period
of years (to eliminate fluctuations due to irregular
weather conditions that can adversely influence

311

emissions) is then compared to preset caps. From

2013 onward, the EU system for allocating allowances is planned to change from the initial free
allocation to enforce auctioning as the rule for the
power sector and harmonize EU-wide rules
across its member states. For the industry and
heating sectors, the allowance will be allocated
for free based on well-established benchmarks.
These benchmarks are not meant to represent
emission limits for installations but rather as
a marker of free allowances. If the benchmarks
are not met, installations will have to purchase
additional allowances to compensate for the
excessive pollution.
Carbon offset refers to the reduction of
emissions of carbon dioxide equivalent (CO2e)
in order to offset emissions of CO2e. In addition
to CO2, we also consider here other greenhouse
gases like methane (CH4), fluorocarbons like
perfluorocarbons (PFCs) and hydrofluorocarbons
(HFCs), nitrous oxide (N2O), and sulfur
hexafluorocarbons (SF6). The unit used is metric
ton of CO2e, while the realization of the reduction
is usually done through financial support of footprint reduction initiatives like renewable energy
and energy efficiency projects, recycling and
decomposition of industrial waste and agriculture
by-products, and reforestation efforts among
others. By providing support and buying carbon
offsets, companies and individuals can compensate for their own footprint without actually doing
anything to reduce it like spending less fuel for
transportation and heating.
The following two primary carbon offset
markets exist today:
The compliance market where organizations
from companies to governments need to
comply with internationally set standards and
agreements (like the Kyoto Protocol).
The voluntary market where even
individuals can buy offsets to mitigate their
own contribution to the footprint.
For trading purposes, offset can be sold in
local and international markets, allowing transfer
between organizations in different countries.
Exchanges like the Chicago Climate Exchange
and the European Climate Exchange have specifically been set to handle such types of

312

transactions. Regulating emissions through the

market is in many ways better to emission penalties or environmental taxes because it is an incentive measure that involves the market. Such
systems by their own nature are more responsive
to cost and inflation changes than any government could handle. Economic uncertainties
though can make it difficult to see which
approach works better in the long run.

Key Issues
The carbon footprint metric was developed as
a response to the need for quantifying the
atmospheric pollution that resulted from human
activity. Measurements allow for critical assessments and the design and implementation of
countermeasures to combat pollution.
There are two major aspects of any type of
pollution:
How is the pollution taking place and what is
the extent of it? In the case of CO2 pollution,
as we saw before, a major challenge comes
from identifying the sources, we will include
in our calculations and the methodology we
will use to calculate the metric.
Who needs to react and what actions need to
be taken to reduce it? Responsibilities fall on
both producers and consumers. For produces,
it is probably more clear-cut as they have
control of the production or service process
and can implement changes. In addition, it is
easier to enforce policies through appropriate
legislation or through market incentives and
pressures. Being seen as eco-friendly,
businesses can increase their popularity and
acceptance by the public. The challenge with
businesses is whether we also want to assign
responsibilities for their downstream
processes, or we want to impose responsibilities for their upstream processes (procurement
decisions) including the choice of suppliers.
If we go along that line, we also need to decide
how far upstream or downstream we extend
the sphere of responsibilities.
For consumers, the responsibilities are
difficult to enforce, and it is primarily up to the

Carbon Footprint

individuals to choose what to buy and use. Credit

allocation is also difficult while at the same time
important as it reinforces healthy behavior and
further alleviates the problem.
The challenge with carbon footprint is in providing a representative enough term that will
allow us to make comparisons and evaluations
and come up with appropriate decisions and
policies to control its damaging effect. Measuring
total CO2 emissions is difficult as there are contributions from different sources and modes like
direct contributions from heating and transportation and indirect contributions from the generation of electricity and the production of goods and
services. Some rough estimates indicate that
about a third of the emissions is due to transportation, a third due to heating and electricity in
homes and the remaining for everything else.
These distributions are quite significant as they
allow policy makers to distinguish on the magnitude of the sources of pollution and develop
policies with the highest possible impact.
Despite the appeal and pressure from the
media and the public, a precise definition has
not been reached yet at least at the academic
level. The difficulty with defining the carbon
footprint stems from the way we measure and
quantify the metric. Some calculations include
only direct carbon dioxide (CO2) emissions of
greenhouse gas emissions, while others also
include carbon-based chemical-like methane.
The sources of production and the units of measurement are another area of debate. While the
majority of CO2 comes from burning fossil fuels,
there are contributions from other sources like
emissions from soils.
One also wonders if a metric focusing only on
carbon realistically represents the magnitude of
atmospheric pollution, we observe and whether
the inclusion of other pollutants like nitrogen
substances needs to also be part of the
metric. And should we only include substances
with a greenhouse warming potential or allow for
other pollutants like carbon monoxide (CO) to be
included. CO in particular is a chemical that not
only directly damages the environment and our
health but also gets converted to CO2 through
chemical processes in the atmosphere further

Carbon Footprint

313

impacting CO2 levels. Additional considerations

include the possibility of incorporating everything that contributes to CO2 throughout the life
cycle of a product like the involved upstream
production processes, the on-site emissions at
the time of the measurement, and the contributions from the follow-up recycling and degradation processes.
A case in point is the carbon footprint
contribution in the 2010 report on the National
Footprint Accounts (Global Footprint Network)
that included in the calculations the CO2
produced for the supply of energy for all purposes
and not just heat and electricity. In calculating
national footprints, contributions from imports
of energy and a countrys contribution to international transportation (as a fraction of the
countries imports) were also considered.

role in the greater community they serve as well

as their impact on all aspects of human life. Business decision makers are bound by the image and
obligations of their organization to act in the interest of the public and in addition to providing jobs
and wealth for their communities to ensure the
longevity of the environment and our living conditions. Considering carbon footprint reduction
practices instills in businesses an ethical perspective and consideration for the future of the people
and the planet. In conclusion, we should keep in
mind that the issues reflected and addressed by
a carbon footprint metric concern both producers
and consumers. This is vital in assigning responsibility and getting both to collaborate in reducing
our overall carbon footprint.

Future Directions

Ecological Footprint

Carbon footprint is a useful metric in evaluating

atmospheric pollution, and its application can
greatly influence the implementation of policies
to combat pollution. What international bodies and
governments need to do first is to clearly define
and commonly accept what is being measured and
how. The methodology used to measure is of vital
importance as are the units of measurement. Different methodologies might need to be applied
when dealing with different entities like
a product or a nation. For example, when measuring the carbon footprint of a production or consumption activity, we might want to consider
a hybrid assessment approach where life-cycle
assessments are combined with input-output analysis. Regardless of the method of choice, careful
attention should be given to avoid double-counting
as there are significant implications on the practices of carbon trading and carbon offsetting.
Corporations can showcase their efforts to
reduce their carbon footprint by applying accounting methods like reporting in Triple Bottom Line
forms. This means that in addition to financial
reporting, they report also on their social and environmental performance. This way of reporting
forces businesses to consider their function and

Cross-References

References and Readings

European Union Emissions Trading Scheme. http://ec.
europa.eu/clima/policies/ets/index_en.htm. Accessed
on Nov 2011.
Lenzen, M. (2001). Errors in conventional and input-output-based life-cycle inventories. Journal of Industrial
Ecology, 4(4), 127148.
Lenzen, M., Murray, J., Sack, F., & Wiedmann, T. (2007).
Shared producer and consumer responsibility Theory
and practice. Ecological Economics, 61(1), 2742.
Stavins, R. (Ed.). (2007). Review of environmental
economics and policy (Vol. 1, Issue 1). Cary: Oxford
University Press.
Suh, S., Lenzen, M., Treloar, G. J., Hondo, H., Horvath, A.,
Huppes, G., Jolliet, O., Klann, U., Krewitt, W.,
Moriguchi, Y., Munksgaard, J., & Norris, G. (2004).
System boundary selection in life-cycle inventories
using hybrid approaches. Environmental Science &
Technology, 38(3), 657664.
Tukker, A., & Jansen, B. (2006). Environmental impacts
of products: A detailed review of studies. Journal of
Industrial Ecology, 10(3), 159.
Wiedmann, T., & Minx, J. (2008). A definition of carbon
footprint. In Pertsova, C. C. (Ed.), Ecological economics research trends (Vol. 1, chap. 1, pp. 111).
Hauppauge: Nova Science.
Wiedmann, T., Minx, J., Barrett, J., & Wackernagel, M.
(2006). Allocating ecological footprints to final
consumption categories with input-output analysis.
Ecological Economics, 56(1), 2848.

314

Carpooling
Pauline Collins
School of Law, Faculty of Business,
University of Southern Queensland,
Toowoomba, QLD, Australia

Synonyms
Carpooling; Ride sharing; Vanpooling

Definition
Carpooling is a private arrangement between
individuals for a private car to be used for travel,
primarily at preagreed times and generally to an
agreed destination. The private arrangement, usually made between two to five people, provides
that they will travel in one vehicle to reduce costs
related to travel and adopt a more sustainable,
environmental, and communal approach to commuting. Carpooling can be further broken down
into household and nonhousehold carpooling. In
the former, members of the one household travel
in the same vehicle to and from destinations
such as school and work. In the latter case
of nonhousehold carpooling, the persons
ridesharing do not live in the same abode.
Irrespective of which type of carpooling is
occurring, both involve no commercial or
professional transport arrangements.

Introduction
Carpooling in which individuals use their private
vehicle for shared journeys is not regulated by
the state specifically and is entirely subject to
the private, often informal, agreement between
the individuals concerned. This agreement may
include a payment by the passengers toward the
cost of the owner for fuel and parking, in return
for the passengers obtaining a comfortable,
semiprivate, convenient, and cheaper manner of
transit to their desired destination.

Carpooling

There are considerable advantages to

carpooling. These include for both society and
individual: a reduced number of cars commuting
and thus, reduced traffic congestion, noise and
air pollution, energy consumption, and need
for expanding infrastructure to accommodate
increasing vehicle numbers both for commuting
and parking. At an individual level, travel and
parking costs are reduced, while driver
fatigue and vehicle accidents are also impacted
positively. One less identifiable and measurable
advantage is a greater socializing within
community, generating greater social capital and
less stress for the individuals not having to drive.
The disadvantages to carpooling are that its
informal, ad hoc, private basis may mean it is not
reliable, it may have less individual flexibility
(although some arrangements can be quite flexible),
and it usually is only practically useful if there is
a concentrated number of people living locally
proximate who travel to a specific destination, i.e.,
workplace or school, on a regular basis and at
a regular time. It has also been noted that the driver
of a carpool can be placed under increased stress.
It is likely to be used in situations where public
transport is less available, less reliable, or more
costly; parking is limited or costly; and also where
traffic congestion is significant.
An adaptation from carpooling is vanpooling.
The difference being that a larger vehicle carrying
more passengers is used. This may lead to a more
formalized commercial arrangement with the
van owner. Often, vanpooling is operated by an
employer organization for its employees to
commute on common routes to and from work
and between workplaces. A negative of car and
vanpooling is that it can separate commuters from
public transit systems, reducing the need to
improve public transport and creating a segregated
community of travelers.
Carpooling must be distinguished from public
transport and car sharing, which involve the use
of a vehicle that is part of a fleet of vehicles
available for regular rental. Such schemes help
reduce the number of privately used vehicles in
the area and correspondingly the air pollution,
traffic congestion, and parking needs. Car sharing
is ideal where urban residents only have an

Carpooling

occasional need for regular travel. It also supports

the use of the public transit system. An early and
successful example of car sharing is to be found
in Philadelphia PhillyCarShare.

Key Issues
Importantly, more comprehensive data needs to be
collected for research and public policy decision
making, along with education on the benefits of
carpooling. The first real collection of data in
the USA was from the Nationwide Personal
Transportation Study, 1977; other sources have
included the USA Census of Population and the
American Housing Survey. It is clear that
with well-thought-out incentives, such as
pricing mechanisms and preferential treatments,
commuter behavior can be altered to take
account of concern for improving lifestyle
and environmental impact. However, there is considerable room for improvement in data collection
and increased research in the area.
Another issue is the fragmentation of responsibility for transportation between the state and the
private domain, such as the corporate and
employer organizations. With increasing privatization and public private partnerships in the provision of transport infrastructure, public policy
initiatives such as educational and economic incentives coincidentally are fragmented. This means
that a holistic opportunity to motivate changed
behavior and market the advantages of carpooling
could be lost in the gaps. The traditional idea that
the motor vehicle is exclusively a private-use
commodity and not something that impacts on
and serves collective needs carrying with it
collective responsibilities requires a revision of
personal attitudes that will take time to change.
Perhaps greater attention could be focused on
those people who do carpool to positively reinforce
their behavior. Research also could focus on why it
works well for those who do carpool.
There needs to be greater clarity in the role of
government, companies, and organizations in
their duties and responsibilities toward fostering
changes in societys approach to transportation.
Certainly, organizations have many incentives

315

related to land use, economic factors, and the

health and well-being of their employees when
it comes to facilitating the adoption of
carpooling. For instance, by providing schemes
by which employees can learn about carpooling,
carpoolers can be matched, and the provision of
fee-free or reduced fee car parks are some of
the methods that organizations can adopt. An
Australian example is the Royal Automobile
Club of Victoria. A carpooling scheme was introduced in 1991 and is still included in their
Corporate Plan 20062009 for improving their
environmental performance, with 120 employees
using the scheme in 2007. However, a legally
supportive framework is desirable to ensure
a clear understanding of what carpooling means,
particularly with regard to taxation and insurance
issues.
A very thorough study was undertaken in
19971999 covering four European countries
(Increase of CAR Occupancy through innovative
measures and technical instruments (ICARO)).
One of the key findings of this study was that
while carpooling is generally accepted and rated
positively and incentive measures do have
a positive influence on increasing car occupancy
rates, it is important to focus campaigns on specific
target groups rather than generalized publicity
campaigns.
With the rise in technologies such as the Internet
and computer software programs, some of the
previous disadvantages of carpooling may be
overcome. For instance, the use of mobile phones
and the Internet can make using a carpool for transit
more reliable and efficient, with a growing number
of methods for accessing carpools occurring. These
are generally supported by technologies such as the
Internet and include the use of public websites,
member access websites, carpooling software, and
managed carpooling agencies. An example of how
matching schemes work can be found at Monash
University in Australia:
At the my.monash website you create a carpool listing as either a lift offered, ride needed, or both. You
can choose a nickname and an approximate pick-up
location in your neighborhood, such as a bus stop,
street corner, or local landmark in order to protect
your identity. Carpool matching with the My.Monash
portal is a closed service within the Monash

316
community and your personal data is not revealed to
anyone until you choose to. You then finish your
listing with commuting times and some optional
comments such as your musical preferences, possible
detours, or further contact details. If you fit someones search criteria, your marker will appear on the
map along with your commuting times once they
click on it, and people can contact you through the
portals email system without disclosing your email
address to work things out.

Public policy needs to consider incorporating

informal arrangements such as carpooling as part
of an integrated attempt at alleviating issues with
growth in transport, economic growth, environmental concerns and life satisfaction. Encouragement of carpooling can be achieved, as it is in some
cities, by allowing carpool vehicles preferential
access to freeways and car parks and in establishing
exclusive lanes for carpool vehicles, while
using restrictive measures such as imposing
fines on one occupant vehicles traveling in
such lanes. See examples with the FasTrak experiment in San Diego California and Salzburg
testet Fahrgemeinschaften demonstration project.
Private organizations can also play a vital role in
encouraging the use of carpooling. For example,
people are more likely to carpool when they can be
assured of getting a ride on the return journey.
However, with employees on shifts, or who may
become sick at work, this cannot always be
guaranteed. To overcome this inhibiting factor,
Boots, a major chemist in the UK, encouraged
use of carpooling by offering a guaranteed ride
home as an inducement to staff at its headquarters
in Nottingham. It was found that while this encouraged carpooling from a staff of 7,500 people, it
required little extra expense as the backup of
a guaranteed ride home was only used on a very
small number of occasions.

Future Directions
For over a 20-year period, there has been
a significant decline in the use of carpooling
in both the USA (19701990) and Australia
(19762006). Research has linked this to various
causes, largely economic factors, but also
socio-economic reasons such as the increase of

Carpooling

vehicle availability, lower cost of fuel, aging

population, higher education levels, less children,
changes in workforce composition with increasing
numbers of female participants, increased emphasis
on road building, poor governance and
management of public transport, and, interestingly,
increasing suburbanization. On the other hand,
social capital studies have found an increasing
propensity to carpool between neighbors who are
of a same race and, as the European Union studies
indicate, an inclination to accept carpooling where
support exists within the community in the form of
free or cheaper car parking and other preferential
treatment. In fact, the ICARO study suggested the
adoption of a universal logo signifying carpooling
in the form of a car with two occupants and
the symbol 2+.
New ways of adapting this simple but effective private arrangement between individuals to
minimize any disadvantages may lead to greater
adoption of carpooling, reducing the need for
building more freeways for large suburban transit systems. With changes occurring in individuals value systems and growing concern for the
environment and community, the likelihood for
carpooling to increase in usage is considerable.
Organizations whose primary concern is with
the environment are adopting strategies to assist
with this change in values. HelpSaveEarth.org
and the global Transport Knowledge Partnership are both examples of global organizations
that assist in promoting carpooling for workplaces. While more education and information
at a local level is needed to foster the usage of
carpooling, organizations that raise environmental awareness are assisting in this process.
Clearer understanding of the roles and responsibility of government and organizations, and
smoother integration between the institutional,
legal and cultural frameworks, driven by wellresearched and clear public policy guidelines,
will assist in achieving clarity. However, it
should always be integrated with the overarching directions of future transit policy.
Carpooling should never be encouraged where
it would draw existing public transport users
away from public transit and so risk making
public transport less viable and supported.

Carroll, A.B.

317

Cross-References

Carroll, A.B.
Carbon Emissions
Carbon Footprint
Design for Environment
Eco-efficiency
Ecological Footprint
Government (Role in Regulation, etc.)
Green Workplace
Greenhouse Gases

References and Readings

Charles, K. K., & Kline, P. (2006). Relational costs and
the production of social capital: Evidence from
carpooling. The Economic Journal, 116, 581604.
Oxford: Blackwell Publishing.
Evans, J. J., IV, & Pratt, R. H. (2005). Traveler responses
to transportation system changes. Ch 5: Vanpools and
buspools (TRCP Report 95). Washington, DC: Transport Research Board.
Ferguson, E. (1997). The rise and fall of the American
carpool: 19701990. Transportation, 24, 349376.
(2011) Global Transport Knowledge Partnership. http://
www.gtkp.com/. Accessed 2 Oct 2010.
(2012) HelpSaveEarth.org. http://www.helpsaveearth.org/
custom_commuting_report.asp. Accessed 16 Oct 2010.
Mees, P., Sorupia, E., Stone, J. (December 2007). Travel
to work in Australian capital cities, 19762006: An
analysis of census data. http://www.abp.unimelb.edu.
au/aboutus/pdf/census-travel-to-work-1976-2006.pdf.
Accessed 16 Oct 2010.
Millard-Ball, A. (2005). Car-sharing: Where and how
it succeeds (TCRP Report 108). Washington, DC:
Transport Research Board.
Monash University Carpool Service. http://fsd.monash.
edu.au/travel-parking/parking/carpooling-new-matchingservice. Accessed 3 Oct 2010.
OECD Publication (2002). Road Travel Demand: Meeting
the Challenge; see also World Road Statistics 2010,
Data 20032008, International Road Federation.
Sammer, G. (1999). Conclusions on ICARO-lessons from
the ICARO-project. International conference increasing
car occupancy through innovative measures and
technical instruments, Leeds (UK), 22 Mar 1999;
See report summary. ftp://ftp.cordis.europa.eu/
pub/transport/docs/summaries/urban_icaro_report.pdf.
Accessed 16 Oct 2010.
Transport Research Knowledge Centre funded by the European Commissions Directorate General for Mobility and
Transport under the Sixth Framework Programme for
Research and Technological Development. http://www.
transport-research.info/web/. Accessed 10 Oct 2010.
Vuchic, V. R. (2007). Urban transit systems and technology
(pp. 503506). Hoboken: Wiley.

Samuel O. Idowu
London Metropolitan Business School, London
Metropolitan University, London, UK

C
Basic Biographical Information
Archie B. Carroll is professor emeritus of
management in the Terry College of Business,
University of Georgia, Athens, Georgia, United
States of America. He served also as part-time
director of the Nonprofit Management & Community Service Program for over 10 years,
a position he currently holds.
Professor Carroll spent the bulk of his academic
career as a tenured faculty member in the Terry
College of Business, University of Georgia. He
was on the full-time faculty from 1972 to 2005
and continued part-time for 6 years more. During
this time, he rose among the ranks from assistant
professor to full professor and was awarded the
Robert W. Scherer Chair of Management and Corporate Public Affairs beginning in 1986 and continuing until his retirement. During this time, he
wrote books, research articles, directed doctoral
dissertations, served on graduate committees;
spoke publically to business, government, and
nonprofit groups; and consulted with numerous
organizations throughout the United States and
elsewhere. He also served as associate dean of
the college (19791982) and department head of
the Management Department (19952000). For
a decade beginning in 2001, he served on the
University of Georgia GLOBIS Study Abroad
Program Faculty teaching business ethics to
students in Verona, Italy.
He was born in Jacksonville, Florida, and
spent 8 years (19561963) living in the Panama
Canal Zone where his father was employed,
before returning to the states. Dr. Carroll received
his three academic degrees from The Florida
State University (Tallahassee, Florida): BS, Personnel Management, 1965; MBA, Organization
Management, 1966; Ph.D. in Business Administration/Management and Organizations, 1972.

318

Major Contributions
Professor Carroll was in on the ground floor of the
business and society, and social issues in management field when he joined the Social Issues in
Management (SIM) Division of the Academy of
Management in 1972. There were very few academics and researchers in the field at this time,
and he quickly rose to chair of the SIM Division
in 19761977. Approaching the field from the
perspective of management and organizations,
he initially was interested in the managerial
implications of corporate social responsibility.
In 1977, he published/edited his first book in the
field, Managing Corporate Social Responsibility
(Boston: Little, Brown and Company, 1977)
which was a collection of recent readings on
management-related aspects of corporate social
responsibility (CSR).
One of his earliest and most important theoretical articles was A Three-Dimensional
Conceptual Model of Corporate Social Performance, published in the Academy of Management Review (Carroll 1979). This article sets
forth a conceptual model which sought to bring
together a definition of CSR, a categorical
scheme for corporate social responsiveness, and
a delineation of the arenas in which CSR might be
applied. His definitional construct of corporate
social responsibility was a four-part definition
which sought to embrace the economic, legal,
ethical, and discretionary (later referred to as
philanthropic) expectations on business at any
given point in time. He later extracted this definition and built upon it and presented it as the
Pyramid of Corporate Social Responsibility in
a 1991 article. This article also sought to tie in
the stakeholder dimension of the model as well
(Carroll 1991).
Carrolls four-part CSR definition was
operationalized into a research instrument by
Kenneth Aupperle, one of his doctoral students,
and was used as the basis of a major data gathering study in which the results substantiated and
validated the definition as a useful construct and
method for gathering measures of corporate
social responsibility orientation, one of the early
accepted methods of measuring CSR among

Carroll, A.B.

managers (Aupperle et al. 1985). Since that

time, the instrument has been used extensively
in the literature as one of the most frequent and
popular measures of CSR in research studies.
In 1981, Carroll published his first textbook in
the field Business and Society: Managing Corporate Social Performance (Boston: Little,
Brown and Company, 1981). This was one of
the earliest books to focus on the managerial/
organizational dimension of business and society/CSR and had specific chapters dedicated to
corporate social policy and management, planning and organizing for social response, social
performance measurement and reporting, and
communicating the business social role. This
book was named one of the top 20 best and
most original contributions in the strategy and
planning category in The Good Book Guide for
Business (1984) from the publishers of The Good
Book Guide and The Economist.
This book created the framework that was
later used in his highly successful book, Business
and Society: Ethics and Stakeholder Management (Cincinnati: South-Western Publishing
Company, 1989), which is in its 8th edition
today. Carroll wrote the first three editions himself and added his colleague Dr. Ann K.
Buchholtz, now professor at the Rutgers business
school, as coauthor in the 4th and subsequent
editions. The most recent edition is titled Business and Society: Ethics, Sustainability, and
Stakeholder Management, 8th Edition, 2012,
published by South-Western Cengage Learning
(Carroll and Buchholtz 2012). The book has been
popular for over 20 years now and has been used
extensively in the USA and in other countries as
well. A Canadian version was published in 2005
and a Chinese version was published in 2006.
Over the decades, Carrolls articles, which
number in excess of 100, have been published in
most of the major journals that publish work in
the business and society and business ethics field.
Beginning in the 1980s, he branched into more
work on business ethics and became active in the
Society for Business Ethics, a specialized academy of international scholars who approached the
field from a variety of disciplines. He was elected
president of the Society for Business Ethics

Carroll, A.B.

during the 19981999 year and helped to bring

together the SIM Division of the Academy of
Management and the Society for Business Ethics.
He also served as a founding board member of the
International Association for Business and Society (IABS) in 19881989.
He has written many entries for business and
society and business ethics encyclopedias, dictionaries, and specialized books over the past
35 years or more. In 1999, he published an important and highly cited article in which he provided
the history of the corporate social responsibility
definitional construct as it had evolved over the
previous half century (Carroll 1999).
Over the decades, he has served on the Editorial Review Boards of the Academy of Management Review, Journal of Management, Business
and Society, Business Ethics Quarterly, Journal
of Public Affairs, Sage Series in Business Ethics,
University of Georgia Press, and Annual Editions: Business Ethics. He served as one of the
associate editors for Encyclopedia of Business
Ethics and Society, Sage Publishing Company,
2007.
In 1999, Carroll began writing a monthly column for the Athens Banner-Herald newspaper
and continues this public service today. In this
capacity, he sought to take popular topics of
interest in business ethics corporate social
responsibility and present them in the business
section of the newspaper as a public service to
business lay readers. Since these articles have
been posted on the World Wide Web, they have
received far-reaching attention by practitioners
and academics. In 2009, he published over 100
of these columns in the book Business Ethics:
Brief Readings on Vital Topics (Carroll et al.
2009).
In 2008, Dr. Carroll was selected to be one of
four authors to write a History of Corporate
Responsibility book by decision makers within
the Center for Ethical Business Cultures, University of St. Thomas, in Minneapolis, Minnesota.
The editors for the project are Dr. Kenneth E.
Goodpaster and David H. Rodbourne. The other
three authors of the book, to be published by
Cambridge University Press, include Kenneth
Lipartito (Florida International University),

319

James Post (Boston University), and Patricia

Werhane (DePaul University). The formal title
of the book is still tentative as of writing, and
the book is expected to be published in 2012. The
book seeks to explore the history of corporate
social responsibility in the USA since the mid1800s and chronicles its development up to the
present time. Another volume will explore the
development of the topic in the rest of the world.
Honors and Awards
In 1992, Dr. Carroll was awarded the Sumner
Marcus Award for Distinguished Service by the
Social Issues in Management Division of the
Academy of Management. This is the highest
award given by the Division. In 1993, he was
awarded the Terry College of Business, University of Georgia, Distinguished Research Award
for his then 20 years of research in corporate
social performance, business ethics, and stakeholder management. In 1996, he was inducted
as a fellow of the Southern Management Association. In 2003, he received the Terry College of
Business Distinguished Faculty Service Award.
He was elected a fellow of the Academy of Management in 2005. (Less than one percent of Academy members have been elected to the fellows
group). In 2008, he received the Florida State
University College of Business Distinguished
Ph.D. Alumni Award for his outstanding accomplishments over the course of his career.
Over the years, he has been recognized by
various Whos Who publications to include
Whos Who in Business of Higher Education,
America, American Teachers, Finance and
Industry, and Emerging Leaders in America,
and the South and Southwest. In addition, he
has been recognized during various years by the
Dictionary for International Biography, Contemporary Authors, Men of Achievement, Personalities of America, International Directory of
Distinguished Leadership, and Outstanding
Young Men of America.
In terms of professional and honorary societies, he has been selected for and inducted into
International Honor Society of Beta Gamma
Sigma, Sigma Iota Epsilon National Management Honor Society, Phi Beta Delta Honor

320

Society for International Scholars, Golden Key

International National Honor Society, and Honor
Society of Phi Kappa Phi.
His professional web page may be found at
http://www.terry.uga.edu/profiles/?person_id443.
His newspaper columns on business ethics and
social responsibility have been archived at http://
www.onlineathens.com/staff/carroll.shtml.
He may be contacted by e-mail at
acarroll@uga.edu.

Carrolls CSR Domains

Carrolls CSR Domains

Pyramid of CSR

Carrolls CSR Pyramid

Pyramid of CSR

Cross-References
Business and Society
Business Ethics
Corporate Social Performance
Corporate Social Responsibility (CSR)
Pyramid of CSR
Social Issues Management

Casinos
Gambling

References and Readings

Catholic Personalism

Aupperle, K. E., Carroll, A. B., & Hatfield, J. D. (1985).

An empirical examination of the relationship between
corporate social responsibility and profitability. Academy of Management Journal, 28(2), 446463.
Carroll, A. B. (1979). A three-dimensional conceptual
model of corporate social performance. Academy of
Management Review, 4(4), 497505.
Carroll, A. B. (1981). Business and society: Managing
corporate social performance. Boston: Little, Brown
and Company.
Carroll, A. B. (1989). Business and society: Ethics and
stakeholder management. Cincinnati: South-Western.
Carroll, A. B. (1991). The pyramid of corporate social
responsibility: Toward the moral management of
organizational stakeholders. Business Horizons,
34(4), 3948.
Carroll, A. B. (1999). Corporate social responsibility:
Evolution of a definitional construct. Business and
Society, 38(3), 268295.
Carroll, A. B. (Ed.). (1977). Managing corporate social
responsibility. Boston: Little, Brown and Company.
Carroll, A. B., & Buchholtz, A. K. (2009). Business and
society: Ethics and stakeholder management (7th ed.).
Mason: South-Western Cengage.
Carroll, A. B., & Buchholtz, A. K. (2012). Business and
society: Ethics, sustainability and stakeholder management (8th ed.). Mason: South-Western Cengage.
Carroll, A. B., & Ethics, B. (2009). Brief readings on vital
topics. New York/London: Routledge.

CSR and Catholic Social Thought

Catholic Social Teaching

CSR and Catholic Social Thought

Catholic Theology
CSR and Catholic Social Thought

Cause Marketing
Cause-Related Marketing

Cause-Related Marketing

Cause-Related Marketing
Rian Beise-Zee
College of International Management,
Ritsumeikan Asia Pacific University, Beppu,
Japan

Synonyms
Affinity marketing; Cause marketing; Causerelated marketing campaign; Corporate social
responsibility campaign; Mission marketing;
Societal marketing

Definition
Cause-related marketing is a promotional activity
of an organization in which a societal or charitable cause is endorsed, commonly together with its
products and services as a bundle or tie-in. Causerelated marketing is a vehicle of communication
of CSR which demonstrates to a large audience
how the social responsibility of an organization
translates into specific benefits for society.
Cause-related marketing is often organized in
the form of a promotional campaign and in cooperation with a charity or nonprofit organization
that pursues a specific societal cause. The business community regularly defines cause-related
marketing specifically as a cooperation between
a commercial organization and a charity for
mutual benefit.
Cause-related marketing is a part of corporate
social responsibility but the two terms are frequently and incorrectly used synonymously.
Cause-related marketing encompasses all promotional activities in which a corporation communicates to a target audience that it supports
a specific communal, societal, charitable, or special-interest cause that is not the companys main
commercial objective. Cause-related marketing
has marketing objectives aimed at core commercial interests of the company. These goals may be
short-term, for example, an immediate rise in
sales, or more long term such as the enhancement

321

of a corporations image or brand equity based on

increased brand awareness, brand likability,
favorable brand associations, or bonding of customers to a corporation or a brand. The essence of
cause-related marketing, therefore, is not the
achievement of the cause itself, but the achievement of marketing goals. Cause-related marketing is different to cause marketing. The term
cause marketing denotes the promotion activities by nonprofit organizations whose main
objective is the cause, though it is possible that
a for-profit organization promotes a cause without commercial objectives. Accordingly, the
essence of cause marketing is how to persuade
a target audience to either change their behavior
or to support the cause themselves and not necessarily to exploit a customers affinity to a cause
for commercial interests of a company.
In a cause-related marketing campaign, there
are various ways in which a company can support
a cause. Initially, cause-related marketing has
been understood as an offer of a firm to contribute
a specified amount to a designated cause when
customers purchase a product or service from the
company (Varadarajan and Menon 1988). More
broadly defined, however, cause-related marketing includes other forms of support, monetary
and in-kind, such as commissioning advertisement campaigns to raise awareness for a cause,
providing a service to a nonprofit organization or
organizing a fund-raiser event. Promotional
activities of a cause-related marketing campaign
are, for instance, advertisements in various media
channels, in-store displays, or inserting a logo on
the product package that graphically demonstrate
present or future donations, or other forms of
support of a company to a specific cause.

Introduction
Initially cause-related marketing was closely
related to corporate philanthropy, that is, donations of commercial corporations to charities.
Varadarajan and Menon (1988), who wrote the
first scholarly article on the concept of causerelated marketing, view it as the alignment of
corporate philanthropy and business interests.

322

Cause-related marketing is deemed to incorporate philanthropy into the marketing strategy of

company therefore serving societal as well as
corporate interests. Compared to philanthropy,
cause-related marketing particularly and visibly
associates the firms contribution with its corporate brand, product brands, or particular products
and services. At the same time, cause-related
marketing shifts emphasis to communicating the
companys support for a cause and engaging current and potential customers actively and emotionally in a companys benefaction in order to
foster a bond between brand and customer.
Through a cause-related marketing activity, companies often attempt to engage customers, for
instance, by making the firms support conditional upon purchases of the firms products and
services.
Cause-related marketing is commonly
conducted as promotional campaign. A promotional campaign is a series of mass or personal
communication messages that share a single idea
and theme and that appear in different media
within a specific time frame. Although many
marketing campaigns throughout the twentieth
century fall under the definition of cause-related
marketing, the expression cause-related marketing is commonly attributed to the US financial
services provider and credit card issuer American
Express, whose marketing department coined this
term in 1983 to denote a campaign which donated
funds to a number of different nonprofit organizations and causes, most notably the Statue of
Liberty renovation (Adkins 1999). Though
American Express had established a philanthropic foundation much earlier in 1954 as
a vehicle for grant making, the new initiative
aimed at connecting its customers directly to
a charity. The amount of the donation was determined by the number of new applications to the
payment card and the number of transactions
within a certain period of time. Many companies
have introduced similar campaigns since.
Conceptually, the designation of cause-related
marketing has been broadened beyond just donations to a charity to encompass other marketing
schemes that follow the same theoretical rationale. The concept of cause-related marketing is

Cause-Related Marketing

an attempt to align societal and commercial interests. Companies who engage in, or intend to
practice, corporate social responsibility normally
seek to leverage their effort and investments in
CSR by appealing to a broad audience. Yet, corporate social responsibility is a complex construct, which in practice often remains elusive to
many consumers and managers alike. As Brnn
and Vrioni (2001) put it, the normative universe
is large, diverse, often vague, uncertain of relevance or application, difficult to customize.
Managers and practitioners have found it beneficial to pin down the concept of corporate social
responsibility by reifying a companys social
responsibility as a material contribution to
a specific cause. Cause-related marketing is characterized by cause specificity, hence reducing the
abstract realm of corporate citizenship to one
dedicated societal cause. This greatly simplifies
and materializes the societal responsibility of
a company. It also localizes corporate social
responsibility in the common organizational
structure of a commercial enterprise by assigning
the tasks of planning and implementing a CSR
campaign to the marketing department.
The effectiveness of cause-related marketing
as a communication tool for corporate social
responsibility results from the following: (a)
cause specificity, (b) targeting, and (c) customer
involvement. The essential goal of cause-related
marketing is to associate a company with a cause
in the minds of a targeted audience. The association of a company with a cause has two fundamental benefits. Firstly, it is an instantiation of
societal responsibility without the obligation to
change operational processes and, secondly, it
creates company-customer fit. As mentioned
above, the abstract nature of corporate social
responsibility makes it difficult for consumers to
discern. The use of cause specificity within the
CSR of a company illustrates a companys efforts
and is, therefore, easier for a broad audience to
comprehend compared to the abstract identity of
a company of being a good and responsible
corporate citizen. Cause-related marketing
answers the question about how a company is
doing or being good. Cause-related marketing
campaigns illustrate and reify the social

Cause-Related Marketing

responsibility of a corporation enabling it to

appear responsible while keeping all organizational processes unaffected. Since cause-related
marketing campaigns can be and mostly are
completely separated and independent from the
day-to-day business of a firm, this CSR effort
can be contained in the marketing department and
run with a clear cost-benefit plan and even with
a small marketing budget. There is no need to
restructure ( Socially Responsible Enterprise
Restructuring) or change any internal processes.
Cause-related marketing campaigns are often
even designed to fit seamlessly into existing internal processes. For instance, the Change for
Good campaign initiated originally by British
Airlines in cooperation with UNICEF builds on
the existing service of flight attendants. During
in-flight announcements, passengers are asked to
hand over any leftover loose change of foreign
currency for which they have little use (Pringle
and Thompson 1999). The change is then handed
over to UNICEF. The cost for the airline is marginal. In this case, and also in the case of the
American Express type of cause-related marketing described above, a firms donations is really
a donation of the customer or a direct result of
a purchase of a product or service. The company
acts merely as the facilitator for the cause. The
customer feels that he himself donated to the
cause.
The second essential benefits of a causerelated campaign is fit or congruence between
a company and its customers. Companycustomer congruence describes how much
a company is perceived as sharing similar characteristics with a customer. Bhattacharya and Sen
(2003) view deep meaningful relationships to
consumers as the essential aim of a company to
create brand loyalty. In this view, a company or
brand can overcome buyer disenchantment and
its own detachment from its consumers by
appearing relevant and part of a community
with similar interests. Consumer identification
with companies also helps the consumer satisfy
one or more key self-definitional needs.
Supporting the same cause creates opportunities
for a consumer to identify with a corporation and
as a result grow affection and loyalty to the

323

corporate brand. Caring for a cause creates relevance and identification at least for those consumers who care for the same cause. How much
a consumer cares for a specific cause is denoted
as cause affinity. Cause-related marketing acts as
mediator from consumer cause affinity to company affinity which is expected to increase purchase intention and loyalty. The higher the cause
affinity of a consumer the more relevant and
therefore successful the cause-related campaign
is expected to be. Cause-related marketing is
often indeed being used to target specific demographic or lifestyle segments of the market.
Mekonnen et al. (2008) introduce the term
affinity marketing to emphasize the aim to
appeal to a specific group of customers and to
become an identifier of that group. A cause helps
brand marketing to stress the fit between a certain
customer group and the brand. Affinity marketing
has long-term and discrete group orientation,
rather than short-term and mass-market
orientation.
It has been suggested that another objective of
cause-related marketing is to thwart negative
publicity in case of a product-harm incident or
to compensate for negative public attitudes
toward an industry, that are costly to avoid, such
as the damage to the environment by oil exploration or the animal testing of pharmaceutical firms.
Customer identification with a company leads not
only to more favorable consumer evaluations but
negative events are also expected to be treated
with more lenience.
Another secondary benefit of cause-related
marketing is employee motivation or internal
marketing. Employees can be conceptualized as
internal customers. The endorsement and organizational support of a cause by the company can
increase social identification of employees with
their companys brand foster the bond between
employees and corporate brand. Cause-related
marketing campaigns are often more invigorating
to the organization because employees have more
opportunities to actively participate in the campaign, for instance, as fund-raiser or by actively
soliciting customers for the cause during a service
encounter. Sometimes cause-related marketing
campaigns are even explicitly communicated as

324

having been initiated or are organized by the

companys employees instead of the marketing
department.

Key Issues
As a promotional tool, the effectiveness of causerelated marketing is judged by the degree of
achievement of the marketing objectives of the
campaign. Cause-related marketing is normally
targeted at consumers although business-tobusiness cause-related marketing exists, for
example, campaigns initiated by business consultancies or advertisement agencies to raise funds
among corporate clients. The response of consumers to cause-related marketing campaigns is
the main research objective in the area of causerelated marketing.
The effectiveness of cause-related marketing
rests on its relevance, believability, and the
impact on consumer purchasing decisions. Relevance is related to the degree of consumer cause
affinity and the prevalence of cause affinity in the
population. A consumers cause affinity is the
concept of how strongly a consumer associates
with a cause either by actively supporting the
cause or just by liking it. Low cause affinity
leads to indifference of a consumer toward the
cause and lowers the attention for a cause-related
marketing campaign. However, for consumers
with low cause affinity, support for the cause
can still be a signifier for a companys corporate
social responsibility. Consumers with high cause
affinity are expected to react much stronger to
cause-related marketing campaigns and therefore
are normally the targeted market segment in
a cause-related marketing campaign. Since consumers with high cause affinity are genuinely
interested in the cause itself, a cause-related marketing campaign offers them another opportunity
to help the cause. By purchasing and
recommending the brand, consumers can feel
that they have done something for the cause. It
has also been found that consumers with high
cause affinity are more forgiving in case of negative media events such as a product-harm crisis
(Sheik and Beise-Zee 2011). The prevalence of

Cause-Related Marketing

cause affinity is a measure of the size of the

market segment that is most effectively reached.
Normally, companies select causes that are generally liked. However, causes can be also be
controversial and disliked by a part of the population such a religious causes or societal causes
that infringe upon religious doctrine (e.g., abortion, coeducation, womens rights). Negative
cause affinity can hurt a brands image and it
has to be assessed by a company whether the
positive effects in the market segment with positive cause affinity can make up for the negative
brand impression consumer with negative cause
affinity might acquire.
Believability is considered an important
moderator for the success of cause-related marketing campaigns. Consumers could recognize
cause-related marketing as a sales tactic and attribute it to ulterior motives of a company.
A company can appear to merely exploiting
a cause, a form of greenwashing, instead of
fulfilling their social responsibility, which can
lead to consumer resentment and adverse consequence for the brands image. For instance, donation campaigns for disaster victims are typically
criticized in public as misappropriation of
a tragedy for a branding opportunity. Consequently, the strength and direction of consumer
reaction to a cause-related marketing campaign
depends on the pervasiveness of consumer skepticism, the quantity of support (e.g., the amount
donated) and the fit between the company and the
cause (Barone et al. 2007). Cause-related marketing suffers from consumer skepticism toward
advertisement claims in general and the perceived upsurge of cause-related marketing campaigns after product-harm crises (Webb and
Mohr 1998; Brnn and Vrioni 2001). The believability of a companys social responsibility is
suggested to increase with the perceived relatedness of a companys business to the cause that it
supports (or the fit between company and
cause). This fit is commonly defined as the perceived link between the companys image, positioning, target market, and the causes image or
constituency (Varadarajan and Menon 1988).
A high cause fit evokes the image that the company supports a cause not only for promotional

Cause-Related Marketing

reasons but because it is serious about the social

issue. For instance, since most body care products
are tested on animals for their allergic effects,
campaigning against animal testing is credible
for a retailer such as Body Shop. A low fit, in
contrast, implies that there are no reasons related
to the product or company context that can
explain why a company supports the cause indicating ulterior motives of the company. A low fit
between cause and company is expected to cause
suspicion in the market, though customers with
a high cause affinity may be less concerned about
the cause fit.
Business organizations emphasize that causerelated marketing is of mutual benefit for the
company as well as for the cause. Both claims
are not universally supported by evidence.
A growing body of studies aims at measuring
the commercial benefits of cause-related marketing for a company. Case studies have found that
sales, awareness levels, and loyalty have indeed
gone up during cause-related marketing campaigns. Yet, cases exist of successful and less
successful cause-related marketing campaigns.
Statistical evidence is more difficult to produce.
Surveys usually indicate that a large fraction of
consumers (typically around 90 %) state that they
would prefer a brand that is associated with
a cause. However, surveys are inherently
unreliable due to the so-called social desirability
bias which renders it difficult to measure the true
willingness to purchase products or services that
are promoted through cause-related marketing
campaigns. Most respondents hold a positive attitude toward or claim to support a cause if it is
a socially desirable cause. In reality, however,
many consumers fail to act upon their stated
preferences. In order to statistically validate the
effect of cause-related marketing campaigns, it
has to be shown that in a representative sample,
the sales profits or brand equity (depending on the
marketing objective of the campaign) are higher
during the campaign than before (after deducting
the cost of the campaign).
On the other hand, many charities have tremendously benefited financially from donations
through cause-related marketing campaigns. Yet,
despite successful cases of accomplishment,

325

beginning with successful restoration of the

Statue of Liberty in New York City, it is unknown
what cause-related marketing campaigns have
really contributed to more general societal
causes. Statistics on the monetary contributions
of cause-related marketing to nonprofit organizations are rare and their reliability unknown.
According to the consultancy IEG, a subsidiary
of WPP, one of the largest advertisement agencies, US companies spent around US$1.5 billion
on cause campaigns in 2008, up from US$828
million in 2001. This compares to US$11.5 billion US companies spend in the same year on
sports sponsorship, and an estimated total advertisement spending of between US$130 and US
$150 billion, which means that US companies
spend around an equivalent of 1 % of their advertisement budgets on cause-related campaigns.
Charities that tap into the source of causerelated partnerships with corporations realize
that most corporations view the success of
a campaign in terms of increased sales or other
commercial objectives. As a result, they are
pressured to deliver as much business back to
the companies in order to maintain the relationship. This relationship between profit and nonprofit is likely to affect the way charities work as
well, because it means that nonprofit organizations are not only pressured to presenting themselves in order to raise funds from a population
for a cause but they are then also obliged to
present the cause in such a way as to generate
sales or enhance brand equity of a commercial
corporation. From this, the question arises
whether cause-related marketing really is intrinsically part of corporate social responsibility or
under which conditions cause-related marketing
can be considered a genuine CSR practice. On the
other hand, one could argue that cause-related
marketing is an excellent example of how both
commercial and societal interests can be pursued
at the same time. One of the fundamental criticisms against corporate social responsibility is
that for-profit corporations need to concentrate
on profitability and any deviation from this objective weakens their competitiveness. Causerelated marketing is a model that aligns private
rents and welfare at least for a dedicated cause.

326

Another criticism of cause-related marketing

is that a campaign, in which a company makes
a donation conditional to an increase in sales,
insinuates that the seller makes less profits and
shares the margin with a charity. However, this
need not be the case since cause-related marketing is predominantly used for premium products
with large margins and targeted at affluent customers. A cause can render a product as a premium and therefore a company might be able to
increase the margin. For instance, it has been
noted that coffee under the fair trade label is
more profitable for the retailer than normal coffee
brands because demand from ethical consumers
is less price elastic (e.g., Arnot et al. 2006).

Future Directions
Cause-related marketing is, most of all, a marketingdriven and practitioner-based concept. During the
past 30 years, cause-related marketing has become
a mature and widely used marketing tool. It is clear
today that in spite of the campaign-oriented implementation of cause-related marketing, it is not
a temporary buzz word or a fad but a sustainable
model that links societal causes with for-profit organizations. Cause-related marketing will further
evolve as the issue of corporate social responsibility
gains momentum. Innovations in partnerships
between companies and nonprofit organizations
are driving this evolution. Adjustments in the way
cause-related marketing is conducted will be necessary because, nowadays, consumers are frequently
confronted with cause marketing in the media, the
supermarket aisle, hotels, and various other service
encounters. A general question remains about how
customers perceive and react to cause-related marketing, but it must also be asked whether and how an
inflation of cause marketing campaigns is altering
consumer reaction. Consumers could become more
skeptical or even cynical and perhaps less and less
affected by cause campaigns. On the other hand, the
more that products and brands are associated with
causes, the higher the consumer expectation might
be for this to become the standard so that they may
react negatively if a company fails to present a cause
worth supporting.

Cause-Related Marketing Campaign

Cross-References
Advertisment
Greenwashing
Marketing Communications and CSR
Philanthropy
Sponsorship

References and Readings

Adkins, S. (1999). Cause related marketing: Who cares
wins. Oxford, UK: Butterworth-Heinemann.
Arnot, C., Boxall, P. C., & Cash, S. B. (2006). Do ethical
consumers care about price? A revealed preference
analysis of fair trade coffee purchases. Canadian
Journal of Agricultural Economics, 54(4), 555565.
Barone, M. J., Norman, A. T., & Miyazaki, A. D. (2007).
Consumer response to retailer use of cause-related
marketing: Is more fit better? Journal of Retailing,
83(4), 437445.
Bhattacharya, C. B., & Sen, S. (2003). Consumercompany identification: A framework for understanding consumers relationships with companies. Journal
of Marketing, 67(2), 7688.
Brnn, P. S., & Vrioni, A. B. (2001). Corporate social
responsibility and cause-related marketing: an
overview. International Journal of Advertisement,
20(2), 207222.
Mekonnen, A., Harris, F., & Laing, A. (2008). Linking
products to a cause or affinity group: Does this really
make them more attractive to consumers? European
Journal of Marketing, 42(1/2), 135153.
Pringle, H., & Thompson, M. (1999). Brand spirit: How
cause related marketing builds brands. Chichester:
Wiley.
Sheik, S. -u-R., & Beise-Zee, R. (2011). Corporate social
responsibility or cause-related marketing? The role of
cause specificity of CSR. Journal of Consumer
Marketing, 28(1), 2739.
Varadarajan, P. R., & Menon, A. (1988). Cause-related
marketing: A coalignment of marketing strategy and
corporate strategy and corporate philanthropy. Journal
of Marketing, 52(3), 5874.
Webb, D. J., & Mohr, L. A. (1998). A typology of
consumer responses to cause-related marketing:
From skeptics to socially concerned. Journal of Public
Policy & Marketing, 17(2), 226238.

Cause-Related Marketing Campaign

Cause-Related Marketing

Caux Round Table Principles

Caux Round Table Principles

Archie B. Carroll
Department of Management, Terry College of
Business, University of Georgia, Athens,
GA, USA

327

Each of the seven core principles is supported

by further documentation as to their meaning and
application. In addition, a set of Stakeholder
Management Guidelines supplement the principles with more thorough discussion of their
implementation.

C
Introduction

Synonyms
Global codes of conduct; Global ethics guidelines; International ethics principles, standards,
and guidelines

Definition
The Caux Round Table (CRT) Principles for
Business articulate a worldwide vision for ethical
and responsible corporate behavior. As a set of
seven core principles, they serve as a foundation
for ethical action for business leaders across the
globe. The CRT Principles are a statement of
aspirations that seek to communicate a world
standard against which business social and ethical behavior can be gauged.
The CRT Principles for Business were created
through a sophisticated, collaborative process in
1994. The Principles were developed by business
leaders and, therefore, carry considerable credibility in the business community. They are the
end result of a process that sought to identify
shared values, reconciling differing values, and
concluding in a shared point of view about business behavior that would be deemed acceptable
to and honored by all.
There are seven core CRT Principles which
include the following:
1. Respect Stakeholders Beyond Shareholders
2. Contribute to Economic, Social, and Environmental Development
3. Build Trust by Going Beyond the Letter of the
Law
4. Respect Rules and Conventions
5. Support Responsible Globalization
6. Respect the Environment
7. Avoid Illicit Activities

The CRT Principles were the joint product of

collaboration between the Caux Round
Table and the Minnesota Center for Corporate
Responsibility (MCCR). To appreciate how the
principles came into existence, it is necessary to
briefly understand each of these two organizations and the paths they took that brought them
together.
In the 1980s, the Caux Round Table (CRT)
was founded by senior Japanese and European
executives who were concerned about trade frictions that were occurring in the automotive and
electronics industries. In an effort to mediate the
disputes that arose, the founding members agreed
to meet at a hotel in Caux, Switzerland. The site
was chosen to be a neutral site where the executives of the competing companies could get to
know one another so that they could better appreciate one anothers views on the issues at hand.
The initial group was approximately 20 executives who agreed to meet each year at the Caux
location and to have a second meeting annually
rotating between the worlds major trading
regions.
By the early 1990s, the groups objectives had
been achieved. Much of the trade tension had
dissolved, and the CRT began thinking about
other missions it might pursue. During the years
of meetings of the CRT, the members would
often get together in the evenings and discuss
the great issues of the day. They often wondered
what roles CEOs ought to be playing in
addressing these world issues.
Independent of the activities of CRT, a group
of responsible business executives in Minneapolis, Minnesota, had founded an organization in
1977 which they officially called the Minnesota
Project on Corporate Responsibility (MPCC).

328

In the 1970s, the group focused on the theme of

corporate citizenship, and by the 1980s, it was
thinking in terms of responsibilities to businesses stakeholders customers, employees,
shareholders, suppliers, and communities.
The business leaders in the MPCC renamed
themselves the Minnesota Center for Corporate
Responsibility (MCCR). Under the leadership of
Bob MacGregor, MCCR brought together
a group of business and academic leaders who
were deeply interested in the importance of business ethics and integrity. The newly named center
decided to formulate what would be called the
Minnesota Principles, a set of ethical guidelines, or code of conduct, that they thought
would be valuable to businesses as they thought
about their responsibilities to the world in which
they operated. In 2000, the Minnesota Center
took on a new name, the Center for Ethical
Business Cultures (CEBC).
Charles M. Denny, Jr., CEO of ADC Telecommunications was one of the early supporters of
the principles, and MacGregor and Denny
became the prime movers in the development of
a cadre of executives and academics to formulate
the ethical guidelines. They wanted the principles
to be both pragmatic and universal in the sense
that they could be applicable around the world in
spite of cultural differences that might exist
among the worlds different trading regions.
The business leaders enlisted the support of
Professor Kenneth E. Goodpaster, who had come
to the University of St. Thomas in Minneapolis in
1989 to fill the Koch Endowed Chair in Business
Ethics, to commit the principles to paper.
Dr. Goodpaster had developed the ethics curriculum at the Harvard Business School and had also
taught ethics and philosophy at Notre Dame.
According to David Koch, who founded the
endowed chair which was filled by Goodpaster,
the professor was their top choice to draft the
principles.
The Minnesota Center decided to name the
document they produced The Minnesota Principles: Toward an Ethical Basis for Global Business. The Minnesota Principles were divided
into five general principles and six stakeholder
principles, embracing customers, employees,

Caux Round Table Principles

owners/investors, suppliers, communities, and

competitors. Their principles were copyrighted
in 1992. But, as Charles Denny later observed,
the executives realized that they could have an
important impact within the United States, but
they needed an organization that was embedded
in the international business world to carry forth
their message around the globe. Their fortuitous
connection with the Caux Round Table turned out
to be just the linkage they needed.
In 1992, Charles Denny, who had been
a member of the Caux Round Table, along with
Bob MacGregor, representing the Minnesota
Center, arranged to present the Minnesota Principles at one of the annual Caux meetings in
Switzerland. Denny reported that the Caux membership was enthusiastic about their presentation
and to their proposal that the Caux Round
Table adopt the Minnesota Principles.
The Caux group concluded that a major revision of the Minnesota Principles would be necessary before it adopted them so that they could
integrate the perspectives and philosophies of the
Asian members to the principles. The Minnesota
Principles had been written largely from
a Eurocentric and Judeo-Christian perspective in
which the focus had been on the rights and dignity of individuals. The Asian perspective, however, emphasized the idea of communitarianism
which believed in the subordination of the individual to the group or the common good.
The chair of the CRT at the time of these
developments was Ryuzaburo Kaku, who was
CEO and chair of Canon Corporation, the camera
and office equipment company. Among his many
achievements, Kaku was known for adopting the
term kyosei to express the concept of working
and living together for the common good. In
a quest to produce a document that would be
satisfactory to all, Charles Denny worked diligently to revise the Minnesota Principles to incorporate the philosophy of the common good.
Chairman Kaku approved of his revisions and
the document was presented to the group and
the Caux Round Table Principles were adopted
with a unanimous vote of the group.
In the Introduction to the CRT Principles, it
was stated that they were intended to be ethical

Caux Round Table Principles

norms for acceptable business practices. The trust

and confidence that is needed to sustain free markets would be reflected in ethical businesses practices. It was argued that the singular pursuit of
profits, with no concern for other stakeholders,
would eventually lead to business failure and
sometimes to regulations that were counterproductive. Therefore, it was necessary for business
leaders to display ethical leadership if they
wanted to sustain prosperity. The introduction
also asserted that a moral compass was needed
by the business community and that it could not
just rely on traditional measures of profitability.
There are seven core principles in the Caux
Round Tables conception of responsible business conduct. The principles were anchored in
three ethical bases. These underpinnings
included (1) the notion of responsible stewardship, (2) living and working together for mutual
advantage, and (3) respect and protection of
human dignity. The CRT Principles are
supported by detailed Stakeholder Management
Guidelines, and these will be discussed after coverage of each of the seven core principles.
Following is a presentation and summary
explanation of each of the seven core principles
as set forth by the Caux Round Table. These
principles were reviewed and updated in 2009
and 2010.
Principle 1. Respect Stakeholders Beyond
Shareholders. Responsible businesses are
expected to value not just the stockholders but
other stakeholders as well. Important stakeholders of business include, but are not limited
to, its customers, employees, suppliers, competitors, and the broader community. Responsible
businesses are expected to respect the interests
of these stakeholders and to deal with them fairly
and honestly.
Principle 2. Contribute to Economic, Social,
and Environmental Development. Economic
development is needed in societies in which businesses aspire to succeed. Therefore, responsible
businesses will invest in the economic, social,
and environmental sectors of these societies.
These investments will improve societies through
sensible use of resources, fair competition, and
technological innovation.

329

Principle 3. Respect the Letter and the Spirit

of the Law. This principle recognizes that some
business practices may be legal but not necessarily fair to all stakeholders. Therefore, it is
recommended that businesses strive to honor the
spirit as well as the letter of laws. This means that
business conduct may have to operate at levels
beyond the minimums required by law. In this
pursuit, critical and necessary traits such as truthfulness, transparency, and promise keeping will
be required.
Principle 4. Respect Rules and Conventions.
Responsible businesses strive to emphasize fairness and equality and respect local cultures and
traditions found in the communities in which they
operate. They also value relevant national and
international laws, regulations, and conventions.
Principle 5. Support Responsible Globalization. Open and fair multilateral trade should be
supported. In the pursuit of fair global commerce,
responsible businesses will support the reform of
domestic rules and regulations that obstruct this
objective.
Principle 6. Respect the Environment. This
principle addresses the natural environment in
which businesses operate. The idea here is that
businesses will protect and improve the environment and steer clear of wasteful uses of natural
resources.
Principle 7. Avoid Illicit Activities. To be
responsible, businesses do not engage in or
excuse corruption, bribery, money laundering,
or other illicit activities. Responsible businesses
also avoid transactions that are linked to or
supported by terrorist activities, drug trafficking,
or any other such questionable activity.
In support of these seven core principles, the
Caux Round Table supplements them with more
detailed standards for interacting with key stakeholder groups. These are referred to as Stakeholder Management Guidelines. The primary
stakeholders are those constituent groups which
are critical to the success and sustainability of the
business enterprise. These stakeholders include
the following groups that contribute in the ways
indicated:
Customers purchase goods and services and
provide cash flows for the businesses.

330

Employees produce the goods and services.

Owners and other investors provide the
capital for the business and any other needed
funds.
Suppliers provide needed resources.
Competitors ensure that markets are efficient.
Communities provide needed social capital
and security for the businesses.
The environment provides natural resources
and other needed conditions for operating.
Following is a summary description of the
Stakeholder Management Guidelines which indicate how responsible businesses deal with the
various stakeholder groups enumerated.
Customers. Responsible businesses treat their
customers with respect and dignity. They have
a responsibility to provide customers with high
quality products and services; treat customers
fairly; provide high levels of service; ensure
their health and safety; protect them from harmful environmental impacts; and respect their
rights, dignity, and culture.
Employees. Responsible businesses are
expected to treat their employees with dignity
and respect. They have a responsibility to provide
jobs and compensation which improve their living standards; provide safe and healthy working
conditions; provide working conditions that
boost employees well-being as citizens, family
members, and capacity for caring for others; be
open and honest with them; listen to them; avoid
discriminatory practices; provide equal treatment; support differently abled employees; be
sensitive to unemployment impacts; work with
others to assist employee dislocations; ensure that
executive compensation and benefits reward
management carefulness and discourage too
much risk taking; and avoid illicit child labor
practices.
Shareholders. Responsible businesses treat
their shareholders with care and loyalty. They
deal with them in good faith. The deal with
them in the best interests of the organization.
They have a responsibility to apply diligent and
professional management so that fair and competitive returns on investment may be achieved;
disclose all relevant information to shareholders;
to conserve, protect, and increase shareholder

Caux Round Table Principles

wealth; and to respect the views, complaints,

and resolutions filed by shareholders.
Suppliers. Responsible businesses treat their
suppliers and subcontractors with mutual
respect, candor, and fairness. They have
a responsibility to pursue fairness and openness
in all relationships; ensure that supplier and subcontractor activities are free from threats and
coercion; foster long-term stability in relationships; share information and integrate suppliers
into planning processes; seek, encourage, and
prefer suppliers that will use upstanding
employment practices; seek, encourage, and
prefer suppliers who practice good environmental management and who uphold high environmental standards.
Competitors. Responsible businesses will
engage in fair competition. They have
a responsibility to advance open markets; encourage competitive behavior; shun anticompetitive
and/or collusive arrangements; avoid questionable payments that seek to bypass fair, competitive advantage; respect property rights; and
refuse to acquire information through dishonest
means, e.g., industrial espionage.
Communities. Responsible businesses should
strive to be global corporate citizens and to contribute to good public policy and human rights
where it operates. These businesses have
a responsibility to respect human rights and democratic institutions, promoting them whenever
possible; respect governments legitimate obligations to society and support policies that promote
social capital; promote harmonious relationships
between business and other societal sectors; collaborate with initiatives aimed at raising standards of health, education, workplace safety,
and economic well-being; promote sustainable
development; support peace, security, and the
rule of law; and be a good corporate citizen
through ongoing community investments.
According to the Caux Round Table, these
principles have been published in 12 languages,
used in business school curricula worldwide, and
are widely recognized as the most comprehensive
statement of responsible business practices that
have been formulated by business leaders for
business leaders.

Caux Round Table Principles

Key Issues
There is a growing anticorruption movement in
the world. With significant increases in global
trade and competition, free markets and democracy over the past decade, this comes as no surprise. There are a number of different avenues of
development aimed toward curtaining global
corruption and bribery. There are multilateral
treaties and agreements such as the North
American Free Trade Agreement (NAFTA), the
Kyoto Treaty on Global Warming, and the OECD
Anti-Bribery Agreements. Another major avenue
is that of global codes of business conduct created by international organizations. Among the
more well known of these are the Caux Round
Table Principles for Business, Global Sullivan
Principles, United Nations Global Compact, and
the Ceres Principles. Another avenue is that of
individual corporations developing companyspecific global codes of conduct of their own.
Among the more well known of these are the
global codes promulgated by companies such as
Caterpillar Tractor, Chiquita Brands International, Allis Chalmers, S. C. Johnson, Medtronic,
and Levi Strauss & Company.
In light of these outstanding, high profile, and
competing avenues for improving global business ethics, the major issue for the CRT Principles is attracting and retaining adherents in
a world in which so many diverse ethics initiatives are competing to be the defining code. Each
of the other global codes of conduct is also striving to be the gold standard by which all others are
measured. All the competing standards are excellent and have their own followings. An issue and
challenge for multinational enterprises is to
decide which among these various global codes
they wish to associate with and support. Some
companies try to sign on to a number of different
codes and others choose to just select and identify
with one. Still, other companies decide to
develop their own codes of conduct or ethics.
Most companies would agree, in general, with
virtually all of the elements of the global codes
but typically choose to identify primarily with
one of them. The CRT Principles, then, are in
a friendly competition with a number of other

331

global codes of conduct and other avenues companies are taking to address the global corruption
issue.

Future Directions

C
In looking toward the future, the Caux Round
Table web site reveals that the CRT Principles
are continuously being reviewed and updated so
that they are constantly relevant and applicable.
They were updated in 2009 and 2010. It is apparent that the CRT views the principles to be one of
the key building blocks in its mission to improve
global business and government affairs now and
in the future. To supplement the CRT Principles
in their application to employees, the CRT has
issued Guidelines for Management and
Employees People, Performance, Well-Being,
a statement expressing specific concern for
employee stakeholders.
Though the CRT Principles for Business are
the initial platform for improving business conduct around the world, the Caux Round
Table continues to build upon this platform by
developing related guidelines applicable to other
types of organizations. For example, as part of its
continuing stream, the CRT has also developed
Principles for Governments, Principles for
NGOs, Principles for Ownership and Wealth,
and Principles for Responsible Globalization.
Another initiative of the CRT, in partnership
with The Global Leadership Commonwealth
(GLC), is the creation of an assessment tool
called the Ethical Leadership Profile (ELP)
which is designed to help individuals in considering and applying their individual preferences in
initiating ethical action in both business and government. By using the ELP, leaders may discover
their personal preferences for decision-making
styles.
It is apparent that the Caux Round Table is
a vibrant, mature, and adapting organization and
that many of its initiatives are being built around
the CRT Principles for Business presented in this
essay. The Caux Round Table is an active group
of business executives, and it should be expected
that they will continue to be a major player in the

332

quest to improve global ethics in all organizations

operating at the world level. In describing its own
role and future, the Caux Round Table says it is
committed to move its ideals and principles into
action programs to improve the outcomes of
globalization in the world and to enhance the
impact of ethical conduct and social responsibility in companies. The Caux Round Table defines
its principal tasks as discussing, evaluating,
drafting and distributing principles, implementation standards and benchmarks, position papers,
commentaries and proposals. This statement
clearly suggests that more can be expected from
the CRT in the future.

CBSR
Denny, C. M., Jr. (with Paige E. Evans). (2008).
The corporation in Modern American Society.
Minneapolis: Hubert H. Humphrey Institute of Public
Affairs, University of Minnesota.
Goodpaster, K. E. (2000). The Caux Round
Table principles: Corporate moral reflection in
a global business environment. In O. F. Williams
(Ed.), Global codes of conduct: An idea whose time
has come (pp. 183195). Notre Dame: University of
Notre Dame Press.
Koch, D. A. (2009). Lessons in life and business:
Dialogues with David A. Koch. Minneapolis: Opus
College of Business, University of St. Thomas.

CBSR
Cross-References
Bribery and Corruption
Coalition of Environmentally Responsible
Economies (CERES)
Corporate Codes of Conduct
Corporate Social Responsibility
Global Governance and CSR
UN Global Compact

Canadian Business for Corporate Social

Responsibility

CCG
Centre for Corporate Governance (Nairobi)

References and Readings

Bockelman, W. (2000). Culture of corporate citizenship.
Minneapolis: Minnesota Center for Corporate
Responsibility.
Carroll, A. B. (2009). Business ethics: Brief readings on
vital topics (pp. 251269). New York: Routledge/
Taylor & Francis.
Carroll, A. B., & Buchholtz, A. K. (2009). Business
and society: Ethics and stakeholder management
(7th ed., pp. 422439). Mason: South-Western/
Cengage Learning.
Caux Round Table. (2009). Principles for responsible
business. Caux Round Table, 8 pp.
Caux Round Table: Moral Capitalism at Work.
http://www.cauxroundtable.org/index.cfm?menuid8.
Accessed 21 May 2010.
Cavanagh, G. F. (2004). Global business ethics: Regulation, code, or self-restraint. Business Ethics Quarterly,
14(4), 625642.
Center for Ethical Business Cultures. (1992, 2001). The
Minnesota principles: Toward an ethical basis for
global business. Minneapolis: Center for Ethical Business Cultures

CDCR
Consumer-Driven Corporate Responsibility

CDP
Carbon Disclosure Project

Center for Corporate Governance

Centre for Corporate Governance (Nairobi)

Centre for Corporate Governance (Nairobi)

Centre for Corporate Governance

(Nairobi)
Nicholas Ndegwa Kimani
Chandaria School of Business, United States
International University, Nairobi, Kenya

Synonyms
CCG; Center for Corporate Governance

Address with Web Link

Prosperity House, 5th Floor, Westlands Road
P.O. Box 13936 Nairobi 00800
Tel: +254 20 3745915/3745918
Cell: +254 722 700180/733 573276
Fax: +254 20 3745935
Email: info@ccg.or.ke/training@ccg.or.ke
Website: www.ccg.co.ke

Introduction
The Centre for Corporate Governance (CCG),
sometimes referred to as the Private Sector Corporate Governance Trust (PSCGT), is a widely
regarded organization established to promote
the highest standards of corporate governance in
African corporations and institutions through training, education, research, advocacy, monitoring,
and evaluation. It is headquartered in Nairobi,
Kenya. It has also served as the secretariat of the
Pan African Corporate Governance Forum since
2001.

Brief History
The organization was first registered in 1999 as the
Private Sector Corporate Governance Trust
(PSCGT). In 2002, it was renamed the Centre for
Corporate Governance (CCG) as a company limited by guarantee.

333

The CCG initially received financial assistance

from the Ford Foundation mainly for purchase of
office equipment. Other initial financing was
directed toward development of an appropriate
institutional framework to support good corporate
governance and social responsibility in Kenya and
the larger part of Africa.
Once established, the CCG received a 4-year
grant from the African Capacity Building Foundation (ACBF), which resulted in the signing of the
Grant Agreement in May 2001. Between 2002 and
2003, the Canadian International Development
Agency (CIDA) financed corporate governance
training programs in Francophone Africa over a
3-year period. During this time, the African
Development Bank (AfDB) funded the Centres
two corporate governance training projects for
Eastern and Southern Africa and West African
countries in Nairobi and Dakar, respectively.

Mission/Objectives/Focus Areas
Its vision is to be a leading organization in the
promotion and facilitation of best practices in
corporate governance for the economic development and social transformation of Africa. Its mission is to develop and promote the adoption of
sustainable best practices in corporate governance through training, education, research,
advocacy, monitoring, and evaluation.

Major Activities, Accomplishments, and

Contributions
Achievements of the Centre to Date
It is often said of the CCG that it has introduced
Africa to good corporate governance, and it is
not difficult to see why from its impressive list of
accomplishments. These are highlighted as
follows:
1. Institutional Capacity Building
The CCG has supported the establishment of
several organizations concerned with promoting
corporate governance, business ethics, and social
responsibility within Kenya and the rest of
Africa. These include the Kenya Shareholders
Association, the Institute of Directors (IoD) of

334

Kenya, and Pan African Consultative Forum on

Corporate Governance (PACFCG).
2. Education and Training Activities
Training Activities

As at early 2010, the CCG had conducted

39 five-day residential training courses in Kenya.
The CCG has also played a key role in launching
of 14 other five-day training courses in various
countries in Africa. The Centre has trained and
certified 2,046 directors from the public and
private sectors through its 5-day training course as
follows: 1,640 directors in Kenya, Uganda, and
Tanzania; 59 directors in Zambia; 26 in Zimbabwe;
61 in Rwanda; 41 in Mauritius; 30 in Ethiopia;
74 in Senegal; 23 in Cameroon; 50 in Gabon; and
38 in Ghana.
The CCG has trained 2,879 directors through
its 13 day training courses as follows: 2,351
directors in Kenya, 142 in Uganda, 89 in Tanzania;
80 in Ethiopia; 43 in Ghana, 19 in Egypt, and 155
in Nigeria. In addition, the Centre trained 110
chairmen of leading corporations in East Africa
and certified 73 trainers in Kenya, Uganda,
Tanzania, Zambia, Zimbabwe, and Nigeria.
The CCG has also collaborated with the African
Development Bank, the Government of Rwanda,
the West African Bankers Association, and Centre
Africain Detudes Superieures en Gestion
[CESAG] to adopt training courses and materials
to the needs of Francophone Africa.
Education

The Centre has developed curricula for the

Master of Business Administration (MBA),
LLM degree programs, and the Postgraduate
Diploma in Corporate Governance for adaptation
and implementation by collaborating institutions
of higher learning. These programs have been
adapted for teaching at the Eastern and Southern
Africa Management Institute (ESAMI) Executive MBA, the University of Nairobi (Thematic
LLM), and the KCA University (Executive Postgraduate Diploma).
3. Research and Development
The CCG has conducted six major research
studies, which relate to corporate governance in
state-owned corporations in Kenya; the banking

Centre for Corporate Governance (Nairobi)

sector in Kenya; the cooperative sector in Kenya;

disclosure and reporting in Kenya; impacts of the
5-day training course on corporate performance
in Kenya; and corporate governance and management practices in the African Capacity Building
Foundation (ACBF)-supported institutions in
Eastern, Central, and Western Africa.
Among the regional studies undertaken are the
following: Defining and Harmonizing Business
Laws and Standards for Corporate Governance in
Eastern Africa for the United Nations Economic
Commission for Africa (UNECA); Defining the
Status of Corporate Governance in Africa, which
was commissioned by the African Development
Bank (AfDB); and Defining the Status of Corporate Governance in Tanzania, which was
commissioned by the NEPAD secretariat.
The CCG has also developed the following
generic guidelines on corporate governance principles and practices: guidelines for shareholders;
guidelines for state-owned corporations; guidelines for banking sector; guidelines for the cooperative sectors; guidelines for disclosure and
reporting; guidelines for universities in Kenya,
and guidelines on corporate governance certification of suppliers. The eventual adoption of the
guidelines for state-owned enterprises by the
Kenya government in April 2003, culminated in
the introduction of performance contracts in government ministries, companies, and institutions.
4. Monitoring and Evaluation and Advocacy and
Communication
The CCG has conducted monitoring and evaluation activities for boards of five organizations
in Kenya: the Kenya Roads Board, the UAP Provincial Insurance Company, KCA University,
ICDCI (Investment), and the Centre for Corporate Governance.
5. Advocacy and Communication
Apart from holding awareness-building workshops with leaders of state-owned corporations,
universities, the Institute of Directors, the media,
and shareholders, the CCG has also collaborated
with several regional, Pan African, and International Agencies in Africa within the framework
of the Pan African Consultative Forum on Corporate Governance, New Partnership for Africas
Development (NEPAD), and the African Peer

Cheating

Review Mechanism (APRM). The Centre has, for

instance, played a key role in the NEPAD African
Peer Review Mechanism for Kenya as the Lead
Technical Agency for the Corporate Governance
Chapter.

335

Character Ethics
Virtue Ethics and CSR
Virtue Ethics and the Environment

C
Cross-References

Charismatic Authority
Corporate Governance

Authority Versus Bureaucracy

References and Readings

Charitable Giving
www.ccg.co.ke

Corporate Giving

Certification Tools for CSR and

Sustainability

Charity

Sustainability Assessment Models

Philanthropy

Cheating
Chain of Event
CSR Butterfly Effect

Yvon Pesqueux
Conservatoire National des Arts et Metiers
(CNAM), Developpement des Syste`mes
dOrganisation, Paris, France

Chain Restaurants
Synonyms
Franchising
Deception; Escheat; Forfait; Fraud; Swindle

Change Management for

Sustainability
Managing Change for Sustainability

Changing Social Context

Corporate Social Responsibility Strategy

Definition
Cheating: A durable and clandestine (or half
clandestine) action designed to gain an advantage
and resulting in wrongdoing (moral judgment)
and/or fraud (judgment of legal nature) when
found out. Cheating involves three components:
a person, a type of behavior, and a context.
Deontology: The science of duties essentially
aimed at the behavior of the members of

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a profession, providing it with a set of codified

rules or at least usages delineating the duties of its
members.

Introduction
Value-based management is based on the
assumption that those values are necessarily
given a positive content and a process that brings
together the values in usage with those professed.
This is a highly deceptive theme as it addresses
major missteps only as particular cases (e.g.,
Enron, Parmalat, Societe Generale) related to the
failing of one person or another (one or several
managers, an auditing firm, a trader, etc.). In this
theme of value-based management, management (including its whole rationalist array) and
business (where trickery prevails) tend to be
confused with one another. Yet, the nature of
business probably differs widely from that of management. Business practice affects the way one
behaves with third parties as well as the relationships among organizational agents. In the meantime, the firm is experiencing challenges to its
legitimacy with suspicion of cheating looming
over its role in the crises it brings about directly
or indirectly (e.g., the mad cow crisis). In some
ways, the organization is infused with a sense of
cheating that can be sparked off at any given time.
Sense of cheating in its moralized sense and
risk turn out to be closer than they seem in that
cheating is also risk-taking. But cheating in and of
itself is mostly more about denial than recognition.
Cheating spans all the areas of human activity
including play, gambling, sport, religion, politics,
and of course business. This entry keeps to the
field of business, but the previous list shows the
many contexts that cheating is likely to appear in.
Similarly, an examination of the unending host of
stakeholders reveals that any relationship may
result in cheating, as demonstrated by the insider
trading that breaches the level playing field
among shareholders. Cheating is a significant
but hidden issue in business practice and in
other fields for that matter. Its hidden nature
serves conveniently to not recognize the paradox
of cheating and that it is not necessarily a bad

Cheating

thing because it can also be viewed as a source of

learning. Cheating cannot be easily reduced to
theft or corruption (which unlike cheating implies
a pact between the corrupter and the
corrupted). Unlike corruption, cheating does
not taint the corrupter or the corrupted and it is
not regarded as such.
The entry has the following rationale. It first
defines cheating and looks into its position in
relation to deontology when it comes to
bypassing the rules of the profession. The notion
is also related to mores and rules.
Cheating is about playing with the rules for
ones benefit, and it does not lead to wrongdoing
or fraud unless the cheater is caught in the act in
which case the fact becomes a misdemeanor.
In this maneuvering dimension, cheating takes
on a form of lying and trickery. Cheating occurs
when the lines of tolerance have been crossed
lines that are drawn in order to consolidate
sociopolitical balances. Cheating induces an
appropriation process which makes it very similar to ownership (cheating makes a person rich)
and interest narrowed down to selfishness
because it helps vindicate it. But it is also
a learning factor and a potential innovation
process. It usually leads to forgiveness in the
protagonists appeal for benevolence based on
I wont do it again rationalization. Cheating is
built around the notion of play in the primary
sense of the term (it is about playing with the
rules) and in the secondary sense of the term
because cheating not only grows out of the
bypassing of the rules of the game but also of
their potential looseness. Cheating, like transgression, is the middle ground between the limit
(designed to be crossed) and the border (or
boundary), which cannot be crossed. Emphasizing the notion of intention, Y. Vardi and Y.
Wierner (1996) refer to types of deviance and
distinguish between the S type (benefits the
self) where cheating is performed for the benefit
of the organizational agent, the O type (benefits
the organization) where cheating is performed in
order to turn a profit for the organization, and the
D type (damages the organization) where
cheating is intended to inflict damage on the
materials or premises.

Cheating

Whether it is about resistance or a selfish

act, cheating involves a maneuver that saves
the cheater from getting caught. Accordingly,
cheating is also about strategy. Identifying the
cheaters is problematic despite the flurry of counter strategies that are carried out, including prevention, control, intimidation, education, etc.
In some ways, cheating is also the dark side of
the todays precedence given to consequentialism
(to judge acts based on their consequences),
mainly in the business world where the end result
outweighs how it is achieved.
In that way, cheating can be equated with
transgression and innovation. It implies
a transgression of the rules that is both hidden
and accepted as it can potentially destroy the
reputation and quality of intra- and interorganizational relationships. In the mean time, it drives
learning, creativity, and result, creeping into such
thought processes as those of budget control. To
make instrumentation work, it is necessary to
bring life to the instruments. A budget control
system is redundant unless it is combined with
good management. And this is where the notion
of bargaining comes in, and it should be noted
here that there is a fine line between bargaining
and cheating.
Just as transgression leads to deviance,
cheating is contiguous to marginality and can
lead to delinquency. In this sense of cheating,
the emphasis is laid on the importance of the
middle ground. It may be traceable to an individual initiative due to the exercise of willpower
and/or the individuals inability to conform to the
norm. But deviance is acceptable based on how
the nondeviant group regards it and thus not only
as a departure from the norm. In this case,
cheating and deviance alike can be considered
as a diversion from conformity. Cheating thus
takes the form of a conscious maneuver akin to
misappropriation and parasitism, both processes
consisting in appropriating to ones benefit
modalities aimed at different ends.
In that respect, cheating is an ambiguous
object because it has a paradoxically educational
virtue, although canceled out by moral and legal
standards. But these cannot be easily confused as
the moral domain punishes the cheater on account

337

of a misdemeanor and the legal domain on account

of fraud. In both cases, the cheater as a person is
targeted rather than the process, and beyond potential reparations, the objective is to punish
a reputation. Its educational virtue lies in the experience that a person gains from it. The misdemeanor
is judged according to how serious it is and the
standards vary depending on the conditions, time,
and location. Thus, cheating also has a cultural
sense and whenever cheating is involved the
reference is both the virtue and the norm because
judgment emphasizes conduct and hinges on the
person who makes the judgment. Cheating cannot
be regarded as bad regardless of the conditions,
time, and location. For example, the clandestine
practice of a religion consists in cheating with the
official religious norms by pretending to abide by
the legal cultural forms. This clandestine religious
practice is illegal and resembles cheating of some
kind, but can it be regarded as bad anyway?
Judging by certain third parties, it is regarded as
an act of resistance, which brings it closer to transgression than misappropriation. Cheating spills
over beyond the issue of benefit, interest, and ownership and brings into focus the role of notions like
trickery, maneuver, and learning.
The following statements can help pin down
the definition of cheating:
1. A durable and clandestine action (or half clandestine can cheating happen without collusion?) designed to gain an advantage and
resulting in wrongdoing (moral judgment)
and/or fraud (judgment of legal nature) when
found out. Cheating involves three components,
a person, a type of behavior, and a context.
2. Wrongdoing leads to moral condemnation but
also leniency and/or forgiveness and/or repentance whereas fraud results in a sentence (or
discharge). Opposing these two categories of
judgment (moral and legal) is the currently
developing right to go wrong, which demoralizes and decriminalizes cheating.
3. Cheating is an underlying process whereby
the cheater is not revealed until another person
exposes them, despite all the developments
related to the principle of transparency. But
it cannot be solely regarded as an offshoot of
individual initiative.

338

4. Cheating lies at the core of the tension heteronomy-autonomy in which heteronomy is

represented by the rule (that was bypassed)
and autonomy by the exercised will of the
cheater. The importance of autonomy in managerial discourses should not be viewed in
a neutral light because it contributes to increasing the paradoxical impositions placed on the
organizational agent. Cheating also results
from the disjunction of regulations as the autonomous regulation prevails over the heteronomous regulation (Reynaud 2004) and causes
cheating to be personalized to the benefit of
the cheater. It then boils down to the pursuit
of a personal advantage whereas the interplay
of regulations seems to point to a much broader
issue. The heteronomous regulation clears the
way for the cheaters maneuver (autonomous
regulation to act not to get caught) in relation
to a set of culturally defined standards whose
content varies in space and time.
5. The spirit of the heteronomous regulation
can be equated with the importance attached
to mores by Montesquieu in De lesprit des
lois (The Spirit of the Laws 1748). Today, the
legitimacy given to competition can be
regarded as one component of this spirit,
legitimacy that props up the winners and in
the process prompts the losers to cheat.
6. From a demoralized point of view, cheating
can be regarded as a social and moral learning
factor (Kohlberg 1972).
7. Cheating is anchored in the figure of the cheater
in a rationale where the cheater tends to be
separated artificially from the society (and/or
the organization) in which they are situated.
For all the references to ethical evidence in the
late twentieth century, particularly in business,
what cheating effectively signals is a shift from
the impartial spectator to the invisible hand
(Smith 1759, 1776). As the reference to
Mandevilles Fable of the Bees (1740) affirms,
the invisible hand may transform private vices
into public virtues, hence the consistent spread of
cheating in business underpinned by trade and the
market. In the market, however, business life is
driven by theoretical tenets referring to competition, and ultimately economic judgment that

Cheating

separates winners from losers, thus encouraging

cheating in the process (in order to win because
one might lose otherwise). Now, what if someone
else cheats? Then, counter cheating stands as
prevention against cheating, in accordance with
the ideology inherent in gambling theory. In that
case, cheating mirrors doubt, suspicion, distrust,
and defiance.
With the centrality given to opportunism,
cheating is placed at the core of the new theories
of the firm, however implicitly referred to. It is
latent in the moral hazard of O. E. Williamsons
transaction cost economics or the methodological
selfishness of agency theory (Jenssen and
Meckling 1976; Williamson 1985). It is hardly
surprising then that the economization of the
world, in which the economy occupies a central
and legitimate place, corresponds to the legitimacy of opportunism and doubts about the uncertainty inherent in behavior opportunism and the
spread of cheating.
While cheating is about playing with the
norm, it also refers to deontology from
a professional standpoint.
Deontology is a set of standard rules applied to
a professional field. It has a communitarian and
corporate-based scope, and those rules are built
on values that are not necessarily explicit (implicitness of the profession). This is where the margin
of interpretation brings cheating into focus. It
pertains to communitarian liberalism and also
grounds the communal legitimacy of the lobby.
The term deontology was coined by British
author J. Bentham in the nineteenth century
(Deontology, 1834) and is mostly used in French
today.
For R. Savatier in Encycopedia Universalis,
etymologically deontology is the science of
duties (. . .) It has been restricted due to its
being monopolized by the law of professions
(. . .) When a profession gets organized, it tends
to equip itself with a codified status or at least
usages that lay down the duties of its members.
But it should be stressed that such comprehensive
codification is impossible as evidenced by terms
such as integrity, selflessness, moderation,
fraternity, and honor featured in those texts.
Deontology aims at the internal order of the

Cheating

profession. It is coupled with sanctions restrictively defined in the form of disciplinary law
that provides the groups involved with a legal
basis to defend themselves, ranging from moral
sanctions designed to hit professionals (censure,
reprimand) to warnings designed to prevent further violations of deontological rules. Occasionally, there are fines. The most serious disciplinary
sentences include suspension or exclusion of the
professional from the group. The authority that
enforces these norms goes hand in hand with the
powers devolved to professional jurisdictions.
Accordingly, the specific characteristic of deontology is to punish the cheater based on wrongdoing, fraud, or both at the same time.
As seen above, the contentious issue is not
cheating but the contiguous relationships
between the notion and those on either side of
its boundary: consistent-inconsistent, unsound
or allowed-forbidden or cheating-deviance
disorder. In that way, cheating is not problematic but the issue of cheating is contentious.
The relative legitimacy given to cheating ties
into certain categories of the free-market
moment, a period that we have lived in since
the early 1980s.
The free-market moment (Pesqueux 2007)
is an offshoot of changes to the issue of the
political. The topic of living in broached by
the philosophy of Enlightenment in the wake of
Greek thought, in particular with Aristotle, was
substituted by the topic of living with (the
others) which lies at the core of free-market
thought. The living in is built around the concept of law viewed from the perspective of its
genesis (who lays down the laws?), its legitimization (the democratic vote), and its enforcement
(the State and its apparatus). And the law turns
cheating into fraud. The living with is premised
on the individual and the expression of their freedom. The concept of law corresponds to the concept of norm, in other words the self-enactment of
rules by a social group regardless of their political
representativeness but based on a criterion of
efficiency. These norms are focused toward the
expression of freedom of individuals in relation
to their interests in the general context of a police
State that lays down the rules for the expression

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of those interests. The issue of politics gives way

to the issue of ethics and the norm clears the way
for transgression and cheating (a way to break
rules). Also, the inherent creativity of cheating
constitutes a form of learning.
The free-market moment is also characterized by commonalities between:
Traditional political liberalism which
emphasizes the principle of freedom, that is,
the connections between the universality of
the law and the expression of particular interests, paving the way for the political legitimacy of interest and its abridged form,
selfishness.
Economic liberalism, as crafted by A. Smith
from a political and moral philosophy based
on moral feelings, which promotes the freedom of expression of interests. This economic
liberalism is amoral by nature and completely
eludes the notion of cheating.
Utilitarianism formulated in the nineteenth
century by J-Mill, which solely attaches
value to what is useful and legitimizes the
distinction between theory (incidentally
useful) and practice (fundamentally useful).
Utilitarianism, similarly, leaves cheating
unthought because it appreciates the result
regardless of how it is obtained.
Positivism which attaches value to technical
determinism which on account of the suspicion of science and technique (e.g., the atom
bomb) has resulted in substituting semantically the term technology for that of technique
based on the reference to the firm. Again,
cheating is left totally unthought.
Pragmatism, a doctrine in which practical success is a criterion of truth, here viewed from
the perspective of material success regardless
of how that success is achieved.
Legitimacy given to capitalism which is an old
economic practice born in the fourteenth and
fifteenth century in its modern form as
a political order and now applying worldwide
from the perspective of a globalist ideology.
Arguably, these commonalities have been
complemented by the following aspects:
Those of libertarian and communitarian liberalism, two perspectives of contemporary

340

liberalism which acknowledge the legitimacy

of individuals and communities rights and
thus the distinction between differentiated
common goods and the general common
good.
Those of neoconservatism which are targeted
toward the excesses of democracy related to
the overload caused by the proliferation of
new rights resulting from the liberal expression of communities.
Those of free-market capitalism which advocate substituting the market categories for
those of a redistribution State.
Those of civic republicanism based on three
aspects: the existence of the common good,
civic virtue based on the reference to civil
society, and reduction of corruption. Civic
republicanism works to promote deontological categories to criticize individualistic and
utilitarian perspectives without referring to
the social contract. The challenge is directed
at the organization and society viewed as the
aggregation of individuals gathering for their
common benefit in a given society. Ultimately, the neoliberal categories are more
radically challenged in the name of civic
republicanism, which proposes to recognize
priority to a common good on account of
the atomist nature of the liberal conception of
individuals. Thus, there is room for merits
(MacIntyre 1982) and the idea of constitutive commitment (Sandel 1982). But
cheating is here mainly reduced to corruption, thereby loosening control over its other
manifestations.
The mix of all these elements forms the core of
the free-market moment in a context where the
thinking is that the economic must trump the
political. This same context leads to the assumption that the autonomous regulation (of the market) is more valuable than the heteronomous
regulation of the law, clearing the way for maneuvers and thus cheating.
All this has led to governance as production of
the free-market moment, a bulwark of some sort
against the anomy that would otherwise confront
the subject due to the paradoxical injunction to
live ones values while taking others into

Cheating

consideration. As noted previously, a plethora of

paradoxical injunctions spring from the current
managerial schemes. For example, there are
systems of variable pay that reward the development of business and profitability and value
objectives with codes of conduct. Anomy results
from incentive systems that transform into
excitement maneuvers, thus making the issue of
cheating even more relevant.

Key Issues
Cheating is one of the extreme characteristics of
todays business life, and as such it has been of
the causes of the growing reference to the
principle of transparency.

Future Directions
The first connection to investigate further is one
that links cheating with mores. According to F.
Bourricaud (in his Encyclopedia Universalis
article), the word can be viewed as synonymous with ways of being, doing, feeling, thinking (. . .). This first sense focuses on the
heterogeneity of mores (. . .). A second sense,
of philosophical origin, emphasizes the notion
of good mores that should be appreciated
against virtues but not confused with them.
Today, politics, law and mores are fairly distinguished. Mores are about the fact that the
impulses of pleasure and pain alone are inadequate, hence the connection between learning,
education, and the good mores as well as the
correlative entry into the figures of the institution. Accordingly, it is important to point out
the connections between the concept of mores
and the concepts of tradition, religion, authority,
legitimacy, conformity, and thus implicitly,
cheating. Mores somehow constitute the connective link between subjective morals and
achieved morality in the sense that they point
to the importance of the individual act and its
collective reference. The notion of mores provides cheating with an ontological basis and
that is what makes it relevant here. Cheating

Chemical Industrys Global Initiative

can be regarded as a vehicle for corrupting

mores. This perspective has brought on commentaries about the demoralization inherent
in industrial societies and, in particular, the
shift that occurs between individualism as
a concept and selfishness as a moral act.
Another perspective is one in which the good
mores serve to bind together civil society, the
State, and individual morality and makes
cheating reprehensible by turning it into wrongdoing. But this position does not distinguish
between mores and virtues and the various confusing orders and domains that compose and
clash in society.
Cheating also pertains to the idea of rules
and consciousness because a rule is only
a conscious rule. A rule is formed around
a double level of knowledge and recognition
of the existence of the rule and the content of
the rule. What distinguishes a rule from a habit
is that it is necessary to know the rules in order
to conform to them. This conscious play with
the rule(s) helps ground a demoralized approach
to cheating by pairing it with learning. In that
way, cheating is characterized by a play against
the rule (even prior to being a play against
others). It is formed against the two levels of
consciousness of the rule, with the first level
being the most learning-inducing because it
opens up creativity, in relation to the play with
precise rules where cheating is about bypassing/
misappropriation. This same level makes for the
cheating-thinking pairing. In both cases,
cheating taps into the cheaters bag of tricks as
bypassing/misappropriation are also about rule
learning. It also pairs learning with
cheating (which results from playing consciously with the rules). Whether one cheats or
not, to refer to the rule is to ask the question of
what is consistent and inconsistent. In that
respect, it is important to distinguish between
the unsound (linked to cheating) and the inconsistent (less restrictive sense). Disregard of the
rules (through cheating or any other modality)
enables disorder (opposed to order) and the
way out is to revert to (or recreate) order. This
process of reverting to order (or creating a new
order) is also learning.

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Cross-References
Accountability
Business Ethics
Corporate Social Responsibility
Transparency

References and Readings

Jensen, M. C., & Meckling, W. H. (1976). Theory of the
firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4),
305360.
Kohlberg, L. (1972). Development as the aim of education.
Harvard Educational Review, 42(4), 448495.
Macintyre, A. (1982). Apre`s la vertu, collection Leviathan,
PUF1997.
Mandeville, B. (1740). The fable of the bees: Or, private
vices, public benefits. Oxford: Clarendon Press, 1924.
(Reprint The Liberty Fund, Indianapolis, 1988).
Montesquieu, C. (1748). De lesprit des lois (p. 326).
Paris: Garnier-Flammarion.
Pesqueux, Y. (2007). Gouvernance et privatisation. Paris:
PUF.
Reynaud, J.-D. (2004). Les re`gles du jeu Laction collective et la regulation sociale. Paris: Armand Colin.
Sandel, M. (1982). Liberalism and the limits of justice.
Cambridge/New York: Cambridge University Press.
Smith, A. (1759). Theorie des sentiments moraux. Paris:
PUF, 1998.
Smith, A. (1776). La richesse des nations (pp. 598626).
Paris: Garnier-Flammarion.
Vardi, Y., & Wierner, Y. (1996). Misbehavior in organizations: A motivational framework. Organization
Studies, 7(2), 151165.
Williamson, O. E. (1985). The economic institutions of
capitalism. New York: The Free Press.

Checks and Balances

Authority Versus Bureaucracy

Chemical Industrys Global Initiative

Responsible Care (Chemical Industrys Sector
Wide Initiative)

342

Chemical Sunshield

Introduction

Chemical Sunshield
Ozonelayer

Chemical Sustainability Voluntary

Initiative
Responsible Care (Chemical Industrys Sector
Wide Initiative)

Chief Sustainability Officer

Jim Woods and Andy Cartland
Acre Resources, London, England, UK

The arrival of the role of chief sustainability

officer mirrors the evolution to sustainability as
a strategic issue for a number of large corporations. Sustainability emerged as a significant
business issue in the 1990s, when it was mainly
the preserve of the corporate social responsibility
(CSR) function within a company. As the impact
of business activities on the environment and
society has increasingly been recognized, the
CSR department has been tasked with complying
with relevant policy and communicating with key
stakeholder groups. Within that context, its prominence is raised sporadically through environmental disasters where a companys license to
operate would be at risk, but it is largely regarded
as a below board-level issue. Larger companies
have employed a dedicated sustainability function, often headed up by a head of sustainability,
a model that remains the case for the majority of
very large companies in the USA and Europe.

Synonyms
Key Issues
CR director; CSR director; Director of sustainability; Sustainability director
The following roles can have similar responsibilities, but are generally regarded as of lower
authority within a firm: head of sustainability,
environmental policy manager, social and environmental sustainability manager, head of CSR,
head of corporate responsibility, head of corporate citizenship.

Definition
The chief sustainability officer is a main board
role whose responsibility is to integrate sustainability into the core strategy and operations of
a company. They usually report directly into the
CEO and will leverage the opinions of those in
the sustainability function as well as the heads of
other major functions within the company, most
notably finance, energy, property, transport and
logistics, and IT.

A small but increasing number of companies are

seeing strategic opportunities in sustainability.
As a result, sustainability is raised up the corporate agenda and meriting the attention of the
board. As public consciousness of the science of
climate change has risen, a coalition of drivers
which includes government policy, consumer,
and investor pressure is starting to change the
paradigm in favor of a low-carbon economy.
This raises the risks associated with high-carbon
business models, but more importantly increases
the opportunities for those who can understand
emerging business opportunities such as the
emerging low-carbon economy.
The number of major companies that are seeing
substantial opportunity in sustainability remains
the distinct minority, but includes some wellknown global companies. Almost without exception, these companies are led by a visionary CEO
and main board; a key common feature is the
appointment to the board of someone whose dedicated responsibility is sustainability. Listed below

Chief Sustainability Officer

are three companies who have achieved significant

commercial advantage through their understanding of the changing paradigm, all of whom have
a board-level person who is dedicated to sustainability. Some are called chief sustainability officer,
while others have a more unique title which
integrates with the companys business
strategy, such as Director of Plan A (http://corporate.marksandspencer.com/page.aspx?pointerid0
ee5cbc993fe48109cd3215f3f7d5fa9) at Marks &
Spencer.
Siemens identified the emerging markets in
wind and solar products in the 1990s, with
their environmental products division
generating 28bn revenues in 2010 (http://
www.siemens.com/investor/pool/en/investor_
relations/siemens_ar_2010.pdf), or 37 % of
total revenues.
GE identified opportunities in environmental
products, from smart grid to nuclear technology, which they separate out in their
Ecomagination division that generated
$18bn in 2010 (http://www.ft.com/cms/s/0/
342511b2-eb4d-11df-811d-00144feab49a.html#
axzz1ZRmvfZOg), or 12 % of total revenues.
Marks & Spencer introduced Plan A in
2009, which now generates 10 % of group
net profit (http://corporate.marksandspencer.
com/documents/publications/2010/planacommitments2010), mainly through energy efficiency investments.
The Significance of the Appointment of
a CSO
Companies that appoint a CSO envisage substantial strategic and commercial advantage through
their sustainability performance. By elevating it
to board level, a company is sending out
a message that they no longer want CSR to be
viewed as a business silo within the organization
and that they want it to impact the major budgetary areas of the business.
The appointment can be regarded as threatening to many groups within an organization, and it
can be regarded as a brave appointment by
a CEO. People in a sustainability function can
resent reporting into a new appointment with
sustainability in their title, but whom they

343

regard as a business person. Energy managers

can see a new focus on energy efficiency as an
implication that they have not been performing
well in their job and resent new analytical tools
such as marginal abatement curves that look to
substantially reduce energy consumption. In
short, it can be a transformational appointment
for a company and can involve significant
change.
The Activities of a CSO
The CSO will typically focus on issues of strategic importance, working with the main board.
Their remit will be to explore activities that
which will make a significant difference to shareholder value, as opposed to the looking at sustainability as a compliance issue or the right
thing to do, which is likely to remain the remit
of the head of sustainability. They will look for
initiatives that, on their own or in total, represent
a strategic opportunity. The relevant issues
change from organization to organization, but
the following can be taken as a generic framework within which they operate:
Revenue generation:
Developing products and services for new
markets associated with sustainability, for
example, Siemens, 28bn revenues in 2010
from environmental products
Improving the sustainability credentials of
existing products and services which are
demand-sensitive, for example, Phillips
EcoVision, which generated 7bn in 2010
from consumer products which have higher
energy efficiency
Selling sustainability services to other
companies, where they have developed
leading expertise, for example, Siemens
finance division, which lends to major corporate investing in renewable energy and
energy efficiency
ADD Supply Chain Innovation
ADD customer/market segmentation
ADD customer education leading to new
markets and opportunities
Other main strategic opportunities:
Acquisition of companies that lead in sustainability in similar markets. This may

344

focus on Chinese companies who are being

built purely on a low-carbon platform, such
as electric car manufacturer BYD.
New financing opportunities, for example,
climate bonds, VCTs, or enterprise investment scheme funds, which have a lower
cost of capital than most companies and
have government incentives to make lowcarbon investments.
Achieving major cost savings, particularly
around energy efficiency. It is estimated
that 1525 % of the average big European
companys emissions can be removed by
investments that have internal rates of
return (IRR) of 16 % or above, representing
a substantial strategic opportunity (http://
www.carbontrust.co.uk/cut-carbon-reducecosts/large-business/Documents/energyefficiency-report-2010.pdf). The Royal
Mail in the UK, for example, identified in
2010 38 m of energy efficiency investments with a higher IRR than its core
business.
Business structure:
Separating out a green products portfolio
with aggressive goals. Some pioneers of
this technique, such as GE with their
Ecomagination program, have employed
separate boards including leading venture
capitalists and have invested abnormally
high amounts of R&D to achieve their
goals.
Incorporate sustainability into executive
remuneration system. This is not always
popular at the outset, but as Akzo Nobel
in the Netherlands have shown, this is one
of the most effective ways of engaging key
decision makers in the sustainability
journey.
Changing the reporting structure so that the
sustainability function reports directly to
the CEO. The appointment of the CSO
usually achieves this, but there is additional
credibility work required in evolving the
sustainability function from a compliance
unit to the innovations unit.
Employing the latest analytical tools to assess
the companys CSR performance:

Chief Sustainability Officer

Introducing a societal model for evaluating

performance, for example, Pepsis Full
Business Value
Building corporate marginal abatement
curve for all divisions of their business,
for example, the Royal Mail, Scottish
Water
Working with the finance function to build
alternative financial statements with a price
of carbon factored in
Employing life cycle analysis for goods
and services
Measuring how brand/trust/reputation is
impacted by a companys sustainability
stance
Partnerships and collaboration:
Exploring the outsourcing of energy management to an ESCO. As energy becomes
more expensive and complicated to manage as a result of policy, the case for
outsourcing increases.
Partnering with nongovernmental organizations to give customers confidence in
the supply chain, for example, Lipton tea
and the Rainforest Alliance (http://www.
rainforest-alliance.org/newsroom/news/
unilever).
Working with competitors in the sector to
form a voluntary industry standard in order
to reduce the sustainability risks for the
sector.
Engaging in a constructive dialogue with
policy makers to reduce the uncertainty in
the policy framework.
Key stakeholder engagement:
Introducing enhanced training for managers across the business
Communicating the benefits of the
companys sustainability strategy to financial analysts, who may not yet realize the
commercial benefits of the program

Future Directions
McKinsey & Company reported in their global
survey results in August 2010 (titled The next
environmental issue for business) (http://www.

Christian Way of Doing Business with Societal Obligations

mckinseyquarterly.com/The_next_environmental_
issue_for_business_McKinsey_Global_Survey_
results_2651) that the issue of biodiversity
now occupies a similar position in the public
debate as climate change did in 2007. At the
time of their survey, 59 % of executives said
they saw biodiversity as more of an opportunity
than a risk for their company. In comparison,
29 % of executives viewed climate change as
more of an opportunity than a risk in 2007.
They predict that over the coming years,
biodiversity will reach the same strategic position that climate change has reached in the corporate strategy.
It is hard to imagine the issue of climate
change decreasing in importance on the strategic
corporate agenda in the next 20 years, given that
global emissions are still rising, the population is
growing, and the science calls for a carbon reduction increase rather than decrease. It is likely that
other issues such as biodiversity will add to what
Lord Stern called in his 2007 review for the UK
government the greatest market failure that the
world has ever seen. In this context, one can
imagine that the issue of sustainability will rise
in the corporate agenda and that the number of
companies employing a CSO will increase.
On this basis, it seems reasonable to think that
the tenure of the CSO will be substantially longer
than the 20-year span of the chief electricity
officer. We expect that the teams managed by
the CSO will grow as they become more specialized, looking at the industry leaders at the
moment that trend has already started.

Cross-References
Corporate Social Responsibility
Sustainable Business: A New Paradigm

345

http://www.carbontrust.co.uk/cut-carbon-reduce-costs/
large-business/Documents/energy-efficiency-report2010.pdf
http://www.ft.com/cms/s/0/342511b2-eb4d-11df-811d00144feab49a.html#axzz1ZRmvfZOg
http://www.mckinseyquarterly.com/The_next_environmental_issue_for_business_McKinsey_Global_Survey_
results_2651
http://www.rainforest-alliance.org/newsroom/news/unilever
http://www.siemens.com/investor/pool/en/investor_
relations/siemens_ar_2010.pdf

Christian Ethical Philosophy

Christianity and CSR

Christian Foundations on Ethics

Christianity and CSR

Christian Guidelines
Christianity and CSR

Christian Morality and Doing

Business the Community-Reliable
Way
Christianity and CSR

References and Readings

http://corporate.marksandspencer.com/documents/
publications/2010/planacommitments2010
http://corporate.marksandspencer.com/page.aspx?
pointerid0ee5cbc993fe48109cd3215f3f7d5fa9

Christian Way of Doing Business with

Societal Obligations
Christianity and CSR

346

Christianity and CSR

Kim Cheng Patrick Low1 and Sik-Liong Ang2
1
Universiti Brunei Darussalam, Gadong, Brunei
Darussalam
University of South Australia, Adelaide,
Australia
2
Faculty of Business, Economics & Policy
Studies (FBEPS), Universiti Brunei Darussalam,
Bandar Seri Begawan, Brunei Darussalam

Synonyms
Accountable businesses in community; Christian
ethical philosophy; Christian foundations on
ethics; Christian guidelines; Christian morality
and doing business the community-reliable way;
Christian way of doing business with societal obligations; Doing business the Christian way; Foundations of CSR in Christianity; Practices and
applications of Christian moral teachings, Christian business ethics; Principles of Christian ethics

Definition
Christianity is the religion, a monotheistic religion, based on the life and teachings of Jesus
Christ. Believers and adherents of the religion
are called Christians. Christians can therefore be
seen as a group of people who practice Christian
rules, principles, and guidelines.
Though there are several denominations of
Christianity Catholicism, Protestantism, and
Orthodox, the central tenet is the belief of Jesus
Christ as the Son of God and the Messiah (Christ).

Introduction
Christians believe that Jesus is the son of God,
God having become man and the savior or messiah of humanity. Christians, thus, commonly
refer to Jesus as Christ (Messiah). The basis of
Christian theology is articulated in the early
Christian ecumenical creeds, which contain
claims predominantly accepted by followers of
the Christian faith. These professions state that

Christianity and CSR

Jesus suffered, died from crucifixion, was buried,

and was resurrected from the dead to open heaven
to those who believe in him and trust him for the
remission of their sins or salvation. They further
uphold that Jesus bodily ascended into heaven
where he rules and reigns with God the Father.
Most denominations explain that Jesus will return
to judge all humans, living and dead, and grant
eternal life to his followers. Jesus is considered as
the model of a virtuous life and both the bearer of
good news (revelations) as well as the physical
incarnation of God. Christians call Jesus Christs
messages the Gospel or Good News and, hence,
refer to the earliest written accounts of his teachings as gospels.
At the core of Christianity lies the concept of
social responsibility that was demonstrated by
Jesus leadership during the night of the last
Passover, when Jesus apostles were arguing
over who was the greatest. Luke expressed,
A dispute arose between them about who should
be reckoned the greatest, but he said to them,
Among pagans it is the kings who lord over
them, and those who have the authority over
them are given the title benefactor. This must
not happen with you. No, the greatest among
you must behave as if he were the youngest, the
leader as if he were the one who serves. For who
is the greater: the one at table or the one who
serves. The one at table, surely? Yet here am
I among you as the one who serves! (Luke 22:
2427, TJB). And because Jesus serves, in Christianity, serving and helping implies the notion of
social responsibility. As St. Thomas said, some of
the fruits of the Spirit are so unearthly, as to be an
anticipation of the joys of heaven. These are
called beatitudes (Saint Thomas 12: 70). The
first among them proclaimed by Jesus is the poverty of Jesus. Jesus preached to the crowd,
Blessed are the poor in spirit, for theirs is the
kingdom of heaven (Matthew 5: 3). This beatitude brings such inner freedom, as to make one
capable of possessing God and all good things in
God. We are poor but we make many people
rich; we seem to have nothing, yet we really
possess everything (2 Corinthian 6: 11).
In Christian teaching, God was angry with the
original sin man (through the first man Adam) has

Christianity and CSR

committed, and in order to make peace with God,

man carried out animal sacrifices to accomplish
the reconciliation of God and humanity. Jesus
sacrifice, dying on the cross, replaced the insufficient animal sacrifice of the Old Covenant; Christ
the Lamb of God replaced the lambs sacrifice
of the ancient Korban Todah (the Rite of Thanksgiving), the main event of which is the Passover
in the Mosaics law. Nowadays, the Eucharist or
Mass is seen as a sacrifice and has become the
Christian religious ceremony (the enactment of
Christs last supper) in which Jesus Christs last
meal with his disciples is celebrated by breaking/
eating of bread and drinking of wine. In the Bible,
the night before his crucifixion, Jesus took bread,
blessed and broke it, and gave it to the disciples
and said, Take, eat; this is my body. And he
took a cup, when he had given thanks, he gave it
to them, saying, Drink of it, all of you for this is
my blood of the covenant, which is poured
out for many for the forgiveness of sins. . .
(Mathew 26: 26). For Christians, they believe
that Jesus died for the sins of humanity, and in
this way Jesus showed his caring and his responsibility for the good of mankind. Many centuries
later, Mother Teresa inspired by Jesus commitment, clambered her own words onto the van of
the Missionaries of Charity, All you do, do for
the glory of God and the good of people.
Jesus lived and taught the way of nonviolence.
The Sermon on the Mount contains the most
important text such as, You have heard that it
was said, An eye for an eye and a tooth for
a tooth. But I say to you, Do not resist one who
is evil. But if any one strikes you on the
right cheek, turn to him the other also; . . .
(Matthew 5: 38). Jesus further remarked, Put
your sword back into its place; for all who
take the sword will perish by the sword
(Matthew 26: 52). While a common modern
interpretation means those who live by violence
will die by violence, a deeper meaning alludes to
those who judge will be judged in reference
to Matthew 7: 2 and Luke 6: 37 which can also
be interpreted as for those observed to be wrongfully condemning others.
If anyone would sue you and take your coat,
let them have your cloak as well. Jesus clearly

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speaks of how one should respond in the public

arena of judicial system. And If anyone forces
you to go one mile, go with him two miles. Jesus
also speaks of how to respond to Roman rulers
who demand forced labor (Matthew 5: 4041).
All these show Jesus way of advocating nonviolence. Jesus vicarious death for sinful enemies of
God lies at the very heart of our commitment to
nonviolence. It was because the incarnate One
knew that God was loving and merciful even
toward the worst of sinners that He associated
with sinners, forgave their sins, and completed
his mission of dying for the sins of the world.
And it was precisely the same understanding of
God that prompted Jesus to command His
followers to love their enemies. It is because we
as Gods children are to imitate the loving
characteristics of our heavenly Father who mercifully showers His sun and rain on the just and
unjust that we are to love our enemies. And the
vicarious cross of the Christ is the fullest expression of this aspect of Gods nature.
Societies cannot survive if everyone does not
cooperate and collaborate for the common good.
Or to put it in the positive sense, everyone in the
society chips in, contributes, cooperates, and collaborates for the greater goal of the common
good, and the society progresses.
There is a cross through the two dimensions of
responsibility, conciliation, and harmony
(social responsibility) in Christianity. In this
cross, in terms of the vertical dimension, a gap
exists between God and human, and humankind
is alienated from God, and here, Jesus Christ, the
Son of God made man (the New Adam) who
sacrificed His life, serves as the mediator, the
way, or the path (the connection) to God
the Father. And in the vertical dimension of the
cross, each person is requested to treat fellow
human beings well. Each person in the Christian
faith should serve his (her) fellow human beings
in the imitation of Jesus Christ. Additionally,
each of us needs to treat nature, Mother Earth,
and the environment well as in the Old Testament
days of Adam and Eve in the Paradise created by
God (Fig. 1).
In Christianity, the Bible is the authority and
we can see many instances in the Bible where

348

Christianity and CSR

Christianity and CSR,

Fig. 1 Jesus Christ closes
the gap between God and
Man

God

Faith
& practices
Jesus Christ closes the gap,
being sacrificed as The Lamb
of God/ Jesus, the Savior

Gap

Good
actions such
as charity, etc.

The faithful
closes the gap
through
prayers, action
and daily
practices
including CSR

Man

man needs to protect nature or be in harmony

with animals and nature. In the books of Jeremiah
(9: 911) and Habakkuk (2: 17), for example,
God warns against destroying nature and wildlife.

Key Issues
Being Responsible Stewards
We are living in a world with too many problems
such as, to name a few, different kinds of pollutions,
violence, environmental problems, global warming,
and a host of others yet there are too few answers.
Here, the Bible, Christians believe that God
has really communicated with humans, stresses
on the importance of wisdom; after all, wisdom
is the prime thing. Acquire wisdom, and with
all that you acquire, acquire understanding
(Proverbs 4: 7). Many may view abortion as
a matter of personal choice; women have
authority over their bodies, but for Christians,
the Bible the Word of God, written by men
but inspired by God offers an authority and
guidance in matters of morality and even for nonbelievers; the Bible like any other Holy Books
such as the Sutras, Quran, and others can be
argued as offering this great and clear-cut advice:
a helping attitude really benefits everyone. And
what more, love conquers all. It is natural to love
ourselves, but to be emotionally healthy, the
Bible says that we have to balance that love for
self with a love for others.

Similar to Islamic ethics, Catholic Catechism

teaches that God created an ordered universe, and
since it came out of His goodness, it was good.
Thus, human beings are bound to respect and
defend the goodness of creation, including the
physical world in which they live. God entrusted
human beings with having dominion over
the Earth. In giving back, human beings should
complete the work of creation and perfect it for
the good of all.
We can take that Catholics and Christians
alike believe that God expects humankind to
exercise stewardship over the Earth. As Gods
highest
creation,
human beings have
a responsibility to use their knowledge to preserve and protect the environment and the creatures which inhabit it.
Both the Vatican and the United States Conference of Catholic Bishops have pressed for
action in response to global warming and have
exhorted governments to move toward models of
sustainable development. In the United States,
the Church operates an environmental justice
grants program that provides money for environmental education, research, and action. In short,
the Churchs environmentalist posture is closely
related to its support for developing countries as
their growth hinges on an equitable sharing of the
earths resources (Keeler, Grimbly and
Wiggins 2005).
What more, the responsibility of humankind to
value and protect the natural environment is

Christianity and CSR

a theme that appears throughout the Bible, often

referring to just the types of problems we face
today: brutality to farm animals or heartlessness
to wild animals, damage to wildlife and habitat,
and pollution of our food, air, and water. It is said
that what is possibly the worlds first antipollution control or rule is found in the Book of
Deuteronomy (23: 1315), which forbids dirtying
the land with human excrement.
In stressing the reverence humans should have
toward the land, the Scriptures convey a strong
conservation message, warning against overusing
and wearing out natural resources. In Leviticus
(25: 24), God is said to order that the land shall
keep a Sabbath unto the Lord . . .in the seventh
year shall be a Sabbath for the Lord; thou shalt
neither sow thy field, nor prune thy vineyard.
Promoting Human Rights and
Charitable Values
Sweatshops, child labor, and exploitation of labor
with meager or unsatisfactorily low wages by
employers are to be avoided. The Catholic
Church teaches that the dignity of the human
person is rooted in his creation in the image and
likeness of God (Catechism of the Catholic
Church, cited in Keeler, Grimbly, and Wiggins
2005: 232). Charity is a virtue that exposes or
places people to love God above all else and to
include their neighbors as part of that love.
There is a definite need to give to and share
with others.
The obligations to give to others are rooted in
the message of the Gospels. Jesus says, You
shall love your neighbors as yourself (Matthew
22: 29). Jesus tells people to treat their neighbors
as they themselves would like to be treated. The
Church holds this message in mind as it champions and lobbies in political forums, publishes
encyclicals, and sends its charities out to work in
the world. It seeks the unity of humankind
through a union of the spirit and the cultivation
of equality for all people.
In line with Jesus teachings, Christians
believe that each good deed done for the
benefit of other person is also done for Jesus
Christ after all, the person in need is a child of
God. The Church calls this service toward others

349

vocation in beatitude, and it is the duty of each

Christian. Vocation is a call and Christians are
called to help others. The Catholic Church
explains the beatitudes portray Christs charity.
The beatitudes are principles meant to comfort
and inspire believers to do charity for the gentle,
the poor, the hungry, and the marginalized people, for whom Christ spoke so eloquently in His
Sermon on the Mount.
Jesus was not born with the material advantages that wealth and social position can give; he
was born in a stable. Jesus preached and taught
but His life did not end on a note of triumph; he
suffered the shameful death of crucifixion. Overall, in the footsteps of Jesus as the role model and
in whichever the course of action is taken, the
Christians are called to be humble, help, and love
fellow human beings, as well as to devote time,
effort, and money to causes that improve
the world and the life of those in it. Good works
are not only a requirement or requisite of Christian life and a path to unity with Jesus; they also
give the opportunity to work for justice and
equality on a political stage.
Pope John Paul II has often been credited with
having played a pivotal role in the downfall of
communism in Europe in the late of 1980s. However, he clarified that his words and actions in
supporting the Polish Labor Union Solidarity at
that time was not against one system, but he was
indeed in favor of the basic rights of every man
and woman. For the Pope (Karol Wojtyla), these
rights include the right to participate in social life,
the right to the truth, the right to join free association and assembly, and also various economic
and professional rights. Furthermore, the Pope
believed that a just and peaceful society
depended on every member of the community
or nation respecting the dignity of every other
member and working for the common good.
He once remarked, When human rights are
ignored or scorned and that when the pursuit of
individual interests unjustly prevails over the
common good, then the seed of instability;
rebellion and violence are inevitably sown
(Burke 2000: 156).
A paradigm of Christian practices in promoting human rights and charitable virtues is that of

350

the works of the late Mother Teresa of Calcutta.

Mother Teresa of Calcutta established the
Missionary of Charity which consists of homes
for women, for orphaned children, and for the
dying; an AIDS hospice; a school for street
children; and a leper colony. What more, Mother
Teresas Missionaries of Charity had grown from
a one-woman folly in Calcutta in 1948 into
a global beacon of self-abnegating care, and the
services are provided to people regardless of their
religion or social caste. Mother Teresa, the
diminutive nun who straddled her century as
one of its most towering personalities, was at
one level a very simple person and at another
a complex enigma. In modern management parlance, she could well be projected as
a management guru who could have presented
to the worlds best business schools of social
responsibility, her uniquely evolved model for
success. With 4,000 nuns, she created
a multinational enterprise of service that
encompassed 123 countries by the time she died
in 1997 (Chawla 2009).
In 1979, Mother Teresa, in her Nobel Prize
Acceptance Speech at Oslo, Norway, said, . . .
It is not enough for us to say: I love God, but I do
not love my neighbor. Mother Teresa also
added that since in dying on the cross, God had
(made) himself, the hungry one the naked
one the homeless one. And Jesus hunger is
what you and I must find and alleviate. She also
condemned abortion and bemoaned youthful
drug addiction in the West (Mother Teresa cited
in Van Biema 2007: 26). St. John said that you
are a liar if you say you love God and you dont
love your neighbor. How can you love God whom
you do not see, if you do not love your neighbor
whom you see, whom you touch, with whom you
live? And so this is very important for us to
realize: that love, to be true, has to hurt. It hurts
Jesus to love us. It hurts him. And to make sure
we remember His great love, He made Himself
the bread of life to satisfy our hunger to His
love our hunger for God because we have
been created for that love. We have been created
in His image. We have been created for love and
be loved, and He had become Man to make it
possible for us to love as He loved us. He makes

Christianity and CSR

Himself the hungry one, the naked one, the homeless one, the sick one, the one in prison, the lonely
one, the unwanted one, and He says: You did it
to me. He is hungry for our love, and this is the
hunger of our poor people. This is the hunger that
you and I must find. It may be in your own
home. . . (Rai and Chawla 1996). To millions,
Mother Teresa portrayed herself as an image of
a small woman in a white sari, offering love and
compassion to the poorest of the poor. However,
her speech conveyed her faith, spirituality, and
simplicity as well as her practical down-to-earth
nature and her understanding of Christian
practices.
In the twenty-first century, particularly over
the past 10 years, social responsibility has come
to be expressed in terms of company social
responsibility, community service, the setting up
of charitable organizations, philanthropic foundations, and social funds as well as various innovative forms of social entrepreneurship, and these
have been on the rise. The rising challenges facing our world today include the growing disparity
or gaps between the rich and the poor, environmental degradation, illiteracy, and inaccessibility
to basic services and public goods by more than
half of the worlds population, and have lead to
a sense of urgency among the privileged or
the-haves and the various religious groups
including the Christians to return, be answerable
and improve the conditions of their surrounding
communities and environment.
Jesus was born to a peasant family in Galilee,
and he attracted a ragtag following of fishermen
and farmers. He preached that wealth and materialism not only was not the way to heaven and
enlightenment but that worldly riches interfere
with humans attempt to lead a good life. Jesus
spoke of detachment from personal possessions,
and personal enrichment was found in heaven
rather than in the marketplaces of the world. He
spoke of no slave can serve two masters, one
cannot serve God and wealth (Luke 16: 13).
When a man ran up and knelt before Jesus and
said that he had observed and followed the commandments since youth and that he would like to
know about how to have eternal life, Jesus
looking upon him loved him and said to him,

Christianity and CSR

You lack one thing; go, sell what you have, and
give the money to the poor, and you will have
treasure in heaven; then come, follow me. At
that saying, his countenance fell, and he went
away sorrowful, for he had great possessions.
And Jesus looked around and said to his disciples,
How hard it will be for those who have riches to
enter the kingdom of God! And the disciples
were amazed at these words. But Jesus said to
them again, Children, how hard it is to enter the
kingdom of God! It is easier for a camel to go
through the eye of a needle than for someone who
is rich to enter the kingdom of God. They were
greatly astounded and said to one another, Then
who can be saved? Jesus looked at them
and said, For mortals it is impossible, but not
for God; for God all things are possible
(Mark 10: 2126).
Here we once again run into the notions of
human detachment for a simpler life that is free
from desires and worries and of what it means to
serve the world. Jesus highlighted, Therefore
I tell you do not be anxious about your life,
what you shall eat, nor about your body, what
you shall put on. Is not life more than food, and
the body more than clothing? Look at the birds of
the air; they neither sow nor reap nor gather into
barns, and yet your heavenly father feed them. . .
Therefore do not be anxious about tomorrow
for tomorrow will be anxious of itself. Lets the
days own trouble be sufficient for the day
(Matthew 6: 2534). Thus, one is to be detached
from the worldly possessions, one would have to
put ones faith and trust in God. This is similar to
the birds who do not worry of what they have to
eat for the day as they are totally dependent on
Gods grace and His providence of nature.
Following Jesus teachings centuries later,
St. Francis of Assisi (11821226 A.D.),
a Catholic deacon and a preacher, renounced
both money and possessions at the age of 24.
This, combined with his honesty, humility, and
courage, released him from the burdens and
restraints of worldly conventions and left him
free to carry out his belief in God, in Jesus as
the Son of God. His song was love and he tossed
up societys most cherished possessions rank,
wealth, fame, reputation, and power exposing

351

their flaws, so that their opposites seemed more

precious than they. He was the founder of the
Order of Friars Minor, more commonly known
as the Franciscans. And today, St. Francis is most
widely known for his sermon to birds; and for
this, he is known as the patron saint of animals
and the environment (House 2000).
In terms of the Catholic Church, it is said that
in Brazil, Ms. Chiara Lubichs thoughts and
actions sparked the Focolare Movement, which
in 1991 birthed a new business philosophy called
the Economy of Communion, which promotes
operating a business both to make a profit and
benefit society.
Pope Benedict XVIs social encyclical praises
such alternative business thinking, because its top
priority is not to rack up large profits solely for
a company and its employees.
Once profit becomes the exclusive goal, if it
is produced by improper means and without the
common good as its ultimate end, it risks
destroying wealth and creating poverty, the
pope wrote in his encyclical Caritas in Veritate
(Charity in Truth).
The Pope has stressed on the point that mankind or human beings are more important than
capital, and he places the highest price on the
integrity of every human person. He has also
expressed that in recent decades, a broad intermediate area has emerged between companies
that are solely profit-based and those that are
nonprofit: companies that do not exclude profit
but consider it a means for achieving human and
social ends (Abrams 2009).
It is said that worldwide, there are 754 businesses involved in the Economy of Communion
initiative.
The business owners need to be socially
responsible, yes, they still want to make a profit,
but they distribute their profits differently from
other businesses. The numbers of these businesses is not so important but what is more critical is that they serve as good role models of
doing business in a viable and responsible way
(Abrams 2009).
One of the key issues is that when things are to
be done or carried out, they are to be done for the
greater good of the members of the Christian

352

community, presumably in line with the Christian

principles, or for the greater good of the bigger
and wider society. Therefore, issues such as abortion, birth control measures, and stem cell experiments are put in the crucible, being examined
and discussed to determine the stand of Christianity [the Church(es)] as well as how, in the spirit of
continuous improvement, to attain the greater
goal of the common good.
As the number of priests and clergymen
increases with time, it is of great importance to
make sure that they have proper spiritual and
self-discipline education and training to help
them to live up to the Christian Faith and Practices. This kind of education, training, and cultivation is very much needed so that the priests
and the faithful can work together living up to
Christian expectations and seek up the Christian
Churches image and reputation without
betraying the trusts of the faithful and the overall
public.

Future Directions
One of the chief challenges faced is that of giving
back or returning to the community and attaining
the goal of greater common good yet subscribing
to and upholding the Christian guidelines and, in
fact, to some Christian denominations to preserve
the sacred cows or religious traditions. There
is certainly a need to give to and share with
others, and realistically translating these into
actions, unencumbered by the religions own
sacred cows or the countrys political obstacles.
Jesus said, Whoever welcomes one of these
little children in my name welcomes me; and
whoever welcomes me does not welcome me
but the one who sent me (Mark 9: 37). Therefore, child prostitution, like child slavery, should
not be simply accepted or tolerated. It is a gross
abuse of the human rights of those who are least
able to do anything. Whoever one is and whatever
one does, one should and must do something
about it. Just imagine if it happened to one when
one were young or to ones own child. Individuals and companies alike need to raise public
awareness such as sponsoring children education

Christianity and CSR

in developing countries and/or sponsoring some

awareness events including posting Internet articles and printing simple leaflets [which could
include facts and figures to end sex trade/trafficking, prostitution, pornography, and child sex
tourism].
Street children (they are human beings who
need the basic human rights too), particularly in
developing countries, can also be attended to.
Companies can also help to improve their welfare
and thus fulfilling their CSR while contributing to
the societys well-being. The families of street
children are often too poor to feed an extra
mouth, and among other things, companies can
help by giving meals, books/educational
resources, and old toys and improve their welfare.
Besides street children, companies can also
help prisoners by sending them books so that
they can educate themselves to a get a highschool diploma or a college degree.
For the betterment and future of the churches,
recruitment of church priests and clerics
should be properly screened and examined.
Effective standards, procedures (though it be
bureaucratic but such procedures may have its
beneficial control effects), and guidelines should
be carefully followed and monitored by the
churches so that a good population of up-tostandard and well-disciplined priests and clerics
can keep and maintain the churchs system and
image.

Cross-References
Buddhist Ethics and CSR
Confucian Ethics
Islamic Ethics and CSR
Trust and CSR

References and Readings

Abrams, J. (2009). Encyclical brings light to economy of
communion movement. Washington, DC: Catholic
News Service (CNS).
Adrian House. (2000). Francis of Assisi. London: Chatto
& Windus.

Christine Parker

353

Burke, G. (2000). John Paul II, An invitation to joy,

selections from the writings and speeches of his holiness John Paul II. New York: Simon& Schuster.
Chawla, N. (2009). The mystery of Mother Teresa. The
Hindu Newspaper, New Delhi, India. http://beta.
thehindu.com/opinion/lead/article9166.ece. Accessed
20 July 2010.
Cheng, P. L. K. (2008). Leadership thoughts to build your
life on Leading, the Jesus way. Leadership & Organizational Management Journal, 2008(4), 112.
Keeler, H., Grimbly, S., & Wiggins, J. B. (2005). 101
things everyone should know about Catholicism. Canada: Adams Media and F & W.
Rai, R., & Chawla, N. (1996). Faith and compassion, the
life and work of Mother Teresa. Shaftesbury, Dorset:
Element Books.
Reverends Killgallon, J., Weber, G., & Ziegmann, L.
(1983). Life in Christ. Chicago: Acta Foundation.
Sider, R. (1979). Christ and violence. Bristol: Lion
Publishing.
The Jerusalem Bible: TJB. (1967). New testament.
London: Darton, Longman and Todd.
van Biema, D. (2007, September 3). Her agony. Time,
pp. 2633.

20062011 Australian Research Fellow, Melbourne Law

School, University of Melbourne (Funded by
the Australian Research Council to research
only for 5 years)
20052006 Associate Professor and Reader, Melbourne
Law School, University of Melbourne
20022005 Senior Lecturer, Melbourne Law School,
University of Melbourne
20022003 Research Fellow, Centre for Competition
and Consumer Policy, Research School of
Social Sciences, Australian National
University
20002002 Senior Lecturer, Law Faculty, University of
New South Wales
19981999 Postdoctoral Fellow, Law Faculty,
University of New South Wales
19971998 Visiting Fellow and Half-time Lecturer,
Law Faculty, University of New South
Wales
19941996 PhD Student and Part-time Tutor, Law,
Australian National University
19931994 Research Associate, National Institute for
Law, Ethics and Public Affairs, Law Faculty,
Griffith University

Christine Parker

Major Contributions

Mia Mahmudur Rahim

Macquarie Law School, Macquarie University,
Sydney, NSW, Australia

Professor Christine Parkers extensive research

has indebted the legal regulation and governance
scholarship. Her scholarly contribution are in the
issues of socio-legal research on business
responses to legal regulation and social responsibilities, the impact of regulatory enforcement on
business, internal corporate responsibility systems,
lawyers ethics, and the regulation of lawyers. Due
to her dexterity in research and in-depth knowledge in regulation scholarship, she has received a
number of major academic research grants in her
areas of research. She also does research work
and policy advice on a consultancy basis for the
government and regulatory agencies. She is
currently working in the issues of:

Basic Biographical Information

Professor Christine Parker is a leading author in
the field of legal regulation, governance, and professional ethics. She did her Bachelor of Arts with
First Class Honors in 1991 and Bachelor of Laws
with First Class Honors in 1992 in the University
of Queensland. In 1997, she finished her doctoral
dissertation and earned her Ph.D. from Australian
National University. She started her academic
career while she was a student of law. Now she
is a renowned professor of law and teaching in the
Faculty of Law of the Monash University. Her
chronological career record is as follows:
20112011 Professor, Centre for Regulatory Studies and
Law Faculty, Monash University
20112011 Professor, Melbourne Law School,
University of Melbourne
(continued)

1. The United Nations respect, protect, and

remedy framework for business and human
rights
2. Competition and consumer protection regulation and compliance
3. The new criminal anti-cartel offense
4. Consumer Affairs Victoria on compliance
strategies for real-estate agents and
conveyancers

354

She has published extensively and her works

are highly cited in the academic arena. The number of her scholarly articles in reputed journals is
many. Among her books, the undermentioned are
prominent:
1. Explaining Compliance: Business Responses
to Regulation. (2011). Edward Elgar.
(Coedited with Vibeke, L. N.)
2. Inside Lawyers Ethics. (2007). Cambridge:
Cambridge University Press. (Coauthored
with Adrian, E.)
3. The Open Corporation: Self-regulation and
Corporate Citizenship. (2002). Cambridge:
Cambridge University Press
4. Regulating Law. (2002). Oxford: Oxford
University Press
5. Just Lawyers: Regulation and Access to
Justice. (1999). Oxford: Oxford University
Press
With Professor Adrian Evans, she designed
Inside Lawyers Ethics to help law students and
new lawyers to understand and modify their own
ethical priorities; it is not just because this knowledge makes it easier to practice law and earn an
income but also because it makes one aware of
lots of related things including self-awareness,
the belief that ethical legal practice is right,
makes him feel better, and above all, enhances
justice. Packed with case studies of ethical scandals and dilemmas from real-life legal practice in
Australia, each chapter delves into the most difficult issues lawyers face. From lawyers part in
corporate fraud to the ethics of time-based billing, the authors expose the values that underlie
current practice and set out the alternatives ethical lawyers can practice.
The Open Corporation has already made an
immense impact on the traditional scholarship of
corporate regulation. In this seminal book, she
warns us against institutional reductionism and
underestimation of the complex nature of the
personal and institutional relationships which
comprises the corporation. Her ideas mentioned
in this book give a new insight in the debate on
corporate social responsibility from nihilism to
potentially achievable aspiration.
Professor Christine Parker is also the editor of
the journal, Legal Ethics, and is on the editorial

Christine Parker

boards of Law and Policy and Regulation and

Governance. Currently, she is the cochair of the
Law and Society Associations Collaborative
Research Network for Regulatory Governance
and a Member of Advisory Committee for
Australian Law Reform Commission reference
on Discovery in Federal Civil Litigation
and Enforceable Undertakings Panel, Environmental Protection Authority, Victoria. She was
also related with the Restorative Justice and
Workplace Death Project of the Creative
Ministries Network, Advisory Committee for
Australian Law Reform Commission reference
on Client Legal Privilege and Federal
Investigatory Bodies, Cancer Council of
Victoria Legal Policy Advisory Group, Victorian
Legal Ombudsmans Reference Group, and
New South Wales Bars Professional
Conduct Committee. In 2008, she was the
Honorary Fellow of the Australasian Compliance
Institute.

Cross-References
Meta-regulation Approach to CSR

References and Readings

Christine, P., & Aitken, L. (2011). The queensland workplace culture check: learning from reflection on ethics
inside law firms. Georgetown Journal of Legal Ethic,
24(2), 399441.
Christine P., Haller L. (2012). Inside running: internal
complaints management practice and regulation
in the legal profession. Monash University Law
Review, 37.
Christine, P., & Nielsen, V. (2011a). The Fels effect: the
impact of business opinions of the ACCC. Griffith Law
Review, 20(1), 91126.
Christine, P., & Nielsen, V. (2011b). Deterrence and the
impact of calculative thinking on business compliance
with regulation. Antitrust Bulletin, 56(2), 377426.
Christine P., & Ruschena D. (2011). The pressures of
billable hours: lessons from a survey of billing practices inside law firms. St Thomas Law Review. http://
ssrn.com/abstract=1790082
or http://dx.doi.org/
10.2139/ ssrn.1790082. Accessed 18 March 2011.
Monash University Law. (2012). Professor Christine
Parker. http://www.law.monash.edu.au/staff/cparker.
html. Accessed 10 April 2012.

Climate Change

355

Definition

Chrysotile
Asbestos

Cigarettes
Tobacco

Civic or Third Sector

View on the Ground: CSR from a Capabilities
Approach

Civil Regulation
Ethical Trading Initiative

Civil-Society Organizations (CSO)

and CSR
NGOs and CSR

Clean Technology
Sustainable Primary Energy Production

Climate Change
zer
Yunus Emre O
Faculty of Economics and Administrative
Sciences, Public Administration Department,
Dokuz Eyl
ul University, Buca Izmir, Turkey

Synonyms
Climatic change; Global climate change

Climate change, according to the United Nations

Framework Convention on this issue, can be
defined as a change in climate which is attributed
directly or indirectly to human activity, which
alters the composition of the global atmosphere,
and which in the same way as natural climate
variability is observed over comparable periods
of time.
It is the greenhouse effect which is causing the
earth to become gradually warmer. Although
greenhouse gases amount to only a very small
part of the atmosphere, they are the cause of
what is known as the greenhouse effect. Greenhouse gases are located in the upper levels of the
atmosphere. Sunlight is absorbed by these gases
before they are released into space. This creates
an unnatural warming of the earth known as the
greenhouse effect which distorts the natural
balance of the earths climate systems. There
are a number of factors which cause an abnormal
accumulation of greenhouse gases, the most
important of which is the use of fossil fuels.
Any postponement of measures to curb the use
of these fuels will lead to irrecoverable situations
with the excessive accumulation of greenhouse
gases deepening the problems by depleting the
ozone layer.
Climate change implies the changes have
large-scale and local-regional effects on climate
over a period of time. Changes become apparent
not only through increase in temperatures but
also through changes in rainfall regimes. Since
economic forecasts, future developments in
technology, and population growth are still
unclear, it is difficult to predict exactly which
regions of the world will be affected by climate
change and the degree and rate at which these
changes might happen. However, one thing is
certain: the demand for energy will increase
even more in the next 25 years, and this energy
will be mainly sourced by fossil fuels.
According to the data of the 2009 International
Energy Agency (IEA) report, about 40% of CO2
emissions are produced by the energy sector.
This situation shows that if no measures are
taken, the effects of climate change will not

356

diminish by themselves. When the action and

policymaking related to climate change is considered, global cooperation, awareness of
energy conservation, use of appropriate technologies, and the production of measurable data are
all important issues which need to be
emphasized.

Introduction
The world has experienced changes of cooling
and warming of its climate since its formation. In
retrospect, it is evident that the Athens Charter,
which appeared in the 1930s, was probably the
first document proposing environmental protection of air, plant life, and sun as one of its themes.
However, toward the end of the twentieth century, human impact on climate change was
becoming increasingly evident. However, this
impact was clearly revealed for the first time in
the World Climate Conference in 1979. In the
1970s, the effects of chlorofluorocarbons
(CFCs) and other ozone-depleting substances
(ODSs) were identified. In the 1980s, the subject
of human impact on the greenhouse effect was
agreed upon in a scientific sense. During these
years, sensitivity toward ozone depletion and climate change increased. In 1987, the Montreal
Protocol demanded the gradual reduction of the
use of substances that were causing the depletion
of the ozone layer.
In 1988, IPCC (the Intergovernmental Panel
on Climate Change) was established with the
contributions of scientists from many countries
in the world. The main aim of IPCC was to
investigate human influence on the greenhouse
effect and provide scientific information for
reducing climate change. At the same time within
the framework of this information, IPCC made
recommendations in terms of scientific, technical, and socioeconomic areas related to climate
change. In addition, they prepared assessment
reports, technical papers, and methodologies for
the use of policymakers, scientists, and other
experts. Following the reports prepared by
IPCC, climate change policies were understood
to be inadequate at the international level

Climate Change

and questions began to emerge (Hulme and

Mahony 2010).
In the late 1980s, studies by the United Nations
and other institutions were carried out in order to
reduce the negative impact of humans on climate
change. The United Nations Framework Convention on Climate Change which appeared on the
agenda of the international community at the
United Nations Rio Summit in 1992 is recognized
as a broad acceptance of issues related to the environment. In 1994, a contract on sustainable development was drawn up. It included measures to
minimize the effects of climate change with the
cooperation of all countries. Greenhouse gases
were not defined in this context. Under this agreement, two annexes were created to clarify responsibilities. The country parties assigned to Annex
I were Australia, Austria, Belarus, Belgium,
Bulgaria, Canada, Croatia, the Czech Republic,
Denmark, the European Economic Community,
Estonia, Finland, France, Germany, Greece,
Hungary, Iceland, Ireland, Italy, Japan, Latvia,
Liechtenstein, Lithuania, Luxembourg, Monaco,
Netherlands, New Zealand, Norway, Poland,
Portugal, Romania, Russian Federation, Slovakia,
Slovenia, Spain, Sweden, Switzerland, Turkey,
Ukraine, the United Kingdom of Great Britain and
Northern Ireland, and the United States of America.
According to the United Nations Framework
Convention on Climate Change, the member
parties of Annex I committed themselves to adopt
national policies and take corresponding measures
on the mitigation of climate change by limiting its
anthropogenic emissions of greenhouse gases and
protecting and enhancing its greenhouse gas sinks
and reservoirs. Countries in this context were
responsible for reducing greenhouse gas emissions
to the level of the 1990 level by the year 2000. The
member parties of Annex II, Australia, Austria,
Belgium, Canada, Denmark, European Economic
Community, Finland, France, Germany, Greece,
Iceland, Ireland, Italy, Japan, Luxembourg,
Netherlands, New Zealand, Norway, Portugal,
Spain, Sweden, Switzerland, the United Kingdom
of Great Britain and Northern Ireland, and the
United States of America, were assigned the same
responsibilities as those in Annex I. According to
the United Nations Framework Convention on

Climate Change

Climate Change, the developed country Parties

along with other developed Parties included in
Annex II, shall provide new and additional financial
resources to meet the agreed full costs incurred by
developing country Parties in complying with their
obligations in the Convention. The developed
country Parties and other developed Parties
included in Annex II shall also provide such
financial resources, including those for the transfer
of technology, needed by the developing country
Parties to meet the agreed full incremental costs of
implementing measures. The developed country
Parties and other developed Parties included in
Annex II shall also assist the developing country
Parties that are particularly vulnerable to the
adverse effects of climate change in meeting costs
of adaptation to those adverse effects. The developed country Parties and other developed Parties
included in Annex II shall also assist the developing
country Parties that are particularly vulnerable to
the adverse effects of climate change in meeting
costs of adaptation to those adverse effects. The
United Nations Framework Convention on Climate
Change could not reach the predicted targets
because firstly the agreement was not binding
and secondly numerical targets for the year 2000
were unclear.
After the United Nations Framework Convention on Climate Change, the subsequent and the
most important development relating to climate
change was the Kyoto Protocol adopted in 1997
to control gas emissions. In Annex A of this protocol, the greenhouse gases accepted as being detrimental were listed as follows: carbon dioxide
(CO2), methane (CH4), nitrous oxide (N2O),
perfluorocarbons (PFCs), hydrofluorocarbons
(HFCs), and sulfur hexafluoride (SF6). Annex
B showed details of the quantified emission
limitation or reduction commitments of some
countries as a percentage of that of the base year.
These commitments by member parties of Annex
I were as follows: Australia 108, Austria 92,
Belgium 92, Bulgaria 92, Canada 94, Croatia 95,
Czech Republic 92, Denmark 92, Estonia 92, the
European Community 92, Finland 92, France 92,
Germany 92, Greece 92, Hungary 94, Iceland 110,
Ireland 92, Italy 92, Japan 94, Latvia 92, Liechtenstein 92, Lithuania 92, Luxembourg 92, Monaco

357

92, Netherlands 92, New Zealand 100, Norway

101, Poland 94, Portugal 92, Romania 92, Russian
Federation 100, Slovakia 92, Slovenia 92, Spain 92,
Sweden 92, Switzerland 92, Ukraine 100, the
United Kingdom of Great Britain and Northern
Ireland 92, and the United States of America 93.
According to the article 3/1 of the Kyoto
Protocol, the parties included in Annex I
(Australia, Austria, Belarus, Belgium, Bulgaria,
Canada, Croatia, the Czech Republic, Denmark,
the European Economic Community, Estonia,
Finland, France, Germany, Greece, Hungary,
Iceland,
Ireland,
Italy,
Japan,
Latvia,
Liechtenstein, Lithuania, Luxembourg, Monaco,
Netherlands, New Zealand, Norway, Poland,
Portugal, Romania, Russian Federation, Slovakia,
Slovenia, Spain, Sweden, Switzerland, Turkey,
Ukraine, the United Kingdom of Great Britain
and Northern Ireland, and the United States of
America) shall, individually or jointly, ensure
that their aggregate anthropogenic carbon dioxide
equivalent emissions of the greenhouse gases listed
in Annex A (carbon dioxide (CO2), methane
(CH4), nitrous oxide (N2O), per fluorocarbons
(PFCs), hydro fluorocarbons (HFCs), sulpfur
hexafluoride (SF6)) do not exceed their assigned
amounts, calculated pursuant to their quantified
emission limitation and reduction commitments
inscribed in Annex B and in accordance with the
provisions of article 3/1 of Kyoto Protocol, with
a view to reducing their overall emissions of such
gases by at least 5% below the 1990 levels in the
commitment period 20082012. Developing
countries that are not included in Annex I had no
such responsibilities in reducing their overall emissions of such gases within this period. Developing
countries that were not included in Annex I were
obliged to give a greenhouse gas inventory each
year. It is clear that the main responsibility and
liability of reducing the effects of global warming
and climate change in the Kyoto Protocol were
based on the Annex I countries. In addition, the
protocol planned to develop policies to prevent
climate change within the understanding of the
cooperation and implement these policies. Also
they would contribute to the exchange of information on climate change by raising awareness.
The Kyoto Protocol set more concrete targets

358

than the United Nations Framework Convention

on Climate Change, thereby demanding greater
obligator responsibilities.
The purpose of the clean development
mechanism included in the Kyoto Protocol is to
assist parties not included in Annex I in achieving
sustainable development and in contributing to the
ultimate objective of the United Nations
Framework Convention on Climate Change and
to assist parties included in Annex I in achieving
compliance with their quantified emission
limitation and reduction commitments.
Although the Kyoto Protocol was signed in
1997, it did not come into force until 2005
because according to article 25/1 of the protocol,
entry into force is possible only if 55 parties to the
convention, included in Annex I, which
accounted in total for at least 55% of the total
carbon dioxide emissions for 1,990 of the parties,
have deposited their instruments of ratification,
acceptance, approval, or accession. This changed
when Russia became party to the protocol, thus
allowing 55% to be achieved.
After the Kyoto Protocol for 2012, processes
and changes in climate were addressed by countries
at meetings of the Conference of the Parties to the
Convention (COP). At COP 11, which became the
first conference of the parties of the Kyoto Protocol,
a 5-year action plan on climate change was adopted
(Decision 2/CP.11). At COP 12, the second conference of the parties of the protocol, organized in
2006, it was decided that the Kyoto Protocol
would continue to apply after 2012 without interruption. At COP 15 in Copenhagen, the need for an
international climate change agreement was
announced for the period following 2012 (Decision
1/CP.15). The necessity of bringing international
public opinion to the agenda was emphasized by
negotiation of a new climate change contract.
COP 16 was organized in Mexico. At this meeting,
it was revealed that no international progress
on climate change had been achieved, the EUs
leadership on climate change had failed,
and countries had reverted to small-scale
and regional agreements (http://www.tobb.org.tr/
AvrupaBirligiDairesi/Dokumanlar/Raporlar/cop16.pdf).
In addition, the Kyoto Protocol, which ceases be
obligatory in 2012, is considered to be

Climate Change

inadequate. Its lack of success was blamed on

the delay in its application which was a result of
the reduction in carbon dioxide emissions by
Annex I parties not being achieved without the
inclusion of the Russian Federation. In addition,
two countries, Japan and Russia, objected to the
extension of the Kyoto Protocol. Therefore,
negotiations for post-2012 were negatively aff
ected at COP 16. One positive aspect of COP 16
was the acceptance of the Green Climate
Fund which will be introduced in 2020
(Decision 1/CP.16 of COP 16). Through this f
und, the sum of $100 billion will be transferred
to the developing countries annually by
developed countries, and in addition, issues of
meaningful mitigation actions and transparency
on implementation will be supported.
The increase in greenhouse gases is not the
problem of one country alone. The problem
is global and will have to be solved by global
consensus and cooperation among countries.
The many international and supranational
organizations engaged in climate change studies
are therefore important platforms in this context.
Of these, the United Nations is the key actor in
climate change issues on the international
agenda. UNDPs (United Nations Development
Program) 2011 report entitled Adapting to
Climate Change argues that the UNDP has
been operating in 166 countries to minimize the
effects of climate change and to prevent it. The
UNDP helps developing countries put in place
the elements needed for a decent standard of
living and aid peoples ability to withstand
climate change. UNDP also supports poor people
in adapting to climate change since reducing
poverty and tackling climate change need to
go hand in hand. UNDP works together
with the least developed countries who are most
vulnerable to climate change and whose
economic growth highly depends on climatesensitive sectors in order to adapt their national
poverty programs by developing their technology, adaptation, and mitigation activities. For
example, the Global Environment Facility
(GEF) assists developing countries and transition
countries to cope with the adverse effects of
climate change. GEF aims to support developing

Climate Change

countries to increase their resilience to climate

change through both immediate and longer term
adaptation measures in development policies,
plans, programs, projects, and actions. According
to the UNDPs 2011 report, the GEF has invested
more than $3 billion and leveraged close to $20
billion for climate change projects over the
last 20 years.
The European Union recognizes that climate
change is a global problem, but it is the duty of
industrialized countries in particular to undertake
concrete obligations. In 2007, the European
Union endorsed an integrated climate change
and energy policy. In accordance with this, measures must be taken immediately and effort
exerted before climate change reaches dangerous
levels. In this context, the increase in temperature
will not exceed the level of 2  C compared to the
period prior to industrialization. The European
Commission report of 2008 on climate change
entitled Leading Global Action to 2020 and
Beyond claims that global emissions of greenhouse gases will have to be stabilized by around
2020 and then reduced to at least 50% of the 1990
levels by 2050. The same report states that if the
major producers of emission step into action, this
target is technically feasible and economically
affordable. It also commits to putting the world
on track to reduce global emissions by at least
half of the 1990 levels by 2050. Developed countries collectively will need to cut their emissions
to 30% at least of the 1990 levels by 2020 and by
6080% by 2050. The EU heads of state and
government made a commitment in March 2007
that the EU will cut its emissions to 30% of the
1990 levels by 2020. This commitment will be
achieved at the global level with the help of
contributions by the other developed countries.
Even if there is no reconciliation at the global
level, the EU commits to cut emissions by at least
20% of the 1990 levels by 2020. It expects the
participation of all countries but particularly
those producing heavy carbon emissions in negotiations on post-2012.
The World Development Report 2010 of the
World Bank states that development goals are
threatened by climate change. The effects of climate change are felt most heavily by poor

359

countries. The report also claims that climate

change could be prevented in both rich and poor
countries by the reduction of greenhouse gases.
Especially in developing countries, if action on
climate change is postponed, expenditures on this
issue will be double. The World Bank is clear that
on the issue of climate change, they should act
together with the governments. Long-term plans
should be made to impact climate change. The
World Bank maintains that energy policies must
be resolved by resorting to other means of energy
such as nuclear energy. The OECD works closely
with governments to help them identify and implement least-cost policies to reduce GHG emissions
and thereby limit global warming, as well as to
integrate adaptation to climate change into all relevant sectors and policy areas. The 2010 report on
Climate Change states that its Climate Change
Expert Group is available to help with negotiations
for the post-2012 period. This group of experts
works on issues such as those related to climate
change which include technology innovation,
reporting, and verification.
Therefore, regarding climate change, it should
be emphasized that achievements can only be
reached on an international level with the support
of international and supranational agencies.

Key Issues
The IPCC Third Assessment Report: Climate
Change 2001 shows that since the twentieth century, the average global temperature has increased
from 0.5  C to 0.8  C and that it is expected to
increase from 1.4  C to 5.8  C by the end of the
twenty-first century. The major effects of climate
change in the most general sense are the melting of
polar ice, the rise of the average global air and
ocean temperatures, the rise in sea levels, the
decrease of ocean pH and the reduction of oxygen
levels, economic devastation derived from environmental changes, the warming up of ocean waters,
the loss of homes, the erosion of land, air pollution,
zturk 2002).
floods, drought, and diseases (O
Moreover, climate change will have a negative
impact on the basic elements of daily life such as
the physical and natural environment, technology,

360

economics, agriculture and food, reduction of crop

yield, tourism, fisheries, drought, health, forest
fires, and clean water.
Generally, industrialization is accepted as the
major reason for climate change. Although that is
true, human impact should also be considered as
a stronger basis for accumulation of gases such as
carbon dioxide and methane. Therefore, it would
make sense to show the human impact rather
than industrialization as the primary cause of
climate change.
Climate change may affect different places
and communities to varying degrees. Socioeconomic characteristics of urban areas differ from
those of rural areas. And effects of climate
change in urban areas are likely to be more
dangerous than in other areas. Cities will become
less comfortable places (Lindley et al. 2006) as it
impacts infrastructure, human lives, human
health, personal property, environmental
quality, and future prosperity. While large
populated cities such as those in south Asia are
the most vulnerable, the 2008 European Commission Report, Adapting to Climate Change,
states that climate change will also affect
European cities. Southern Europe and the
Mediterranean basin area are sensitive areas
with regard to high-temperature increases and
the threat of drought. The European Union
foresees that agriculture, tourism, fisheries, and
forestry sectors can all be affected by climate
change.
The social impacts of climate change vary
according to age, socioeconomic class, occupations, and gender. The worlds poorest people
will be most affected by these changes because
of corruption. The UNDP defines corruption as
misuse of entrusted power for private gain. For
this reason, improper use of funds by administrators can affect poorer people by leaving them
victims of climate change. In the 2011 report of
the UNDP, Adapting to Climate Change, it
states that the least developed countries need
most support in fighting the effects of climate
change. Ironically, we have to accept that countries and groups which cause the least climate
change will be influenced most severely by climate change.

Climate Change

The poorest countries and communities are

affected most because of their geographic locations, low income, and low institutional capacity,
as well as their greater reliance on climatesensitive sectors such as agriculture (Nath and
Behera 2011). For example, climate changes
have caused huge economic losses in agriculture
in places such as Africa which result in hunger and
poverty. On this subject, the Food and Agriculture
Organization of the United Nations (FAO) is leading international efforts to defeat hunger. Serving
both developed and developing countries, FAO
acts as a neutral forum where all nations meet as
equals to negotiate agreements and debate policy.
According to the report of FAO Climate Change
and Food Security in the Context of the Cancun
Agreements FAO submission to the UNFCCC,
FAO also works on effects caused by climate
change. It also points to the areas where adaptation
and mitigation activities merge with ongoing
development efforts to improve sustainable use of
natural resources for increased production, income,
food security, and rural development. FAO considers climate change as one of the most important
threats in terms of food security which is threatened
by the loss of agricultural land. In addition to this,
in countries with water scarcity problems, it may be
even more difficult to provide security. Besides
water problems between countries, issues of water
sharing and distribution between sectors are likely
to emerge between countries.
Another problem encountered with climate
change is desertification. In addition, incidents
of drought are likely to increase, thereby limiting
agriculture and necessitating the development of
durable and appropriate agricultural products.
Irrigation systems will need to be changed, and
farmers not prepared for drip irrigation methods
are likely to face economic loss. Groundwater
will decrease and to reach it may be a costly
process (Cangir and Boyraz 2008).
A further consideration is the effect of climate
change on human health which has risen to
a serious level in recent years. Microbes and the
distribution of infectious diseases are affected by
climatic changes. Cancer, cardiovascular, and
respiratory diseases, allergic diseases, food- and
water-borne diseases, air pollutionrelated

Climate Change

diseases, epidemic diseases, malaria, dengue,

diarrhea, and mental health problems associated
with temperature can all be fatal diseases. The
lack of clean water and problems of hygiene
resulting from climate change are marked. Children, pregnant women, and the elderly population
are the groups most likely to be affected by these
problems. For example, poverty and ill-health in
Southeast Asia and Africa will be exacerbated. In
addition, cities are more vulnerable to climatechange-related health effects because of their
intensive population and infrastructure, the physical (geographical, material, and structural) attributes of the built up environment, and the
ecological interdependence with the urban ecosystem (Bambrick et al. 2011). The 2008 report of
WHO (World Health Organization) Protecting
the Health from Climate Change states that
small island developing states and urban
populations, particularly those of tropical mega
cities, are exposed to a combination of health
risks such as heat waves, floods, infectious diseases, and air pollution; mountain populations are
at increased risk of water insecurity, floods and
landslides, and infectious disease; and the health
of indigenous people in polar regions may be
affected by changes in temperature, food sources,
and livelihoods. According to the report, protection of human health should be the main theme of
climate change studies.
There are also economic impacts of climate
change. Efforts for reducing greenhouse gas
emissions to avoid climate change involve significant costs. Without financial input now, the cost
arising in the future will be greater and sustainable development goals will not be reached. Further climate changes will affect long-term
economic plans in certain sectors; for example,
tourist areas may become less attractive. In summary, climate change is a factor that may prevent
the realization of sustainable development.
It can therefore be seen that humanity is the
main destructive factor in climate change.
Responsibilities differ from local to international
level, but cooperation is the most important keyword. Cooperation of actors at all levels has to be
evaluated in the context of corporate social
responsibility.

361

Future Directions
The effects of climate change are not national;
they are global. In other words, the problem does
not only concern one country, but the whole
world. Therefore, participation and negotiation
on a global level are imperative for post-2012.
At the same time, social participation is crucial in
order to minimize greenhouse gas emissions in all
development plans, programs, and projects
whether initiated by multilateral agencies, governments, or the private sector (Braun 2010).
Global participation by all actors for reducing
the effects of climate change is vital. Such
a situation will provide the creation of incentives
for reducing climate change and planning the
way forward in developing countries (and
maybe for non-Kyoto members) for post-2012.
In general, for the post-2012 period, setting targets for reducing the use of greenhouse gases,
improving and broadening the global carbon market, innovation, and technology transfer (lowcarbon technology), and financing international
adaptation are necessary (Dervis and Jones
2009). Moreover, the experience of developed
and developing countries shows that adaptation
strategies work better when there is a synergy
between climate change initiatives with other
socioeconomic goals and policies (Nath and
Behera 2011).
In order to assess the impacts of climate
change and to develop suitable adaptation and
mitigation policies, accurate climate change predictions are needed at the global and, more
importantly, the regional and local levels (Giorgi
2005). Increasingly, local governments are developing innovative policies and programs to
address global climate change. A growing body
of scholarship explores local government behavior with respect to sustainability initiatives and
involvement in climate change programs and networks in the United States and elsewhere (Sharp
et al. 2010).
In order to reduce the effects of climate
change, the search for new technology is continuing. Solar and wind energies can be problematic
in terms of cost and integration into the energy
system. However, cell-to-fuel cells, biomass

362

energy, hydrogen energy, carbon capture and

storage, second-generation biofuels, geothermal
power plants, and recycling plants are all examples of new fields of research. The use of cheap
and polluting energy sources like coal must be
restricted by governments who should encourage
alternative incentives such as those mentioned
above, as well as turning to cleaner forms of
transportation. However, the most important
way forward is to increase general awareness of
the problems, and this can best be addressed
through education.

Cross-References
Carbon Emissions
Global Warming
Greenhouse Gases
Kyoto Protocol
Mitigation
United Nations Intergovernmental Panel on
Climate Change

References and Readings

Bambrick, H. J., Capon, A. G., Barnett, G. B., Beaty, R. M., &
Burton, A. J. (2011). Climate change and health in
the urban environment: Adaptation opportunities in
Australian cities. Asia-Pacific Journal of Public Health,
23(2), 67S79S.
Braun, R. (2010). Social participation and climate change.
Environment, Development and Sustainability, 12,
777806.
Cangir, C., & Boyraz, D. (2008). Iklim degisikligi ve
collesme veya toprak/arazi bozulumunun T
urkiyedeki
boyutlar ve collesme ile m
ucadele. Tekirdag Ziraat
Fak
ultesi Dergisi, 5(2), 169186.
Dervis, K., & Jones, A. (2009). Overcoming sticking
points at the Cop15: Targets, markets, technology
and financing. Climate change policy: recommendations to reach consensus. http://www.brookings.edu/~/
media/Files/rc/papers/2009/09_climate_change_poverty/
09_climate_change_poverty_dervis.pdf. Accessed 30
May 2011.
Giorgi, F. (2005). Climate change prediction. Climatic
Change, 73, 239265.
Hulme, M., & Mahony, M. (2010). Climate change: What
do we know about the IPCC? Progress in Physical
Geography, 34(5), 705718.
Lindley, S. J., Handley, J. F., Theuray, N., Peet, E., &
Mcevoy, D. (2006). Adaptation strategies for climate

Climate Change Protocol

change in the urban environment: Assessing climate
change related risk in UK urban areas. Journal of Risk
Research, 9(5), 543568.
Nath, P. K., & Behera, B. (2011). A critical review of
impact of and adaptation to climate change in developed and developing economies. Environment, Development and Sustainability, 13, 141162.
zt
O
urk, K. (2002). K
uresel iklim degisikligi ve T
urkiyeye
Gazi Egitim Fak
olas etkileri. G.U.
ultesi Dergisi,
22(1), 4765.
Sharp, E. B., Daley, D. M., & Lynch, M. S. (2010).
Understanding local adoption and implementation of
climate change mitigation policy. Urban Affairs
Review, 47(3), 433457.
Tanlay, I. (2010). Cancun iklim degisikligi zirvesi
degerlendirme notu. Resource document. T
urkiye
Odalar ve Borsalar Birligi. http://www.tobb.org.tr/
AvrupaBirligiDairesi/Dokumanlar/Raporlar/cop16.pdf.
Accessed 23 Feb 2012.

Climate Change Protocol

Kyoto Protocol

Climatic Change
Climate Change

Closed-Loop Material Systems

Cradle to Cradle

Club of Rome
Samuel O. Idowu
London Metropolitan Business School,
London Metropolitan University,
London, UK

Address with Web Link

Club of Rome
International Secretariat
Apollo House
Lagerhausstrasse 9

Club of Rome

CH-8400 Winterthur
Switzerland
www.clubofrome.org
Email: info@clubofrome.org

Introduction
The Club of Rome is an independent, not-forprofit organization, headquartered in Winterthur,
Switzerland, with a European Support Centre
located in Vienna, Austria. The Club of Rome is
at the forefront of debate in assessing the nature
and consequences of the changes which confront
us and identifying the challenges and pathways
that could lead us to a more harmonious world.
The Club of Rome does not attempt to predict the
future, but attempts to analyze the potential evolution and the options available to our world. The
organizations knowledge is based upon systems
thinking and analysis on the one hand and practical actions, options, and opportunities for
change on the other hand. It believes that with
rigorous analysis, sound and well-conceived
solutions, and political will, it can make
a difference. It seeks interested and committed
sponsors to join its efforts in what is ultimately
a race to ensure that our global civilization
secures a safer and more hospitable world for all.

The History
In April 1968, a small group of international professionals from the fields of diplomacy, industry,
academia, and civil society were invited by an
Italian industrialist Aurelio Peccei and
a Scottish scientist Alexander King to meet
in a quiet villa in Rome. It was at this meeting that
they discussed the dilemma of prevailing shortterm thinking in international affairs and, in particular, the concerns regarding unlimited
resource consumption in an increasingly
interdependent world. Each participant in the
meeting agreed to spend the next year raising
the awareness of world leaders and major decision makers on the crucial global issues of the
future. They would offer a new and original

363

approach in doing this, focusing on the long-term

consequences of growing global interdependence
and applying systems thinking in order to understand why and how it was happening. This was
how the Club of Rome was born. In 1972, the
campaigns of this growing group of like-minded
individuals gained a new worldwide recognition
with the first report to the Club of Rome: The
Limits to Growth, commissioned by the Club
from a group of systems scientists at the Massachusetts Institute of Technology. The report
explored a number of scenarios and stressed the
choices open to society in order to reconcile
sustainable progress within the prevailing environmental constraints. With its focus on longterm vision and provocative scenarios, the report
sold more than 12 million copies in some 30
languages worldwide. Building on this success,
the Club of Rome membership grew as it continued to produce reports on the global issues it
identified. Particularly, the goal of raising
long-term awareness among world leaders and
decision makers regarding the delicate interaction between human economic development and
the fragility of the planet was achieved, contributing to the establishment of Ministries of the
Environment in several countries.
During the 1980s, the Club of Rome continued
its high-level work on a global scale. It contributed significantly to the development of the
concept of sustainability, which has played
an important role in highlighting the
interdependence of environment and economics.
At the same time, the Club of Rome broadened
the scope of its work and advanced the global
agenda in the fields of education, welfare, and
environment.
Building on the work of the 1980s, the Club of
Rome continued its work in the 1990s by focusing on major issues such as the Digital Divide
between North and South, global governance,
and cultural diversity. Reports such as The
Capacity to Govern and Factor Four: Doubling
Wealth Halving Resource Use and No Limits to
Learning were particularly influential during this
period in pointing the way towards solutions.
This period also saw the emergence of several
National Associations of the Club of Rome,

364

Club of Rome

where interested individuals would pursue

activities at a national level in line with the
mission of the international Club, expanding the
involvement in and output of the Club as a whole.
At the beginning of the twenty-first century,
international problems such as rising awareness
about global inequalities, the consequences of
climate change, and the overuse of natural
resources have proven that the Club of Romes
fundamental views are broadly correct and have
revived interest in its activities: unlimited consumption and growth on a planet with limited
resources is unsustainable and indeed dangerous.
In recent years, the Club of Rome has embarked
on a whole new range of activities and has modernized its organization and its mission. Its
commitment to finding new and practical ways
of understanding global problems and turning its
thinking into action is as strong as ever.
In early 2008, the Club of Rome relocated
its international secretariat from Hamburg,
Germany, to Winterthur (Canton Zurich),
Switzerland. It has established a new team and
is working in close cooperation with a number of
private and educational institutions globally, as
well as finding new ways to involve the general
public. Since May 2008, it has also launched
a new 3-year program, A New Path for World
Development, which will be an important focus
of the Clubs activities until 2012.

Structure of Governance

Mission/Objectives/Focus Areas

Since its founding, just over 40 years ago, the

Club of Rome has been promoting interdisciplinary analysis, dialog, and action on fundamental,
systematic challenges which determine the
future of humanity. The Club is recognized
around the world for its early work on the
relationship between economic growth and
the environment which was identified with
The Limits to Growth, a perspective which
holds even more weight today than before.
Over the years, the Club has engaged in
a series of thoughtful, interdisciplinary, and
independent analysis of many critical issues in
the world affairs. It has clarified threats, opportunities, and choices and has advanced
practical solutions by provoking debate, by

The Clubs mission is to identify the most crucial

problems which will determine the future of
humanity and to depict and highlight, through
integrated and forward-looking analysis, the
risks, choices, and opportunities in order to
develop and propose practical solutions to the
challenges identified, and to communicate such
knowledge to policy makers in the public and
private sectors and also to the general public in
order to stimulate public debate and effective
action to improve the prospects of the future.
We are a catalyst for informed debate about
options and solutions and a driver of real change
in the world.

The Club is supported by a network of distinguished honorary members and over 30 National
Associations, drawn together by a common
bond: a deep concern for the future of the planet
and for the welfare of future generations. Its
members include academics, business leaders,
former political leaders, senior government officials, and concerned individuals. In total, some
1,500 people around the world are active in the
work of the Club. The activities of the Club are
guided by the general assembly of its members
which meets once a year. The general assembly
elects the members of a small executive committee which supervises the activities of the
Club. At present, the Club has two copresidents, Dr. Ashok Khosla of India and
Dr. Eberhard von Koerber of Germany, and
two vice presidents, Professor Heitor Gurgulino
de Souza of Brazil and Dr. Anders Wijkman of
Sweden.
Honorary
members
and
contributors
include Kofi Annan, Jacques Delors, Mikhail
Gorbachev, Juan Carlos I King of Spain, among
others.

Activities/Major Accomplishments/
Contributions

Coalition of Environmentally Responsible Economies (CERES)

briefing top leaders in government, business,

and civil society, and by disseminating publications some of them best sellers aimed at
informed opinion and the general public. Other
remarkable publications include Factor Five by
Ernst von Weizsacker and Blue Economy
by Gunter Pauli.
At the Clubs 40th Anniversary Assembly in
June 2008, it launched a 3-year integrated
program of international research and consultation on the topic A New Path for World
Development. The program will not only engage
decision makers and experts and provide
them with feasible proposals for action but
will also engage with the public through
a variety of channels. It will be, in part, an
open source program. It will undertake only
a limited amount of original research, drawing
on the wide array of available information and
research in progress. It will be implemented in
close collaboration with partner organizations,
providing a framework through which their
ideas and contributions can be integrated.
The program will focus on five clusters of
related issues within the overall conceptual
framework of A New Path for World Development: environment and resources, globalization,
world development, social transformation, peace
and security.

Cross-References
Coalition of Environmentally Responsible
Economies (CERES)
EABIS (European Academy of Business in
Society)
WBCSD

365

Coalition of Environmentally
Responsible Economies (CERES)
Henry L. Petersen
School of Management, Alliant International
University, San Diego, CA, USA

Synonyms
CSR

Address with Web Link

www.ceres.org/

Introduction
CERES is a leading coalition made up of environmental, investor, and advocacy groups. The
network comprises of over 80 organizational
members, over 130 nongovernmental organizations, and 75 institutional investors with over
$7 trillion in assets. To be endorsed by CERES,
an organization must commit to a ten-point code
of conduct that is listed within the CERES
principles. The CERES principles are a set of
guiding values that assist organizations with
their corporate behavior and mandate that their
members measure their performance against each
of the principles and issue a public environmental
report on an annual basis. CERES declares to be
one of the leaders for standardized corporate
environmental reporting and has developed
guidelines for sustainability. Their Global
Reporting Initiative (GRI), a voluntary standardized reporting mechanism for sustainability, has
received considerable recognition.

References and Readings

http://www.bibliotecapleyades.net/esp_sociopol_clubrome.
htm. Accessed 18 Oct 2011.
http://www.theforbiddenknowledge.com/hardtruth/clubo
frome.htm. Accessed 18 Oct 2011.
www.clubofrome.org. Accessed 14 Aug 2010.

Brief History
In 1989, several members of the Social Investment Forum, an association for socially

366

Coalition of Environmentally Responsible Economies (CERES)

responsible investment firms and pension

funds, formed an alliance with environmentalists.
The goal of the alliance was to influence
corporations to change their environmental practices. The new organization called CERES was
named after the Roman goddess of fertility and
agriculture, and served as an acronym for
the Coalition for Environmentally Responsible
Economies.
After the Exxon Valdez disaster in Alaska in
1989, CERES announced the creation of the
Valdez principles, which would later be changed
to the CERES principles. The ten-point code
of conduct would become popular as environmental and social issues grew in importance
and more stakeholders were taking a greater
interest in how the issues were managed. Initially
the CERES principles were adopted by environmentally proactive companies; however,
Sunocos participation in the early 1990s, the
first Fortune 500 company to sign up, would
then lead to many more less environmentally
sensitive organizations to endorse and adopt the
principles.
In 1997, CERES initiated a major international reporting project termed the Global
Reporting Initiative (GRI) with the United
Nations Environment Programme (UNEP) joining the project in 1999. The GRI, a voluntary
reporting guideline on sustainability, was then
spun off in 2002, forming its own entity. The
guide, which provides direction for reporting on
economic, environmental, and social performance, has undergone several reiterations with
the latest edition, the third generation, being
released in March of 2011.

Mission/Objectives/Focus Areas
CERES is a national network of investors, environmental organizations, and other public interest groups that work with companies and
investors to address sustainability issues.
Their mission is: integrating sustainability into
capital markets for the health of the planet and
its people.

Structure of Governance
The governance of CERES is structured as
a coalition. To become a member of the coalition,
candidates must go through an application process. Once membership is attained, members
must pay membership dues, and direct the organization by serving on the board of directors and
providing oversight of the organization. Staff
provide the day-to-day management of the operations with opportunities for coalition members
to work or participate in projects or special interest areas as needed.

Activities/Major Accomplishments/
Contributions
Initially, CERES initial unique proposition was
that it represented a group of investors with an
interest in sustainability. Citing investor assets,
CERES boasted of reaching out to corporations to
influence behavior and bring about a change in
practice that would have a positive impact on the
natural environment. By encouraging the adoption of the CERES principles, organizations
would align with the investment interests of
CERES and therefore become preferred investments. Since then, CERES has adopted the coalition approach by bringing investors, NGOs, and
other stakeholders together to influence companies to change their management practices of
environmental and social issues. As a result,
they have made a number of significant accomplishments and these are listed below:
Recipient of numerous awards including the
2006 Skoll Award for Social Entrepreneurship
and the Fast Company/Monitor Group Social
Capitalist award, and was named one of the
100 most influential players in the corporate
governance movement by Directorship
Magazine.
Launched the Global Reporting Initiative
(GRI), now the de facto international standard
used by over 1300 companies for corporate
reporting on environmental, social, and economic performance.

Codes of Ethics in Marketing

Joined with Yale University and insurance

firm, Marsh, to create the Sustainable Governance Forum on Climate Risk. A unique leadership development program designed to help
corporate leaders address the problem of
climate risk.
Spearheaded dozens of breakthrough achievements with companies, such as Nike becoming
the first global apparel company to disclose
the names and locations of its 700-plus
contract factories worldwide in 2005, or
Dell Computer agreeing in June 2006 to
support national legislation to require electronic product recycling and takeback
programs, or Bank of America announcing
a $20 billion initiative in March 2007 to
support the growth of environmentally
sustainable business activity to address global
climate change.
Brought together 500 investor, Wall Street,
and corporate leaders at the United Nations
in 2005 to address the growing financial risks
and opportunities posed by climate change.
The ground-breaking meeting included 28
US and European investors approving a tenpoint action plan seeking stronger analysis,
disclosure, and action from companies, Wall
Street, and regulators on climate change.
Another investor summit will be held in
February 2008.
Launched and directed the Investor
Network on Climate Risk (INCR), a group
of more than 70 leading institutional
investors with collective assets of more than
$7 trillion.
Published cutting-edge research reports to
help investors better understand the implications of global warming. Among those:
a January 2007 report, Climate Risk Disclosure by the S&P 500, an August 2006
report, From Risk to Opportunity: How
Insurers Can Proactively and Profitably Manage Climate Change, and a March 2006
report, Corporate Governance and Climate
Change: Making the Connection, which analyzed how 100 of the worlds largest
companies are addressing the business challenges from climate change.

367

Cross-References
Nongovernment Organizations (NGOs)
Public Private Collaboration

C
References and Readings
http://www.ceres.org/
http://www.ceres.org/about-us/

Co-branding
Sponsorship

Code of Best Practice

Evolution of Corporate Governance Reports in
the UK and Ireland

Code of Conduct
Corporate Governance
Global Governance and CSR

Code of Ethics
Corporate Codes of Conduct

Codes of Ethics in Marketing

Marketing (Ethics of)

368

Codetermination
Matthias S. Fifka1 and Dirk Classen2
1
Cologne Business School (CBS), Dr. J
urgen
Meyer Endowed Chair for International Business
Ethics and Sustainability, Koeln, Germany
2
Classen Fuhrmanns & Partner Rechtsanwalte,
Koln, Germany

Synonyms
Employee representation; Industrial democracy

Definition
Codetermination provides for the participation of
employees and their representatives in the management of a company. Thus, they can actively
influence the decision-making process through
legally stipulated rights. This possibility is
expressed by the German word Mitbestimmung,
from which codetermination was literally translated. This is no coincidence since Germany has
the oldest and most far-reaching codetermination
laws. Irrespective of the country, codetermination can happen at two levels. At the plant
or establishment level, it usually consists of the
formation of works councils. At enterprise level,
it guarantees employee representation on the
supervisory board of a corporation.
Codetermination can be seen as one element
of industrial or labor relations, terms that are
used to describe the employment relationship in
general. Aside from codetermination, there are
other forms of industrial relations which allow
for employee influence on management
decisions, such as collective bargaining and
strikes. Therefore, codetermination should not
be seen as a substitute for these forms, but rather
as a parallel or complimentary instrument that
permits continuous influence by employees.

Introduction
Codetermination rights have developed in a long
historical process. Throughout the course of time,

Codetermination

on the one side, workers have fought for better

conditions and a say in the respective decisions
by management. On the other side, progressive
entrepreneurs, such as Robert Owen or Robert
Bosch, had an interest in promoting the working
conditions for their employees and supported the
respective legal reforms or introduced them on
a company level. Especially in Europe, such
voluntary and legal improvements were gradually made in the late nineteenth and the early
twentieth century in order to avoid a clash
between capital and labor, and to maintain social
peace. After WW II, broader codetermination
rights were introduced in Western European
countries, whereas they remained rather uncommon in the Anglo-Saxon world. In Eastern
Europe and other communist states, codetermination, on a theoretical level, was extensive due
to strong unionization. However, on a practical
level, the unions mostly accepted and transmitted
what was decided by the upper political echelons.
In most Asian, African, and Latin American
countries, codetermination is a weak or even
unknown concept until today.
From the perspective of the employees, codetermination is justified as a mechanism to create
a balance between the employers strive for profit
and the consideration of employment guarantees,
working conditions, as well as employee participation in the success of the company. Moreover,
it can be seen as providing for democratic
processes on an economic level. Business ethics
also emphasizes these functions of codetermination: Creating equality between labor and capital,
limiting economic power of employers, and permitting for humane working conditions through
employee participation. Nevertheless, also from
an employer perspective, there are justifications
for codetermination as it can reduce friction
between employers and employees and, thus,
the risk of fluctuation and strikes.
As it can be seen from these arguments, the
extent of codetermination usually coincides with
the overriding economic philosophy to be found
across countries. In countries with a strong liberal
tradition, characterized by self-reliance and low
governmental involvement, such as the USA,
Australia, and Switzerland, codetermination is

Codetermination

weak or nonexistent. In countries with social

market economies, where social safety nets and
redistribution are extensive, e.g., Germany and
the Scandinavian countries, codetermination is
a widely accepted principle. Moreover, in countries with two-tier/dual board systems, where
management and supervision are separated (e.g.,
Germany, Austria, and Sweden), codetermination on the enterprise level is stronger than in
countries with one-tier/unitary board systems,
in which management and control is not separated, as in the USA and Ireland. In two-tier
systems, employees representatives usually
make up one third of the supervisory board members, but in some countries they can even take
half of the seats. In the latter case except for
employee representation in the German coal and
steel industry a representative of the shareholders serves as director and can cast the decisive vote in case of a parity. In one-tier systems
where codetermination exists, employee representatives usually do not hold more than one or
two seats on the supervisory board.
Overall, substantial differences in codetermination across countries exist, as the legal provisions and nonwritten customs vary greatly. There
are four central criteria by which codetermination
regimes can be distinguished and classified:
1. Legal Basis: The codetermination rights are
established either on a legal basis, a collective
bargaining agreement, or on a voluntary
agreement between the employer and the
employees.
2. Enforcement: This refers to the degree of
codetermination, which can happen on different levels. On the lowest level, the employer
merely has the obligation to inform the
employees about certain activities, especially
with regard to personnel. On a next level,
the employees can express their opinion
without any binding character for the
employer, or participate in consultations.
On the highest level, there are two possibilities. The employees have a veto right or need
to give their consent in decisions made by the
employer, but they cannot initiate or propose
measures on their own. This is only possible
in the most extensive form of codetermination,

369

when employers and employees can

only make certain decisions jointly. If
a mutual agreement is not being reached, the
tie is usually broken by an independent arbiter.
3. Union participation: It is possible that
employee representation takes place without
union involvement, includes partial involvement of unions, or is fully handled by unions.
4. Thresholds: These provisions determine
what company size is needed in order to
be able to form a works council or to have
representatives on the supervisory board.
In the following, some features of codetermination systems to be found in selected countries
shall be pointed out by referring to the four
criteria just mentioned. In the European Union
(EU), employee representation on the enterprise
level differs significantly, as shown by Table 1.
Likewise, the possibilities to establish works
councils on the plant level and their degree of
influence are profoundly different. In general, it
can be said that in countries, where board representation of employees exists, works councils are
widespread as well and relatively easy to establish. In Austria and Germany, e.g., works councils can be set up in all enterprises with more than
five employees and wield significant power. Such
representation does not require union participation, though in most cases works council members are union members. In most other countries,
workplace representation is provided directly by
the unions. Consequentially, in countries where
unions are weak, e.g., in the Baltic countries,
works councils are rather insignificant.
A detailed overview on the individual laws,
regulations, and structures in individual EU
member countries is provided by Fulton (2011).
In order to create more coherence with regard
to employee representation, the EU Commission
issued a directive in 2002. It requires the introduction of information and consultation practices
for enterprises with more than 50 employees in
all member countries, seeking to promote social
dialogue between management and labor
(EU Commission 2002). By March 2005, member
states had to implement the directive in their respective legislation and to establish procedures which
would guarantee that employees are informed

370

Codetermination

Codetermination, Table 1 Employee representation on the board level in the EU (According to Fulton (2011))
No representation
Belgium
Bulgaria
Cyprus
Estonia
Greece (except for
some state-owned
companies)
Ireland (except for
some state-owned
companies)
Italy
Latvia
Lithuania
Malta
Poland (except for
state-owned and
partially privatized
companies)
Portugal
Romania
Spain
UK

One third representation

Austria (in listed and limited
liability companies with more
than 300 employees)
Czech Republic (in listed
companies with more than 50
employees)
Denmark (in all limited
companies with more than 35
employees)
Germany (listed companies with
5002,000 employees)
Hungary (in companies with
more than 200 employees and
a two-tier board)
Luxembourg (companies with
more than 1,000 employees and/
or significant state ownership)
Netherlands (companies with
more than 100 employees, but
only external persons can be
nominated)
Norway (in companies with more
than 50 employees)
Slovakia (in companies with
more than 50 employees and
a share capital of more than
25,000)
Sweden (in most companies with
more than 25 employees)

about their employers economic situation and are

consulted on issues regarding employment and
work organization. However, as Schoemann et al.
(2006) have concluded, transposition of directive
2002/14/EC into national law has been minimal, if
not incomplete. This observation holds true until
today.
In the USA, as in other liberal market economies, labor law does not require any form of
codetermination. Employee representation on
boards is an unknown concept, though works
councils infrequently do exist. Usually, they are
supplanted by the respective local union and are
not of remarkable significance since the respective issues, e.g., salaries and working conditions,
are usually subject to collective bargaining.
Consequentially, Prenting (1992: 17) concluded
that due to the voluntary nature of collective
bargaining in the United States and restrictions

Parity
representation
Germany (listed
companies with
more than 2,000
employees)
Slovakia (in stateowned companies)

Other forms
Finland (in companies with more than
150 employees, but details are left to
negotiations on company level)
France (a variety of possibilities
applies, depending on company size,
and private or state ownership)
Slovenia (depending on company size
in terms of employment and turnover,
and the existence of a two-tier board)

in American labor laws, [. . .] the introduction of

the European model of co-determination to the
U.S. is unlikely. In the UK, the Bullock Report
of 1977 laid out widespread proposals for
employee representation and even included direct
election of board members by unions. However,
the report was dismissed due to employer resistance and fell from the agenda after Margret
Thatchers electoral victory in 1979.
With regard to Asia, codetermination is generally weak or nonexistent, though Japan marks
a notable exception. Its unique model of codetermination does not provide for mandatory participation, but employees are informed and consulted
to a considerable degree, nevertheless, since they
are regarded as a vital part of the corporate community. Thus, employee participation is based upon
informal social norms, and unions act as transmitters of the employees interests (Jackson 2005).

Codetermination

Concerning China, labor relations in general

have been altered dramatically due to the transformation of the economic system from a planned to
a rather free market economy. As Hanlin (2012)
points out, a rising number of conflicts between
employers and employees could be observed after
1990 since privatization has led to unemployment,
poor working conditions, the collapse of the social
safety system once provided by state-owned enterprises, rising income inequality, and a shift of
power from the employees to the capital owners.
As a reaction, the Trade Union Law was passed by
the Chinese Peoples Congress in 2001. It holds that
unions have to be set up at plant level in enterprises
with more than 25 employees and have to be
consulted on any issue relevant to the employees.
In case the employer violates rights regarding occupational health and safety, payment, and working
hours, the union can even ask for rectification and
participate in investigations. Despite these reforms,
codetermination in China remains weak because of
its union-centric character. Unions are not accustomed to this new and challenging task yet. Moreover, Art. 4 of the Trade Union Law explicitly
determines economic development to be the central
mission of unions, which in many cases can be
diametric to the tasks of worker representation
(Heuer 2005).
Concerning Africa, South Africa is the only
significant country where codetermination has at
least a legal foundation. After the end of apartheid,
the Labor Relations Act was introduced in 1995,
which primarily aims at establishing rights of association and collective bargaining. However, the
attempt to strengthen worker representation has
been largely unsuccessful due to the traditional
confrontational stands of employers and
employees, long-standing state opposition against
unions, and the legacy of racial discrimination.
Some progress, though, has been made on the
plant level. In the 1990s, companies started to
establish joint forums with unions, within which
information sharing, consultation and, in some
cases, joint decision-making occurs (Webster and
Macun 1998, 66).
In Latin America, finally, codetermination is
very weak as labor relations overall are heavily
tilted in favor of the employer. Schneider (2009)

371

has referred to these relations as atomistic and

anomic, because workers are only weakly linked
to enterprises and there is high turnover, and there
is hardly any link or bond provided by unions,
which are extremely weak. Consequentially, the
respective countries do not have mechanisms
such as codetermination to provide for worker
representation within firms. As unions mostly
are politicized and controlled by the state, their
intermediation at plant as well as at enterprise
level is mostly ineffective.

Key Issues
One of the key issues on codetermination is the
question if it has overall positive or negative
effects on a companys performance. Aside from
providing democratic processes within companies,
a balance between capital and labor, and improving working conditions, which are undoubtedly
beneficial from the employee perspective, there
are also reasons which support codetermination
from the capital owners and employers perspectives. As pointed out above, it can help to reduce
friction and dispute between management and
labor, and thus prevent against costly strikes.
Moreover, the possibility to participate in decision-making processes can be a motivational factor for employees and produce innovations so that
company performance increases.
However, codetermination can also be seen as
a burden on company performance. First of all,
there is the classical argument that workerparticipation rights will lead to higher costs for
an enterprise as employees have an interest in
higher wages and salaries, less working hours
and more holidays, and better working conditions. Aside from these pecuniary arguments,
procedural concerns might be of even bigger
importance. Codetermination, especially when it
guarantees for veto or voting rights, can lead to
a blockade of decisions which might be necessary
for the enterprise as a whole, but might be seen to
have negative consequences for the workforce.
The necessity to dismiss employees in order to
remain competitive and survive in the market is
a traditional issue in that regard. Moreover, it can

372

be questioned whether employees do have the

necessary qualification to serve on the supervisory board, as it is the case in several European
countries. Someone from a manual profession
without a background in business administration
can hardly be expected to oversee the potential
impact of far-reaching strategic decisions.
This last argument can be taken further onto
a macroeconomic level. Companies from countries with no employee representation on supervisory boards might be hesitant to invest in
countries where such codetermination rights
exist, because they fear the powers that
employees can wield. After the turn of the millennium, it was fiercely discussed in Germany,
e.g., if the extensive codetermination laws actually were a barrier to the attraction of foreign
direct investment (FDI). To address this issue, it
was suggested to liberalize codetermination and
provide for individual solutions to be negotiated
between the social partners on the company level.
Due to resistance from the labor side, no respective reforms were passed, however. That codetermination might be seen as a disadvantage in
international competition is supported by the
fact that an increasing number of companies in
Germany have changed their legal status and
taken on legal forms to be found in other
European countries where no codetermination
exists. Whereas in 2006, there had been only
17 companies with more than 500 employees
that resorted to such a measure, the number rose
to 31 in 2009, according to the Hans-Boeckler
Stiftung. Taking on legal forms that are existent
in other EU member countries has become
possible due to European integration laws.
Consequentially, codetermination is an important issue in corporate governance, especially in
those countries where employee representatives are
to be found on supervisory boards. The essential
question is whether a shareholder-oriented or
a stakeholder-oriented model of corporate governance is applied. The former clearly takes a position
against employee representation. It pursues shareholder profit maximization as overriding goals and
assumes that employees will pursue goals, higher
wages, e.g., which are diametric to this aim. The
latter argues for extending the supervisory function

Codetermination

to more groups that are affected by a companys

operations. Employees clearly are one of those
stakeholders, who are regarded as having
a legitimate interest in a company.
Though the creation of a balance between
capital and labor, and the supervision of management by employees speak for a stakeholder
model, employee board membership can also be
criticized, because it actually promotes employee
self-interest. The idea of supervision, especially
in countries with two-tier systems, is to guarantee
an independent control of the management and its
decisions. These decisions often evolve out of
previous negotiations with labor representatives,
e.g., when salaries, working hours, and conditions are concerned. The systemic problem lies
in the fact that employee representatives on the
board, in their function as supervisors, sanction
the deals which they or their colleagues have
previously negotiated with management.
Whereas codetermination on the enterprise
level is relevant for corporate governance issues,
it has increasingly become a CSR topic on the plant
level. Especially in developing and emerging countries, poor working conditions and low salaries
have led to increasing calls for improved worker
participation. The obstruction of the freedom of
assembly, union work, and collective bargaining,
which is common in states with weak legal systems, is equally criticized. Large corporations, first
and foremost, have come under pressure to permit
worker unionization and representation. The ISO
26000 as an international guideline on social
responsibility explicitly points out that information and consultation mechanisms such as works
councils and collective bargaining are vital to
social dialogue and shall be introduced by companies. Moreover, the establishment of such councils
and unions must not be hindered and companies
are asked not to obstruct workers who seek to
form or join their own organizations and to bargain
collectively, for instance, by dismissing or discriminating against them, through reprisals or by making any direct or indirect threat so as to create an
atmosphere of intimidation or fear.
Furthermore, disclosure on the treatment
of workers and employee representation is
increasingly expected. The Global Reporting

Codetermination

Initiative (GRI), in its section on governance,

demands reference to [i]nforming and consulting
employees about the working relationships with
formal representation bodies such as organization
level works councils, and representation of
employees in the highest governance body.

Future Directions
With regard to the future of codetermination,
national distinctions have to be made. In countries where codetermination on the enterprise
level exists, it has come under increasing criticism because it is perceived as a disadvantage for
attracting foreign investors. Moreover, as
demonstrated above, companies in the EU the
region with most extensive codetermination
rights in global comparison have found ways
to circumvent national legislation in order to
avoid employee representation. Due to the desire
for appealing to international investors and for
creating a more homogenous legal environment
for codetermination in the EU, it can be expected
that codetermination will be weakened on the
enterprise level in countries where it has traditionally been strong. Nevertheless, in the very
recent past, a countertrend has been observable,
which has its roots in the financial and economic
crisis. The seeming carelessness and risk taking
by top-management in many companies have
reinforced calls that labor representation on the
board can help to effectively constrain management from pursuing excessive, short-term
oriented goals.
Codetermination on the plant level will not be
affected as much, though it has to be said that the
concept in general does and will continue to
suffer from declining union membership. Some
examples shall be given: In Germany, the rate of
unionization has declined from 36% at the beginning of the 1990s to 19% in 2010. In the same
period, union membership went down from 16%
to 11% in the USA, and from 38% to 28% in the
UK. Finally, in Japan, it dropped from 25% to
17%. As codetermination regardless of the
country is bound to the work of unions, either
directly or indirectly, it will be eroded by this

373

decline that is observable in industrialized countries. Thus, Jackson (2005, 419) pointedly
remarks in his comparative study that the size
of the core model is getting smaller.
In developing and emerging countries, where
codetermination is hardly existent, initiatives
such as the ISO 26000 and the GRI, but also
public and political pressure will most probably
lead to better employee representation. Though
the effective introduction of codetermination on
the enterprise level seems to be unlikely, there
will be improvements on the plant level.
This does not mean that extensive consultation
or even voting rights will be established, but basic
principles, such as the provision of information,
will gradually be introduced.
Overall, despite a globalization of economic
structures and the attempt to foster regional
homogenization with regard to codetermination,
convergence on a single model remains out of
question. Moreover, codetermination will remain
a controversial issue of discussion on economic,
social, as well as on moral grounds.

Cross-References
Board of Directors
Collective Bargaining/Trade Unions
Corporate Governance
Corporate Social Responsibility
Global Reporting Initiative
ISO 26000
One Tier Board
Trade Union Recognition
Two-Tier Board

References and Readings

EU Commission (2002). Directive 2002/14/EC of the
European parliament and of the council of 11 Mar
2002 establishing a general framework for informing
and consulting employees in the European Community.
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri
CELEX:32002L0014:EN:HTML. Accessed 14 May
2012.
Fulton, L. (2011). Worker representation in Europe.
Labour Research Department and ETUI. http://www.
worker-participation.eu. Accessed 14 May 2012.

374

Hanlin, L. (2012). Participation and co-determination in

Chinese enterprises. Beijing: Hans-Boeckler-Stiftung.
Heuer, C. (2005). Chinas labor law: an effective instrument
of worker representation? China Analysis 45. http://
www.chinapolitik.de/studien/china_analysis/no_45.pdf.
Accessed 18 May 2012.
Jackson, G. (2005). Stakeholders under pressure: corporate governance and labor management in Germany
and Japan. Corporate Governance, 13(3), 419428.
Prenting, T. O. (1992). Co-determination: its practice and
applicability to the U.S. SAM Advanced Management
Journal, 57(2), 1217.
Schneider, B. R. (2009). Hierarchical market economies
and varieties of capitalism in Latin America. Journal
of Latin American Studies, 41(03), 553575.
Schoenmann, I., Clauwaert, S., & Warneck, W. (2006).
Information and consultation in the European
Community Implementation report of directive
2002/14/EC. Brussels: European Trade Union Institute
for Research, Education and Health and Safety.
Webster, E., & Macun, I. (1998). A trend towards
co-determination? Case studies of South African enterprises. Law, Democracy & Development, 2(1), 6384.

Collaborative Advantage
John Richard Ennals
Kingston University, Kingston Upon Thames,
Surrey, UK

Synonyms
Neither collaboration nor seeking advantage
is new. Linking the two in policy debates is
a recent development, reflecting current debates
around business strategy.
There are a number of related and associated
terms: partnership, trust, collaboration, confidence, cooperation, social capital, community
collateral, development, partnership, networking,
and cluster. Each has an associated literature in
the social sciences, with some common references. Applications of these terms can take
many distinctive forms.

Definition
We need to offer a simple redescription of business. Collaborative Advantage is here defined

Collaborative Advantage

to provide a foundation or counterbalance to

Competitive Advantage, which has dominated
business discourse and business education for
many decades. This may mean adding a fresh
perspective and looking at units of analysis
beyond the individual enterprise.
It is not simply a matter of setting out a simple
alternative to a conventional model of capitalism,
in which Competitive Advantage has been
emphasized. We will see the meaning of the
term Collaborative Advantage in its use.
Thus, Collaborative Advantage has many meanings around the world, rooted in diverse cultures.
Companies and organizations are composed of
individuals, who have come together, in
a particular context, in order to create Collaborative Advantage. Building social capital is closely
linked to developing structures which can generate financial capital. Typically, individuals do not
operate in business by themselves. They work
with others, toward common objectives. They
build legal structures, such as limited liability
companies, which provide them with legal protection. This means observing common conventions and ways of working, the rules of the
particular chosen game. Ownership is pooled.
Companies are often described as being culturally situated. They are configured in particular ways to fit the local context. This may give
them Collaborative Advantage, by comparison
with external rivals who lack such connections.
Business is not solitary and free standing, but
has an inherent social dimension. Organizations
come into contact in practical market situations,
where knowledge is exchanged, accompanied by
economic transactions. New arrangements may
be agreed, for mutual benefit, for Collaborative
Advantage. This may have the effect of reshaping
the market. It is expected that those who collaborate will treat each other with social responsibility, recognizing their relationships and
reciprocal obligations. Social capital is built up
over time, through successive experiences of
trust.
Business is concerned with developing sustainable enterprises. This means addressing the
wider context, including relations with other economic actors. Partners today may be competitors

Collaborative Advantage

tomorrow. Indeed, this may be planned, for

example,
in
managed
programs
of
precompetitive collaborative research.
Collaborative Advantage can be seen at several levels: within organizations, between organizations, and at a wider economic and social
level, including regional, national, and international levels. It draws on insights and literatures
from several social sciences. At each level, success depends on building collaborative relations.
Individuals and companies benefit from developing collaboration with appropriate partners,
creating Collaborative Advantage. Collaborative
Advantage involves partnerships, alliances, networks, coalitions, and clusters. It helps to explain
how particular configurations arise: they are the
results of sequences of decisions, rather than naturally occurring phenomena. They may be
related to local institutions and traditions.
Such relationships need to be seen as socially
responsible, if they are to be sustainable. This is
not a separate or additional dimension, but
a reflexive characteristic of the relationships.
Conduct at the level of the single organization
will inevitably be interpreted and understood in
the wider context.
Creating Collaborative Advantage constitutes
a form of corporate citizenship, engaging with
others. It is recognized that there is a public
sphere in which organizations are considered.
Creating Collaborative Advantage may build
new structures which take on roles which had
previously been left to voluntary activities in the
field of corporate social responsibility.

Introduction
While businesses, business educators, and governments have emphasized the importance of
securing Competitive Advantage, less emphasis
has been given to the context of collaboration and
Collaborative Advantage. Where entrepreneurs
and managers do not know how to demonstrate
social responsibility in their collaborative activities, their organizations will be disadvantaged in
the longer term, together with others with whom
they work. Antisocial irresponsibility is common.

375

The perspective of corporate social responsibility is important in developing sustainability. It

is integral to Collaborative Advantage and not
a separate optional add-on category. Individuals
and companies can be judged by the company
they keep.
We illustrate the historical background for
Collaborative Advantage through cases from
around the world.
John Bellers, the seventeenth century English
Quaker economist, argued that societies need
the contributions of all of their members. He
proposed new education and training related to
useful work. The twentieth century company
named after him offered employment and
accommodation for the unemployed and homeless, paying wages and receiving rent, giving
individuals dignity by enabling them to work
together. John Bellers Ltd was a co-ownership
company, part of a movement which includes
the John Lewis Partnership, where employees
are also partners or co-owners. Employment
relations are based on partnership, rather than
adversarial conflict.
Adam Smith, the Scottish Enlightenment philosopher, laid the foundations for Collaborative
Advantage in A Theory of Moral Sentiments in
1759, before addressing core principles for capitalism in The Wealth of Nations in 1776. Collaboration provided the context for competition,
within an Enlightenment framework of moral
responsibility. Smith noted some adverse consequences of the division of labor and
recommended that attention should be given to
working conditions, the life of the worker outside
work, and public facilities. He warned of the
danger of managers acting as if they were owners
rather than senior employees, acting against the
interests of workers and the public.
Mohamed Yunus, Nobel Peace Laureate,
founded Grameen Bank in Bangladesh. Taking
his inspiration from traditional local markets,
Yunus developed a system of microcredit,
based on community collateral. Loans are repaid,
and support can then be given to others. The level
of repayments is higher than in conventional
banking, resulting in more effective use of available funds. Each loan serves to test and

376

strengthen local collaboration and results in an

increased capacity to compete.
Kaoru Ishikawa founded Quality Circles in the
Japanese automobile industry, with the intention
of empowering workers whose skills were central
to the success of the company. Workers came
together to take co-ownership of the process of
continuous improvement. Japanese automobile
companies derived Collaborative Advantage
from this relationship with their workforce, and
the resulting reputation for quality products gave
them Competitive Advantage in global markets.
Quality was a bottom-up process.
A sales outlet for the Japanese automobile firm
Isuzu in Thailand sought to increase the loyalty
and engagement of their employees, by
supporting their education and training, raising
their level of knowledge, and thus improving the
quality of service that they could offer to
customers.
Jagdesh Gandhi, an entrepreneurial school
manager in India, visited Japan in 1992, was
impressed by Quality Circles, and founded the
Student Quality Circle movement at City
Montessori School in Lucknow, India. Through
the World Council for Total Quality and Excellence in Education, he supported the formation of
national chapters in 25 countries. The network
offers Collaborative Advantage to participating
researchers and teachers and enables school students to develop skills which give them local
Competitive Advantage.
In the town of Abbottabad, in the foothills of
the Himalayas in the North West Frontier region
of Pakistan, a new network is developing, seeking
Collaborative Advantage. Schools have been
piloting the use of Student Quality Circles and
observing the rapid improvement in student confidence and language skills. Employers have
attended presentations and recognized that such
skills could play a valuable part in developing
their businesses, which have been held back by
problems of literacy and numeracy. Schools who
are normally competitors have decided to collaborate, building a new system which offers their
students Competitive Advantage.
In the Emilia Romagna region of Italy,
a population of 3 m gave rise to 300,000 SMEs,

Collaborative Advantage

in sectors such as food, fashion, textiles, and

automobiles. Supported by infrastructure provided by a communist regional government,
industrial districts were collaborative environments; high-quality products were produced by
networks and partnerships, supported by advice
from intermediaries. The culture of the region
was distinctive; neighboring Tuscany and Veneto
provided very different environments for business, with less emphasis on collective provision
and more on individual entrepreneurialism.
In South Western Norway, companies around
the Odda fjord came together to work in networks, with a common foundation of quality education. Through engaging in regular dialogue,
they identified unexpected synergies between
their activities. The toxic output of one factory
process could be a valuable input for another
factory, at the other side of the fjord. The networks were supported by projects addressing
regional development, part of a national program
of enterprise development.
Across Europe, partner organizations
concerned with work organization and innovation are able to come together and collaborate
on projects supported by the European Commission. Exchanging experience on workplace innovation, they are working together to produce
a handbook for social partners and policy makers,
helping readers to produce new hybrid organizations of their own. The core challenge is to
address such a diverse audience. In each country,
the roles of the government, public, and private
sectors are differently divided, leaving distinct
areas for corporate social responsibility at company level.
In Mauritius, there is a long established Quality Circles movement, and the Mauritius National
Productivity and Competitiveness Centre sees
collaborative approaches in schools as offering
enhancement of national Competitive Advantage. Schools are encouraged to organize Civic
Action Teams, which are in essence Student
Quality Circles, addressing a range of problems
within a wider social agenda. Despite the remote
location in the Indian Ocean, there have been
major developments in the Knowledge Economy
and Business Process Outsourcing in Mauritius.

Collaborative Advantage

Civic Action Teams, based on collaboration, can

be seen as underpinning plans for national Competitive Advantage.
The Wola Nani charity and trading company
in South Africa brought together women living
with HIV/AIDS. A range of medical and social
services are offered, and an income generation
division is making products for sale. Papier
mache bowls with distinctive design and decoration are made for export. Expert consultancy
advice is sought from the Faculty of Art, Design
and Architecture at Kingston University in the
UK, to develop new designs and to improve production methods. With improved medical care,
including the availability of antiretroviral medication, the women now live for many years after
diagnosis, and they can both develop craft skills
and take an active role in decision making.
In Kingston, UK, the first Senior Quality Circle is being formed. Knowledge workers at the
university are coming together to reflect on their
experience, skill, and tacit knowledge. At a time
of budget cuts and restructuring in higher education, workers need to take co-ownership of their
knowledge and consider alternative approaches
to work organization. Senior managers who are
new to the university may lack previous experience of the culture which they have joined. The
contribution of particular individuals may only
come to be appreciated after they have left: the
Senior Quality Circle enables contact to be
maintained.

Key Issues
Success in business involves a twin track
approach. Individuals and companies seek Competitive Advantage, but this is situated in
a context of collaborative relationships. Competitive and Collaborative Advantage are linked,
each providing a backdrop for the other.
Advantage is not secured simply by following
textbook guidelines. It is a matter of exercising
judgment in practice, built up incrementally
through experience. It is based on trust, used to
create social capital. As this develops, understanding is required and is tested through actions.

377

Experience of the credit crunch and global

economic crisis has been that there were key
deficiencies in understanding how systems
work, including financial market systems and
interconnections between organizations. Economic recovery depends on acting on recent lessons, such as with Enron, Lehman Brothers, and
Goldman Sachs.
It is not sufficient to analyze business and
economic activity in terms of individual firms
and national government policies. We also need
to consider the meso or intermediate level, which
involves relations between firms and other organizations. There may be matchmakers who facilitate and catalyze collaboration.
Emphasizing Collaborative Advantage, in the
context of corporate social responsibility, means
that qualitative approaches are likely to be
needed, rather than traditional quantitative
approaches. Successful collaboration requires
relational understanding and the discovery of
common languages which enable shared meanings. We will also encounter areas of misunderstanding and disagreement.

Future Directions
There is a case for revisiting business strategy,
marketing, human resource management,
accounting and finance, informatics, and operations management: both in practice and in how
they are taught. Wherever there is mention of
Competitive Advantage, we need to explore the
underlying collaborative dimension. This has
been the source of the common language which
we use in business, which now appears
unbalanced.
Globalization means that different markets are
no longer completely separate. Collaboration has
multiple dimensions. It is not adequate to concentrate only on local markets and relationships.
However, international and cross-cultural collaboration can be complex, as there can be areas of
misunderstanding.
New collaborations and business configurations are needed. If they are to be sustainable,
they will need to be seen as corporately socially

378

responsible. They may take the form of new legal

entities.
Both business and business education face the
need for radical reform. They have been based on
partial knowledge and power imbalance. They
have been more likely to promote the status quo
than to encourage change.

Collecting

Collective Bargaining/Trade Unions

Martin Quinn
Business School, Dublin City University,
Glasnevin, Dublin, Ireland

Synonyms
Cross-References
Competitive Advantage
Globalization
Region

Collective bargaining; Craft union; Guild; Industrial union; Organized labor; Trade unionism

Definition
References and Readings
Bellers, J. (1696). Proposal to establish a colledge of
industry. London: T. Sowle.
Ekman, M., Gustavsen, B., Asheim, B., & Palshaugen, O.
(Eds.). (2011). Learning regional innovation.
Basingstoke: Palgrave.
Ennals, R., & Gustavsen, B. (1999). Work organisation
and Europe as a development coalition. Amsterdam:
Benjamins.
Friedman, M. (1962). Capitalism and freedom. Chicago.
IL: University of Chicago Press.
Gustavsen, B., Nyhan, B., & Ennals, R. (Eds.). (2007).
Learning together for local innovation: Promoting
learning regions. Luxembourg: Cedefop.
Hutchins, D. (2008). Hoshin Kanri: the strategic approach
to continuous improvement. Aldershot: Gower.
Ishikawa, K. (1980). General principles of the QC circle.
Tokyo: Japanese Union of Scientists and Engineers.
Johnsen, H. C. G., & Ennals, R. (Eds.). (2012). Creating
collaborative advantage. Farnham: Gower.
Porter, M. E., & Kramer, M. C. (2011). Creating shared value.
Harvard Business Review, January February. pp. 6277.
Sen, A. (2009). Edition of a theory of moral sentiment.
Adam Smith (1759). London: Penguin.

Collecting
Waste Management

Collective Bargaining
Collective Bargaining/Trade Unions

A trade (British English) or labor union (American English) is an organized group of workers
who, through their collective power, aim to
improve the working conditions of members.
Working conditions refers to rates of pay, paid
leave, safe working conditions, and other benefits
associated with employment. Typically, members of a particular union belong to a similar
trade/sector and union officials represent the
interests of members in negotiations with
employer organizations. The term industrial (or
employment) relations is associated with trade
unions and refers to the multidisciplinary study
of the relationships and interactions between
organized labor, employers/managers, and
governments.

Introduction
Origin and History
The origin of trade/labor unions predates the
industrial revolution, which is typically associated with the introduction of factories, mechanized production, and large concentrations of
workers. Prior to trade unions per se, medieval
craft guilds existed, dating back to the fifth century AD in Europe. These guilds controlled entry
to crafts (e.g., stone masonry, glass making) to
ensure that artisans were not overwhelmed by
numbers and could exert a degree of price control. By about 1100, guilds were equivalent to the

Collective Bargaining/Trade Unions

modern organization. Members provided mutual

aid to dependents and supported each other in
feuds and/or business. As markets began to
expand in the eighteenth century, some craftsmen
began to employ others, leading to the appearance of journeyman organizations to provide
mutual aid, support for widows and orphans, and
to assist those who had fallen on hard times.
A journeyman was a craftsman who earned
money from his trade but had yet to submit
work to a guild for judgment to be admitted to
the guild as a master. Thus, the journeyman organizations were a progression in organized labor as
capitalist societies developed. During the eighteenth century, there are many recorded instances
of strikes to increase wages or decrease working
hours in the United Kingdom. This led to pressure
from employers to ban combinations, such as
guilds and journeyman organizations. Thirty
pieces of legislation were enacted in the United
Kingdom between 1720 and 1799 to ban
combinations among specific groups of workers,
culminating in two General Combination Acts
in 1799 and 1800. These Acts outlawed combinations, meetings leading to combinations, and
strikes in England and Wales. The early 1800s
saw the development of the factory system and
with it urbanization, social change, and social
unrest. The disruption caused by industrialization, and rising food prices due to 22 years of
war with France (17931815), saw combinations
continued to spread across a range of occupations
in the United Kingdom. This period was in effect
the birth of trade unions. The Combination Acts
were repealed in 1824. The Combination Act
1825 permitted workers to combine only for
specified actions on hours and wages and introduced new offenses covering intimidation and
molestation of other workers. This new regime
witnessed a rapid increase in the development of
trade unions particularly in textile factories.
There were also attempts to form general unions,
regardless of trade. In 1834, there was an attempt
to establish a Grand National Consolidated
Trades Union (GNCTU) bringing together all
unions. It did not attract general support and
was resisted by the United Kingdom government
of the time. In the same year, a crisis arose as the

379

government sentenced six laborers in Tolpuddle

to transportation (to Australia) for joining the
GNCTU. Public outcry and the questionable
legality of the sentences led to them being
quashed in 1840. This case was symptomatic of
the time; widespread intimidation both by
employers and the United Kingdom government
toward union organization.
By the late 1840s, the United Kingdom
entered into a second phase of industrialization.
The construction of an extensive railway network
had stimulated the growth of the coal, iron, steel,
and engineering industries. Together with textiles, these formed staple industries. For the next
30 years or so, these industries were both stable
and profitable. Workers in these industries
benefited. Such workers were the backbone of
a trade union revival, which differed from earlier
periods. Many existing craft organizations were
remodeled as unions. The Amalgamated Society
of Engineers (ASE), established in 1851, was
organized at a national level and had a highly
centralized organization. This was possible as
the ASE levied high dues on membership. The
ASE was modeled as a friendly society, providing unemployment, sickness and disablement
benefits, and a funeral allowance. It became the
model followed by later unions. The origins of
trade unions in the United States follow a similar
pattern to the United Kingdom, with origins
stemming from collective organization of journeymen in the late eighteenth century. In 1794,
the Federal Society of Journey Cordwainers
(shoemakers) was one of the earliest sustained
organizations. The first general union exceeding
the narrow interests of a particular craft, the
Mechanics Union of Trade Societies, formed in
1827. The first Canadian craft unions appeared in
Montreal and Toronto around 1830, with the first
general union, the Toronto Trades Assembly,
formed in 1871.
The history of unions of the Western Europe
differs in a number of respects from the United
Kingdom and the United States. Progress from
the Industrial Revolution came later and
proceeded faster in Western Europe. Firms
started on a larger scale and often used the
best available technology. This disconnected

380

European unions from medieval craft guilds and

prevented craft unions representing only workers
with specific skills. Attempts at craft unionism
were absorbed into broad industrial unions, which
organized all workers in an industry or country
regardless of skill and employment status.
Such unions possessed (and still retain) strong
political bargaining power on issues such as social
insurance, health care, and occupational safety. As
a consequence of being removed from a craft
origin and traditional, Western European unions
were also more recognizing of the rights of
management to manage and less concerned about
distinctions between skilled and unskilled workers.
Structures, Politics, and Activities of Unions
Unions may be organized by a particular section
of skilled workers (craft unions), workers from
many trades (general unions), or by particular
industry (industrial unions). At a national level,
unions often unite in national federations, who in
turn may be affiliated with international federations such as the European Trade Union Confederation or the International Trade Union
Confederation.
A union may be deemed a quasi-legal entity,
with a mandate from its membership to negotiate
with employers on pay and working conditions. In
such cases, unions have certain legal rights, most
importantly the right to engage in collective
bargaining (see later) with employers. If employer
negotiations do not reach a satisfactory outcome,
a union can take the course of industrial action,
culminating in either strike action or binding arbitration. In other circumstances, unions may not
have the full legal rights to represent workers.
Unions may also engage in broader political or
social struggle, as is the case in many European
countries where unions are often closely aligned
with certain political parties. They may advocate
for social policies and legislation favorable to
members or workers in general.
In terms of internal structure and organization,
unions can be classified by a services model or
organizing model. The services model focuses on
maintaining worker rights, providing services,
and resolving disputes through methods other
than direct pressure on employers, for example,

Collective Bargaining/Trade Unions

through national pay agreements. Alternately, the

organizing model involves full-time union organizers, who create strong networks and leaders.
This model is orientated more toward direct confrontational campaigns. Many unions are a blend
of both philosophies. Union leaders and key roles
at national and local level are usually determined
by democratic means.
In dealing with employers, unions typically
have an agreement on membership of new and
existing employees. Membership models are
normally one of the following:
1. A closed shop, which employs only workers
who are already union members.
2. A union shop, which employs nonunion
workers also, but new employees must join
a union within a certain time limit.
3. An agency shop requires nonunion workers to
pay a fee to the union for its services in negotiating their contract.
4. An open shop does not require union membership. If a union is in place, workers who do not
join benefit from the collective bargaining
process.
As noted, the form of unions varies, but in
general, all unions pursue similar activities. The
main activity is collective bargaining, that is,
negotiation with employers and employer organizations on pay and working conditions with
unions representing employees interests. Unions
also engage in some level of political activity,
which can range from lobbying interests favorable to members to financial support of particular
candidates or political parties. Although unions
may have originally provided assistance to unemployed or ill members, this role has now been
assumed by the State in most jurisdictions. However, unions do still provide benefits to members
such as legal representation or loyalty schemes.
Lastly, industrial action is the primary defensive
activity of unions. This may range from work-torule to strike action in furtherance of objectives.

Key Issues
As the origins and forms of unions vary, this
section outlines the general environment and

Collective Bargaining/Trade Unions

issues faced by unions according to broad geographical area.

United States and Canada
The systems of trade unions and industrial relations in the United States and Canada reflect
similar values (Morley et al. 2008). The National
Labor Relations Act (NLRA) 1935, as amended
in 1947, is the basis of the legal environment for
unions in the United States. In 1948, a similar law
was passed in Canada using the NLRA as
a model. The basic model consists of six
attributes:
1. Employee choice in both countries, there is
no presumption that workers are represented
by a union. Workers determine whether they
wish a union to represent them, and there in no
presumption that representation will affect
terms and conditions of employment.
2. Majoritarianism the choice to be
represented, and by which union, is based on
a majority of workers in a firm or facility.
Selection is normally by means of a secret
ballot in the USA; once 30 % of workers
express a wish to be represented, a ballot is
held to ascertain a majority. In Canada,
a ballot may be replaced by evidence of signed
union application forms, payment of dues, or
signed cards.
3. Decentralization workers in a firm, facility,
or craft within a facility comprise
a bargaining unit. This system means
that bargaining is more decentralized with
agreements cover a single employer or
facility.
4. Exclusive representation once a majority of
workers select a union to represent their interests, this union represents all workers in
a bargaining unit. In Canada, all workers
must pay union dues even if they are not
union members, whereas United States federal
legislation states that nobody can be forced to
join a union.
5. Legally enforceable in both the United
States and Canada, when agreements are written, they are legally enforceable. The courts do
not normally enforce agreements; rather, binding arbitration is utilized in the main.

381

6. Administration in the United States, the

National Labor Relations Board (NLRB) is
empowered to interpret labor law and decide
on matters of representation. The NLRB
covers all sectors except agriculture, railway,
and the airline sector. In Canada, provincial
labor relations boards fulfill a similar function.
According to the Bureau of Labor Statistics
(2010), 12 % of workers in the United States were
represented by unions, with the corresponding
figure in Canada at 31 % (HRSDC 2010). This
difference can be explained through the historic
divergence of the labor relations environment in
both countries from the 1960s. The New Democratic Party (NDP) was formed in 1961 with the
support of Canadian unions. As the NDP
progressed, the political landscape for unions
changed, with the result that government involvement in bargaining, arbitration, and dispute resolution is more common than in the United States.
For example, referral of a dispute to a third party
for resolution is mandatory in Canada but not
currently in the United States (Morley et al.
2008). In both the United States and Canada,
work stoppages since 1970 have declined steadily
(Morley et al. 2008). In the event of a union
strike, the United States allows employers to
hire temporary replacement workers under the
provision that any strike is an economic strike
one centered on the terms and conditions of
employment. Litigation may result to determine
if a strike is in fact an economic strike. In Canada,
some states (Ontario and Manitoba) allow
replacement workers, but the two largest states
(British Columbia and Quebec) do not permit
replacement workers. Additionally, for a strike
to be recognized as legitimate, all states require
a vote of workers.
Latin America
The State is (and has been) a key actor in the labor
movement in Latin America. Unions and union
affiliation has increased during the latter part of
the twentieth century as democracy permeated
Latin American countries, but historically, the
State imposed restrictive structures on unions
(Morley et al. 2008). Labor laws limited the
rights of workers to organize, strike, or negotiate

382

collectively. Many states also had powers to

control unions. By the 1990s, however, countries
like Mexico and Venezuela had introduced
legislation to approve unions as well as engage
in arbitration.
Transition to democratic society has been difficult in most Latin American countries high
poverty levels, high unemployment, economic
hardship, and high levels of external debt are
still key issues in many economies. These issues
have affected the labor markets and levels of
unionization/collective bargaining in the region.
Although many Latin American countries have
ratified International Labour Organisation
treaties (even more than the United States and
Canada), the nature of their economies means
bargaining power of workers and unions is somewhat diminished. Labor markets have deteriorated as the growing pains of democratization
become apparent. The informal (or black) economic activity of the region may be as high as
50 % (Morley et al. 2008). This works against the
development of unions and collective bargaining.
However, countries like Brazil, Argentina,
Mexico, and Uruguay have centralized collective
bargaining processes, which with the exception
of Uruguay involve the State. Other countries like
Chile, Peru, Venezuela, and Colombia have more
decentralized processes.
Europe
Western Europe
The social model in many Western European
countries is more supportive of a welfare state
than the United Kingdom. Thus, unions have
been a more powerful force in societal development. Traditionally, centralized collective
bargaining is more common and is supported by
unions, employers, and governments as a means
of achieving numerous objectives. Unions view
it as a means to control and reduce wages differentials. Employers, particularly large firms,
benefit from less direct workplace bargaining.
Governments benefit from the ability to monitor
wage agreements for inflationary pressures.
From the 1980s, pressure from employers in
some countries resulted in more local bargaining,
but the coverage of collective bargaining

Collective Bargaining/Trade Unions

remains more widespread than in the United

States or Japan, for example (Morley et al.
2008). Another feature in some Western Europe
countries is participation of workers in
management decision-making. This is particularly so in European Union member states,
where employee consultation at a minimum is
a legal requirement in organizations with more
than 50 employees (EU Directive 2002/14/EC).
Countries like Germany, Sweden, Belgium,
France, and the Netherlands allow some form of
indirect participation in decision-making, normally through a works council or similar
committee.
Central and Eastern Europe

The development of former socialist countries

post 1989 in Central and Eastern Europe saw
the transformation of those economies toward
international trade and Western European markets. On May 1, 2004, eight former socialist
countries joined the European Union Czech
Republic, Estonia, Hungary, Latvia, Lithuania,
Slovakia, Slovenia, and Poland. In 2007, Romania and Bulgaria were also admitted. Accession
rules to the European Union specify the need for
overarching industrial relations legislation. Thus,
all accession countries have some form of legislation on unions and collective bargaining. Trade
unions pre-1989 had higher membership than
their Western European counterparts. Post-1989,
unions fragmented into pro- and anticommunist
unions, which in turn led to fragmented industrial
relations (Morley et al. 2008). Although EU
accession has been granted to most for the former
Eastern Bloc countries, their socialist past is still
influential on cultural values and the fragmented
nature of trade unions may continue for some
time yet.
Middle East and Asia
As data on unions in the Middle East is generally
not available, the countries of Jordon, Saudi
Arabia, Syria, Turkey, and Egypt are briefly
described as reflective of the state of unions in
the Middle East. Similarly, several countries will
be used as representative sample of issues faced
by unions in Asia.

Collective Bargaining/Trade Unions

Middle East

In Jordan, the union movement is quite weak and

government intervention and control is normal.
A legal framework in the New Labor Law 1996 is
the primary legislation. This law gives more
power to employer organizations and limits the
roles of trade unions. Additionally, the main
union body in Jordan, the General Federation of
Trade Unions, had a rigid structure which does
not easily permit members to change the Federations policies or leadership. Thus, unions in
Jordan do not reflect typical progress toward
better conditions of employment for members.
Following the discovery of oil in Saudi Arabia,
a shortage of skilled labor attracted many foreign,
high-paid workers. This influx of expatriate
workers remains a key feature of the labor market.
Trade unions and collective bargaining are
prohibited by law, as are strikes. Employers set
wages, and the government controls all aspects of
industrial relations. In 2001, the government
approved the establishment of an employees
committee, which provides recommendations to
employers on pay work conditions (Morley et al.
2008).
Syria operates a single union confederation,
the General Federation of Trade Unions, founded
in 1948. This confederation is closely linked to
the ruling Baath party, and all unions must be
affiliated to it. The Syrian government, while
encouraging organized labor, restricts the political influence and economic power of unions
(Morley et al. 2008). While strikes are permitted,
they are generally discouraged.
Trade unions in Turkey have had mixed fortunes in the past 30 years or so. The Trade Union
Law of 1947 legalized unions. A confederation of
unions (Turk-Is) was formed in 1952 and until
1980, union membership grew steadily.
A military coup in 1980 shut down Turk-Is and
two other union confederations. From 1986,
a resurgence of unions saw a period of intense
industrial conflict which resulted in several
rounds of collective bargaining within the public
sector. An outcome of this bargaining process
was agreement that all Turk-Is unions display
unity and not enter into any individual agreement.
This outcome has advantages from the

383

governments view, and it has been used to effectively ban strikes (Morley et al. 2008).
Similar to Syria, Egypt has a single recognized
confederation, the Egyptian Trade Union Federation, to which all unions must be affiliated.
Labor law in Egypt allows the government to
term a union illegal or render a unions charter
invalid (Morley et al. 2008). Strikes are deemed
a form of public disorder and thus are illegal,
although they do occur.
Thus, in general, trade unions in the Middle
East are to some extent dependent on the levels of
democracy in the region. In all cases mentioned,
the government plays a major role in the industrial relations field by close supervising and/or
controlling workers and unions.
Asia

Unions in Japan, while present and free from

government intervention, have been in decline
in recent decades. The three pillars of the labor
relations system in Japan life-long employment, seniority-based pay, and enterprise unions
have been threatened due to increased global
competitive pressures on Japanese industry.
Bargaining is informal and based around these
three pillars. A national labor movement (Rengo
or the Japanese Trade Union Confederation) was
formed in 1989 and has attempted to unify
unions. Its success to date has been limited.
Korea and Taiwan share some similar characteristics in that they both have had considerable
industrial development. In Korea, mass industrial
unrest from the late 1980s to the late 1990s
resulted in increased trade union membership
and a shift from unions at enterprise level to
representation at industry level. Bargaining in
the metal and health industries in particular
occurs at industry level (Morley et al. 2008). In
1997, a Tripartite Commission of workers,
employers, and government was formed which
was the first formal recognition by the government of a partnership approach to negotiation on
terms and conditions. In Taiwan, prior to democratization in 1987, unions were for the most part
arms of the state. A Council of Labor Affairs was
established in 1987, as were several independent
unions. Labor laws do allow the government to

384

dissolve unions or change leadership if public

order is threatened. Strikes are permitted only
after a mediation process, and most government
employees are not permitted to strike.
Countries such as Malaysia, Indonesia, and
Thailand, often termed emerging tigers, share
a common historical repressive approach to trade
unions linked to political circumstance (Morley
et al. 2008). Malaysian unions are not permitted
to bargain on issues such as promotions or layoffs, and bargaining at national level is unusual.
Strikes are legal under limited conditions and
may be prohibited by the government. Indonesia
repressed unions until the late 1990s and in 1998
ratified International Labour Organisation (ILO)
conventions. This has resulted in increased union
activity, although high unemployment levels
limit the power of unions. A checkered history
of military coups/democracy in Thailand in the
1990s has left a relatively weak and fragmented
union movement. Unions are more powerful in
the state sector.
Singapore also has a somewhat repressive attitude to unions, as the National Trade Union Congress is controlled by the government. Union
activities are controlled by regulation, with only
limited collective bargaining permitted, and
strikes are illegal in sectors deemed necessary
for economic development. Industrial relations,
however, follow a paternalistic approach in that
worker layoffs have been reduced or prevented
through tripartite agreement (Morley et al. 2008).
Labor in China is tightly controlled. Unions at
enterprise and industry level are state-controlled.
All unions must deal with the All-China Federation of Trade Unions (ACFTU), and striking is
illegal. The ACFTU is closely linked to the
Chinese government. The increasing openness
of the Chinese economy to foreign business and
investment has resulted in an increasing number
of unofficial workers unions (Morley et al. 2008).
At the same time, the ACFTU actively encourages unions to join them and global companies
area a particular focus for the federation, who aim
to have control of all unions in non-state companies by 2010 (Economist 2008). Strikes have
become more commonplace, as workers seek to
get improved wages. Repression of strikes is less

Collective Bargaining/Trade Unions

common than previous as the government is

increasingly reluctant to attract global media
attention which might deter continued foreign
investment.
Africa
The diversity of the African continent implies
many unique features in each country. Diversity
can be seen across ethnic background, historical
colonialism, political structures, and economic
growth. Historically, the formation of unions in
Africa took place after the Second World War.
Unions were often supported by colonial administrators, who saw them as a means of keeping
social peace.
Ironically, independence from colonial powers reduced the independence of unions as many
new regimes were single party (Schillinger
2005). Over time, however, many union movements have contributed to political change in
Africa. For example, in Mali, Congo, and Niger,
unions opposed single party rule and play an
important role in bringing about multiparty
democracy. South African unions are often cited
as an example of the involvement in political
change as a considerable number of postapartheid
political leaders came from union ranks. However, the traditional role of unions improvement
of pay and working conditions has been subsumed by political concerns in many African
countries. More developed economies such
as South Africa, Ghana, Kenya, Libya, and
Mauritius have more robust union movements
and associated labor legislation.
Structural Adjustment Programs (SAP) of the
IMF and World Bank have a serious effect on
economic growth and recovery of many African
economies. This, is turn, has an effect on entrepreneurship, business development, and employment. In a similar manner to some Latin
American economies, informal business activity
has been a hindrance to the development of
unions. Recent years have seen some level of
increased foreign direct investment in African
economies, mainly in the area of natural
resources. Investments are not based on lowcost labor nor are labor costs significant. High
capital cost implies that relatively good labor

Collective Bargaining/Trade Unions

relations are more a priority. This may lead to

increased union organization (Schillinger 2005).
Australia and New Zealand
For the most part of the twentieth century, conciliation and arbitration between the state and the
Australian Council of Trade Unions (ACTU) was
the predominant feature of the union movement.
In the latter part of the century, change occurred.
While the 1980s was period of national wage
setting, the 1990s saw a devolution to enterprise
level bargaining. The Labor government was
replaced by a coalition in 1996, who introduced
the Workplace Relations Act which changed the
industrial relations environment. The Act
curtailed the role of the ACTU in collective
bargaining. In place, bargaining at the enterprise
level was by two principal means a certified
agreement or an Australian Workplace Agreement (AWA). In the case of an AWA, this agreement is effectively between individual workers
and employers, with a union acting only as
a bargaining agent (Morley et al. 2008). A certified agreement refers to a collective agreement.
Fair Work Australia (formerly the Australian
Industrial
Relations
Commission)
was
established under the Fair Work Act 2009. The
Fair Work Authority has a number of oversight
functions including minimum wages and
employment conditions, enterprise bargaining,
industrial action, dispute resolution, and termination of employment. Effective July 2010, the Fair
Work Act has refocused collective bargaining to
an enterprise base and remove individual
arrangements and AWAs. A key tenet of the
Fair Work Act is the concept of good faith
bargaining, which requires parties to make
sincere efforts in negotiations.
Similar to Australia, the New Zealand regulatory system was also based on an arbitration
system for the most part of the twentieth century.
The 1970s and 1980s was a period of increasing
industrial relations strife as strong unions negotiated directly with employers, bypassing the arbitration process (Morley et al. 2008). A change
from a Labor to Conservative government in
1990 brought about a dramatic change in the
labor market. The Employment Contracts Act of

385

1991 was based on the philosophy that workers

were freely contracting individuals. This regime
placed significant obstacles in the path of unions
and collective bargaining and denied legitimacy
to unions. The Employee Relations Act 2000
reinstated the legitimacy of unions but did not
restore the arbitration system.

Future Directions
Collective Bargaining
Collective bargaining, while used as a synonym
for trade/labor unions, also refers to negotiations
between employers and employees organizations as a collective. The negotiations normally
focus on wage rates, working hours, holidays, and
grievance mechanisms. Any resulting collective
agreement may apply to a sector, business federation, or at the national level.
In line with declining union density, the focus of
collective bargaining has become more
decentralized in recent years. This is due to factors
such as devolved responsibility among global organizations, a lack of statutory regulation, and
outsourcing. Decentralized bargaining also assists
employers in minimizing the influence of unions.
The global economic downturn beginning in 2007
also has had impacts on collective bargaining, as
governments and employer organizations faced
turbulent economics conditions, which have in
turn reduced the ability of collective bargaining at
a national or sector level to deliver improved pay
and/or conditions. For example, collective
bargaining at national level in Ireland has been
strained by economic events. However, the decline
in collective bargaining at industry and national
level has been compensated for to a degree through
an increasing number of jurisdictions with national
or industry minimum wage levels.
Recognition and Legal Framework
The legal recognition of unions is an important
factor in negotiations from a unions perspective.
Union recognition can be voluntary or statutory.
Voluntary recognition implies employers accept
collective bargaining procedures and some
involvement of the state in an umpire role.

386

A voluntary regime exists in countries such as

Australia, New Zealand, and Ireland. Statutory
recognition normally implies union must be recognized once certain conditions have been met,
for example, majority representation. The United
States, Canada, and the United Kingdom operate
this approach. Another approach to statutory
union recognition is that adopted by Scandinavian countries, where an automatic right to be
represented exists (DArt and Turner 2003).
Statutory recognition is favored by unions, but
with the exception of the Scandinavian countries,
union membership has declined (see next section)
despite statutory recognition. A debate continues
on the relative merits of voluntary versus statutory recognition and recognition procedures.
For example, in the United States, as of mid2010, the Congress continues to debate the
Employee Free Choice Act, which was passed
by the House of Representatives in March 2007.
This Act proposes some important changes. First,
it proposes to streamline union recognition by
removing the need for a secret ballot. Second,
the Act facilitates initial collective bargaining
and agreement by setting timelines for agreement
and allowing binding arbitration. Third, the Act
strengthens the ability of the National Labor
Relations Board to seek injunctions against
employers who discriminate against employees
seeking representation. Another example of the
issues on recognition is Ireland, where
a voluntary regime exists. The Irish Congress of
Trade Unions (ICTU) continues to strive for statutory recognition and has stated that Irish legislation is contra to International Labour
Organisation (ILO) conventions. A complaint
has been lodged with the ILO to this effect.
Decline in Unionization
A steady global decline in union membership has
continued since the 1950s. This has been attributed to several factors. First, the generally
improved economic and business environment
has increased the demand for labor and resulted
in improved pay and conditions. Second, several
structural factors can influence union density.
Increased participation in the labor force by
females, minorities, and migrant workers has

Collective Bargaining/Trade Unions

had a small positive effect on union membership.

The most influential factor in union density
decline has been a global shift away from traditional manufacturing employment to service and
retail sectors which traditionally are nonunion.
The number of employees in manufacturing at
the turn of the century was approximately half
that of 1950, with the numbers employed in service and retail sectors doubling or tripling in
some economies during the same period. Finally,
institutional factors such as the inclinations of
ruling political parties can contribute to
increases/decreases in union density, but this
has not been a major factor. The main exception
to declining union density is Scandinavian countries, where, as noted previously, an automatic
statutory right to union recognition exists.

Cross-References
Minimum Wage
Trade Union Recognition

References and Readings

Bureau of Labor Statistics. (2010). Union Membership.
www.bls.gov/news.release/union2.toc.htm. Accessed
6 July 2010.
Colling, T., & Terry, M. (2010). Industrial relations.
Chichester, UK: Wiley.
DArt, D., & Turner, T. (2003). Union recognition in
Ireland: One step forward or two steps back? Industrial
Relations Journal, 34(3), 226240.
Economist. (2008). Trade unions in China: Membership
required, 31 July 2008. http://www.economist.com/
node/11848496. Accessed 14 July 2010.
Human Resources and Skills Development Canada
(HRSDC). (2010). Union Membership in Canada, 2009.
http://www.hrsdc.gc.ca/eng/labour/labour_relations/
info_analysis/union_membership/index2009.shtml.
Accessed 6 July 2010.
Morley, M., Gunnigle, P., & Collings, D. (Eds.). (2006).
Global industrial relations. London, UK: Routledge.
OCED. (2010). OECD Stat Extracts. http://stats.oecd.org/
index.aspx. Accessed 8 July 2010.
Schillinger, H. R. (2005). Trade unions in Africa
weak but feared. http://www.fesnam.org/pdf/
pre2006/reports_publication/TradeUnions_inAfrica05.
pdf. Accessed 8 July 2010.
Trade Union Congress (TUC). (2010). TUC History.
www.tuc.org.uk. Accessed 1 July 2010.

Combined Code (June 2008)

Collective Intentionality
Community Relations

Collective Responsibility
Community Relations

Combination
Mergers and Acquisitions

387

Code is meant to promote and to support confidence in corporate reporting and governance,
being rather a guide to the components of good
board practice distilled from consultation and
widespread experience over many years. While
it is expected that companies will comply wholly
or substantially with its provisions, it is
recognised that noncompliance may be justified
in particular circumstances if good governance
can be achieved by other means. A condition of
noncompliance is that the reasons for it should be
explained to shareholders, who may wish to discuss the position with the company and whose
voting intentions may be influenced as a result
(FRC 2008). This edition of Combined Code
(June 2008) was applied to accounting periods
beginning on or after 29 June 2008 and took
effect until 28 June 2010, when the next revised
version of this Code was issued.

Combined Code (June 2008)

Adriana Tiron-Tudor and Cristina Bota-Avram
Babes-Bolyai University, Cluj-Napoca, Romania

Synonyms
Combined Code on Corporate Governance
(Revised June 2008); UK CG combine code;
UK Corporate governance framework, UK Code
of best practices in Corporate Governance

Definition
The Combined Code on Corporate Governance
issued in June 2008 (Combined Code) by Financial Reporting Council represents the fourth version (first version of the Combined Code was
issued in 1998) of the UK Corporate Governance
Code, which sets out the standards of good practices in corporate governance related to board
leadership and effectiveness, remuneration,
accountability, and relations with shareholders.
According to the Financial Reporting Council
(the UKs independent regulator responsible for
promoting high-quality corporate governance
and reporting to support the investors), this

Introduction
Looking for the origins of corporate governance,
in the specialty literature (Paape 2007) it is generally accepted that Berle and Means (1932) are
the real founders of this controversial issue. Berle
and Means (1932) have promoted the idea of
separation of ownership and control, because the
ownership is dispersed among small shareholders,
while control is concentrated in the power of managers. According to Berle and Means (1932),
while typical shareholders are not interested in
the day-to-day affairs of the company, the management and the directors who are directly interested have the ability to manage the resources of
the company to their own interest without the
effective shareholders control.
The property owner who invests in a modern corporation so far surrenders his wealth to those in
control of the corporation that he has exchanged
the position of independent owner for one in which
he may become merely recipient of the wages of
capital. . . [Such owners] have surrendered the right
that the corporation should be operated in their sole
interest. . . (Berle and Means 1932)

From an academic perspective, corporate

governance issues were in the middle of

388

researchers interests mostly beginning in the

second half of the twentieth century, but in
terms of recognizing the legitimacy, the moment
of recognition of the importance of corporate
governance took place quite late. At the European level, the first significant step in this direction could be identified in UK and is given by the
issuing of the Cadbury Report in 1992 by the
Cadbury Committee managed by Sir Adrian
Cadbury (Cadbury Committee Report: Financial Aspects of Corporate Governance). The
major objective of this report was to find some
answers to the concerns manifested by the public
sector, but also failures of some major corporations from private sector. All these concerns
were also increased by the fraud events that
affected the Maxwell Company, but also by the
ease with the abuses of power could be achieved
within such large corporations. Some of the
Cadbury Reports conclusions showed that corporate bankruptcies were generated by the
major problems of internal control system functioning, all these aspects being the top managements responsibility, which not only failed to
avoid such problems, but in some cases, it was
proved that it had an important contribution to
disaster. By the end of 1992, the Cadbury
Report had been completed with a Code of
good practices, promoting the idea that the
existing system of corporate governance was
weak and lacking only from a single point of
view, the one of transparency and accountability
issues (Cadbury 1992).
The significance of Cadbury Report in the
regulatory process of corporate governance
principles is also recognised by researchers
from all over the world (Paape 2007; Abdullah
and Page 2009), because following the
publication of the Cadbury Report, codes of
corporate governance practices started to proliferate all over the world, many of them
being under the influence of Cadbury Code recommendations. A possible explanation of this
enormous influence of the Cadbury Code is
given by Bush (2005) cited by Abdullah and
Page (2009), which presents as a principal
argument: the relative lack of competing
guidance from the United States, where

Combined Code (June 2008)

governance is subject, in part, to federal securities laws, and, in part, to the jurisdiction of individual states.
The Cadbury Code of 1992 was followed by
the recommendations of the Greenbury Committee on directors remuneration (Greenbury
Report 1995), after a review made by Hampel
Committee (Hampel Committee 1998), the first
version of the Combined Code was published in
1998. Subsequently, Combined Code (1998) was
followed by further reports issued by various
committees like the ones chaired by Turnbull
(Turnbull Report 1999), Myners (Myners Report
2001), Higgs (2003), and Smith (2003). The second version of the Combined Code was published
in 2003 (FRC 2003).
Starting from the general idea that corporate
governance is focused on the rights and responsibilities of a companys board of directors, its
shareholders, and different stakeholders, corporate governance practices have became one of
the major interest for managers, investors, academics, and policy regulators, and various financial scandals that have shaken the global capital
markets and the public confidence had determined an increasing focus and preoccupation
over the incidence and effects of corporate
fraud and fraudulent financial reporting, and
the impact of corporate governance structure
over the strategies, policies, and performances
of the companies. A synthesis of UKs corporate
governance developments until the issuance of
Combined Code (June 2008) is presented in
Table 1.
The Combined Code issued in June 2008
(the fourth version of the UK Combined Code)
was revised following the consultation
process during 2007, which was intended
generally to reassure the Codes content and
impact of its recommendations, this edition
being applied to accounting periods beginning
on or after 29 June 2008 until 28 June 2010,
when a new revised version of Combined
Code (December 2009) was issued. A synthesis
of the main principles and recommendation
of corporate governance practices included in
Combined Code (June 2008) is presented in
Table 2.

Combined Code (June 2008)

389

Combined Code (June 2008), Table 1 Major benchmarks in the UKs corporate governance developments until
Combined Code (June 2008)
Main recommendations
Focus on the quality of the companys financial
reporting
Provisions related to board composition, the
appointment and independence of non-executive
directors, remuneration of executive directors, and the
system of controls for financial reporting process of
companies
The requirement that each company have a minimum of
three non-executive directors
A committee established by the UK
Greenbury Concentrated on issues related to board remuneration,
Confederation of Business and Industry Report
the role of remuneration committee in establishing the
on corporate governance
remuneration packages for the executive directors,
requirements concerning the disclosure of directors
remuneration, service contracts and remuneration
policy
A committee established for the
Hampel
It was intended to make a revision of the corporate
revision of the corporate governance
Report
governance system in the UK, trying to combine,
system in the UK
converge, and clarify the recommendations of Cadbury
and Greenbury Reports
Comparing to the Cadbury and Greenbury boxticking approach, the Hampel Report is relied more
on broad principles and a common sense approach
Committee on Corporate Governance
Combined Combined the recommendations and principles
from the Committees Final Report and Code
outlined in the Cadbury, Greenbury, and Hampel
from the Cadbury and Greenbury Reports (1998)
Reports based on comply or explain approach
established by London Stock Exchange
London Stock Exchange adopted the Combined Code
and required listed companies to make corporate
governance statements and disclosures, the general
recommendation being to conform to it
A committee established by London
Turnbull
The report is focused on the issues of internal control
Stock Exchange under the chairmanship Report
and risk management
of Nigel Turnbull of The Rank Group plc.
Starting from the directors obligations under the
Combined Code, related to keeping good internal
controls in their companies, this report emphasizes the
boards responsibility for ensuring that an internal
control system is implemented and requires companies
to report about their internal control systems and risk
management
A commission established by HM
Myners
Focus on institutional investors, by taking the
Treasury under the supervision of Paul
Report
approach of asking whether institutional investors
Myners.
were acting in the best interests of their beneficiaries
A commission established by UK
Higgs
Reviewed the role of non-executive directors and of the
Government, chaired by Derek Higgs.
Report
audit committee, trying to contribute toward enhancing
the existing version of the Combined Code
This report claims more severe criteria related to
board composition and the evaluation of directors
independence
Financial Reporting Council
Smith
In the light of financial scandals of Enron and Arthur
Report
Andersen, focus on the independence of the auditors,
role of the audit committee especially in the process of
monitoring the financial reporting and internal control
systems in the best interest of shareholders
Its recommendations were incorporated in the next
version of the Combined Code (2003)
(continued)

Year Issuer
Report
1992 A committee on the financial aspects of Cadbury
corporate governance in 1991, under the Report
chairmanship of Sir Adrian Cadbury

1995

1998

1998

1999

2001

2003

2003

390

Combined Code (June 2008)

Combined Code (June 2008), Table 1 (continued)

Year Issuer
2003 Financial Reporting Council

Report
Combined
Code
(2003)

2006 Financial Reporting Council

Combined
Code
(2006)

Main recommendations
This Code supersedes and replaces the Combined Code
(June 1998). It derives from a review of the
recommendations included by Smith and Higgs reports
The code contains the main supporting principles and
provisions related to corporate governance practices
The approach is comply or explain, which means
certain flexibility in applying codes provisions or
where it does not to provide an explanation
It is recommended that each company review each
provision carefully and give an argued explanation if it
departs from the Code provisions
This Code supersedes and replaced the Combined
Code issued in 2003
Presents minor revisions compared to the version from
2003, being the results of the review process made by
Financial Reporting Council of the implementation of
Combined Code in 2005 and consultation process on
possible amendments to the Combined Code

Source: Authors projection based on relevant literature review

Key Issues
The significance of the UK Combined Code in the
context of European corporate governance, and
not only, is highlighted especially from the perspective of difficult economic conditions that
strongly influence further financial and economic
developments at European level. Therefore, for
the UKs independent regulator in corporate governance area Financial Reporting Council
a significant challenge will be to keep effectively
under constant review developments in corporate
governance generally, to undertake reviews, and
to consider whether any actions are necessary for
justified reviews of the UKs Code of corporate
governance practices. Also, huge importance is
given by continuous monitoring of the implementation of corporate governance practices and
recommendations by listed companies and by
shareholders.

Future Directions
A permanent concern for Financial Reporting
Council is to review the impact and implementation of the Combined Code periodically, at least

every 2 years. After the Combined Code issued in

June 2008, next review began in March 2009,
with a call for evidence on the impact and effectiveness of the Code. The process of review
ended in May 2009 and 114 responses were
received. In the same time, the FRC held
a series of meetings with chairmen from nearly
a 100 FTSE companies between April and June
2009. All consultation documents, copies of individual responses, and other documents associated
with the review process are accessible on the FRC
website (http://www.frc.org.uk/corporate/review
Combined.cfm). The major coordinates that had
influenced the review process are generated by
the number of various reports and recommendations like the European Commissions Recommendation on the remuneration of executive
directors of listed companies (European Commission Recommendation complementing Recommendations 2004/913/EC and 2005/162/EC
as regards the regime for the remuneration of
directors of listed companies) published at Brussels, April 2009, and the conclusions of the
Report issued by House of Commons Treasury
Committee focused on the consequences of financial crisis Banking Crisis: reforming corporate
governance and pay in the City (2009).

Combined Code (June 2008)

391

Combined Code (June 2008), Table 2 A synthesis of corporate governance principles Combined Code (June 2008)
Section 1
Companies

Every company should be headed by an effective board,

which is collectively responsible for the success of the
company
A2 Chairman and There should be a clear division of responsibilities at the
chief executive
head of the company between the running of the board and
the executive responsibility for the running of the companys
business. No one individual should have unfettered powers
of decision
A 3 Board
The board should include a balance of executive and nonbalance and
executive directors (and in particular independent nonindependence
executive directors) such that no individual or small group
of individuals can dominate the boards decision taking
A4 Appointments There should be a formal, rigorous, and transparent
to the board
procedure for the appointment of new directors to the board
A 5 Information The board should be supplied in a timely manner with
and professional
information in a form and of a quality appropriate to enable
development
it to discharge its duties. All directors should receive
induction on joining the board and should regularly update
and refresh their skills and knowledge
A 6 Performance The board should undertake a formal and rigorous annual
evaluation
evaluation of its own performance and that of its committees
and individual directors
A 7 Re-election
All directors should be submitted for reelection at regular
intervals, subject to continued satisfactory performance. The
board should ensure planned and progressive refreshing of
the board
B Remuneration B.1 The level and Levels of remuneration should be sufficient to attract, retain,
make-up of
and motivate directors of the quality required to run the
remuneration
company successfully, but a company should avoid paying
more than is necessary for this purpose. A significant
proportion of executive directors remuneration should be
structured so as to link rewards to corporate and individual
performance
B.2 Procedure
There should be a formal and transparent procedure for
developing policy on executive remuneration and for fixing
the remuneration packages of individual directors. No
director should be involved in deciding his or her own
remuneration
C. Accountability C.1 Financial
The board should present a balanced and understandable
and audit
reporting
assessment of the companys position and prospects
C.2 Internal
The board should maintain a sound system of internal
control
control to safeguard shareholders investment and the
companys assets
C.3 Audit
The board should establish formal and transparent
committee and
arrangements for considering how they should apply the
auditors
financial reporting and internal control principles and for
maintaining an appropriate relationship with the companys
auditors
D. Relations with D.1 Dialogue with There should be a dialogue with shareholders based on the
shareholders
institutional
mutual understanding of objectives. The board as a whole
shareholders
has responsibility for ensuring that a satisfactory dialogue
with shareholders takes place
The board should use the AGM to communicate with
D.2 constructive
use of the AGM
investors and to encourage their participation
(continued)
A Directors

A1 Board

392

Combined Code on Corporate Governance (Revised June 2008)

Combined Code (June 2008), Table 2 (continued)

Section 2
E. Institutional
Institutional shareholders
shareholders

E.1 Dialogue with

companies
E.2 Evaluation of
governance
disclosures
E.3 Shareholder
voting

Institutional shareholders should enter into a dialogue with

companies based on the mutual understanding of objectives.
When evaluating companies governance arrangements,
particularly those relating to board structure and
composition, institutional shareholders should give due
weight to all relevant factors drawn to their attention
Institutional shareholders have a responsibility to make
considered use of their votes

Source: Authors projection based on the synthesis of principles included in Combined Code (June 2008)

The main findings of this review report are synthesized in the 2009 Review of the Combined
Code: Final Report, available on FRCs website.

Cross-References
Agency and Corporate Governance
Agency Theory
Corporate Governance
Corporate Governance Reporting
Enron
European Corporate Governance Institute
Evolution of Corporate Governance Reports in
the UK and Ireland
Financial Reporting Council (UK)
Greenbury Report (UK)
Hampel Report (UK) and CSR
Higgs Report (UK) and CSR

References and Readings

Abdullah, A., & Page, M. (2009). Corporate Governance
and Corporate Performance: The UK FTSE 350 Companies. Edinburgh: The Institute of Chartered Accountants of Scotland.
Berle, A. & Means, G. (1932). The Modern Corporation
and Private Property. United States: Transaction
Publishers.
Berle, A. A., & Means, G. C. (1991). The Modern Corporation and Private Property. Revised Edition 1967.
Harcourt. Brace&World, New York
Bush, T. (2005). Divided by Common Language: Where
Economics Meets the Law US vs Non-US Reporting
Models, London: Institute of Chartered Accountants of
England and Wales (ICAEW).
Cadbury Code. (1992). Report of the committee on the
financial aspects of corporate Governance: The code
of best practices. London: Gee Professional
Publishing.

Combined Code. (1998). The combined code: Principles

of good governance and code of best practice derived
by the Committee on Corporate Governance from the
committees. Final Report and from the Cadbury and
Greenbury Reports. London: Gee Publishing.
Financial Reporting Council. (2003). The combined code
of corporate governance. London: Accounting
Standards Board, Financial Reporting Council.
Financial Reporting Council. (2008). The combined code
of corporate governance. London: Financial
Reporting Council. www.frc.org.uk
Greenbury Report. (1995). Study group on Directors
Remuneration. Report of a study Group chaired by
Sir Richard Greenbury, July. London: Gee Publishing.
Hampel Report. (1998). Committee on Corporate Governance: Final report, January. London: Gee Publishing.
Higgs Report. (2003). Review of the role and effectiveness
of non-executive directors, January. London.
House of Commons Treasury Committee. (2009). Banking crisis: Reforming corporate governance and pay in
the city, 15 May 2009. London: House of Commons,
The Stationery Office.
Myners Report. (2001). Institutional investment in the
United Kingdom: A review. London: HM Treasury.
Paape, L. (2007). Corporate governance: The Impact on
the role, position, and scope of services of the internal
audit function. Doctoral Thesis, ERIM Ph.D. Series
Research in Management. Rotterdam School of
Management (RSM) Erasmus University, Erasmus
Research Institute of Management (ERIM).
Smith Report.(2003). Audit Committees Combined Code
Guidance, June. London: Financial Reporting
Council.
Turnbull Report. (1999). Internal control guidance for
Directors on the combined code. London: Institute of
Chartered Accountants in England and Wales,
September 1999.

Combined Code on Corporate

Governance (Revised June 2008)
Combined Code (June 2008)

Communicating with Stakeholders

Command
Management

Commercial Organizations
View on the Ground: CSR from a Capabilities
Approach

Commitment
Trust

Common Good
Community Relations

Communicating with Stakeholders

yvind Ihlen
Department of Media and Communication,
University of Oslo, Oslo, Norway

393

mutuality between those involved in the communication process. It also implies a less mechanistic view of communication, which seems a better
fit for the realm of human communication. The
latter point is particularly relevant in the context
of corporate social responsibility (CSR), as this
concept is fundamentally about corporations
negotiating their social relationships and handling the externalities they incur for society and
the environment. Ultimately, a corporation that
wants to succeed with CSR has to communicate
with its stakeholders, groups, or individuals that
can affect or be affected by the realization of an
organizations purpose (Freeman et al. 2010,
p. 26). CSR can include the process of mapping
and evaluating expectations and demands from
such stakeholders, as well as the formulation and
implementation of actions and policies that
address the expectations and demands (Ihlen
et al. 2011). Communication is at the heart of
this process since it helps the corporation to
understand which expectations exist and which
demands stakeholders are making. Communication is also absolutely necessary when corporations want to share their views of CSR and how
they manage the externalities they create. When
a corporation is communicating with stakeholders, it must be thought of as a two-way process that involves the use of symbols, including
language, to influence or share an idea or
a perspective, and/or to learn more about the
ideas and perspectives of stakeholders.

Synonyms
CSR communication; Stakeholder dialogue

Definition
Early
communication
theory
proposed
a transmission view of communication based on
a model with three elements: sender, message,
and receiver. Tracing the etymological roots of
communication, however, points to the Latin
noun communicatio (sharing or imparting) and
the verb communicare, which means to share or
to be in relation with (Cobley 2008, para. 1).
The latter understanding hints at a form of

Introduction
Communicating with stakeholders is a crucial
CSR activity and at the heart of CSR communication. Indeed, it can be argued that communicating with stakeholders is the same as CSR
communication, although the former is a wider
category since it can include non-CSR-related
communication as well. A case in point can be
marketing or investor relations that primarily
focus on attracting or keeping customers or shareholders. Then again, of course, in a wider sense it
can be argued that communicating with customers and investors is part of the financial

394

responsibility of corporations and hence also

linked to CSR. This entry will concentrate on
the CSR dimension relating to communication
with stakeholders and ask some specific questions like: What does communicating with stakeholders mean? Why does it matter? How can it be
done? Then the last two sections will address
some issues that are not discussed in the main
section, as well as specify future directions for
research on the topic of communicating with
stakeholders.
What?
The definition section above belies the fact that
stakeholders and communication are defined in
a bewildering number of ways and that a number
of different theories are built around these
notions. Some think of communication as
a process, others as a product (oral or written).
Communication has also been seen as that which
makes up public life, exemplified with the notion
of the public sphere. Yet others have focused on
the technology involved when communicating
and on how this influences both the process and
the product (Cobley 2008). It is important to
remember that it is not possible for corporations
to not communicate with stakeholders, since
silence can also be seen as a form of communication. Communication is implicated in CSR and
business strategies whether the corporation likes
it or not. It is also important to emphasize that
communication and action are interrelated and
co-construct one another. Communication is
a form of action. It can also constitute corporate
practice and the meaning of CSR and
a corporations relationship to its stakeholders.
Said differently, communication can have
a performative function, creating the effect that
it names.
Another premise for this entry is that communication with stakeholders has an ethical potential. CSR communication can in general breed
skepticism and be perceived as self-serving and
manipulative. On the other hand, it can be
maintained that communication is necessary to
ensure stakeholder participation. Basically, the
stakeholder concept points out that organizations
have important relations to their social

Communicating with Stakeholders

environment, relations that have both ethical

and strategic implications. The success of the
organization is dependent on how it relates to
key groups, such as customers, employees,
unions, suppliers, communities, politicians, and
owners. Stakeholder theory functions as a useful
heuristic when an organization wants to map its
external and internal relations and can help
secure that key groups are not forgotten. Normative stakeholder theory also argues that managers
must keep the support of stakeholder groups, and
that the organization should be the place where
stakeholder interests are maximized over time
(Freeman et al. 2010). Still an essential and recurring problem discussed elsewhere in this encyclopedia is how to prioritize between different
stakeholders given that resources are scarce.
Communication is key in the endeavor
described above. You cannot really learn about
the perspective of others without communicating
directly or indirectly with them, and others cannot truly grasp your perspective unless you have
communicated directly or indirectly with them.
Direct communication can take the form of stakeholder meetings, written statements posted on
websites, or communication in social media for
that matter. Indirect communication can be
thought of as communication through the news
media (although the mass media itself can of
course also be considered a stakeholder). Corporations will typically use a mix of different media
that differs in the degree that they allow for twoway communication. The goal is not to communicate to but rather with stakeholders since
stakeholder feedback is beneficial. The goal of
the communication process can be located along
a continuum according to the degree of persuasion that is attempted. Sometimes a corporation
might choose to listen and consult on issues, other
times it might actively seek to influence stakeholder thoughts and actions.
Why?
As posited above, a corporation communicates
with stakeholders whether it intends to or not.
Silence on the topic of CSR is also a form of
communication, either a signal that the corporation does not care, or that the corporation is not

Communicating with Stakeholders

sophisticated enough to pay attention. Research

shows, however, that most of the major corporations in the world report on CSR issues (KPMG
2008). It can be said that this is the ethically right
thing to do, but corporations typically engage in
CSR and communication with their stakeholders
as a way of reaching organizational goals. As will
be pointed out later, an argument has been made
that the latter type of motives cheapens the moral
value of CSR and stakeholder communication.
CSR is, nonetheless, often seen as a form of risk
management, or a part of reputation management
and ultimately profit making. Some define reputation as the long-term collective judgments
observers have of an organization based on
assessment of the corporate financial, social,
and/or environmental impacts (Barnett et al.
2006). In other words, CSR is sometimes directly
linked to reputation. And although it has been
methodologically difficult to link reputation
with profit, many argue that a good reputation
boosts sales, attracts investors and employees,
cushions against crises, and curries positive
media coverage. On the other hand, as some
scholars have pointed out, CSR can work, for
some people, in some places, on some issues,
some of the time (Newell 2005, p. 556). Neither
adhering to CSR nor communicating with stakeholders is a quick fix for corporations bent on
improving their profits. Ultimately, however,
communicating with stakeholders is also
a matter of surviving, that is, it is a matter of
earning legitimacy. Business must answer the
big question concerning how this institution
serves society.
It is also beneficial for corporations to recognize that what is considered ethical corporate
behavior is a social construct. This also means
that it is a construct that is changing over time.
During one period of time some pollution from
industry plants seemed to be an acceptable price
to pay for prosperity. These days, this type of
thinking does not have the same resonance in
Western countries. Another example is Shells
annus horribilis, 1995, which illustrates the danger of not keeping abreast with changes in the
public view on CSR. The company was shaken
by international reactions when it attempted to

395

dispose an oilrig at sea and for its relations to the

military regime in Nigeria. In hindsight, Shell
concluded that it had lost touch with social expectations and failed to recognize how more stakeholders wanted to have a say about its way of
conducting business. The point is that in order to
maintain legitimacy, corporations need to identify and react to the social norms and expectations. This is something that can only be done by
communicating with stakeholders. Communicating with stakeholders can ideally improve corporate decision-making, stakeholder engagement,
and corporate governance. New issues that otherwise might be ignored can be catapulted to the
forefront as a result of communicating with stakeholders. Such communication can also help corporations make sense of issues and be of value
when a corporation wants to strategize about the
same issue.
Finally, communicating with stakeholders can
be recognized as an ethical duty when corporate
actions affect stakeholders. It has been pointed
out that corporations have a responsibility to
address and seek to rectify the externalities they
create, and this would necessarily entail communication as well. Corporations must use communication in order to map and evaluate problems
and solutions, as stakeholders perceive them.
This duty is also said to spring from the very
fact that it is the society and the societys infrastructure that have made it possible for corporations to earn a profit.
How?
When communicating with stakeholders, an
obvious first step is to get an idea about whom
you are going to address. Corporations first need
to map their stakeholders and prioritize between
them as pointed out above. Next, the type of
overall communication strategy has to be
decided, certain communication principles
should be implemented, and rhetorical strategies
and media types have to be chosen.
The overall communication strategy can be
considered as one-way or two-way. The corporation can choose to inform stakeholders about the
corporate view on CSR and about what actions
are taken in this regard, or the corporation can

396

seek out stakeholder feedback on the same issue

and the CSR actions. The degree to which the
corporation opens up and engages with stakeholders in this regard is also a matter of importance. The attempt to get stakeholders to be
involved through frequent, systematic, and proactive dialogue can help build mutually beneficial relationships (Morsing and Schultz 2006). If
the dialogue process is transparent and stakeholders feel that the corporation responds constructively, dialogue can increase corporate
legitimacy and trust. In other words, dialogue
with stakeholders is preferred and it is also
a key word that occurs frequently in corporate
rhetoric on CSR (Ihlen et al. 2011).
Communication theory proposes several ways
for a dialogue to work for all those involved. It
has, for instance, been argued that all relevant
stakeholders must be included in the dialogue,
and that it should be possible to discuss all types
of issues. Furthermore, it is pointed out that stakeholders should be able to present critical and
alternative views, and that all stakeholders should
be able to influence the structure, process, and
outcome of the dialogue. Finally, the principle of
transparency must be met. The latter point would
mean, for instance, that the corporation is open
about its motives for the dialogue, but also that
stakeholders have access to information about the
outcome of the dialogue (Pedersen 2006).
A pointed criticism of corporate dialogue
efforts is that they are only conducted to let the
stakeholders provide supportive and positive
comments. The normative dialogue ideals
described above ask that corporations actually
risk something, that they open up the
decision-making process and set judgments and
assumptions under scrutiny (Bohm 2008).
Critical feedback from stakeholders might be
unpleasant, but if the corporation does not engage
in dialogue it also risks only asking questions that
it would like to hear. The corporation can end up
only engaging itself rather than follow a course
that will help it handle public pressure, social
change, and complexity.
Other normative demands include that communication has to be honest, reciprocal, and
open. Transparency is another important feature

Communicating with Stakeholders

of good CSR communication. Transparency can

foster trust, respect, fairness, and a sense of procedural justice. Corporations should have clear
and visible missions, policies, procedures, and
guidelines. They should also provide honest
information about aspects of their business that
can affect stakeholders, including risks related to
their products or services. Transparency must
include financial performance, as well as transparency about the social and environmental performance. The aim is to give stakeholders an
opportunity to make decisions about purchases,
employment, and/or investments based on their
own values (Ihlen et al. 2011).
An overarching goal of communication with
stakeholders is to create trust. In some literature,
it is argued that corporations can build trust by
discussing problems and dilemmas they encounter in their CSR work when they communicate
with stakeholders. The rhetoric should be based
on proof through numbers and statistics were
available in terms of numbers and statistics, as
well as examples of outcomes and impacts. Credible third parties should attest to the success or
lack of success. In most cases, a low-key
approach to CSR communication seems advisable. That is, stakeholders can react negatively
if the corporation flaunts its efforts. Again, however, some research indicates that stakeholders
tolerate the profit motive, as long as they also
see an ethical motive at the same time. Strengthening trust and credibility is also something that
is done through the creation of common dwelling places between the corporation and its stakeholders. This could, for instance, include arenas
where the demands from normative dialogue theory are met (Ihlen et al. 2011).
Corporations can choose from a plethora of
media types for communication with stakeholders, including, for instance, nonfinancial
reports, advertising, homepages, blogs, and
social media. Particularly the advent of the latter
has created new possibilities for dialogue. This
can allow corporations to develop their CSR
strategies and practices more in line with the
expectations expressed by their stakeholders. In
addition, corporations can of course attempt to
use the traditional mass media channel. Again,

Communicating with Stakeholders

research has shown that a heavy reliance on such

communication and choosing a self-indulgent
celebratory rhetoric in these media can create
negative feedback (Ihlen et al. 2011).
Some researchers have suggested that corporations should use an inside-out approach when
communicating about CSR. The communication
process should first involve the employees, and
secondly outside expert stakeholders, that is, critical stakeholders, the media, and local decision
makers. A corporation is not likely to build
a good reputation by communicating about CSR
directly with the general public. Instead, corporations should rely on the third party strategy,
whereby NGOs, employees, or public officials
declare their support for the corporations efforts.
Information can also be made available to the
greater public through Internet sites designed
for those that are particularly interested (Morsing
et al. 2008). The latter point that the general
public might not be much interested in CSR communication can also be a challenge for stakeholder dialogue, in general. Dialoguing with
corporations can be perceived as tiresome and
time-consuming, at least in the traditional form
of a stakeholder meeting. There are indications,
however, that a declared intention and invitation
to engage in dialogue in itself is considered
favorably.

Key Issues
Above, two issues for communicating with stakeholders are touched upon, namely, the matter of
who counts as stakeholders and how to prioritize
between them, as well the fact that the stakeholders might not be as interested in communicating with the corporation as the latter is. Here
are three other issues that arise from CSR communication and corporate attempts to communicate with stakeholders:
First, the corporate tendency to instrumentalize the
dialogue to serve corporate self-interest leads to
criticism. Stakeholders might feel that the dialogue is only serving the purpose of information mining to give the corporation the upper
hand. The learning process can be perceived as

397

a one-way affair. Some dialogue is also carried

out to co-opt NGOs and critical stakeholder
groups. The purpose in such instances is to
privatize the debate and keep it out of the public
sphere. In other instances, stakeholders might
feel that the dialogue is only window dressing.
The corporation might be pursuing a predefined
goal that stakeholders have no real influence
on. Furthermore, it is often the corporation that
lays down the premises for the dialogue: who is
going to discuss what issues in what timeframe.
Second, another reason why CSR communication
in particular is viewed with skepticism is when
stakeholders perceive a discrepancy between
the verbal and the physical corporate CSR
actions. Corporate discourse also creates
expectations that the corporation needs to fulfill. A fundamental task for management and
communicators alike is to attempt to close
gaps that exist between announced policy
and implemented policy. Here, however, it is
also possible to hold the view that corporations should be given some leeway, as aspirational talk also has the potential to bring about
social change. This is also in line with the
mentioned point that there is no simple or
clear-cut distinction between talk and action
(Ihlen et al. 2011).
Third, there are some systemic and ethical challenges that arise for corporations and their
stakeholders. It could be argued that corporations are located in an economic system that
necessarily has corporations reduce everything around them to tools. Corporations are
driven by an economic rationality where
ethics have to be profitable if it is to be taken
into account. The value system is extremely
limited and it is hard if not impossible to move
beyond an instrumental perspective. This also
puts the corporation at rhetorical disadvantage
when seeking to communicate with stakeholders (Ihlen et al. 2011).

Future Directions
Much more research could be conducted on the
way symbols are used in the communication of

398

corporations with stakeholders. That is, how are

the communication processes shaped and
influenced by corporate values and interests?
With respect to the issues mentioned in the previous section, is it possible to find examples of
non-instrumental corporate stakeholder communication? Do we have to settle for corporations
doing the morally right thing, engaging in stakeholder communication, but not with pure motives
in the Kantian sense?
While much of the research conducted on corporate communication with stakeholders takes
the perspective of the corporation, it would be
interesting to hear more about stakeholders and
their experience in communicating with corporations. What is, for instance, stakeholders view on
the normative demands from dialogue theory?
Furthermore: Is the finding that stakeholders
accept a mix of intrinsic and extrinsic corporate
motives true? What tolerance exists toward the
corporate instrumental agenda? Are there cultural
differences in this respect?
As mentioned, the advent of social media presents corporations with a new opportunity to
communicate with stakeholders. Still, the ability
to forge a lasting relationship with stakeholders
using social media might be over-hyped. Communicating through Twitter and on Facebook
certainly allows for more two-way communication than a typical newsletter mailed to stakeholders. Still, both time and energy are needed
to get social media to work in the sense of communicating with stakeholders. More research is
needed, however, to understand the potential and
the pitfalls of social media with this purpose. It
would be particularly interesting to learn what
rhetorical repertoire corporations have developed
in social media to address CSR issues, including
not too favorable comments on a corporations
CSR track record.

Communications Strategies

Stakeholder Engagement
Stakeholder Relationship
Stakeholder Theory
Trust and CSR

References and Readings

Barnett, M. L., Jermier, J. M., & Lafferty, B. A. (2006).
Corporate reputation: The definitional landscape. Corporate Reputation Review, 9(1), 2638.
Bohm, D. (2008). On dialogue. New York: Routledge.
Cobley, P. (2008). Communication: Definitions and concepts. In W. Donsbach (Ed.), The Blackwell international encyclopedia of communication. Oxford, UK:
Blackwell.
Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar,
B. L., & De Colle, S. (2010). Stakeholder theory: The
state of the art. New York: Cambridge University
Press.
Ihlen, ., Bartlett, J., & May, S. (Eds.). (2011). Handbook
of communication and corporate social responsibility.
Malden, MA: Wiley-Blackwell.
KPMG. (2008). KPMG international survey of corporate
responsibility reporting 2008. Amsterdam: KPMG.
Morsing, M., & Schultz, M. (2006). Corporate social
responsibility communication: Stakeholder information, response and involvement strategies. Business
Ethics: A European Review, 15(4), 323338.
Morsing, M., Schultz, M., & Nielsen, K. U. (2008). The
Catch 22 of communicating CSR: Findings from
a Danish study. Journal of Marketing Communications, 14(2), 97111.
Newell, P. (2005). Citizenship, accountability and community: The limits of the CSR agenda. International
Affairs, 81(3), 541557.
Pedersen, E. R. (2006). Making corporate social
responsibility (CSR) operable: How companies translate stakeholder dialogue into practice. Business and
Society Review, 111(2), 137163.

Communications Strategies
Marketing Communications and CSR

Cross-References
CSR Communication
Primary Stakeholders
Reputation/Reputation Management
Social Dialogue

Communities
View on the Ground: CSR from a Capabilities
Approach

Communities of Practice

Communities of Practice
Fernanda de Paiva Duarte
School of Business, University of Western
Sydney, South Penrith DC, NSW, Australia

Synonyms
Learning systems; Teams; Teamwork

Definition
The phrase communities of practice was coined
by educational theorists Jean Lave and Etienne
Wenger (Lave and Wenger 1991) in the groundbreaking book Situated Learning: Legitimate
Peripheral Participation. In this work, they put
forward the idea that learning is a process of
participation in communities of practice participation that is at first peripheral but that
increases gradually in engagement and complexity. Communities of practice refers to groups of
people who share a concern or a passion for
a topic, a craft, and/or a profession (Wenger
1998, 2006). These individuals deepen their
knowledge and expertise through regular interaction with each other (Wenger 2006; Wenger et al.
2002). Therefore, a community of practice acts as
a living curriculum that engages participants in
a process of collective learning (Wenger 2006).
Examples of communities of practice can be:
. . .a tribe learning to survive, a band of artists
seeking new forms of expression, a group of engineers working on similar problems, a clique of
pupils defining their identity in the school,
a network of surgeons exploring novel techniques,
a gathering of first-time managers helping each
other cope (Wenger 2006).

Introduction
All of us belong to communities of practice
often to more than one acting as core members
of some, and peripheral members of others
(Lave and Wenger 1991). Indeed, in ones

399

lifetime, one travels through an array of communities. Communities of practices exist in lunchrooms at work, in field settings, and on factory
floors, but they can also operate in virtual environments, including chat rooms, discussion
boards, and newsgroups. Communities come in
a variety of forms: They can be small or large;
local or global; actual or virtual; personal or work
related; formally recognized or informal;
supported with a budget or unfunded; visible or
invisible (Wenger 2006). A community of practice can either evolve naturally because of the
members shared interest in a particular domain,
or it can be created with the goal of gaining
knowledge on a specific topic or field. Through
the process of sharing information and experiences with the group, members learn from each
other, and develop themselves personally and
professionally.
It must be taken into account, nevertheless,
that not every community is necessarily a community of practice. According to Wenger (2006)
communities of practice must embody three core
characteristics: the domain, the community, and
the practice. The domain defines the identity of
a community of practice, which is not merely
a group of friends or a network of connections,
but a commitment or a shared competence that
distinguishes members from other people
(2006). This shared competence is valued by the
members and encourages them to learn from one
another. The community is constituted by the
interactions between members of a given domain
and the mutual relationships they build, which
enables them to learn from each other. The practice refers to the repertoire of resources, experiences, stories, tools, and problem-solving
techniques that the members of the community
develop in their interactions with each other. The
emergence of a shared practice may be more or
less self-conscious. For example, academics who
meet regularly for lunch in a staff room may not
realize that their conversations actually convey
knowledge on how to teach or how to conduct
research. In the course of these learning conversations, they develop a set of stories and cases
that become a shared repertoire in their practice.
Hence a community of practice is not merely

400

a community of interest, but its members are, in

actual fact, engaged practitioners.
In addition to the above elements, communities of practice have three dimensions that allow
practice to be the source of coherence in a given
community: mutual engagement, a joint enterprise, and a shared repertoire of (Wenger
1998). In a community of practice, practice is
not just an aggregate of people or a network
defined by a common goal, but it resides in
the relations of mutual engagement by which
[people] can do whatever they do (1998, p. 73).
Mutual engagement is therefore fundamental to
creating meaningful relationships and learning,
as it connects people in ways that can become
deeper and more abstract, creating a tight node
of interpersonal relationships (1998, p. 76).
Not only do communities of practices arise from
a commonly shared goal, but they also generate
relations of mutual accountability among
participants. These relations do not stem purely
from conformity, but they are linked to the
members ability to negotiate actions as
accountable to an enterprise (1998, pp. 77; 82).
Relations of mutual accountability endow
communities of practice with their character of
a joint enterprise which both engenders and direct
social energy, and which encourages new ideas
and projects (Wenger 1998, p. 82). Communities
of practices also have a shared repertoire which is
developed over time. It consists of words,
routines, tools, ways of thinking and acting,
stories, gestures, symbols, genres, and concepts.
The shared repertoire also includes the discourse
through which members create meaningful
statements about the world and styles through
which they express their membership and identities as members (p. 8283). This shared repertoire is adopted in the course of the communitys
existence and becomes an integral part of
its practice.

Key Issues
The communities of practice approach has been
embraced by business organizations following the
realization that knowledge is a critical asset that

Communities of Practice

needs to be managed strategically. Whereas traditional forms of knowledge management placed

greater emphasis on information systems, the communities of practice model focuses on people and
on the social structures that enable organizational
members to learn with and from each other
(Wenger 2006). In contemporary organizations,
knowledge is a valuable resource and, in many
cases, the key to success; it must not therefore be
left to chance. Managers are becoming increasingly
aware of the need to understand the types of
knowledge that will confer competitive
advantage to their companies. Cultivating
communities of practices in strategic areas is
hence an effective way to manage knowledge as
an asset. This is particularly the case in times of
rapid change where organizations frequently
restructure their relationships in response to the
demands of shifting markets (Wenger et al. 2002).
According to Wenger (2006), the growing
interest in the notion of communities of practice
as a means of developing strategic capabilities in
organizations is due to three reasons: First, communities of practice allow for collective responsibility for knowledge management; second, they
create a direct link between learning and performance, because members of communities of
practice are also members of teams and business
units; third, communities of practice are not
restricted to formal structures: They create
organic connections among people across organizational and geographic boundaries. As noted
by Wenger (2006) . . .the knowledge of an organization lives in a constellation of communities
of practice each taking care of a specific aspect of
the competence that the organization needs.
Communities of practice have also been found
to be a means of developing and maintaining
long-term organizational memory (Hedberg
1981), defined by Conklin (1997) as a type of
memory that extends and amplifies organizational knowledge by capturing, organizing, disseminating, and reusing the knowledge created
by its employees. In order to understand the role
of communities of practice in preserving organizational memory, Conklin (1997) describes two
kinds of knowledge found in organizations: formal and informal. Formal knowledge is found in

Communities of Practice

books, manuals, documents, and training courses,

and it is easily and routinely captured in organizations. By contrast, informal knowledge
includes ideas, facts, assumptions, meanings,
questions, decisions, guesses, stories, and points
of view, which are hard to capture and sustain.
It is the kind of knowledge that can be captured
and maintained through the mutual exchanges of
communities of practice. It is for this reason that
Wenger et al. (2002) describe communities of
practice as the social fabric of learning organizations According to Senge (1990, p. 3), learning organizations are:
. . .organizations where people continually expand
their capacity to create the results they truly desire,
where new and expansive patterns of thinking are
nurtured, where collective aspiration is set free,
and where people are continually learning to see
the whole together

Acting as a living curriculum and engaging

participants in a process of collective learning,
communities of practice are critically important
to foster learning organizations. Mutual engagement among participants generates a shared repertoire of ideas, which in turn consolidates
learning and enhances organizational memory.
There is also evidence that sponsorship and
support of communities of practice can improve
organizational performance. According to Lesser
and Storck (2001, p. 831), a community of practice can operate as an engine for the development of social capital, and the social capital
inherent in communities of practice can lead to
behavioral changes that may positively influence
business performance. These authors claims are
based on a study of seven business organizations
in which communities of practice were found to
have created value for the participating
companies.
Communities of practice can also operate at
consumer level, as business need knowledgeable
consumers, and the latter, in turn, benefit from
companies that understand their needs (Wenger
et al. 2002). An increasing number of consumer
communities are emerging in the United States,
for example, with focus on topics such as travel,
parenting, musical interests, and fitness activities.
These types of communities have the potential to

401

create loyalty to a brand or service. Furthermore,

a growing trend is observed for organizations to
join forces with competitors to take advantage of
markets opportunities that engender complex
knowledge. Mergers, joint ventures, and alliances
depend on trust between the parties involved
which, in turn, can be cultivated through
interorganizational communities of practice
(Wenger et al. 2002, p. 221).
As concluded by Wenger et al. (2002, p. 232),
business organizations are in an ideal position to
take advantage of the benefits of communities of
practice as they have both the resources and the
motivation to attain new knowledge to keep
abreast of ever-changing markets. As they put it:
Firms that understand how to translate the power of
communities into successful knowledge organizations will be the architects of tomorrow not only
because they will be more successful in the marketplace, but also because they will serve as
a learning laboratory for exploring how to design
the world as a learning system.

The communities of practice concept has

been, nevertheless, regarded with reservation by
some scholars. For example, Kimble and Hildreth
(2004) argue that, given the self-directed and
self-motivated nature of communities of practice,
they can emerge and disappear over time. This
can be a problem if the organization becomes
reliant on the work of these groups for its development. Moreover, as noted by Hislop (2004),
due to their strong sense of internal identity,
communities of practice might not be effective
in sharing knowledge with people outside their
boundaries. From a similar perspective, Vaast
(2004) found in one of her case studies of public
and private sector organizations in France that the
internal sense of identity of a community of practice can make employees outside the group feel
marginalized.
Wenger et al. (2002, pp. 139159) themselves
draw attention to the dangers of overidealizing
the idea of communities of practice. Like all other
human institutions, communities of practice can
hoard knowledge, limit innovation, and hold
others hostage to their expertise. They illustrate
this point with the example of medieval guilds
which turned into exclusive cliques when they

402

made membership a right which was passed on by

fathers to sons only. The guilds excluded women,
which defeated the idea of participation so central
to communities of practice. Wenger et al. (2002)
further note that in contemporary times problems
can emerge with communities of practices at
three levels: single communities, constellations
of communities, and organizations. At a singlecommunities level, the domain may not arouse
passion in all members, or members might fail to
communicate with each other. With regard to
constellations of communities, rigid boundaries
of practice may emerge through the use of technical jargon, specialized methods, and customized
environments.
This
can
make
communication with other communities difficult,
and misunderstandings might arise. At an organizational level, there is a risk of rigidity, especially when a practice is successful, and
a community tightly knit; members tend to
become reluctant to seek other practices. Communities of practice can also generate increased
structural complexity, which poses new managerial challenges as they create multiple centers of
power based on knowledge. As concluded by
Wenger et al. (2002, p. 154) communities of
practice can be irrational, counterproductive,
political and rampant with suspicion and conflict. Nevertheless, if members are aware of
these risks, it is likely they will be able to manage
these problems effectively. This can itself be
transformed into a new learning experience for
the group.
Despite its limitations, communities of practice remains a relevant concept in contemporary
times. Research by McDermott and Archibald
(2010, p. 84) reveals, for example, that communities of practice continue to thrive in contemporary business organizations. However, these
communities operate differently from their forebears, in that they have lost their informal character. They are now an actively managed part of
the organization, with specific goals, explicit
accountability, and clear executive oversight.
For example, at the engineering company Fluor,
global communities of practice have replaced the
companys distributed functional structure. At
the time of their study, the company had 44

Communities of Practice

disciplinary- and industry- focused communities,

with 24,000 active members supporting project
teams. Services provided by the communities
included the creation of guidelines for work practices and procedures; publication of technical
documents; access to expert advice; and career
development. McDermott and Archibald (2010,
pp. 8586) identify four principles for a more
strategic establishment of communities of practice in business:
1. Focus on issues important to the organization.
2. Establish community goals and deliverables.
3. Provide real governance.
4. Set high management expectations.
The concept of communities of practice can be
also applied beyond organizations (Wenger et al.
2002). The complexity of markets and learning
systems in the knowledge economy have created
a trend whereby communities weave broader
value webs forged by relationships and
exchanges that operate beyond organizational
settings. This creates an extended knowledge
system which includes suppliers, distributors,
customers, and communities outside the organization. These stakeholders provide fertile ground
for the emergence of inter-organizational communities of practice (Wenger et al. 2002,
p. 221), with strong potential for knowledge
exchange. For example, Toyota has encouraged
the creation of knowledge-sharing networks
among its suppliers, and Hallmark has facilitated
the formation of communities of practice among
its retailers.

Future Directions
More recently, work on communities of practice
has broadened the focus of learning theory from
merely acquiring new knowledge to a changing
relationship of participation in the world. As
stated by Wenger (2004, p. 1), referring to his
project Learning for a Small Planet:
We cannot address todays challenges with yesterdays perspectives. We need new visions of what is
possible. We need new models to learn how to
learn at multiple levels of scale, from the personal
to the global. Increasing our capacity to learn

Community Activism
individually and collectivelyis taking on
a special urgency if we see ourselves caught, as
I believe we are, in a race between learning and the
possibility of self-destruction.

This is particularly relevant within the context

of the sustainability debate which requires new
visions and new models to address global environmental problems. Sustainability also requires
the creation of new conceptual discourses to
encourage new ways of looking at the world
(Wenger 2004, p. 2). This broader conceptualization of communities of practice can be applied
within the context of international development,
in view of a growing recognition of the benefits of
knowledge for developing nations (Wenger et al.
2002, pp. 228229). The communities of practice
approach can provide a new paradigm for international development transforming the world
into a giant learning system. For example,
development agencies such as World Bank now
see their role as convenors of global communities
of practice, rather than just providers of top-down
knowledge for developing nations.

Cross-References
Competitive Advantage
Corporate Social Responsibility
Social Capital
Sustainability

403

Kimble, C., & Hildreth, P. (2004). Communities of practice: Going one step too far? In Paper presented at the
9e colloque de lAIM, France, http://halshs.archivesouvertes.fr/docs/00/48/96/32/PDF/Kimble_2004.pdf.
Accessed 3 Jan 2011.
Lave, J., & Wenger, E. (1991). Situated learning. Legitimate peripheral participation. Cambridge: University
of Cambridge Press.
Lesser, E. L., & Storck, J. (2001). Communities of practice
and organizational performance. IBM Systems
Journal, 40(4). Retrieved 23 May 2012, from http://
www.research.ibm.com/journal/sj/404/lesser.html
McDermott, R., & Archibald, D. (2010). Harnessing your
staffs informal networks. Harvard Business Review,
88(3), 8289.
Seely Brown, J., & Gray, S. E. (1995). The people are the
company. Fast Company Retrieved 23 May 2012, from
http://www.fastcompany.com/online/01/people.html
Senge, P. M. (1990). The fifth discipline: The art and
practice of a learning organization. New York:
Currency Doubleday.
Vaast, E. (2004). The use of intranets: The missing link
between communities of practice and networks of
practice? In P. Hildreth & C. Kimble (Eds.), Knowledge networks: Innovation through communities of
practice (pp. 216228). Hershey: Idea Group.
Wenger, E. (1998). Communities of practice: Learning, meaning and identity. New York: Cambridge University Press.
Wenger, E. (2004). Learning for a small planet: A
research agenda. www.ewenger.com/research/index.
htm. Accessed 23 May 2012.
Wenger, E. (2006). Communities of practice: A brief
introduction. Retrieved from http://www.ewenger.
com/theory/ Accessed 2 Dec 2010.
Wenger, E., Mcdermott, R., & Snyder, W. (2002). A guide
to managing knowledge: Cultivating communities of
practice. Boston, MA: Harvard Business School.

Community
References and Readings
Black, L. D. (2006). Corporate social responsibility
as capability: The case of BHP Billiton. Journal of
Corporate Citizenship, 23(Autumn), 2538.
Conklin, E. J. (1997). Designing organizational memory:
Preserving intellectual assets in a knowledge economy. Retrieved 23 May 2012, from http://citeseerx.
ist.psu.edu/viewdoc/download?doi10.1.1.2.8218&
reprep1&typepdf.
Hedberg, B. (1981). How organizations learn and unlearn.
In P. C. Nystrom & W. H. Starbuck (Eds.), Handbook of
organizational design (pp. 327). New York: Oxford.
Hislop, D. (2004). The paradox of communities of
practice: Knowledge sharing between communities.
In P. Hildreth & C. Kimble (Eds.), Knowledge
networks: Innovation through communities of practice
(Vol. 3646, pp. 3646). Hershey: Idea Group.

Community Relations
CSR and Catholic Social Thought

Community Activism
Pauline Collins
School of Law, Faculty of Business, University
of Southern Queensland, Toowoomba,
QLD, Australia

Synonyms
Grassroots; Social activism; Social movements

404

Community Activism

Definition

as Habermas (1963/1988) have outlined arguments

in support of communicative action in developing
social groups and personal identities in
a lifeworld of shared meaning about the objective, subjective, and social world. For Habermas,
emancipation entails overcoming and dissolving
systems of distorted communication, and engaging
in corrective communicative action in the public
sphere. The theory of communication developed by
Habermas, based on what he describes as
a systems world of procedural and accounting
systems language and lifeworld, provides
a useful mechanism by which this process of
change can be understood and critiqued.
The form which community activism takes can
lead to both violent and nonviolent participatory
methods and outcomes. Early examples of protests
that led to violent upheaval include the storming of
the Bastille (1789) and the Boston Tea Party
(1773), and many subsequent actions have led to
violent outcomes. Nonviolent community activism
has been influenced by philosophers and
change agents such as Henry David Thoreaus
(18171862) Civil Disobedience 1849;
Leo Tolstoys (18281910) theory of nonviolent
movements; Mohandas Gandhi (18691948);
Martin Luther King, Jr. (19291968); Nelson
Mandela (1918current); Mairead Corrigan
(1944current); and Shirin Ebadi (1947current).
While all of these individuals suffered as a result of
injustices, what unites them is that rather than
condemning society for the wrongs perpetrated
against them, they exhorted society to move
together toward humanistic goals valuing freedom,
equality, justice, and recognition.
An important aspect of community activism is
the tactics employed to achieve change. These
arise from methods used to name issues, to educate
and raise awareness around issues, and to motivate
change in behavior. Examples include petitions,
letters, media campaigns, sit-down strikes, and
public protest including individual actions through
to mass marches, boycotts, blockades, civil disobedience, and lobbying. Which methods are
adopted will depend on the catalyst around which
motivation for action occurs. All of these activities
can occur over a considerable time and often
require a prolonged and engaged commitment by

Community activism can have a wide meaning to

include social movements promoting participatory
democracy or a more limited meaning which
focuses on grassroots actions. Activism is generally
associated with some public action designed to
raise awareness around an issue usually related to
matters of social, political or economic importance.
Community can range from a group of individuals
within a neighborhood or defined region, to the
world community. Community activism thus
encompasses actions taken by individuals within
a community or group, to bring about change.
Often these actions are referred to as grassroots
actions denoting ordinary people at a local level
acting against elite power groups seen as distant to
the issue. Social transformation of human society
occurs through grassroots actions by ordinary
people motivated, by deeply held values, to achieve
common goals which challenge dominantly held
power positions. This can arise from one or two
individuals creating awareness around an issue
until it grows to the level of a social movement.
Examples occur throughout human history. In modern history, they range from, but are not limited to,
the abolition of slavery, apartheid, civil rights, labor
rights, nuclear disarmament, opposition to war,
homelessness, poverty, health, womens rights,
sexual exploitation, multiculturalism, indigenous
issues, and the environment.
Other forms of community activism arising as
we move closer to a consumer-market model
include self-help or mutual aid organizations.
These groups focus their actions on change at the
individual level more than outwardly to the political
community. One of the longest-running such
organizations is Alcoholics Anonymous (AA).

Introduction
Social movements since the mid-eighteenth century
have aimed to redress social inequalities in
a general movement toward democratic participation by citizens. Community activism arises from
the individual becoming engaged in public participatory communicative action. Critical theorist such

Community Activism

405

participants. Saul Alinsky (19091972) has been

credited with creating community organization in
the USA to engage citizens and organizations in
community-based actions, in particular, revolving
around poverty and working conditions. His influential work, Rules for Radicals, is stated to be
for those who want to change the world from
what it is to what they believe it should be.
A good example of an individual initiating
action to achieve change is the anti-Nike campaign
against the use of sweatshop foreign female
labor. This campaign was initiated by Jeff
Ballingers article, Nike, the New Free-Trade
Heel: Nikes Profits Jump on the Backs of Asian
Workers in Harper 1992, and it took until 1996 to
evolve and become a publicly recognized and
adopted action against injustice. The activism in
the Nike case is an interesting study in the use of
key individuals and organizations, along with
strategic use of the media, to overcome what
at first seemed an insurmountable campaign for
change. This grassroots campaign begun by
an individual is a useful example not only for
community activism but also for corporate
social responsibility. Lessons can be learned
by corporations for the need to be responsive to
community demands, rather than acting in denial
and opposition.

theory (Lipsky 1968; Gamson 1987; Oberschall

1973; McAdam McCarthy and Zald 1988/
2005); political process (Tilly 1978); new
social movement theory (Habermas 1981/1985;
Offe 1985; Melucci 1989; Laclau and Mouffe
1985; Touraine 1985); and frame analysis
(White et al. 1994) to nonviolence (Sharp 1970).
The number of theories indicates the area is ripe
for further investigation.
The two key factors of power and conflict operate within community activism. The competition
resulting from these brings a tension within social
relations which plays out through an interconnected
framework at the social, communicative, political,
economic, and market levels of the existing social
relations within the community. Womens activism
is an important aspect of community activism and
provides for insight from the personal perspective
of the individual within the community. Critical
female discourse has, for instance, provided new
ways of viewing society politically, economically
and socially. Activism around womens issues, the
environment, peace, human rights, and poverty
provides for a balance and readjustment against
powerful institutions and corporations that without
this critical voice would be unchecked, showing
a lack of reflection on the connection between the
grassroots ordinary individuals and societal leaders.

Key Issues

Future Directions

Moyers has developed a theory of social activism named The Movement Action Plan: MAP
that assists activists by providing an underlying
theory to social action to enable the maintenance of energy for activist participation. MAP
provides guidance on how activists can gain
acceptance from the majority of ordinary
citizens for the need for such change agents to
perform a responsible and integral role in
society as it adopts social change, or in some
cases, resists it.
Theories behind motivation for community
activism and social movements abound and
range from crowd theory (Le Bon 1895); theory
of masses (Kornhauser 1959); rational choice
theory (Olson 1965); resource mobilization

It would appear that worldwide there is greater

demand for more meaningful forms of democracy
than simply the ballot box. Collectivist values that
give voice to citizens from the local to the global
level are manifest. Overcoming the marginalization
of those who engage in community activism and
recognizing the important contribution they make
to the advancement of ideas and outcomes for
people is still necessary. What is certain is the
phenomenon of community activism will not disappear. In fact, with the use of technology to link
ever expanding communities through email, the
ability to distribute messages on issues and to raise
awareness using social networking and other Internet sites is sped up. However, the question of
whether the Internet has opened a new space for

406

political discourse and democratic opportunities is

highly debatable, with research showing a tendency
for the Internet to be a reflection of the world and, if
anything, perhaps a slightly more conservative
political world. Nevertheless, issues such as
concern for the environment, since the 1990s,
have become universal and cut across all
boundaries activating communities around the
world at the grassroots level and globally. Green
politics is well suited to market consumerism, and
while it may be driven by self-interest, consumer
activism in support of environmental protection is
undoubtedly on the increase.

Cross-References
Affirmative Action
Community
Community Relations
Dame Anita Roddick
Enlightened Self-interest
Human Rights
Social Dialogue

References and Readings

Alinsky, S. (1971). Rules for radicals: A pragmatic primer
for realistic radicals. New York: Random House.
Gamson, W. A. N. (1968). Power and discontent. Homewood, IL: Dorsey Press.
Guber, D. L. (2003). The grass roots of a green revolution
polling America on the environment. Cambridge: The
MIT Press.
Habermas, J. 1988 (original 1963). Theory and Practice.
Beacon Press.
Habermas, J. (1985). The theory of communicative action
(original 1981, 2 vols.). Beacon Press.
Hill, K. A., & Hughes, J. E. (1998). Cyberpolitics.
Citizen activism in the age of the Internet. Lanham:
Rowman & Littlefield.
Kornhauser, W. (1959). The politics of mass society. The
Free Press, Glencoe.
Laclau, E., & Mouffe, C. (1985). Hegemony and socialist
strategy: Towards a radical democratic politics. London: Verso.
Le Bon, G. (1895). The Crowd: A study of the popular
mind. New York: The Macmillan.
Lipsky, M. (1968). Protest as a political resource. American Political Science Review, 62, 11441158.
Lusebrink, H.- J., & Rolf, R. (1997). The Bastille: A
history of a symbol of despotism and freedom.

Community Giving
In S. L. Kaplan, & K. M. Baker (eds), Bicentennial
Reflections on the French Revolution. Duke University
Press.
Mattox, H. E., (1998). The Boston Tea Party, 1773. In
J. E. Findling, & F. W. Thackeray (Eds.), Events that
changed America in the eighteenth century (Chap. 5,
209 pp.). Greenwood Press.
McAdam, D. J., McCarthy, D., & Zald, M. N. (1988).
Social movements. In N. J. Smelser (Ed.), Handbook
of sociology. Newbury Park, CA: Sage.
McAdam, D. J., McCarthy, D., & Zald, M. N. (2005).
Social movements and organization theory. Cambridge: Cambridge University Press.
Meikle, G. (2002). Future active media activism and the
Internet. London: Routledge.
Melucci, A. (1989). Nomads of the present: Social movements and individual needs in contemporary society.
Philadelphia, PA: Temple University Press.
Moyer, B., McAllister, J., Finley, M. L., & Soifer, S. (2001).
Doing democracy. Gabriola Island: New Society.
Naples, N. A. (1998). Community activism and
feminist politics: Organizing across race, class,
and gender perspectives on gender. New York:
Routledge.
Oberschall, A. (1973). Social conflict and social movements. Prentice-Hall.
Offe, C. (1985). New social movements: Challenging the
boundaries of politics. Political Science Review, 6(4),
483499.
Olson, M. (1965). The logic of collective action.
New York: Shocken.
Riano, P. (Ed.). (1994). Womens participation in communication: Elements for a framework. Thousand Oaks: Sage.
Sharp, G. (1970). Exploring nonviolent alternatives.
Boston: Porter Sargent.
Shaw, R. (1999). Reclaiming America. Nike, clean air,
and the new national activism. London: University of
California Press.
Tilly, C. (1978). From mobilization to revolution. Addison-Wesley/University of Minnesota.
The Bastille and Boston Tea party are historical events if
source books are required refer to:
Touraine, A. (1985). An introduction to the study of social
movements. Social Research, 52, 749788.
White, J., Hunt, S. A., Benford, R. D., & Snow, D. A.
(1994). Identity fields: Framing processes and the
social construction of movement identities.
In E. Larana, H. Johnston, & J. R. Gusfield (Eds.),
New social movements: From ideology to
identity (pp. 185208). Philadelphia: Temple University Press.

Community Giving
Corporate Giving

Community Relations

Community Relations
Gloria Zuniga y Postigo
The University of Texas at Arlington, Arlington,
TX, USA

Synonyms
Associations of trust; Collective intentionality;
Collective responsibility; Common good; Community; Edith Stein (on community); Employee
participation; Intersubjectivity; Labor force;
Management-consumer relations; Managementemployee relations; Management-host community relations; Positive Externalities; Social
capital; Social collaboration; Social cooperation;
Social factor of corporate responsibility; Social
object

Definition
The matter of community relations is often confused with public relations, which is a marketing
function of a company. One reason for this confusion is that the rise in the 1980s of concerns that
we now classify as falling under the heading of
corporate social responsibility preceded our
complete understanding of what constitutes corporate social responsibility, its scope, and its
constitutive concepts. Although we are still
demarcating the terrain of corporate social
responsibility and this encyclopedia indeed is
a contribution to this end, we now have greater
clarity of important distinctions such as that
between community relations and its conceptual
neighbor public relations.
It is also historically interesting to note that the
term public relations also became part of the
corporate language in the 1980s as corporations
became aware of the importance of corporate
image and managerial transparency due, in part,
to the stereotype of corporate mentality in popular culture as one of unrestrained greed. Indeed,
the perception in popular culture of this negative
image is reflected in the flavor of the characters of

407

several films of the 1980s and early 1990s (e.g.,

Edward Lewis in Pretty Woman, Lawrence Garfield in Other Peoples Money, Sherman McCoy
in The Bonfire of the Vanities), but its iconic
symbol is the cold-blooded corporate raider
depicted in the character of Gordon Gekko in
Wall Street and most particularly his signature
line: Greed is good. In response to this negative
perception on the part of the public, the corporate
world turned to the development of efforts in the
direction of public relations, such as reporting
their plans and activities to the public, press conferences, press releases, and image strategies
such as charitable donations, legislative lobbying, and socially responsible advertising. However, public relation efforts that enhance the
quality of the relationship of an organization
among key stakeholder groups (Clark, 376) are
not necessarily equivalent to developing community relations since public relation efforts do not
amount, in principle, to a burden of responsibility
that extends beyond shareholders. Indeed, public
relations might be at odds with mutual interests
with the community at large.
Let us consider the case of British Petroleum
(BP). According to a report by Adam MaAnit in
the October 2010 issue of the New Internationalist,
BPs health and safety record included a 2005
explosion at its Texas refinery site that killed 15
workers and injured over 100 and record fines
over leaks and poor maintenance in Alaska where
two major spills in 2006 led to widespread concern about the expansion of oil exploration in the
fragile Artic. Thus in 2007, newly appointed BP
CEO Tony Hayward reversed his predecessors
much lauded commitment to end the companys
financial support of politicians and was able to
secure permits to expand its Artic operations in
the Beaufort Sea and become the largest leaseholder in the Gulf of Mexico. We could speculate that Haywards expansion plans may have
had the interests of the shareholders of BP in
mind as a direct result of increased revenues for
his company. However, Hayward did not take
into consideration the stewardship that profit
seeking entails. Profits are not the result of
zero-sum gains. If this were the case, market
exchanges would be unsustainable. Indeed,

408

competitive market participants have the incentive to offer what others want and to provide it
without deception. Those who do not play by
these rules will typically lose. MaAnit recalls
that during the presidential campaign, Obama
had been vociferously against drilling, yet after
assuming the presidency he made a dramatic
u-turn and announced a massive expansion of
offshore drilling. Why the sudden change of
heart? MaAnit reports that, Obama had been
one of the top recipients of BP donations in
the previous year.
Indeed, as Milton Friedman reminds us, it is
the social responsibility of business to use its
resources and engage in activities designed to
increase its profits. But, let us also recall that
Friedman adds that this must be the case so long
as profit-increasing activities stay within the
rules of the game, which is to say, engages in
open and free competition without deception or
fraud. And it is this last part which is indeed
community minded. The explanation is simple:
a company can increase profits without the moral
limitations that Friedman articulates, but if it does
not consider the interests of shareholders in the
long run, colludes with government instead of
competing genuinely and fairly and sells what it
cannot deliver, then the company is not meeting
its responsibility toward shareholders or
employees, its most immediate communities.
While Haywards achievement of expanding
BPs operations indeed was directed at increased
profits, this narrow end served as a blinder to
other important considerations. Is BP equipped
with the health and safety precautions that will
not put BP employees at risk? Has BP corrected
the problems that affected the operations in Texas
and Alaska? Is BP playing the rules of the game
fairly? Can BP compete without manipulating the
American government? The point is that to
understand the stewardship that profit seeking
entails is to understand community. When the
long-run effects of business operations are indeed
mindful of the immediate communities of concern to any corporation that is, those constituted
by employees and shareholders then playing the
rules of the game of competition fairly, without
deception or fraud, will in the end also benefit

Community Relations

other communities such as those spatially immediate to the operations of the firm (e.g., for BP,
these would be the Gulf cities, ecosystems in the
Gulf) to the most distant though not least affected
(e.g., consumers of gasoline and other petrol
derivatives, the British society and its reputation,
and so on).
This genuine regard for community is not only
subtly presupposed in Friedmans corporate
profit commandment as suggested here, but it
serves as the framework for Adam Smiths notion
of the invisible hand. Indeed, it is not from the
benevolence of the baker that we receive our
daily bread. Of course, the bakers fundamental
concern is profits, for otherwise, he would be out
of an income. However, if the bakers only concern were profits, say, for example, if he did not
take pride in his product and arranged with the
local mayor to have the only bakery permit in
town, then this purely self-serving approach
would not work out well for him or the consumers
of his product in the end. Although Adam Smith
did not actually reach the specific articulation of
the notion of community and it would take more
than one and a half centuries later before Edith
Stein would make her contributions in this
regard, he addressed the need for society, and
the motivation for this need is our need for approbation and sympathy from society. In his Theory
of Moral Sentiments, Adam Smith describes sympathy as our fellow-feeling with the sufferings
of others (43). We strive to better our condition,
he says, in large part to belong in community and
be taken notice of with sympathy (50). Every
man prefers himself to all of mankind, yet he
dares not look mankind in the face, and avow that
he acts according to this principle. If he wants to
be accepted in community, then man the parent,
the baker, the CEO must temper his actions
such that these do not act against the interests of
others. For otherwise, Smith tells us that in the
race for wealth and honours, and preferments, he
may run as hard as he can, and strain every nerve
and every muscle, in order to outstrip all his
competitors. But if he should justle, or throw
down any of them, the indulgence of the spectators is entirely at an end. It is a violation of fair
play, which they cannot admit of (83). So while,

Community Relations

arguably, Smith would agree with Friedmans

corporate profit commandment, he would also
add that it is self-regulated by another internal
mechanism that is even more gratifying than selfservice and this is the fellowship of community.
For example, Smith argues that
The product of the soil maintains at all times the
number of inhabitants which it is capable of
maintaining. The rich only select from the heap
what is most precious and agreeable. They consume little more than the poor, and in spite of
their natural selfishness and rapacity, though they
mean only their own convenience, though the sole
end that they propose from the labours of all the
thousands whom they employ, be the gratification
of their own vain and insatiable desires, they divide
with the poor the produce of all their improvements. They are led by an invisible hand to make
nearly the same distribution of the necessities of
life, which would have been made, had the earth
been divided into equal portions among all its
inhabitants, and thus without intending it, and
afford means to the multiplication of the species.
(184185, italics mine)

This is the regulatory service of the invisible

hand, one which would not work in commercial
pursuits if it were not nested in the notion of
community.
So if they are not the same as public relations,
then what are community relations? As we have
seen, community relations are not defined by the
marketing function of a company nor by public
relation efforts whose main goal is to serve the
interests of the company. The reason is that neither
is reconcilable with the compelling partiality
toward fellow members that defines community.
Thus, to act in community or in communion with
others is to act in fellowship with those communities that constitute the corporation (the board of
directors, employees, shareholders) as well as
those with whom it enters into business relations
(suppliers, contractors, consumers, city, and federal governments). Just like individuals, corporations enjoy various layers of community relations.
The effect that a corporation may have across
several layers of communities gives rise to a call
for responsible stewardship of the actions and
decisions taken by the directors of a company.
In summary, then, community relations are
demarcated by actions and communications that
are characterized by fellowship and stewardship

409

with regard to the communities in which the

corporation participates. Such community relations are not motivated by profit maximization
ends alone nor guided by narrow strategies that
improve only corporate image. Nonetheless,
community relation efforts are not obstacles to
the maximization of profits either. In fact, mindfulness to community relations directs corporations to considerations that are most compatible
with profit maximization in the long run. But in
order to understand the nature of community
relations more perspicuously, we must now turn
to the task of addressing the notion of community
in greater philosophical depth.

Introduction
The most thorough study of the phenomenon
of community was advanced by Edith Stein
(18911942), a philosopher who studied under
Edmund Husserl at the University of Gottingen
in Germany. Her contributions to the study of the
phenomenon of community were preceded by
a study of the phenomenon of empathy, which
culminated as the subject of her doctoral dissertation in philosophy titled On the Problem of
Empathy. The word empathy must be understood as Einf
uhlung, a term belonging to the
tradition of nineteenth-century German phenomenology and brought to notoriety by Theodor
Lipps at the University of Munich. Accordingly,
empathy (as Einf
uhlung) means in-feeling or
inner awareness (Sawicki, 123). This is not an
intellectual awareness of our own consciousness
but an awareness of our feelings within the context of a conscious experience, which opens
a bridge to the affective experience of others. In
other words, empathy (as Einf
uhlung) describes
the capacity that human beings have to recognize
and thereby share the emotions that another sentient being is experiencing. It is not merely
a detached agreement with the feelings of others,
as it is the case with the phenomenon of sympathy, but, rather, it is the sharing of the lived
experience of others.
The question is this: how is it possible to
access the consciousness of another person? Her

410

teacher Husserl had advanced an answer that

she did not find completely satisfactory, so she
pursued this investigation in two essays. The first
titled Sentient Causality, and the second
titled Individual and Community. Together,
these constituted what would have been her
Habilitationsschrift, which is the thesis that
a scholar submits after years of work following
the receipt of a Ph.D. in pursuit of the Habilitation, the highest academic qualification in
Germany and some European countries. These
essays have been published in a book titled
Philosophy of Psychology and the Humanities,
volume VII of the Collected Works of Edith
Stein. It is here that she brings together the
notions of empathy (as Einf
uhlung) and community. Stein scholar Mary Catharine Baseheart
observes that For her, the knowledge of empathy
(as Einf
uhlung) was a valuable key to unlock the
secrets of personhood and to clarify theoretical
knowledge not only of the individual person but
also of community (163). And Baseheart adds
that the starting points of her investigation on
community are real community structures such
as families, nations, and religious communities,
which we encounter in our surrounding world
(164).
Stein distinguishes two kinds of social orders.
The first kind is community proper, and it is
characterized by solidarity, which occurs when
we make the ends of the community our own. The
notion of solidarity is often associated with the
views of thinkers such as Durkheim and Marx.
However, their understanding of solidarity as
mechanical solidarity and socialism, respectively, do not coincide with Steins. Hers is
more akin to an older tradition: Catholic social
thought. (See CSR and Catholic Social
Thought entry in this encyclopedia). Accordingly, the term solidarity is understood as
a character of a community that is made possible
by the recognition of the individuality and
interdependence among individuals and the
resulting duties that emerge from such
a recognition. In Sollicitudo Rei Socialis, John
Paul II explains that solidarity is not a feeling
of vague compassion or shallow distress at the
misfortunes of so many people, both near and

Community Relations

far (38). As Edith Stein puts it, we see the members of a community as subjects and not as
objects. We can grasp this distinction from our
own experience of community in friendships and
family, as well as in sports teams bound by camaraderie and in classrooms in which the students
learning is also the teachers goal. Moreover, we
find community also in some working environments. Google is often hailed as an environment
that fosters community in many respects (healthy
lunches, gyms, play areas), and since what brings
workers to Google is the opportunity to take part
in innovation, then the goals of the company are
also the goals of each person. Typically, communities are small scale, with persons engaged face
to face, and the role structures of their relations
emerge spontaneously and are maintained by
custom.
The second kind of social order is association. This is the relationship in which we support
the goals of the group insofar as this permits us
to pursue our own ends. Hence, the relations of
association are typically contractual and entered
into by persons who may not share the same
beliefs, but they find an instrumental value in
cooperating as a group to achieve individual
ends. We pay dues for memberships at the
gym, for example, because by supporting the
purpose of its existence, we are also seeking to
gain personally. But we do not really care if
every member actually becomes fit. In this
sense, other people are seen as objects by
means of which we achieve our ends. Political
associations are no different than the gym example. In her writings on the state, Stein makes
clear that the state is not a community even if
our language sometimes seems to suggest this
with expressions to describe the state such as our
nation, national solidarity, or the peoples
republic. For Stein, the state is an instrument
for accomplishing those ends beneficent to individuals that only a political body could bring
about. We could think, for example, of freedom
made possible by the provision of public goods,
such as roads and the protection against foreign
aggressors.
The main difference between these two forms
of social organization is that in community we

Community Relations

participate in affective acts with other sentient

beings, which lead to the formation of an experience stream shared in common. According to
Edith Stein, this is how we apprehend value.
She points out that value apprehension is not an
intellectual recognition of a moral fact, after
which we adopt an affective attitude about it.
Rather, it is the other way around. It is by means
of our affective capacity that we are able to
apprehend value, and then we can form an intellectual recognition and articulation of the value
that we have experienced. We observe, accordingly, members of a community respond with the
same emotional attitude to the same objects, and
through these experiences of union and cohesiveness in apprehension of things in the world, we
are able to recognize the bonds of solidarity that
tie them together. It is by means of the aesthetic
quality of the accepted shared values among individuals that the collective personality of
a community is formed. Each member is not
only a contributor to the aesthetic of the community but also shaped by the community. Stein
observes that we cannot know ourselves fully
until we are in community. Different levels of
community relations shed light on different
aspects of ourselves that would go unnoticed to
ourselves otherwise. Friends will point out to us
our eccentricities. Family members will remind
us of our history of weaknesses and strengths.
Although we might find all of this annoying, it
helps us see ourselves from a perspective other
than our own. So community can indeed help us
in our quest for virtue by showing us more clearly
the task ahead in our character formation. This
task involves practical choices along the way, and
toward this end, there are three issues that we
need to take into account.

Key Issues
The Temporal Nature of Communities
Communities are not necessarily infinitely enduring entities, and often they have a beginning and
an ending with only a brief existence in between.
It is not the duration that characterizes an act of
communion but its quality of fellowship and

411

solidarity that brings a community into being.

An example of this temporal nature of community is as follows. One person embraces a mother
who is in tears in an act of communion when told
that she has just lost a child at war. Although both
are strangers, this act is characterized by genuine
empathy (as Einf
uhlung, per the earlier explanation). During those brief moments of the
embrace, a community came into being and then
ceased to exist.
In the context of a corporation, temporal
communities are just as frequent. A charity
event participation or donation exemplifies an
act of community, as much as a short-term contract with a corporate partner or supplier, if this
is characterized by fellowship and solidarity.
These temporal communities do not present
a problem but, instead, are sources of social
capital formation. But there are exceptions,
such as when a corporation moves its operations
from one city to another, or from one nation to
another, because these leave the constituents of
the host city or nation with feelings of loss.
Indeed, the most difficult challenges are the severing of the interdependencies previously
established and demarcating the boundary at
which such interdependencies will cease. Perhaps because of such challenges, there are strong
pressures against corporate relocation as it is
often judged to be an act that is inconsistent
with corporate citizenship. The term corporate
citizenship is often used by corporations to
describe its commitment to corporate social
responsibility. But the metaphor of corporate
citizenship indeed supports the image of
a permanent member of the society in which it
has established residence. This is a problematic
expectation in the same way that it would be to
expect that no member of a society should ever
migrate to other lands in search of greater opportunity. After our values for life and procreation,
liberty seems to be a third value that is similarly
shared by all human beings. It would be against
the idea of community and healthy community
relations to force a corporation to stay simply on
the basis of self-regard concerning employment
and income. And it fails to recognize that communities are not always infinitely enduring.

412

Community Vis-a`-Vis Communitarianism

In light of the previous issue, we must now turn to
the important distinction between community
and communitarianism. Community is a social
order into which we enter freely, and we find it
rewarding because the interests among members
are mutually beneficent. By contrast, communitarianism typically demands the sacrifice of individual freedom and individual plans for the sake
of the ends of the group. Moreover, such ends are
typically established by some ruling member of
the group. Let us first consider this arrangement
in the context of individuals in a group. A person
is not typically inclined to divide his earnings
among those members of his society. At least,
not if such division is imposed and not voluntary.
Arguably, it would be against the idea of community to expect any person to do this since the
ideas of fellowship and solidarity that are characteristic of community imply a duty not to act
against the best interests of any of its members.
This principle applies similarly to corporations since the task of corporations is not to
secure the well-being of their communities by
distributing its earnings among their members
or by sacrificing revenues. The goals of the company are not driven by the goals of its member
communities to which they belong any more than
the goals of an individual are driven by the
goals of his or her communities. In this way,
communitarianism works against the well-being
of communities and does not encourage healthy
community relations.
The Problem of Collective Responsibility
If corporations are or can be communities, in
principle at least, then it would seem that the
other side of this coin is that they are collectives
capable of collective actions, including morally
relevant actions. This is what we seem to suggest
in ordinary language. When, for example, the
matter of the 2010 Gulf of Mexico oil spill is
raised in ordinary conversation, the blame is
cast against British Petroleum as a collective
and not as the result of poor judgment or poor
management on the part of its CEO, or any other
individual BP worker. But there are differences
concerning what can be attributed to legal

Community Relations

persons and natural persons. The corporation is

a legal person for the purposes of owning property, entering into contracts, suing for breach of
contracts and other liabilities, incurring into debt,
and shielding its shareholders from personal liability. It also has obligations and liabilities under
the law, such as the payment of taxes and it can be
sued. But, unlike a natural person, it is difficult to
assign moral blameworthiness to corporations
have no independent minds and cannot make
choices and, therefore, cannot have moral intentions. So while BP has legal liabilities with regard
to the effects of its operations, it cannot be the
subject of moral agency or moral responsibility.
Only individuals at BP can be morally
blameworthy.
This does not mean, of course, that affiliation
to a community such as a corporation has no
bearing on the decisions by individuals. Jan
Narveson observes that every group action
involves the doings of various things by individuals who, however much they may be reacting to
the behavior of others, decide to do what they do,
and could in principle decide otherwise - though,
granted, the range of alternatives that will occur
to them is seriously affected by their relation to
groups (183). But if the moral responsibility is
attributed to the group (corporation, institution,
or nation), then we cannot punish individuals
for their decisions and moral wrong doings.
And that is what is wrong with collective
responsibility, argues Narveson, precisely
because it will not reduce [blameworthiness],
it precludes you from getting at anybody
(185, brackets and mine).
But how do we reconcile the notion of community with individual responsibility? There are
many instances in which these are in conflict with
each other. Suppose that a manager or a worker
has been asked to carry out actions in the operations of the corporation that are risky and unsafe
for others (as it may have been the case in the BP
scenario) or cruel and inhumane (as it is the case
of factory farms). On the one hand, the manager
or worker is part of the corporate community as
an employee. It would thus appear contrary to the
smooth flow of community relations to go against
the plan that is presumably for the best interests

Community Relations

of the corporation. On the other hand, in the

judgment of the manager or worker, the specific
acts that he is being asked to do are morally
questionable. Edith Stein, anticipating these conflicts, points out that the ultimate responsibility in
this scenario falls on the individual manager or
worker to draw the willpower to reject his orders.
It is his responsibility to the community in such
a situation to refuse. To do otherwise, would be to
succumb to what Stein calls contagion, or
a group-following, nonrational mentality that
would undermine the well-being of the
community.

Future Directions
The American culture, though unique as any
other culture, has been the subject of scrutiny
more than most perhaps because of its influence
on other cultures especially by means of the
products of its corporate ambassadors and
Hollywood films. McDonalds franchises can be
found in most nations. Coca-Cola products are
consumed in every continent. Levis and Converse are well-known trademarks in teen fashion
around the world. These are consumer-based
global communities that offer a taste of the
American culture. What is the contribution of
such communities to other cultures and the formation of other global communities? Tocqueville
wrote that Americans have no philosophical
school of their own; and they care but little for
all the schools into which Europe is divided, the
very names of which are scarcely known to them
(I, 1). Yet in abstracting from their practices, he
observed that Americans have a philosophical
method in common, and its main characteristic
is individualism.
The puzzling question is this: How could
a nation of individualists come together cohesively as a society? Tocqueville offers an apt
observation. It must never be forgotten that religion gave birth to the Anglo-American society.
And, he adds, Christianity has therefore retained
a strong hold on the public mind in America
(I, 5). This observation is as true today as it was
in Tocquevilles time. If there is one single

413

underlying characteristic that holds true across

Catholicism and all Protestant sects, it is the
notion of caritas. The English translation is charity, but this word presupposes a broader understanding of an individuals role in society than
merely the act of giving to others borne out of
a mechanical sense of obligation. Rather, charity
means love but not as an emotion or as an affective commitment we have developed toward
some individuals, but as a vocation for us to
love others (Benedict XVI, 1). So for the Christian, developing communion with others is a way
of life. American culture thus combines a thoroughgoing individualism with a commitment to
community development.
But are things changing? In a 1995 article
titled Bowling Alone: Americas Declining
Social Capital, Robert Putnam first took notice
of a problematic change in the American culture:
that Americans have disengaged from their civic
involvement by evidence of declining voter turnout, reduced numbers of people who volunteer
for political parties, and decreasing participation
in public meetings at the local government level.
What is worse is that this loss of membership in
civic organizations did not migrate to other kinds
of community organizations. His famous illustration is that although the number of people who
bowl has increased, the number of bowling
leagues has decreased. We are thus, he says,
bowling alone. Putnam does not present the
bowling illustration as a curious phenomenon,
a mere shift in cultural preferences. Rather, he
sees it as a problem insofar as the decline of
community is positively correlated to the erosion
of what he calls generalized reciprocity, by which
he means the spirit of doing for strangers without
expecting anything directly in return. He is referring more explicitly to a decrease in the spirit of
community relations and its social benefits, aka
social capital.
But let us consider Putmans notion of community as generalized reciprocity, with Steins
notion of community as fellowship and solidarity that we have set forth in the foregoing.
Bowling, which is Putnams central metaphor,
indeed exemplifies generalized reciprocity. The
members of my bowling league do their best for

414

the team, and I will do my best for my league. In

Steins framework, however, this can be an association and not necessarily a community since
the reciprocity shown by all members of the
league could be self-serving. I want to win, and
to do this I need to do my best for the league.
There is a difference, Stein argues, between
directing mental states at perceived common
goals and doing this as part of communal
sharing.
Nonetheless, let us assume for the sake of
argument that bowling leagues are communities
and not mere associations and that Putnam has
indeed identified a worrisome decline in community relations and social capital. In this case, there
is another consideration that Stein anticipates.
She points out that social organizations are not
purely of one kind or another, but usually some
combination of both community and association.
This means that while a bowling league could be
a true community, it could also be no more than
an association, or any point in between. Even if
bowling leagues are on the decline because they
no longer provide the community relations that
they once offered, this does not mean necessarily
that combined with all other communities that are
also on the decline (voters, marriage, and so on),
community relations and social capital are on the
decline as well. The trend may be that some
communities have ceased to be socially beneficent, even if temporarily so, and others have
taken their place. The growing popularity of technologically based social networks, such as
Facebook, suggests that this is at least
a possibility. In todays digital age, technology
has served both human relations of association
and community. But they also present disadvantages for building community. While at one end
of the spectrum, we could place iPods on the basis
that they tend to isolate individuals from the
human social world around them (not to discredit
the aesthetic enhancement that they provide, of
course), at the other end of the spectrum, we
could place Facebook because it provides the
means for any person to engage hundreds and
even thousands of other people as friends. This,
however, may be too rushed a judgment. If we
apply the distinction between association and

Community Relations

community, it would seem that Facebook does

not, in principle at least, aim at building community relations. It is an association in which the
common end is social networking but the goals of
others are not ones own necessarily.
What is technology carving out for future
community relations? Not only corporations but
universities and retail stores that already have
direct contact with their user communities have
joined the Facebook bandwagon. The goal seems
to be the cultivation of good will and a modern
public image for the institution. We could
even speculate that community relations is
a sophisticated stage in human organizations
that might only start as associations. The emergence of firms, too, had the character of association insofar as the entrepreneurs benefitted from
having continuous availability of labor and economies of scale that resulted from the workers
know-how of their business, and the employees
also benefitted from having steady wages and
other benefits instead of discrete contracts for
specific tasks and constant bidding for new contracts. Now, as such associations form into communities, then the benefits multiply. So perhaps,
we are bowling alone but we seem to be also
opening new horizons for community development. And perhaps, the benefits of these changes
will spill over into old and decaying communities
and give them new life, such as online voting and
avatar bowling leagues to replace voting precincts and traditional bowling leagues.

Cross-References
CSR and Catholic Social Thought
Economic Sociology on CSR
Employee Participation
Externalities
Healthcare and Social Benefits
Human Resource Management
Institutes of Directors and CSR
Outsourcing
Social Accounting
Social Entrepreneurship
Trust

Company Directors and CSR

References and Readings

Baseheart, M. C. (1992). Edith Steins philosophy of community. The Personalist Forum, 8(1), 163173.
Benedict XVI. (2009). Caritas in veritate. Citta` del
Vaticano: Vatican Encyclical, Libreria Editrice
Vaticana. http://www.vatican.va/holy_father/benedict_
xvi/encyclicals/documents/hf_ben-xvi_enc_20090629_
caritas-in-veritate_en.html
Clark, C. E. (2004). Difference between public relations
and corporate social responsibility: An analysis. Public Relations Review, 26(3), 363380.
Durkheim, E. (1982). The rules of sociological method
(trans: Halls, W. D.). New York: Free Press.
Friedman, M. (1970). The social responsibility of business
is to increase its profits. The New York Times.
John Paul II. (1987). Sollicitudo Rei Socialis. Vatican
City: Encyclical, Libraria Editrice Vaticana, http://
www.vatican.va/holy_father/john_paul_ii/encyclicals/
documents/hf_jp-ii_enc_30121987_sollicitudo-reisocialis_en.html
MaAnit, A. (2010). That petrol emotion. New Internationalist, 437, 2023.
MacIntyre, A. (2006). Edith Stein: A philosophical prologue (19131922). Lanham: Rowman and Littlefield.
Narveson, J. (2002). Collective responsibility. Journal of
Ethics, 6, 179198.
Pettit, P. (1994). Liberal/communitarian: MacIntyres
mesmeric dichotomy. In J. Horton & J. Mendus
(Eds.), After MacIntyre: Critical perspectives on the
work of Alasdair MacIntyre (pp. 176204).
Cambridge: Polity Press.
Putnam, R. D. (1995). Bowling alone: Americas declining social capital. Journal of Democracy, 6(1), 6578.
Sawicki, M. (1997). Empathy before and after Husserl.
Philosophy Today, 41, 123127.
Sawicki, M. (2003). The Humane Community: Husserl vs.
Stein. In R. Feist & W. Sweet (Eds.), Husserl and Stein
(Vol. 31, pp. 141154). Washington, DC: The Council
for Research in Values and Philosophy.
Smiley, M. (2010). Collective responsibility. In E. N.
Zalta (Ed.), The Stanford encyclopedia of philosophy
(Spring 2011 Ed.). http://plato.stanford.edu/archives/
spr2011/entries/collective-responsibility/
Smith, A. (1981). An inquiry into the nature and
causes of the wealth of nations. Indianapolis: Liberty
Fund.
Smith, A. (1984). The theory of moral sentiments. Indianapolis: Liberty Fund.
Stein, E. (1989). On the problem of empathy (The collected
works of Edith Stein, Vol. III, trans: Stein, W.).
Washington, DC: Institute of Carmelite Studies.
Stein, E. (2000). Philosophy of psychology and the
humanities (The collected works of Edith Stein,
Vol. VII, trans: Baseheart, M. C. & Sawicki, M.).
Washington, DC: Institute of Carmelite Studies.
van Staveren, I. (2009). Communitarianism and the
market: A paradox. Review of Social Economy,
LXVII, 2547.

415

Zuniga y Postigo, G. (2010, February 1112). The middle

point between iPods and Facebook: Lessons in community and value from Edith Stein. Unpublished paper
presented at the Edith Stein Project Conference,
University of Notre Dame.
Zuniga y Postigo, G. (2012). Corporate social responsibility and Christian social thought. In S. O. Idowu, N.
Capaldi, et al. (Eds.), Encyclopedia for corporate
social responsibility. London: Springer.

Community-Based Social Marketing

Corporate Social Marketing

Company Directors and CSR

Ahmed El-Masry1 and Nahla Kamal2
1
Plymouth Business School, Devon,
Plymouth, UK
2
ALROWAD, Dokki, Giza, Egypt

Synonyms
Corporate control;
Directors duties

Corporate

governance;

Definition
It is quite difficult to find a universally accepted
definition for CSR; each author provides
a definition according to his field of research,
preferences, and understanding of CSR. When
there are different views concerning the meaning
of CSR, debate on its significance in strategy
formulation and stockholder management will
be complicated and turn on the assumptions
about and around the nature and significance
of CSR. The words of Idowu and Filho seem
important to remember, What falls under the
umbrella of CSR in one country may perhaps be
of little or no significance in another (Idowu and
Filho 2010).

416

A broader definition refers to it as a means by

which companies can manage and influence the
attitudes and perceptions of their stakeholders,
building their trust and enabling the benefits of
positive relationships to deliver business
advantage and more effective management of
risk, helping companies to reduce avoidable
losses, identify new emerging issues, and
use positions of leadership as a means to gain
competitive advantage by influencing new
regulation to strengthen competitive advantage.
CSR could be done on a voluntary or mandatory
action. Usually, it is cited as a concept whereby
companies integrate social and environmental
concerns in their business operations and in
their interaction with their stakeholders on
a voluntary basis. Within such a broad definition,
the discussion of how company directors should
understand CSR is not about whether CSR
activities should be voluntary or not; the debate
should be about where on the legislation scale the
indicator should be set, should it be more toward
no legislation or more toward total legislation.
As Philip Jennings, the General Secretary of
Union Network international, noted:
Companies and governments overwhelmingly
want the public both to believe in the ethical
corporation and at the same time do not want to
provide new legal backing for tighter ethical
behaviour. But the ethics genie is out of the bottle
and its operational principles are providing difficult
to control. Another big change is that workers and
citizens as stakeholders can now be involves
directly with powerful corporations. (Hopkins
2007, p.27)

Introduction
Since the beginning of 1990s, corporate social
responsibility has gained an importance as
a concept. A lot of corporations have focused
their attention on CSRs triple bottom line:
people, planet, and profit. Corporations success
and influence on its customers as well as the
world depends on these economic, social, and
ecological principles. A recent study by KPMG
showed that CSR reporting has changed from
purely environmental to concentrating on

Company Directors and CSR

sustainability; in addition, the top 250 companies

of fortune 500 has adopted CSR as a mainstream
practice (Mitra 2011). The codes of contract
governing social, environmental, and ethical
practices were also signed or developed by more
than 1,000 corporations in UK and Europe. Such
companies understand that understanding and
reporting on CSR is a key component in reducing
risks. Karen Bergin, the Senior Director of
Corporate Affairs and Citizenship, at Microsoft
Corporation states that corporations (Transparency International 2009) have accountability
toward their societies in which they work due to
the following reasons: First, the corporations
most vital asset is its people, all of whom are
part of that society; second, the key stakeholders
of the corporation such as customers, partners,
and investors who expect responsible leadership
and active participation. And lastly, corporations
can vigorously learn through CSR, for instance,
gathering direct feedback from people in
societies around the world about the corporate
products.
Because the world had witnessed chaotic
stock markets, credit crisis, and a global
economic recession, as a result, climate change
and wider issues of CSR were starting to climb
the corporate agenda. This was clear, at least
in a European context, in the supplement
accompanying the Observer and Guardian
newspapers in March 2004 conference on
Business and Society (one of a growing
number of sophisticated conferences supporting
the CSR cause). That supplement highlighted
that boards of directors should be capable
of demonstrating that any voluntary action they
support will eventually improve shareholder
value; in addition, they have to recognize how
their social and environmental influences can
improve or jeopardize shareholder value.
In 2005, a CSR salary survey illustrated that
many corporations are assigning specialist
officers to develop and implement clear CSR
strategies, due to the significant growth of the
importance of issues such as governance,
environmental management, social equity,
and employee and community (Sullivan and
Sambunaris 2005). According to Tom Leathes,

Company Directors and CSR

the director of Acre Resources, CSR has gone

from something that was a bit fashionable to
something that is much more broadly accepted.
Some companies have whole teams doing this
nowwe have just been working with Sky,
which has a team of 2030 people dedicated to
it (Hanson 2008). According to Leathes, CSR
cannot only be found in large companies such as
BT, the Body Shop, and Marks & Spencer, who
have been hiring CSR specialists for a number of
years, but also there have been a growing number
of smaller companies taking them on.
The chief executive of Business in the
Community (BITC), Stephen Howard, has also
observed that there has been an increase in
the number of businesses working with that
organization. BITC gives support and advice to
help corporations enhance the impression they
have on society and the environment. According
to Howard CSR is getting more boardroom
attention; universities now run degree courses
in CSR and like the evolution of the HR
professional, we are seeing the evolution of the
CSR professional (Hanson 2008).
In addition to climate-change agenda, there are
other factors which are accountable for the rise of
CSR as a boardroom issue, for instance, the financial scandals at Enron and WorldCom and lzately
Societe Generale, as well as so-called labor abuses
at Nike and Gap (Hanson 2008). Corporations are
increasingly using CSR as an instrument to deal
with risk and reputation: Questions about how
companies are fulfilling their environmental and
social responsibilities are asked by wider stakeholder groups such as local authorities, public
bodies, customers, and prospective staff. Howard
states that It is an issue that is here and now, so
businesses need to look at how they are going to
respond. However, Leathes highlighted that areas
like marketing, HR, finance, and IT are considered
to be more entrenched compared to CSR
budgets and team sizes which are still relatively
underdeveloped. In addition, most of CSR
heads do not report directly to the chief executive
or other main board director, although that position seems to be changing (see reference to
Chief Sustainability Officer (Bhattacharya
et al. 2011).

417

Even though corporations should watch costs

and spending during a recession, a recession
might not be the time to limit corporate CSR
budget. According to Howard, corporations
should put into consideration how they are
going to keep their staff and their customers.
Identifying the position of the corporation is
even more relevant in a recession, because such
CSR can create long- and short-term value for
companies. CSR offers an opportunity for
corporations of all sizes. According to Leathes,
corporations gain competitive advantage through
developing a strong CSR program and
incorporating it into their brand and marketing.
Customers are much more conscious of
environmental and social issues. They are
searching for corporations who can make this
easy for them. However, Leathes emphasizes
that assigning a CSR officer is more relevant for
some companies than others. According to him, it
is inexperienced to state that any company which
does this is likely to notice a huge increase in
sales. Several oil and tobacco corporations have
an enormous social and environmental influence.
In particular, corporations with bad reputations
like oil and tobacco companies showed an
interest in carrying CSR activities to change
their negative images. Some corporations such
as BP and Shell were able to successfully
alter their image through emphasizing their
environmental and social initiatives, while
the same strategy has backfired for others such
as Monsanto and Exxon. According to Karen
Bergin, Senior Director of Corporate Affairs
and Citizenship, Microsoft Corporation, the
solution lies in making sure that CSR activities
are aligned with the corporation, which will
guarantee its effectiveness and sustainability
(Hanson 2008).
The responsibility for corporate governance
and the companys CSR policies and objective
should probably fall in the hands of someone with
full knowledge of the companys positive and
negative influences on society as well as having
a proper understanding of present and potential
risks faced by the company. We can argue that
such person should be capable of influencing the
companys strategic planning, which ultimately

418

indicates that the participation of the board is

essential for a successful establishment of the
CSR function in corporations. CSR issues are
immediately placed at the core of business strategy, as a result of, having the board administering
the incorporation and execution of CSR in
a corporation. In addition, legislation in many
countries holds the same belief, in which directors hold the responsibility for the environmental
and social consequences of corporate decision.
The combined code on corporate governance
makes it obvious that CSR is crucial. It states that
directors should set the values and standards of
the company and ensure that it meets its
obligations to shareholders and others
(Financial Reporting Council 2003). The board
must be in charge of the establishment of
corporate values and standards, looking at
corporate responsibility in a strategic way, being
constructive about regulations, aligning
performance management, establishing a culture
of integrity, and making use of internal control to
ensure accountability. On the other hand,
a boards role is to administer rather than
managing; therefore, they have to delegate.
Assigning the CSR accountability to an existing
board member and devoting a committee
completely to CSR, or the entire board can be
included in CSR decisions, are examples of
various techniques used by corporations to place
CSR role in the board. The same techniques could
be applied at the executive level, for instance,
the executive committee members could be
accountable for CSR supervision, a new member
could be assigned to the executive committee
with CSR responsibilities and expertise, or
engaging the whole executive committee on
CSR decisions. The same foundation can be
applied to the whole corporation through centralizing or decentralizing, directing one department
with CSR responsibilities, or allocating them
according to different criteria such as geographic
locations and business divisions and deciding on
whether to use cross functional interaction or
not. No matter what structure the corporation
choice, the dedication from the board should
be accompanied by responsibilities down the
hierarchy. To achieve this, a set of correct

Company Directors and CSR

incentives must be established. Culturally, that

means corporations should focus on long-term
sustainable performance rather than short-term
cost cutting views. The corporation should
consider the set of incentives, which will provide
with the best coordination between profit
maximization and CSR performance. To ensure
success, corporations should imply the same
techniques it uses when it deals with any other
strategic component of a business; measuring and
assessing the performance are handled according
to a well-known formal strategy (Financial
Reporting Council 2003).

Key Issues
The Role of Directors
A company director is a member of the Board of
Directors whose responsibility is to add value
to the corporation through both performance
(direction)
and
conformance
(control).
Performance involves establishing the mission,
values, and strategic direction of the corporation;
the influence of these on both stakeholders and
the natural environment should be considered
by a socially responsible director. Conformance
involves,
firstly,
accountability
through
establishing internal policy and procedures and
devoting to both internal and external rules
and procedures such as laws and, secondly,
transparency through reporting to stakeholders;
high levels of each should be supported by
a socially responsible director. Ensuring that
the corporates purpose and values are consistent with or support CSR might be an active
responsibility played by the company director.
Also, the company director can guarantee that
a socially responsible manner is used in strategy
creation through establishing policies and
procedures and the implementation of that strategy. There is an agreement that the stakeholders
should be taken into consideration when
company directors make decisions. According
to the International Corporate Governance
Network (ICGN 1999), it concurs in the view
that active corporation between corporations
and stakeholders is essential in creating wealth,

Company Directors and CSR

employment and financially sound enterprises

over time. An executive (or inside) director
and a nonexecutive (or outside) director are the
two categorizes usually used for company
director. The first refers to an employee of the
corporation such as the chief executive officer
(CEO), while the latter refers to an employee
from outside the corporation. A nonexecutive
director is hired to add an external opinion on
issues of strategy, performance, resources,
and standards of conduct and evaluation of
performance to the board. Nonexecutive director is hired based on his/her courage, wisdom,
and independence. The nonexecutive director
is divided also in two categories: independent
directors and nonindependent directors.
The board is an ongoing body that creates
a series of decisions. The directors perceptions
of the success or otherwise of a decision will
feedback into the decision-making process, and
as such will form part of the information or
experience that is used in making later
decisions. There are two specific characteristics of board decision making: Firstly, acting as
agents, the decision makers are making
a decision on behalf of the principles (owners
of the corporations) rather than making
a personal decision. Secondly, two stage processes are used to reach a decision: The board
papers are read by individuals before meetings
and make an early decision, and then, the group
decision-making processes are used by the board
to make last decision through consensus or
majority vote. As such, both individual and
group decision-making philosophies are pertinent to the directors perception of CSR. It is
crucial that pathologies do not affect the group
decision-making process, such as group thinking. That is why the board should have a various
group of people to expand the range of
experiences, values, and risk perception that
will be carried to the meeting and inform the
discussion. Board demographics and CSR
research have been done extensively.
For instance, male board members are less likely
than female board members to encourage
charitable community service and cultural
activities (ICGN 1999).

419

Company directors roles and responsibilities

are highly codified and extensively researched,
and therefore, the directors perspective of the
place of the CSR within their professional duties
might be developed from a number of sources
such as legislation and case law; international,
regional, and national guidelines; reports on
CSR and corporate governance; professional
associations (Institutes of Directors); corporate
constitutions and codes of conduct; and
professional and academic literature. The
legislative frameworks within which the
corporation works are the main influences on
how those opinions are formed. Such frameworks
not only differ from one country to another, but
also they differ between states of the same
country. Other influences include the boardroom
demographics and culture, the corporations
history of CSR, and the persons values and
experiences. Therefore, a director might have,
to some extent, a different perception of CSR
when the director acts on multiple board
positions. The company directors perception of
CSR is a broad one; the perception of one director
could fall somewhere inside the whole array of
possibilities from seeing CSR inappropriate
through to a passionate obligation to community
and the environment. It is persistent that
executive directors perceive CSR differently
than
nonexecutive
directors.
However,
academics did not reach an agreement on what
they perceive differently. For instance, Ibrahim
et al. states that overall, outsiders are less
economically driven and more philanthropically
oriented than insiders, while Wang and Coffee
found in their study that increasing the number
of outsiders on the board may actually have little
effect on philanthropic behaviour (Idowu and
Filho 2010).
Establishing a CSR Strategy
At times, executives find it difficult to establish
a CSR strategy; however, social media platforms
can be essential resources for corporations looking
to contribute to their societies and develop into
better corporate citizens. Discovery Communications, for instance, are relying more on social media
in their CSR efforts, in which they use social

420

networks such as Facebook and Twitter; they also

launched Discovery Blog a short time ago to raise
public awareness about their CSR efforts through
generating discussions and providing community
for those who want to get involved.
Anne Charles, the founder and CEO of
BRANDfog, provides three crucial guidelines
that corporations should do for better CSR
(Bennett 2010). First, commit and lead; this
means that executives should share their vision
through social media channels, which is crucial
so that followers can feel connected to the brand,
give feedback, and become evangelists. Second,
listen and learn; through this step, executives will
be able to find out the greatest areas of need and
evaluate the societies where they do business; this
enables them to decide which social issues to
address. This can humanize the brand while
supporting the society, and lastly, communicate;
CEOs can comment or post updates about their
CSR initiatives and tell people what they are
doing with CSR through social media channels.
CEOs can discuss it in board meetings, staff
meetings, and press conference or even broadcast
it through all marketing channels.
Karen Bergin, Senior Director of Corporate
Affairs and Citizenship, Microsoft Corporation,
agrees that exciting new opportunities for
connecting and engaging with people are presented
with social media (Jacques 2010). In particular, it is
applicable to CSR as people love to have direct
dialogue with the corporation. It allows corporation
to inform exciting and convincing stories in new
ways. On the other hand, corporations should
closely incorporate social media with traditional
communications and directly align it with core
objectives, rather than dealing with social media
as a separate activity; corporations should think
about it holistically.

Future Directions
One of the issues that need to be clarified in future
research is the roles and responsibilities of
various members in corporations in attaining
a social responsible behavior especially the
company directors.

Company Directors and CSR

Cross-References
Business Ethics
Corporate Governance
Corporate Responsibility
Socially Responsible Investment

References and Readings

Aldama, L., Amar, P., & Trostianki, D. (2009). Embedding corporate responsibility through effective
organizational structures. Corporate Governance, 9,
506516.
Bennett, A. (2010). Questions for: Ann Charles. Retrieved
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Bhattacharya, C. B., Sen, S., & Korschun, D. (2011). How
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magazine/2008/6%20June/CSR_61_11.html
Hopkins, M. (2007). Corporate social responsibility and
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2009. Retrieved from http://www.icgn.org/icgnglobal-corporate-governance-principles-older.php
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CSR best practices. Public Relations Tactics, 17,
1213.
Mitra, R. (2011). CSR as a business strategy in Indian
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11(1), 8698.
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directors and company secretaries in FTSE100
companies in the UK. Journal of General Management, 33, 111.
Owen, D. (2005). CSR after Enron: A role for the
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Accounting Review, 14, 395404.
Prieto-Carron, M., Lund-Thomsen, P., Chan, A.,
Muro, A., & Bhushan, C. (2006). Critical perspectives
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Competition
Sullivan, J., & Sambunaris, G. (2005). Creating
a sustainable corporate environment. In Schaffer, J.
(Ed.), Promoting growth through corporate
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pp. 2024). Washington, DC: U.S. Department of
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Yoon, Y., Gurhan-Canli, Z., & Schwarz, N. (2006).
The effect of corporate social responsibility (CSR)
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of Consumer Psychology, 16, 377390.

Company Mission
Corporate Mission, Vision and Values

Company Secretary
Corporate Secretaries

Company Support for Employee

Volunteerism
Employee Volunteer Programmes

Company-Wide Strategy
Corporate Strategy

Competition
Wyn Jenkins
Consulting Teacher, Liverpool, UK

Synonyms
Ethical competition; Green competitiveness;
Sustainable competition

421

Definition
Competition according to the classical ideas of
Adam Smith is the invisible hand that ensures
the efficient and fair allocation of goods and
services, i.e., each individuals self-interested
actions will lead, on aggregate, to societys
good (Frank 2004). The invisible hand maximizes the welfare of buyers and sellers when all
participants have complete and perfect knowledge so that consumers make choices and firms
strive to meet their requirements; in this way, the
market allocates goods for the benefit of all. In
the real world, these conditions do not exist. Also,
all members of society do not have perfect
knowledge or power, so the major question is:
To what extent can we rely on competitive markets to sustain behavior that maximizes the
welfare of all in society in the long run?
Economists recognize that the pursuit of individual short-term goals can be detrimental to the
long-term benefit of the community as a whole. It
is for these reasons that acts which individuals
would pursue for their own benefit are
constrained by laws; for example, the burning or
dumping of rubbish would be cheaper to the
individual than the cost of legally sanctioned
disposal but more detrimental to the community
as a whole.
Frank (2004) compares the competitive
behavior of firms to that of natural species; it is
the survival of the fittest. The argument is that
firms who come closest to profit maximization
are more likely to survive in the long run than
those that do not. All firms are not necessarily
maximizing profit at any given time because their
managers, for example, may be lazy or incompetent. This may happen with or without the knowledge of owners. If managers are not striving
for profit maximization, and their competitors
are, they risk the survival of their firm. The
important question for firms owners and managers is: If they seek to pursue socially responsible ventures beyond the requirements of
regulation, will they risk the long-term prosperity
of the firm, or can such actions lead to competitive advantage? The important question for any
society is how can it ensure that firms behave in

422

a way such that the long-term destiny of the Earth

and society is optimized, i.e., in capitalist economies, at least how much can be left to the invisible hand?
Since firms make products using resources for
the benefits of customers, they have two broad
strategic challenges: to maximize profitability in
the short run and to remain in existence in the
long run by ensuring that the products they produce, and the assets they use to produce them,
remain of relevance to society, i.e., if firms wish
to survive, their assets and/or products must be
regenerated before they become obsolete
(McGahan 2004). Hence, Kodak moved from
chemically based photography to digitally based
photography. Thus, firms compete in the present,
but also must make strategic choices about the
nature of the future and their role in that future.
Competition has both an operational dimension
(present orientation) and a strategic dimension
(future orientation). In this section, we explore
the competitive and complementary factors that
affect the corporate social responsible (CSR)
behavior of firms.

Introduction
Friedman (1970) publicized his analysis of the
social responsibility of business in an article in
the New York Times Magazine. In this article, he
outlined his concept that the social responsibility
of business in a free enterprise system, including
providing employment, eliminating discrimination and avoiding pollution, was a distraction
from the business of maximizing shareholder
wealth.
These ideas can be encapsulated as follows:
1. The role of firms is to obey the law, and
government should legislate to ensure firms
behavior is controlled to meet the norms of
society.
2. Firms managers have no responsibility to
do more than the law requires or to go beyond
compliance. Indeed, the argument of
Friedman is that managers have a duty not to
carry out activities that reduce shareholder
wealth.

Competition

3. Producing environmentally friendly products,

employing ethical work practices, and indulging in corporate philanthropy always adds
costs, and the extra costs of producing such
ethical products do not command increased
prices from consumers.
The first of these statements is not contentious.
The second is contentious, but an analysis of the
literature indicates that management action
beyond compliance is necessary for some firms
to remain in business (Kagan et al. 2003; LynchWood et al. 2009; Porter and Kramer 2002).
Kagan et al. use the concept of the social license
which argues that firms are constrained in their
activities by the expectations of society. LynchWood et al. categorized the drivers of the social
license as the potential of the impact of a firms or
industrys activities, customer interest and
power, and corporate visibility and community
pressure. Those firms that have social license
pressures have to invest beyond legal compliance
activities. This investment is part of their competitive behavior. However, as Gunningham and
his colleagues have observed, the precise boundaries of the social license are ill defined. This lack
of definition is confusing to some managers. Porter and Kramer (2002, p. 57) have noted that firms
feel obliged to give to charity to appease potential
critics but are often unhappy in this giving, executives find it hard, if not impossible, to justify
charitable expenditures in terms of bottom line
benefits. Thus, there is evidence that firms have
to make judgments, irrespective of altruism, of
the extent of their beyond compliance activities
to remain a viable competitor in an industry.
Thus, observers and managers find it difficult to
judge the value of beyond compliance activity
in terms of actual or perceived rewards. Husted
and de Jesus Salazar (2006) cite the example of
Merk, who in 1987 made a drug, Mectizan, available to third world counties free of charge, which
gained it some reputational benefits and boosted
employee morale but was judged by analysts to
have cost more than any achieved or anticipated
payoff. Porter and Kramer (2002, p. 58) criticized
diffuse and unfocused charitable donations and
argued that the assertions of Friedman were true
when corporations contributions are unfocused

Competition

and piecemeal. This leads into a discussion of

the concept of strategic corporate social responsibility, as a proactive competitive weapon, not as
a series of activities constrained by formal regulation or by the social license.
Husted and de Jesus Salazar (2006) used economic arguments to demonstrate that strategic
behavior by firms to conduct activities that
aligned society benefits with firm benefits produced more benefits for both the firm and society
than firms that were either behaving altruistically,
but without a strategic focus, or that were behaving egoistically and conforming to minimum
legal compliance. This analysis, however, relies
on the assumption that there is an alignment
between both social benefit generation and profit
maximization. The evidence from the literature is
that such alignment exists at least within the
context of the USA experience. These ideas are
illustrated with a discussion of firm strategic
behavior with respect to the natural environment
and corporate philanthropy.
Hart (1995) observed that the standard design
school model (SWOT) developed in strategic
management discusses economic, political,
technological, and sociological factors as part of
its analytical template. However, while the natural environment could be considered within these
descriptors, Hart advocates that any firm should
consider its strategic position in a way that
explicitly take account of the impact and potential future impacts of their activities on the natural
environment. This is based on the premise that
the consumers of a firms products will expect
that firms behave in ways that are mindful of the
natural environment. It is therefore in firms
interests to satisfy the desires of their consumers
with respect to the tangible and intangible
benefits associated with their products. Hart
argued that firms can develop three generic natural environmental strategies: pollution prevention, product stewardship, and sustainable
development. Pollution prevention has two
aspects: working to make present process more
efficient and hence less polluting and developing
new process and products that will lead to zero
emissions. Harts concept of pollution prevention involves preventing waste materials being

423

made; this he argues is more effective in terms

of process efficiency that end of pipe capture
and disposal. He produced evidence that pollution prevention can increase productivity efficiency as well as reducing compliance and
liability costs. Product stewardship goes beyond
pollution prevention in the manufacturing process and argues that every step of designing,
producing, using, and disposing of should be
considered when judging the environmental
impacts of products. The drivers for sustainable
development provide firms with the opportunities
to innovate with both product and process design
and develop blue ocean strategies (Kim and
Mauborgne 2005), i.e., the opportunity to operate
in markets that are free from competition, at least
in the short run.
Porter and Kramer (2002) also emphasized the
importance of a strategic framework for corporate philanthropy. Unfocused charity giving
as outlined by Porter and Kramer is analogous
to employing poor quality control in
a manufacturing process; it is an unnecessary
waste of money. They discussed a number of
case studies in which they illustrated how firms
can improve their competitive context by the use
of philanthropy to improve the factors that make
up their corporate context. Corporate context is
defined by the variables that make up Porters
diamond model: demand conditions, related and
supporting industries, factor conditions, and firm
rivalry.
There are a number of case studies that support
the strategic opportunities of proactive environmentally focused CSR. Porter and van der Linde
(1995) challenged the idea that environmental
regulation would add costs to products and in
fact suggested that it was a driver for promoting
cost efficiency and a spur for innovative firms to
find new ways of differentiating products; their
argument was supported with cases. Orsato
(2006) indicated that firms which pursue environmental strategies can improve both their relative
market position and their resource effectiveness.
For sustainable advantage, it is also important
that the market positions taken by firms are difficult to imitate, because, as Orsato (2006) has
observed, a first mover advantage in obtaining

424

ISO 14001 certification, for example, was initially a differentiating feature but was subsequently eroded to become a license to operate
for certain firms as the number of firms gaining
certification in particular sectors increased an
order-winning criterion becomes an orderqualifying criterion (Hill 2000). Berry and
Rondinelli (1998), again using case examples,
have indicated that firms that adopted ecologically sensitive policies became more efficient.
They suggest that
Many companies including 3M, DuPont, Allied
Signal, Amoco and Monsanto have discovered
that environmental costs can be replaced by revenues through sale of waste by-products, clean technologies or unused pollution allowances (p. 9).

Furthermore, they observe that large firms led

the way in proactive ecologically sensitive strategies but predicted that small and medium firms
would follow the lead and will adopt pollution
prevention practices when they can easily obtain
information about them, learn to apply life cycle
analysis, and get technical assistance. An analysis by Lynch-Wood et al. (2009) would not seem
to support this latter contention concerning smalland medium-sized firms in the UK. A case study
on five firms carried out by Sharma et al. (1999)
indicates that Canadian firms in the oil industry
who responded early to environmental concerns
regarded such concerns as opportunities, whereas
firms who responded when their identity had been
defined and established regarded them as threats.
Rugman and Verbekes (2000) concluded that
firms can deal with government regulation strategically by adopting policies around ecological
issues that influence to their benefit government
policy on legislation. Ng (2006), too, has indicated that by being aware of government policy
on future regulation, firms that are strategically
aware and suitably resourced are able to anticipate and encourage regulation, so that by
investing in cleaner technologies before any
anticipated regulation is enacted, they can gain
first mover advantages. In her work, Ng (2006)
detailed how Peugeot-Citroens (PSA) introduction of filters for diesel engines gave marketing
and technological first mover advantages: In
addition to the free publicity, PSA got a head

Competition

start on technology development and experience

with filters (p. 145).
A survey study conducted by Brammer and
Millington (2008) supports the ideas of Porter
and Kramer. They found that the relationship
between financial performance and level of charitable donations was U-shaped, suggesting that
these philanthropic initiatives had to exceed
a threshold value to have any impact, investments
below a threshold involving costs but generating
no benefits: this suggests that it is the consistent
application of a strategy of social sensitivity that
ultimately pays off in financial terms (p. 1340).

Key Issues
In capitalist society, competition is considered to
be a framework that facilities the allocation of
goods and services in an efficient way that is fair
to the buyer and seller the invisible hand concept. However, the invisible hand principle does
not take into account the welfare of those not
engaged in the buying and selling transaction
and cannot take into account the drivers for
socially responsible behavior by corporations.
The invisible hand is complemented by the social
license in moderating the behavior of firms so as
to protect the welfare of society. The strategic
behavior of firms can increase both the level and
effectiveness of CSR activity. However, there are
some important limitations to these ideas: The
lack of perfect knowledge of CSR issues by
firms, consumers, and society makes the development of effective competitive and social constraints to firm behavior difficult to quantify; the
relative power of the social license to regulate in
different kinds of industry; and the applicability
of the ideas discussed in this article outside USA
contexts to other contexts with varying degrees of
cultural and economic differences to the USA.

Future Directions
By definition, competition can only work in societies where competition is a part of the economic
system. In all societies, there is some regulation.

Competition

This regulation can be environmentally tough or

environmentally weak. Equally, nonlegal constraints on companies can differ from country to
country. Matten and Moon (2008) have distinguished between explicit and implicit CSR and
suggest that firm behavior with respect to CSR
differs in different countries. Their work suggests
that the social license and strategic behavior with
respect to CSR will differ in different countries.
This is an area for useful future research. It is
particularly important to understand the challenges facing a world where the competitive
behavior of firms in one culture, or indeed the
different behavior of the same multinational firms
in different cultures, can affect the welfare of the
earth. This understanding is important if ambitious goals to maximize the welfare of all human
societies are to be met as outlined in the following
quote from the Cambridge University-based
Prince of Waless Corporate Leaders Group on
Climate Change website: (http://www.cpi.cam.
ac.uk/pdf/Copenhagen%20Communique%20-%
20English2.pdf, accessed 14 September, 2009).
Lifecycle analysis (i.e., the impact of all phases of
the product life on the natural environment, design
to disposal) will be important in product
development.
The goal of sustainable development will be
promoted by firms having long-term visions related
to particular clean technologies, but these successful technologies will need to be embraced by
the wider community; this is the only way for
world economies to develop and grow without
adversely affecting the planet.

The motives for firms engaging in CSR behavior remain incompletely understood; indeed, the
multidimensional nature of CSR increases this
challenge. Do any firms exhibit truly altruistic
behavior according to the definition of truly altruistic corporate behavior given by McWilliams
and Siegel (2001, p. 117): Here, we define
CSR as actions that appear to further some social
good, beyond the interests of the firm and that
which is required by law? This would mean
adopting product designs, processes, and policies
that were of no interest to potential consumers,
communities, legislators, etc. Thus, firms being
truly altruistic would have to be in environments
where they could sacrifice profits to do things that

425

only they would recognize as giving any benefit.

This is an unlikely scenario; it would require that
the firm would be the only entity capable of
recognizing the advantages of their activities. It
would also require the firm to have some sort of
market domination so that its actions would not
make it vulnerable to other firms not indulging in
these activities. In a similar vein, other strains of
research could usefully explore whether all firms
can afford long-term strategic CSR behavior that
reduces short-term profits for long-term benefits.

Cross-References
Business Case for CSR
Business Strategy
Cause-Related Marketing
Competitive Advantage
Corporate Social Entrepreneurship
Corporate Social Responsibility Strategy
Definitions of Social Responsibility
Friedman, Milton
Kaizen
Philanthropy
Responsible Competitiveness
Strategic Corporate Social Responsibility
Unknown Stakeholder

References and Readings

Berry, M. A., & Rondinelli, D. A. (1998). Proactive corporate environment management: A new industrial
revolution. The Academy of Management Executive,
12(2), 3850.
Brammer, S., & Millington, A. (2008). Does it pay to be
different? An analysis of the relationship between corporate social and financial performance. Strategic
Management Journal, 29(12), 13251343.
Frank, R. H. (2004). Microeconomics and behavior
(4th ed.). New York: McGraw-Hill.
Friedman, M. (1970, September 13). The social responsibility of business is to increase its profits. The New
York Times Magazine, pp. 122126.
Hart, S. (1995). A natural-resource-based view of the firm.
Academy of Management Review, 20(4), 9861014.
Hill, T. (2000). Manufacturing strategy: Text and cases
(3rd ed.). Burr Ridge: McGraw-Hill.
Husted, B. W., & de Jesus Salazar, J. (2006). Taking
Friedman seriously: Maximising profits and social

426

performance. Journal of Management Studies, 43(1),

7591.
Kagan, R. A., Gunningham, N., & Thornton, D. (2003).
Explaining corporate performance: How does regulation matter? Law and Society Review, 37(1), 5190.
Kim, C., & Mauborgne, R. (2005). Blue ocean strategy
How to create uncontested market space and make the
competition irrelevant. Boston: Harvard Business
School Press.
Lynch-Wood, G., Williamson, D., & Jenkins, W. (2009).
The over-reliance on self-regulation in CSR policy.
Business Ethics: A European Review, 18(1), 5265.
Matten, D., & Moon, J. (2008). Implicit and explicit CSR:
A conceptual framework for comparative understanding of corporate social responsibility. Academy of
Management Review, 23(2), 404424.
Mcgahan, A. M. (2004). How industries change. Harvard
Business Review, 82(10), 8694.
McWilliams, A., & Siegel, D. (2001). Corporate social
responsibility: A theory of the firm perspective.
Academy of Management Review, 26(1), 117127.
Ng, C. B.-K. (2006). Shaping the terms of competition:
Environmental regulation and corporate strategies to
reduce diesel vehicle emissions. PhD thesis, Massachusetts Institute of Technology.
Orsato, R. J. (2006). Competitive environmental strategies: When does it pay to be green. California
Management Review, 48(2), 127143.
Porter, M. E., & Kramer, M. R. (2002). The competitive
advantage of corporate philanthropy. Harvard Business Review, 80(12), 5669.
Porter, M. E., & van der Linde, C. (1995). Green and
competitive: Ending the stalemate. Harvard Business
Review, 73(5), 120133.
Rugman, A. M., & Verbeke, A. (2000). Six cases of
corporate strategic responses to environmental regulation. European Management Journal, 18(4), 377385.
Sharma, S., Pablo, A., & Vredenburg, H. (1999). Corporate environmental responsiveness strategies: The
importance of issue interpretation and organizational
context. The Journal of Applied Behavioural Science,
35(1), 87108.

Competitive Advantage
Ananda Das Gupta
HRD, Indian Institute of Plantation Management,
Bangalore, Karnataka, India

Synonyms
Better business performance; Developing core
competence; Positioning, brand enhancement

Competitive Advantage

Definition
Global greenhouse gas emissions continue to rise.
Diseases wreak havoc across entire continents.
An entire host of seemingly intractable issues
confront governments throughout the world,
which are sometimes unable to effect positive
changes. With the emergence of companies as
some of the most powerful institutions for innovation and social change, more shareholders, regulators, customers, and corporate partners are
increasingly interested in understanding the
impact of these organizations regular activities
upon the community and its natural resources.
With the worlds largest 800 nonfinancial companies accounting for as much economic output
as the worlds poorest 144 countries, the importance of these organizations in addressing trade
imbalances, income inequality, resource degradation, and other issues is clear. While companies
are not tasked with the responsibilities of governments, their scale and their ability to influence
these issues necessitate their involvement and
create opportunities for forward-looking organizations to exercise great leadership.

Introduction
In public opinion surveys, consumers admit that
they prefer to buy products and services from
companies they feel are socially responsible
(72%) and that they sell shares of those
companies they feel do not pass muster (27%).
Challenging Nobel laureate Milton Friedmans
notion that companies only responsibility is to
make profit, executives are increasingly seeking
ways to combine economic gain with social wellbeing in ways that will produce more customer
loyalty, better relationships with regulators, and
a host of other advantages. CSR practices may, in
fact, prove pivotal to the success of a company.
Sometimes described simply as doing well
by doing good, corporate social responsibility
initiatives gained traction in the 1990s as consumer interest in management practices erupted
in the wake of several substantial incidences of
executive malfeasance and of escalating

Competitive Advantage

environmental challenges. While originally

focused on environmental factors, CSR reports
increasingly include social measures. Likewise,
company leaders today express interest in business models that weave together explicit goals for
profit, environmental performance, and social
factors, at the same time recognizing that these
efforts will likely yield no short-term financial
benefits but rather long-term performance
improvements.
The phrase corporate social responsibility
(CSR) describes both:
A social movement
A collection of specific management practices
and initiatives
Business leaders, government professionals,
and others use these principles and tools to assess
and report on organizations impact on society.
Benefits from CSR
The following are the benefits of corporate social
performance reporting spread over an entire
organization:
Business area reduce costs create value
License to operate more favorable government
Relations; reduced shareholder
Activism; reduced risk of lawsuits
Traditional rhetoric about private versus
public responsibilities is diminishing while
companies operate more and more with an understanding of an acknowledged (if tacit) role to play
in society. In the United States, many people feel
companies should be doing more to improve
society through changing their business practices.
Although implementing CSR initiatives in modern companies is a daunting prospect because of
their increasingly complex and global operations,
many CSR management frameworks have moved
onto the international stage. Approximately 400
companies including many of the worlds
largest use all or some of the Global Reporting
Initiative (GRI), and combined environmental
and social reports are increasingly common
alongside companies regular sustainability
reports. Launched in 1997 by the Coalition of
Environmentally Responsible Economies, the
GRI report contains 50 core environmental,
social, and economic indicators for a broad

427

range of companies. It also offers additional modules with distinct metrics for companies,
depending on their industry sector and operations. The price range for producing a report
spans from $100,000 for a basic GRI to more
than $3 million for complex organizations like
Shell. Other major initiatives and reporting standards provide helpful guidance and principles;
among them are:
The United Nations Global Compact
Global Environmental Management Initiative
International Standards Organization guidelines (e.g., ISO14000)
The continued growth of the socially responsible investment movement, especially in the
United States and Europe, is stimulating companies adoption of GRI and other instruments. In
the United States alone, capital available to
socially responsible companies reached $2.29
trillion in 2005.

Key Issues
There are, however, two opposing views on
corporate social responsibility. Firstly, that corporate social responsibility is a distraction from
managements responsibility to increase shareholder value and that organizations should concentrate solely on their business objectives.
Secondly, the alternative view, that organizations
should recognize that the law does not (and
cannot) contain or prescribe all duties and responsibilities, and therefore organizations should
exercise an informal and imaginative ethical
judgment in deciding what should or should not
be done, taking account of the interests of others
as well as their own, just as an individual good
citizen would.
Sustainable business competitive advantage is
the attainment and maintenance of a superior,
differentiated marketplace position, one that
creates superior value for the organizations customers and investors. Corporate social responsibility failures may result in loss of customers and
prompt action from the authorities. Although
most organizations do keep their marketing activities within the law, some marketing activities are

428

regarded as socially irresponsible, such as unacceptable selling techniques, bribery, price discrimination, deceptive advertising, misleading
packaging, trading in counterfeit products, and
marketing defective products.
Many organizations embrace the additional
costs associated with corporate social responsibility in the expectation of reaping benefits in
the long term; corporate social responsibility
marketing activities can result in, for example,
a better understanding of consumer needs
and wants, positive publicity, boosted sales,
enhanced staff commitment, and improved business performance. Corporate social responsibility in marketing can result in other valuable
benefits too, including reduced costs. Corporate
social responsibility in marketing can help an
organization gain sustainable competitive
advantage. Hence, it is no surprise that many
organizations incorporate and implement ethical
and social responsibility programs into their
strategic plans.

Competitiveness

a constraint, or a charitable deed it can be

a potent source of innovation and competitive
advantage.
Michael Porter and Mark Kramer (2006)
propose a new way to look at the relationship
between business and society that does not treat
corporate growth and social welfare as a zerosum game.
They introduce a framework that individual
companies can use to:
Identify the social consequences of their actions
Discover opportunities to benefit society and
themselves by strengthening the competitive
context in which they operate
Determine which CSR initiatives they should
address
Find the most effective ways of doing so.

Cross-References
Customer Value Creation
Sustainability
Sustainable Development

Future Directions
Governments, activists, and the media have
become adept at holding companies to account
for the social consequences of their actions. In
response, corporate social responsibility (CSR)
has emerged as an inescapable priority for
business leaders in every country.
Frequently, though, CSR efforts are counterproductive, for two reasons. First, they pit business against society, when in reality the two are
interdependent. Second, they pressure companies
to think of corporate social responsibility in
generic ways instead of in the way most appropriate to their individual strategies. The fact is the
prevailing approaches to CSR are so disconnected from strategy as to obscure many great
opportunities for companies to benefit society.
What a terrible waste. If corporations were to
analyze their opportunities for social responsibility using the same frameworks that guide their
core business choices, they would discover, as
Whole Foods Market, Toyota, and Volvo have
done, that CSR can be much more than a cost,

References and Readings

http://www.articlesnatch.com/Article/Corporate-SocialResponsibility-And-Marketplace-Competitive-Advantage/
804197#ixzz1BY71FK7l
Porter, M. E., & Kramer, M. R. (2006). Strategy and
society: The link between competitive advantage and
corporate social responsibility. Harvard Business
Review, 84(12), 7892.
www.qfinance.com/business-ethics-best

Competitiveness
Responsible Competitiveness

Competitor
Unknown Stakeholder

Compliance/Legal Compliance

429

Introduction

Compliance
Assurance
Institute of Business Ethics (UK)

Compliance Audit
Environmental Audit

Compliance/Legal Compliance
Jane Claydon
School of Law, Politics and Sociology,
University of Sussex, Brighton, East Sussex, UK

Synonyms
Legal and ethical responsibilities;
compliance; Regulatory compliance

Legal

Definition
In the context of business ethics, it is generally
assumed that business ethics begins where the law
ends (Crane and Matten 2007). Using the notion
that a stakeholder of a business is such if it can
both influence and be influenced by business
(Freeman 1984), government is considered a key
stakeholder as it is involved in issuing laws regulating business practice (Crane and Matten
2007, p. 456). Regulation can be defined as:
rules that are issued by governmental actors and
other delegated authorities to constrain, enable, or
encourage particular business behaviours. Regulation includes rule definitions, laws, mechanisms,
processes, sanctions and incentives. (Crane and
Matten 2007, p. 458)

Compliance/legal compliance, then, can be

defined as a set of processes and procedures
within a specific program to ensure adherence to
government regulation and laws.

Governments act as the elected representative of

citizens interests (Crane and Matten 2007,
p. 459) and, as such, define the conditions under
which a business is licensed to operate. As governments are primarily concerned with citizens
rights, many government regulations and laws
are intended to ensure compliance with
nondiscriminatory behavior (Crane and Matten
2007), for example, the Disability Discrimination
Act in the UK. Although governments set regulatory requirements, it is the companies that are
solely responsible for ensuring their employees
fully understand and comply with the laws (Frulla
and Rubin 2007). As the laws and regulations that
businesses need to abide by have been increasingly growing in volume and complexity over the
last few years, particularly in the wake of numerous scandals portrayed extensively in the media
(Frulla and Rubin 2007) and the global financial
crisis, businesses have responded by increasing
their legal and compliance departments and
implementing compliance-based ethics programs
(Paine 1994) to ensure they comply with these
regulatory requirements. The results is a new
compliance profession that has developed
over the last 10 years (Parker 2000, p. 339) to
protect companies from damage to reputation and
relationships (Paine 1994) and legal calamity
(Collins 2008, p. 22).
However, compliance has been critiqued as
a facade, with companies giving the appearance
that compliance matters to them, while they are
simply making as little real change as possible
(Parker 2000, p. 342). Yet, with the sudden
change in regulatory environment in the Western
world, which has led to increased scrutiny of
companies from regulators, companies can no
longer keep up this appearance without real
action behind it.
There are two compelling reasons to install a good
compliance program to strengthen the companys
performance of its legal duties and to generate data
to support oversight. (Collins 2008, p. 23)

An effective and simple compliance program

can help address an array of potential compliance issues (Frulla and Rubin 2007). It can also

430

make employees more committed to the company,

as well as driving innovation, in the knowledge
that there is a safety net of an effective compliance
program, which will prevent them, from inadvertently engaging in impermissible conduct (Ford
2008, p. 50). Key aspects of an effective compliance program are outlined below.

Key Issues
Key Characteristics of an Effective
Compliance Program
Governance
Collins (2008) asserts that an effective compliance program requires a top-down approach
beginning at board level, to ensure directors
understand their legal obligations. Only when
directors have compliance on their agenda will
managers follow suit and filter their priorities
down to the staff on the ground, who service
customers, clients, suppliers and partners on
a daily basis. Trevino et al. (1999) concur with
this argument, stating that if executive leaders
value and pay attention to ethics, so do supervisory leaders (1999, p. 142).
The board should be aware of any legal risks in
the countries in which it operates and subsequent
control measures in place to mitigate those risks
(Collins 2008); have knowledge of ongoing monitoring activities, which ensure quality assurance
and the results of those activities (Collins 2008);
and be aware of any compliance violations
(Trevino et al. 1999), which is dependent on an
awareness of compliance and ethics at all
employee levels, not just directors and senior
management, as most daily transactions with
stakeholder are conducted at grass roots level.
This is particularly pertinent for senior managers
and directors as, very often, they are at risk of
criminal liability (Paine 1994). Managers who
fail to provide systems that enable ethical conduct are as much to blame as those who knowingly conduct unethical behavior (Paine 1994).
Training

Employees should not be expected to be naturally

aware of all the various laws and regulations or

Compliance/Legal Compliance

ethical uncertainties relating to the industry and

role within which they work (Trevino et al. 1999).
Therefore, training is required to ensure all
employees become aware of regulatory requirements governing their behavior for them to be
able to take responsibility for conducting their
daily business behavior in an ethical and compliant way. Such training will allow them to become
more likely to ask the right types of questions
before conducting in ethically ambiguous or
noncompliant behavior (Trevino et al. 1999).
This leads to them being more likely to take
personal responsibility and accountability for
their own understanding and application of ethics
and regulation, ultimately allowing them to make
better decisions (Trevino et al. 1999).
It is also more likely that employees will
report noncompliant behavior if they are
aware of the difference between compliant and
noncompliant conduct. A system of reporting
within any organization is a key component
within a compliance and ethics program (Trevino
et al. 1999). Yet, it is also important to recognize
that it is neither necessary nor practical for
employees to be trained as experts on the law
(Frulla and Rubin 2007). Lastly, an effective
compliance and ethics training program should
be conducted internally, preferably by the
companys compliance professionals rather than
external consultants, as this shows employees
that leadership really cares about ethics
(Trevino et al. 1999, p. 147).
Quality Assurance

The ultimate objective of an effective quality

assurance program is to prevent any failings and
violations by, firstly, producing data that provides
a good foundation for effective oversight and,
secondly, providing reasonable assurance of
continuous improvement in quality performance
(Collins 2008, p. 22). Another way to ensure
quality assurance measures are in place is by
compliance professionals reviewing documented
policies and procedures of the business, to ensure
they correctly reflect the activities of the business
and are understandable and accessible to all
employees (Frulla and Rubin 2007). Lack of
oversight of quality assurance by managers may

Compliance/Legal Compliance

result in employees resorting to carelessness or

even misrepresentation in order to boost their
sales figures when they are under pressure to
drive performance (Paine 1994). This was certainly the case before the subprime mortgage
crisis, whereby huge numbers of individual loan
managers were irresponsibly providing huge
mortgage loans to low-income borrowers who,
on paper, were clearly not in a position to ever
pay back the loans.
It is also important not only for quality assurance measures to be in place, but that managers
testing the controls in place are not discouraged
or punished for raising issues about any gaps
identified during the controls texting exercise
(Paine 1994). Lastly, though it can be considered
somewhat extreme, the compliance unit within
a business can decide to conduct an internal
audit if it has concerns about prior conduct or
simply wants assurance that its activities have
been in compliance with applicable law (Frulla
and Rubin 2007, p. 66).
Promotion of an Ethical Culture

Perhaps the most important aspect of the compliance program is the need for the program to instill
in the company an ethical culture or climate as
ethics/compliance management is first and
foremost a cultural phenomenon (Trevino et al.
1999, p. 145).
To achieve desired outcomes, concerns for ethics
and legal compliance must be baked into the
culture of the organization. Therefore, attention
to the ethical culture should come first in any
corporate ethics/compliance effort. (Trevino et al.
1999, p. 145)

Depending on the type of industry the business

is engaged in, companies may choose to focus on
different aspects of regulatory requirements
within their ethical culture. For example,
a company that has close business partnerships
with governments may choose to focus on Gift
Rules, which govern conduct for company
employees providing travel and entertainment,
such as business lunches with a government official (Frulla and Rubin 2007). Other companies in
industries such as the production and sale of
alcohol and tobacco may need to focus on legal

431

and regulatory restrictions around lobbying activities, which require such activity to be vetted
before it is pursued (Frulla and Rubin 2007). An
important aspect in promoting an ethical business
environment is to persuade the business that ethical action is consistent with the goals and longterm success of the business (Parker 2000; Ford
2008). Promoting a compliant and ethical culture
within the organization is dependent on the compliance program instilling in its employees, at all
levels, personal responsibility and accountability
(Frulla and Rubin 2007).
As it has been established that the promotion
of an ethical culture is important for
implementing an effective compliance program,
different approaches for invoking an ethical
culture at the organizational and personal level
within a company shall now be explored.
Approaches to Compliance Programs
Principle Versus Rules-Based Compliance

Two of the most common approaches to compliance have been identified as the compliancebased or rules-based compliance program,
which focuses on the punishment of rule breakers,
and the principles-based or values-based program, which encourages ethical conduct rather than
punishing nonethical conduct with penalties for
wrongdoers (Trevino et al. 1999; Paine 1994).
A study conducted by Trevino et al. (1999),
which surveyed over 10,000 employees at six
large American companies from various industries,
found that the implementation of a formal ethics or
compliance program impacted employees attitudes and behaviors less than promoting an environment which focused on values and ethics. An
environment that enforces strict obedience to
authority damages a company trying to instill
a culture of compliance and ethics (Trevino et al.
1999) and responsibility (Paine 1994) in its
employees the most. Further, the application of
detailed requirements does not encourage firms to
apply ethical judgment, nor does it tackle companies who seek to avoid adherence to regulatory
requirements through loopholes (Ford 2008).
These assertions are corroborated by Fiorelli
(2007) who claims that a rules-based program
does not give employees the tools to handle

432

change, fosters a tick box mindset, and does not

enable employees to understand the rationale
behind the rules. Further, strict programs with
a checklist approach such as these actually
allow employees to play the system by finding
loopholes behind the rules, an aspect that
a principles-based program focusing on the promotion of ethical values would avoid (Fiorelli
2007; Ford 2008). Paine (1994) also asserts that
overemphasis on potential sanctions can be
superfluous and even counterproductive (1994,
p. 111) as employees may rebel against such
programs that stress discipline and punishment.
She concludes that an integrity strategy is
broader, deeper, and more demanding than
a legal compliance initiative (1994, p. 111).
A compliance approach to ethics also overemphasizes the threat of detection and punishment in
order to channel behavior in lawful directions.
The underlying model for this approach is deterrence theory, which envisions people as rational
maximisers of self-interest, responsive to the personal costs and benefits of their choices, yet indifferent to the moral legitimacy of those choices.
(Paine 1994, p. 110)

On the contrary, a compliance program that

rewards ethical conduct is important for
employees commitment and leads to higher likelihood employees will report ethical violations
(Trevino et al. 1999, p. 143). A values or principles-based program, then, forces agency on
firms, making them active participants in defining
the compliance processes that will best address
their particular business risks and situation
(Ford 2008, p. 60). Such a program can result in
increased ethical responsibility and compliance
(Ford 2008) and more positive relationships with
employees, whose awareness of ethics and compliance becomes higher, as they are more likely to
report violations to management (Trevino et al.
1999).
a values-based approach should produce better
outcomes than an approach that is oriented toward
legal compliance, despite the fact that most companies emphasize a legal compliance approach.
(Trevino et al. 1999)

Paine (1994) also asserts that a culture of

ethics and compliance throughout the whole
company will define an organisations operating

Compliance/Legal Compliance

culture (1994, p. 106) and stresses that it is rare

that the actions of a lone individual will influence
the companys decision making. Paine agrees
that a principles-/values-based approach is the
most effective approach to a compliance and
ethics program, as simply providing employees
with a rule book will do little to address the
problems underlying unlawful conduct (1994,
p. 106). Further, a rules-based program does not
encourage employees to think for themselves nor
promote commitment to morally and ethical
exemplary behavior (Paine 1994). Trevino et al.
conclude that it is important to design an ethics
program that is founded on shared organizational
values and encouraging employees to act on their
ethical aspirations (Trevino et al. 1999).
Such programs motivate employees to be aware of
ethical or legal issues, report bad news to management, report ethical or legal violations, and refrain
from engaging in unethical or illegal conduct.
(Trevino et al. 1999, p. 139)

Autonomy Versus Interdependence

Compliance practitioners identify explicitly with
business and, at the same time, identify with
a broader ethical community of other compliance
professionals, regulators and stakeholders in
order to play a transformative role within the
organization. This conception recognizes the
interdependence between compliance advisor and
corporate client. (Parker 2000, p. 339)

The traditional ethical position of corporate

counsel has been either complete moral independence from their clients compliance or obligation to morally connect to their clients
(Parker 2000). However, these two positions are
inadequate (Parker 2000) as each assumes
a conception of professional autonomy that is
either unattainable or unrealistic (Parker 2000,
p. 340). A compliance professional can be autonomous in two ways: either they become adversarial advocate who zealously advances clients
ends (2000, p. 342) or they become
an influential independent counselor (2000,
p. 342) who encourages the company to become
socially responsible. Either way, the compliance
professional is autonomous and independent
from responsibility (Parker 2000).

Compliance/Legal Compliance

In reality, however, compliance professionals

see themselves as corporate citizens whose
values are embedded within the culture and politics of the corporation, while they are tasked with
ensuring the company is legally and ethical compliant (Parker 2000). This position is neither
autonomous nor independent from the company.
Further, due to the increasing enforcement powers
of regulators in the UK, certain compliance professionals in the UK, such as the Data Protection
Officer, must be registered and approved by the
FSA and can be criminally convicted if their company fails to be compliant. Therefore, these professionals can never be autonomous from
a companys legal and ethical compliance.
A compliance professionals role, then, is to
push legal and ethical values so far down into
organizational everyday life (Parker 2000,
p. 346) by maintaining a set of interconnected and
loyal relationships with regulators and organizations (Parker 2000). For this reason, the compliance
professional cannot be seen to be autonomous or
detached from the business (Parker 2000).

433

However, the regulatory environment in which

businesses operate today is quickly moving away
from a deregulatory and self-regulatory approaches,
and as such, businesses can no longer afford to take
the risk that any employee is engaging in unethical
behavior due to increased scrutiny from governments and regulators (Frulla and Rubin 2007).
Therefore, a compliance or rules-based compliance
program, whereby the legal and compliance professionals are taking more control for policing their
businesses, may be more appropriate in a heavily
regulated regulatory environment.
Further, Trevino et al.s study showed that
a rules-based program could also result in positive relationships with employees (Trevino et al.
1999). They also assert that a rules-based program can exist in conjunction with a valuesbased approach. Therefore, the best program for
a compliance and ethics organization to adopt in
the current regulatory environment is one which
includes both rules-based and principles-based
elements (Ford 2008), embedded within
a values-based approach, while also being
backed up with accountability systems and
discipline for violators (Trevino et al. 1999).

Future Directions
Trevino et al. 1999 assert that governments
should influence the future direction of compliance and ethics programs by encouraging companies to cease focusing narrowly on superficial
program characteristics (1999, p. 148) of a rulesbased approach and instead encourage focus on
the broader ethical culture of the firm (1990,
p. 148). The approach to values- or principlesbased compliance and ethics programs may be
suitable for a regulatory environment of deregulation, light-touch regulation, or self-regulation,
which was the case when Trevino et al. and Paine
were writing. In this regulatory environment
before the global financial crisis, as long as companies showed they had the right intentions with
their compliance and ethics program, they could
avoid legal punishment for regulatory breaches
(Collins 2008). Therefore, it could be taken on
good faith that employees who have personal
commitment and appropriate decision processes
will lead to right action (Paine 1994, p. 112).

Cross-References
Agency and Corporate Governance
Board of Directors
Corporate Citizenship
Corporate Governance
Corporate Mission, Vision and Values
Corporate Reputation
Culture and Organization Performance
Data Protection
Government (Role in Regulation, etc.)
Reputation/Reputation Management
Tobacco

References and Readings

Collins, D. A. (2008). Diligent oversight of legal
compliance: A four-step guide. The Corporate
Governance Advisor (September/October).
Crane, A., & Matten, D. (2007). Business ethics (2nd ed.).
Oxford: Oxford University Press.

434

Fiorelli, P. (2007). Beyond compliance? Journal of Health

Care Compliance, July, 2124, 6971.
Ford, C. (2008). New governance, compliance, and
principles-based securities regulation. American
Business Law Journal, 45(1), 160.
Freeman, R. E. (1984). Strategic management:
A stakeholder approach. London: Pitman Publishing.
Frulla, D. E., & Rubin, C. A. (2007). Financial institution
compliance with government ethics laws. Community
Banker, March.
Paine, L. S. (1994). Managing for organizational integrity.
Harvard Business Review, 72(2), 106117.
Parker, C. (2000). The ethics of advising regulatory
compliance: Autonomy or interdependence? Journal
of Business Ethics, 28(4), 339351.
Trevino, L., Weaver, G., Gibson, D., & Toffler, B. L.
(1999). Managing ethics and legal compliance.
California Management Review, 41(2), 131.

Comply or Explain

American system in the UK, Australia, and

Canada. The Australian, UK, and Canadian
systems are referred to as principles-based,
whereas the USA governance system is referred
to as rules-based. In this vein, a rules-based system requires companies to comply, whereas
a principles-based system allows companies to
either comply or explain why they have not. In
this way, there is more flexibility in
the principles-based system compared to
the rules-based system. The Australian
Stock Exchange (ASX) (2007) guidelines
explain: Disclosure of a companys corporate
governance practice, rather than conformity
with a particular model is central to the ASX
Corporate Governance Councils approach.

Comply or Explain
Key Issues
Suzanne Young
La Trobe Business School,
La Trobe University, Melbourne, VIC, Australia

Synonyms
Governance principles; If not why not; Voluntary

Definition
The comply-or-explain governance approach
is a system where governance principles are
codified and companies listing on respective
stock exchanges are expected to comply with
them and if not provide full explanations about
why not. Principles are general guidelines of
best practice, rather than exact provisions that
must be adhered to. It is also referred to the
principles-based approach or if not why not
approach.

Introduction
The comply-or-explain approach is used by
listed companies that operate within the Anglo

Ongoing debate about which system is better is

evident and increasingly seen with the advent of
the GFC. Clarke (2007) criticizes the rules-based
system in arguing that rules can set a lower base
level as they require all members to act according to
minimum standards of practice, which to gain
broad acceptance however become minimum
acceptable practice. In setting minimum standards
of practice he claims, it simply leads to the creation
of new and imaginative ways to get around the
rules, whereas a principles-based system, in not
setting standards, encourages improvement over
time in order to meet the expectations of the stakeholder community at large.
The right mix of rules and principles is still up
for debate along with whether principles could be
broadened to include more direction on behaviors, culture, leadership, values, and ethics.
In Australia in 2002 (revised 2007) to enhance
and strengthen the principles around governance,
the Australian Securities Exchange (ASX)
introduced guidelines notwithstanding that
these are not mandatory, listed companies must
disclose the extent they are followed. These
include:
Statements of matters reserved to the board
and delegated to senior management

Comply or Explain

Disclosure of directors performance

evaluation
Independence of directors and chair
Separation of CEO/chair
Nomination committee to be comprised of
three directors with majority independent
Establishment of code of conduct and
disclosure of practices (including trading in
company securities)
Establishment of audit committee (mandatory
for top 300 listed companies)
Audit committee be comprised of only
nonexecutive directors, with the majority
independent, an independent chair and be at
least three persons (mandatory for top 300
listed companies)
Safeguarding of integrity of financial
reporting
Making balanced and timely disclosure of all
material matters effecting company
Disclosure of communications strategy with
shareholders, encouraging participation at
general meetings, and use of electronic
communication
Establishment of policies on risk oversight
and management
Remuneration to be sufficient and reasonable
and disclosure of structure
Remuneration committee be established
The UK Combined Code (2008) similarly prescribes best practice governance in structural
areas such as:
CEO/chair separation
Balance
of
independent
executive
directors (with 50% independent and
nonexecutive)
Director appointment
Board committee structures
Delegation procedures
Board information provision and induction
Board evaluation procedures
Director reelection and board refreshing
Director remuneration including linking
performance to rewards and remuneration
policy
Responsibility for financial information and
internal control systems
Relationship with auditors

435

Structures for shareholder dialogue such as

investor relations departments, meetings
between independent directors and major
shareholders, and the AGM
Institutional investors to use a considered
approach to voting, attendance at AGMs,
and making available voting choices to clients
The Financial Services Authority Listing
Rules (UK) obliges companies listed on the UK
stock exchange to comply with the Combined
Code, or explain why it is not complied with. In
explaining the approach, the preamble of the
Code states:
The Code is not a rigid set of rules. Rather, it is
a guide to the components of good board practice
distilled from consultation and widespread experience over many years. While it is expected that
companies will comply wholly or substantially
with its provisions, it is recognized that
noncompliance may be justified in particular circumstances if good governance can be achieved by
other means. A condition of noncompliance is that
the reasons for it should be explained to shareholders, who may wish to discuss the position
with the company and whose voting intentions
may be influenced as a result. This comply or
explain approach has been in operation since the
Codes beginnings in 1992 and the flexibility it
offers is valued by company boards and by investors in pursuing better corporate governance.

Flexibility is apparent in the principles-based

system with companies able to adapt their governance system to suit their own situations. Hence,
this points to the evolving nature of governance
and need for customization by the firms. It is
important that firms understand their environment,
both internal and external, and map the implications of environmental change on their governance
frameworks. As emphasized clearly in the ASX
corporate governance principles and recommendations (2007, p. 3), corporate governance practices evolve in the light of the changing
circumstances of a company and must be tailored
to meet those circumstances. It goes on to state:
Effective if not, why not reporting practices
involve:
Identifying the Recommendations the company
has not followed;
Explaining why the company has not followed
the relevant Recommendation;

436
Explaining how its practices accord with the
spirit of the relevant Principle, that the company
understands the relevant issues and has considered the impact of its alternative approach.

The comply-or-explain approach is a voluntary

approach which Solomon (2007) in talking about
the UK principles-based approach links improved
practices. She argues that there is a persisting
belief that genuine changes in corporate ethicality
and attitude can only be achieved through
a voluntary framework, which allows individuals
to think about issues at hand.
But we often find that companies tend to use
boilerplate explanations in explaining why they
differ from the principles. With the advent of the
GFC, we have seen calls for better disclosure in
explaining variations to the application of the
principles of governance codes, in explaining
risks, and in how decisions are made, to assist in
increasing trust and shareholder dialogue and
knowledge. As the Combined Code states in its
preamble:
Whilst shareholders have every right to challenge
companies explanations if they are unconvincing,
they should not be evaluated in a mechanistic way
and departures from the Code should not be automatically treated as breaches. Institutional shareholders should be careful to respond to the
statements from companies in a manner that supports the comply or explain principle and bearing
in mind the purpose of good corporate governance.
They should put their views to the company and be
prepared to enter a dialogue if they do not accept
the companys position. Institutional shareholders
should be prepared to put such views in writing
where appropriate.
Companies and shareholders have a shared
responsibility for ensuring that comply or explain
remains an effective alternative to a rules-based
system. Satisfactory engagement between company boards and investors is therefore crucial to
the health of the UKs corporate governance
regime. Although engagement has been improving
slowly but steadily for many years, practical obstacles necessitate a constant effort to keep the
improvement going.

Future Directions
Because of conflicting opinions and ongoing debate
about the benefits of both systems, and with the

Compulsory CSR Regulatory Framework

2008 financial turmoil seeming to originate in

the USA under the regulatory approach, questions
continue to arise as to whether more regulation is
the answer.
In moving the debate beyond the principles
versus rules approach, governance advisors and
regulators need to look at how firms can be provided with more guidance in operationalizing the
key principles that underline governance effectiveness, such as disclosure, remuneration,
independence, stakeholder involvement, and
transparency.

References and Readings

Australian Stock Exchange (ASX). (2007). Corporate governance principles and recommendations (2nd ed.).
Australia: ASX Corporate Governance Council.
Cadbury, A. (1992). The financial aspects of corporate governance: The code of best practice. London: Gee
Publishing.
Clarke, T. (2007). International corporate governance:
A comparative approach. Oxon: Routledge.
DiMaggio, P. J., & Powell, W. W. (1983). The iron cage
revisited: Institutional isomorphism and collective
rationality in organizational fields. American Sociology Review, 48, 147160.
Fama, E., & Jensen, M. (1983). Separation of ownership and
control. Journal of Law and Economics, 26, 301325.
Greenbury, R. (1995). Directors remuneration: Report of
a study group chaired by Sir Richard Greenbury.
London: Gee Publishing.
Hampel, R. (1998). Committee on corporate governance final report. London: Gee Publishing.
Robins, F. (2006). Corporate governance after SarbanesOxley: An Australian perspective. Corporate Governance, 6(1), 3448.
Solomon, J. (2007). Corporate governance and accountability (2nd ed.). England: Wiley.
Sundaramurthy, C., & Lewis, M. (2003). Controls and
collaboration: Paradoxes of Governance. Academy of
Management Review, 28(3), 397415.
Young, S. (Ed.). (2009). Contemporary issues in international corporate governance. Melbourne: Tilde University Press.

Compulsory CSR Regulatory

Framework
Mandatory CSR

Confucian Ethics

437

Definition

Concealment
Right to Privacy

Confidence
Trust

Confidentiality
Right to Privacy

Confucian Business Ethics

Confucian Ethics

Confucian Ethical Philosophy

Confucian Ethics

Confucian Ethics
Kim Cheng Patrick Low
Universiti Brunei Darussalam, Gadong, Brunei
Darussalam
University of South Australia, Adelaide,
Australia

Synonyms
Confucian business ethics; Confucian ethical philosophy; Confucian foundations on ethics; Confucian morality in business; Doing business, the
Confucian way; Foundations of CSR in Confucianism; Morality in the Confucian context; Principles of Confucian ethics; Practices and
applications of

Ethics is a set of moral rules and guidelines for an

individual to deal with fellow people and the
given setting/environment. And Confucian
ethics belongs to one of the moral philosophies
in guiding the people on how one should strive
for perfect virtues in ones living, and using
these virtues that one has acquired, one would
be able to behave in an orderly manner and participate positively in a group relationship such as
in a family, in an organization, in a community,
and in a country.
Similar to Ciceros the function of wisdom
is to discriminate between good and evil, in
applying Confucian ethics, one gains the wisdom
of knowing what is right and what is wrong.
The aim and purpose of Confucian ethics are
to encourage people to carry out a proper life and
livelihood and have good relationships with the
people around oneself so that when more people
would attain similar good virtues; and if this is so,
there would be fewer frictions in relationships
and this thus create positive energies in group
dynamics and teams. All would then be working
toward a peaceful and harmonious society, and
since everybody behaves in a socially responsible
way by adopting Confucian ethics, the people in
business, when relating with their stakeholders
(community and society) would be able to
prosper in doing their businesses and furthermore, there would be fewer problems in business
dealings and transactions in the wider society and
country.
One key concept in Confucian ethics is
that of jen which means human heartedness, benevolence, a dignity for human life as well as a sense of
respect for fellow human beings and oneself. And
therefore to be ethical, one is to act according to
jen. Jen is dearer than life itself, and in fact, it is the
virtue of all virtues. A believer in Confucian ethics
would also give away or sacrifice his or her life to
defend jen, and equally, it is what makes life worth
living, or being a worthy person. And a worthy
person is a benevolent person.
Another key concept in Confucian ethics is the
ethics of reciprocity. Confucius was once asked
by his student, Zi Gong, Is there a word that one

438

can use as a life guidance to follow and practice

in ones daily doings? Confucius replied,
Yes, the word is shu (forbearance), what one
would not desire oneself, do not impose on
others (Analects of Confucius, Chapter 15
verse 24). This ethics of reciprocity (shu) is better
known as the Golden Rule do unto others what
you want others to do unto you. The Reverse
Golden Rule is that of do not do unto others what
you do not want others to do unto you.
The ethics of reciprocity further expresses that
one has the right to just and fair treatment and the
responsibility to ensure justice for others. And
a person attempting to live by this rule treats
all people with consideration. Therefore, in
an organization or nation where everybody is
considerate, treating each other and the environment well, there would be less conflict in all
dealings.
Yet another important concept in Confucian
ethics is filial piety which describes the duties,
feelings, or relationships that exist between a son
or daughter and his or her parents. (Here, perhaps
one can also extend filial piety to include the
employer-employee relations.) Confucius said,
One should remember ones parents birthdays
for on the one hand, one is happy to congratulate
and celebrate with them for their longevity and on
the other hand, one is to worry about their getting
older by a year (Analects of Confucius,
Chapter IV verse 21,,
,). Therefore, a son is said to
be filial if he makes his parent happy at all times;
he cherishes them. It is of human nature that ones
parents would feel that they have not been forgotten and that they are still being loved by their
families. In a society where more children are
filial, and respect their parents and the elders,
the elderlies and the seniors would be less lonely.
Besides, there would be fewer homeless old
people living in the streets since the aged will
naturally be taken care of by their own children,
families, and relatives. As more and more
children become filial, they become socially
more responsible, and consequently, the country
would be alleviated from the burden, if
not, responsibility of taking care of its aged
population (Low and Ang 2012a, b).

Confucian Ethics

Introduction
Chinese, Japanese, Korean, even Singaporean
(Low 2006) and Vietnamese cultures are strongly
influenced by Confucius, and also elsewhere in
the Western world (Yang 1993 cited by Low
2008a). Confucian ethics has deeply embedded
in the culture of these countries over the
centuries, and it has an impact on the people
and their livelihood.
Who Was Confucius?
Confucius is the Western term or the Latinized
name made popular by Matteo Ricci, the Italian
Jesuit priest who first introduced Confucianism
to Europe in the sixteenth century. Confucius
(Kong fu tzu traditional Chinese or kungfuzi
Hanyu Pinyin) or Master Kung (551479 BCE)
was a thinker, political figure, educator, and
founder of Ru school of Chinese Thoughts
(). He was honored as Exemplary
Teacher of All Ages () and Sage of
the Orient () by the later generations
(Low and Associates 1995).
According to Confucius, one can develop
and improve oneself through self-discipline,
self-cultivation, and self-growth and hence, in
his teachings, he introduced the principle of
great learning () with the presumption that
each of us is motivated to seek for natural virtues
given by heaven. He explained that one of the
key sources of human motivation is perfect virtue
() and this virtue has to be made very clear so
that the will of a person can be set to attain it.
Only when a persons will is firmly set that (s)he
will be calm and in tranquility (focus) in pursuing
for his or her goals. This state of mind would help
him or her in deliberating and judging all matters.
When (s)he can judge all matters, (s)he will
achieve his or her goal that is the desired state
of perfect virtue. Striving for these virtues would
enable a society or an organization to be more
socially responsible.
Learning, Self-cultivation, and Confucian
Ethics
By adopting Confucius ethics, one first has to
self-cultivate oneself before one can participate,

Confucian Ethics

contribute, and help in a group such as the family,

the organization, the society, and the country.
With regard to self-cultivation, one has to go
through a constant process of learning to acquire
knowledge in depth and in breadth and when
in carrying out a task, one should be clear in
thinking and sincere in intention to work on
a task or a job. To complete a task effectively,
one should work diligently with much concentration (one-mindedness). This process can be
useful in business for the fact that the employees
would be performing in a positive and most
responsible manner. By practicing Confucian
ethics, one would be encouraged to learn,
cultivate, and discipline oneself in all stages
of life.
Confucius also stressed the importance of continuous learning and he once said to his disciple
that, To love cleverness without loving learning
may lead to misconduct (,)
(Analects of Confucius, Chapter 17, p. 8). To be
socially responsible in ones doing, one has to
improve oneself with the best knowledge and technology to prevent one from irresponsibly applying
any outdated knowledge and technology which
may have an adverse effect to the society at
a later date. With self-cultivation, one would be
able to regulate ones family in a proper way. It is
said that unless there is a cultivation of self,
a person will not be able to regulate his family
nor bring them into a state of ordered harmony
(Low 2009). In order to govern a state well, it is
necessary for an individual to have the capability
first to regulate his or her family. In other words,
it is not possible for him or her to discipline others
when (s)he is not able to discipline his or her own
family. Therefore, a leader does not need to complete his learning on managing a state without his
or her knowing in regulating his or her own
family. The good government of the states will
help in stabilizing the world, and hence providing
a peaceful and harmonious environment for people to live in. Confucius propounded some good
virtues for self-cultivation, such as filial piety,
respect the elders, fraternal brotherhood, loyalty,
trust, rites, integrity, benevolence and compassion to the lonely and weak, for achieving the
objective. He also proposed the principle of

439

reciprocity (or the way of the measuring square)

in which one can use oneself as the measuring
square of how one should treat others, hence
regulating ones behavior constantly.
For example, if an individual expects or wants
ones superior to treat one in a respectable and
kind manner, one should also display the same
respectable and kind treatment to those below
oneself; this applies and extends as well to ones
friends and neighbors. This principle is very
much enabling a person to be socially responsible
in whatever one is doing. Hence by adopting
Confucian ethics, one would be socially responsible to the society at large.
Confucian Ethics and the Stakeholder Theory
Low (2008b) has argued that in Confucian ethics,
the overall anchor is the Golden Rule as Confucius empathetically stressed. That Golden Rule is
not to do unto others what one does not want
others to do unto oneself. It is also called shu or
reciprocity as a principle of the conduct for life
(Lin 1994). Incorporating the Golden Rule,
the stakeholder theory becomes relevant. One
moves away from oneself and becomes less
self-centered, and in fact, more altruistic. All
businesses should recognize their responsibilities
to their stakeholders and make decisions that
reflect these responsibilities (Low and Ang
2011). Here, the business can then engage the
stakeholders moving from inactive to reactive to
proactive to interactive. The basic point is that
one can argue that business cannot avoid but has
to enter into dialogue, do something, and engage
with its stakeholders market or non-market in
an ongoing relationship.
It is axiomatic that the firm should be
responsible to all its stakeholders. The
stakeholder theory is very attractive in
that the stakeholders can also be expanded to
any party(ies) and all an individual or business
(the (Confucian) measure of man is man; Lin
1994, p. 183, italics/emphasis added) needs to do
is to think of the party(ies) and be responsible to
act or satisfy the needs and interests of the party
(ies) involved. Besides, the normative value of
the stakeholder theory should be appreciated;
stakeholders are seen as possessing value

440

regardless of their instrumental use to management. The normative view is often perceived as
the moral or ethical view because it stresses on
how stakeholders should be treated; hence, the
importance of the principle of stakeholder
fairness.
It appears that many often overlooked that the
essence of Confucianism is the idea of being
true to oneself in this world (interestingly,
there is an intrinsic or inside-out approach)
when fulfilling obligations to family and others
in society (Wang 2004, p. 51). That is the key
strength of the Confucian ethics when applied to
the stakeholder theory/others in society. Whatever, even very little that each of us, individuals
and businesses can do for our respective universe
that would be great. After all, it would contribute
to the overall goodness, similar to the late Indian
nationalist leader, Mohandas Gandhis Be the
change you want to see in the world. And what
is critical, individuals do make a difference in
ethical actions.
As Mencius said, men are inherently good
(Lin 1994). Individuals have ethical attributes
that can be cultivated and extends outward. Currently, there is an urgent need for ethical renewal
by applying an inside-out approach. Mother
Earth is sick; there should be ethical concerns,
not to say, the many environmental concerns, by
all. China and India are growing but the vast
majority of Asias poor are rural, millions
more are barely getting by (surviving)
(Wehrffritz 2008; italics mine, cited in Low
2008b), there are problems of income gaps and
other issues. Technologies are also changing and
with it, various ethical issues such as, just to name
a few, Internet pornography and e-scams, are
emerging.
In the stakeholder theory, to its stockholders/
investors, the firm and/or its managers should
monitor employee decisions to ensure that they
are made in the best interests of the owners and
stockholders. Employee compensation may be
directly tied to the firms performance. The
firms financial reporting should also be accurate;
it should give complete financial statements,
those that are more understandable and more
readily interpreted. Firms need to fulfill their

Confucian Ethics

responsibility to their creditors by providing

good financial reporting. As in the case of Enron
by hiding some debt, Enron was able to more
easily borrow funds and ultimately, it went bankrupt because it could not cover the payments on
all of its debt. Specifically Enron did not disclose
some of its debt, and indeed, its creditors would
have been concerned about extending more credit
if they had fully understood how much debt
Enron already had.
To its customers, the company should adopt
responsible production practices and dutiful sales
practices. Customers should receive fair
exchange: value and quality for money spent. In
this regard, the firm, in establishing a code of
responsibilities, can monitor customer complaints and make full use of customer feedback
to better serve the customer.
Sweatshops characterized by child and women
labor; worker exploitation; labor abuses; low pay;
and improper, unsafe working conditions as well
as health and safety violations have existed for
decades, and indeed these (such practices are
treating people below their human dignity and
respect) should be stopped, if not marginalized.
Applying Confucian ethics and the stakeholder
theory, the business should instead take care of its
employees by providing stable employment, fair
pay, safe and decent working conditions as well
as ensuring employees are treated properly by
other employees. Here, not only satisfying
employees, but the key issues in modern businesses also include diversity, equal opportunity,
the prevention of sexual harassment, and promoting creativity as well as overall employee wellbeing.
The company needs to ensure its responsibility to the community. It should be socially
responsible, avoiding corruption as well as
accepting and giving bribes. It needs to also
take care of and protect the environment. Firms
need to prevent air, water, and land pollution.
Automobile and steel firms have reduced air pollution by changing their production processes so
that less carbon dioxide escapes into the air. It is
said that China, for example, has admitted that it
has failed badly; the country has not made much
headway in improving the environment, says its

Confucian Ethics

Government Report. In this aspect, present-day

China needs to apply the Confucian Ethics in
conjunction with the stakeholder theory particularly in terms of the firms responsibility to the
environment to make Mother Earth a healthier
and a more pleasant place for all to live.
The Chinese need to realize that in traditional
Chinese/Confucian mind, men exist in harmony
with nature (One with Nature), and unlike in
the Western mind, traditionally, nature is to be
conquered; there is a dominance orientation. In
this light, the Chinese have to do something, if
not more, for the environment and Mother Earth.
The support for the Confucian ethics in its
relationship with the stakeholder theory can also
be strengthened by the Confucian argument of
the Rectification of Names. Here, a father
acts as a father, a mother acts as a mother, a son
acts as a son, and so on. Each has a role to play,
each is also involved in doing (a) focused goal(s)
and role, and when these roles are fulfilled (social
responsibility will also be duly fulfilled) and
played well, better human relationships ensue,
and peace and harmony exist. In other words,
the Rectification of Names in the Confucian
doctrine certainly means to know ones roles in
the web of relationships that create community,
and to behave accordingly would ensure and
promote social harmony.
Trust (xin) and Doing Business
When applying Confucian ethics to doing
business, for Confucians, the company or
a person should not be resting on ones laurels.
For the Confucian adherents, trust (xin) is very
important when doing business. As a Confucian,
the late Konosuke Matsushita, the founder of
Matsushita Electric Company, now Panasonic,
believed in building customers trust. Customers
trust, with quality companys delivery of goods
and services, can ensure the growth, if not the
survival of the company in terms of its customers,
markets, and overall business.
Merchants normally work hard to create
a respected name for their shops or companies;
they seek to sell goods whose quality lived up to
that name. Confucian in his ways, for Konosuke
Matsushita, no matter how old and esteemed its

441

name may be, a business today would receive no

quarter if it shows incompetence or inadequacy in
its performance (i.e., fulfilling the needs of
its customers and stakeholders), and it would
eventually go under. Matsushita (1994)
highlighted that the company or one should not
be resting on ones laurels after all, the
companys reputation is developed after constant
and steady efforts exerted over many years of
treating each customer as an important patron.
The company should, while keeping abreast of
times, continue (continuous improvement) to do
good for the society and the setting/environment
in which it operates.
Built-In Strengths of Confucianism
(Confucian ethics) and CSR
Confucianism is based on humanistic principles.
And being benevolent (jen), businesses/business
owners and individuals can become increasingly
conscious, make happen and practice more
humanistic policies which are equally important
as that of making profits and seeking monetary
gains. Businesses can not only provide employment to people but also do more good, alleviate
poverty, contribute to charities, extend help, and
shape the communities and societies and improve
the surrounding environment in which they are
cooperating.
Filial piety or respect for parents and clan
elders has been a cornerstone of Chinese culture
for thousands of years, part of a defining social
contract in which parents care for their children
while they were young and the children
then supported their parents in their old age
(Low and Ang 2012c).
Prudence and thriftiness are some core values
embedded in Confucianism, and these help as
guideposts not to overuse or overexploit and in
fact, to save and conserve nature and resources;
there is a need to smartly reduce, reuse,
and recycle resources. As Confucius said,
Extravagance will lead to thing/situation going
too extreme and out of control, thriftiness will
lead to pettiness, I rather be petty than be in
a position where I am not in control (Analects
of Confucius 7, p. 35). Hence in Confucian ethics,
thriftiness is very much encouraged and to be

442

practiced by everybody. When generally there is

thriftiness and dislike of wastefulness, business
people would create products that are economic
in production and of quality and reliable in use.
This would also lead to a more careful economy
with robust finances and consequently profitable
businesses and nations. A high level of savings and
reduced borrowing leads to more financially stable
organizations and nations (Ang and Low 2012).

Key Issues
The key issue here is how to effectively, hence
successfully, pass on or transmit the Confucian
ethics and values so that these become common
practices, each individual/business person would
be socially responsible in their business transactions and to their business associates/partners/suppliers and customers and to the society at large.
In this modern society, it is very difficult for
people to adopt Confucian ethics because so
many things have changed over a period of
2,000 years. For example, filial piety and respecting the elders are now a very difficult thing to
practice even in Asia for reasons that most parents are working, and that most often they are
both not at home with the children due to work.
The time the parents spend with the younger
children are not enough to create strong bond
among family members. The children are mostly
looked after by maids, child care centers and nurseries, in-laws/family members or relatives. This
means that parental guidance and direct coaching
are becoming lesser and have been replaced by
some other people available at the time.
China is promoting piety on the airwaves such
as televised ads that show the crestfallen face of
an elderly woman waiting to have dinner with her
grown children as each one of them calls to say
they are just busy. If carrots and model citizen
campaigns do not work, then there is always the
bamboo rod. Adults who do not support their
parents face the prospect of several years in jail
under Chinese law, although courts prefer
a mediated solution when possible. For example,
a woman was sentenced to 8 months in prison in
2000 for refusing to support her mother-in-law,

Confucian Ethics

who later committed suicide. In 2003, a man, who

refused to support his parents, struck them during
a fight and he landed in jail for a year.
In modern Singapore, the Maintenance of
Parents Act which has been around since 1996,
allows parents to go to the Family Court and sue
their children for financial maintenance. How
best to use this act to get children who dump
their elderly parents in hospitals or nursing
homes to do their filial duty and help pay for
their parents care? The law is a very blunt instrument. Can the law really be used to enforce filial
piety? Can the law alone be used to address the
underlying problems that cause some children to
abandon their parents to begin with? The children
may argue that housing prices has risen as high as
ever, and medical costs too as well as the general
living costs are going up all the time, is it any
wonder that some children end up dumping their
parents in nursing homes and hospitals? Instead
of trying to find ways to tackle the root of the
problem, can the Government use other way
resolve this filial piety issue?
Another related issue is how to make Confucian ethics appealing and attractive to the younger generations so that these values and practices
seen as refreshing and relevant, and not seen as
archaic or irrelevant can be applied, and businesses be more socially responsible. Perhaps,
educating the younger generation in Confucian
ethics can also be done, say, through the Chinese
clan associations (as in the case of Taiwan and
Singapore) with support and/or even funds from
the Government. Businesses can also sponsor and
run training courses in Confucian ethics and corporate social responsibility to promote such concepts, applications, and practices.

Future Directions
Current literature and books in Confucian ethics
are not many, if not rare, not completed, and very
much fragmented in many ways. More literature
and books should be written about Confucian
ethics in such a way that the benefits of applying
these ethics can be better understood and
realized.

Conscious Consumption

However, expansion in the study linking Confucian ethics and the stakeholder theory is a good
start. Besides, the Rectification of Names can also
be extended to discuss CSR roles and responsibilities of the various stakeholders. There should,
nonetheless, be more research on how Confucian
businesses operating in China, Japan, Korean,
Singapore, Vietnam, and other Confucian countries, can practice Confucian Ethics and CSR.
Understanding the foundational concepts that
construct Confucian ethics and CSR is vital for
businesses. In time to come, more and more people would get to know more about Confucianism
and Confucian ethics and with this, more and
greater understanding of Confucian ethics and
CSR can be achieved. Then, more convincing
CSR practices in accordance to Confucian ethics
and practices can be applied.

Cross-References
Ageism
Filial Piety and CSR
Gender Equality
Stakeholder
Stakeholder Theory
Trust and CSR

443

Low, K. C. P. (2009). The way of Dragon Some strategic

leadership ways. Leadership and Organisational Management, 2009(2), 4059.
Low, K. C. P., & Ang, S. L. (2011). Confucian ethics and
the stakeholder theory in business. i-managers Journal on Management, 5(4), 820.
Low, K. C. P., & Ang, S. L. (2012a). Filial piety and
corporate social responsibility. In S. O. Idowu (Ed.),
Encyclopaedia of corporate social responsibility. Heidelberg/New York: Springer.
Low, K. C. P., & Ang, S. L. (2012b). Ageism. In S. O.
Idowu (Ed.), Encyclopaedia of corporate social
responsibility. Heidelberg/New York: Springer.
Low, K. C. P., & Ang, S. L. (2012). Filial piety and good
leadership e-leader. In Chinese American Scholars
Association: CASA conference, 46 June 2012 Berlin.
Low, C. C., & Associates (Edited and Trans.: 1995).
Confucius-sage of orient. Singapore: Canfonian.
Matsushita, K. (1994). Not for bread alone. New York:
Berkley Books.
Tsai, C. C., & NG, E. T. (1992). Da Xue, the great
learning. Singapore: Market Point Design.
Wang, G. (2004). Confucianism. In F.-J. Richter & P. C. M.
Mar (Eds.), Asias new crisis: Renewal through total
ethical management (pp. 5162). Singapore: Wiley.
Yutang, L. (Ed.). (1994). The wisdom of Confucius.
New York: The Modern Library.
Yutang, L. (Ed.). (1994). The wisdom of Confucius. New
York: The Modern Library.

Confucian Foundations on Ethics

Confucian Ethics

References and Readings

Ang, S. L., & Low, K. C. P. (2012). The Chinese and their
motivation-The Brunei case study. Journal of
Research in International Business Management,
2(2), 039050. ISSN: 2251-0028. Available online
@http://www.interesjournals.org/JRIBM Copyright
#2012 International Research Journals.
Chai, S. C., Lai, P., & Sia, Y. H. (1994). Analects of
Confucius. Beijng: Sinolingua.
Lin, Y. (Ed.). (1994). The wisdom of Confucius. New
York: The Modern Library.
Low, K. C. P. (2006). Father leadership The Singapore
case study. Management Decision, 44(2), 89104.
Low, K. C. P. (2008a). Value-based leadership: Leading,
the Confucian way. Leadership & Organisational
Management Journal, 2008(3), 3241.
Low, K. C. P. (2008b). Confucian ethics and social
responsibility The golden rule and responsibility to
the stakeholders. Ethics & Critical Thinking Journal,
2008(4), 4654.

Confucian Morality in Business

Confucian Ethics

Connected Reporting
Integrated Reporting

Conscious Consumption
Responsible Consumption

444

Consensus

Consensus

Consumer Movement

Social Dialogue

Consumerism

Conservation
Greenpeace (NGO)

Consumer Organizations
Consumers Protection

Consumer Product Safety

Conservationist

Consumers Protection

Greenpeace (NGO)

Consumer Protection
Consolidation

Consumers Protection

Mergers and Acquisitions

Consumer Protection Laws

Constitution

Consumers Protection

Mission Statements (Credo, Way, Vision)

Consumer Rights
Constitutional Dialogues

Consumers Protection

Partnership

Consumer-Driven Corporate
Responsibility
Consumer Activism
Consumers Protection

Jane Claydon
School of Law, Politics and Sociology,
University of Sussex, Brighton, East Sussex, UK

Synonyms

Consumer Advocacy Groups

Consumers Protection

CDCR; Model of Consumer-Driven Corporate

Responsibility

Consumer-Driven Corporate Responsibility

Consumer-Driven
Corporate
Responsibility,
Fig. 1 The Model of
Consumer Driven
Corporate Responsibility

445

Increase
d consum
er
demand
for CSR
= CSR ad
opted
by the co
mpan y

C
er
= increasing numb
s
r
e
um
ns
co
of
demanding CSR

CSR being adopted by

sed
company leads to increa
customer base

er base
Increased custom

= profitability

Profitability from CSR

leads to a greater
reputation
= increased
customer base

Definition
The Model of Consumer-Driven Corporate
Responsibility (CDCR) (Fig. 1) demonstrates
that in order to remain profitable, consumer
demands for Corporate Social Responsibility
(CSR) must be met. As a result, the company
achieves profitability along with other positive
outcomes in a cyclical pattern of behavior. By
engaging in socially and environmentally responsible behavior, this allows the company to obtain
a better reputation in the public sphere. This
results in an expansion in its customer base,
which contains more consumers who demand
socially and environmentally responsible behavior from the company. Hence, the company continues to embed CSR within its core business
model, which attracts more customers and
makes them more profitable, and so it continues.
This model creates a win-win situation for all:
The consumers have their demands met; the
requirements of other stakeholders and the environment are met; and the company increases in
value as it becomes more profitable. Further,
through increased profitability and enhanced reputation, which leads to an increased customer

base, the company is then obligated to uphold

its CSR policies to maintain its customer base
and profitability. The most likely way for
a company to implement CSR successfully,
then, is by responding to customer demand for
it. Hence, the name Consumer-Driven Corporate Responsibility encapsulates the reason for
corporations to act in socially and environmentally responsible ways, as a direct and prompt
response to consumer demand. Further, this new
model allows for CSR to be adopted at any stage
of the life cycle of a company, whether its customer base is established or emerging. If the
customer base is not yet established, the company
can adopt CSR in order to attract customers from
its competitors who have not yet adopted similar
business practices. If the customer base of
a company is already established, the existing
customers of the company will begin to demand
CSR, for reasons that shall be explored later in
this entry. Thus, the company will need to
respond to the demand from its already acquired
customer base in order to retain such customers.
Therefore, CDCR is applicable to and can be
adopted by all types of companies regardless of
their size or scope.

446

Introduction
In a response to issues such as climate change and
corporate greed, which have recently been put
under the spotlight on a public scale, consumers
are increasingly concerned with social and environmental issues while at the same time having
a greater expectation for a company to be socially
responsible (Frederick 2006). This is demonstrated in several recent studies of consumer
behavior: A 2005 Cooperative Bank survey
found that 60 % of consumers had bought a product because of the companys responsible reputation (Crane and Matten 2007); a recent survey by
the Boston Consulting Group found that more
consumers purchased green products in 2008
than in 2007 and were willing to pay a higher
price for green products and further found that
73 % of consumers believed companies should
have high ethical standards and treat their
employees
fairly
(www.socialfunds.com);
finally, a recent report conducted by management
consultants Ernst and Young asserted that Retail
consumers are pressuring businesses to act in
socially and environmentally responsible ways
(www.suite101.com). This demonstrates the
increasing consumer demand for socially and
environmentally responsible products and behavior from companies (hereafter referred to as
CSR), even during a time of economic downturn.

Key Issues
As an overview of the model of CDCR has now
been provided, a comparison of this new model to
three commonly referred to existing models of
CSR shall be drawn. These models emphasize the
importance on the bottom line in determining
whether a company is likely to adopt socially
responsible business practices (Carroll 1991;
Aras and Crowther 2009; Visser 2010) but do
not address how the bottom line is driven (i.e.,
by consumers). Hence, they do not recognize that
consumer demand for CSR is the most likely way
that a company can achieve both profitability and
social responsibility. A comparison between
CDCR and other existing CSR models will

Consumer-Driven Corporate Responsibility

allow a comprehensive insight into the reasons

for the ineffectiveness in each model and demonstrate ways in which the model of CDCR fills in
these gaps.
Pyramid of CSR
Through the creation in the 1970s of many
government bodies such as the Environmental
Protection Agency and the Consumer Product
Safety Commission to protect the environment,
employees, and consumers, it became apparent at
the time that the government was aligning with
the social enterprise and stakeholder theories, as
the business world was under criticism for not
being accountable enough to their stakeholders
and society in general. The perception of social
responsibility during this time shifted to social
responsiveness by some writers who argued
that there was not enough attention being paid
to the actions of the corporation. This was
a necessary reorientation as it emphasized the
importance of corporate action and implementation of a social role; yet the question still
remained as how to reconcile the economic orientation with such a role. From this, a four part
comprehensive model of the Pyramid of CSR
was proposed by Carroll (1991), which emphasized the importance of businesses responding to
all aspects of the social world: economic, legal,
ethical, and philanthropic.
According to Carroll, all business responsibilities are predicated upon the raison detre of
a firm, to create profit for its shareholders from
supply and demand of society. This feature of the
Pyramid is positioned at the bottom as the foundation and only after this principle has been satisfied can other responsibilities occur. At the
second tier lie the legal responsibilities, whereby
the corporation must adhere to the law and all
rules and regulations that it is governed by to
ensure it maintains responsible business practices. The third tier is the ethical layer, whereby
corporations are obliged to do what is right, just,
and fair for their stakeholders. The last tier, the
philanthropic level, ensures that the corporation
is a good citizen to the community, contributing
resources where needed (Carroll 1991). The Pyramid of CSR, then, rests on the notion that the

Consumer-Driven Corporate Responsibility

raison detre of the firm is economically defined

as the foundation of the Pyramid. All other
responsibilities (legal, ethical, and philanthropic)
come after or from this, meaning that the company will only ever be socially responsible if it
fits in with the economic goal of maximizing
profit.
The Pyramid of CSR importantly outlines that
economic factors are vital in providing a good
foundation for the company so that the other
factors (social and environmental) can be
achieved thereafter. However, this suggests that
the other levels (legal, ethical, and philanthropic)
are dependent on the economic level of the Pyramid and the economic level is independent of
the other levels. This is problematic in ensuring
CSR is implemented as the company can ignore
the three other levels, as it has no economic
motivation to pursue them. Furthermore, this
assertion is erroneous as the economic level is
actually dependent on the other levels.
A company will struggle to maintain the bottom
line under three conditions: It fails to adhere to
regulation and so suffers massive legal monetary
penalties; it fails to act ethically toward its
employees, therefore suffering a loss of workforce and productivity; and it fails to act philanthropically toward its locally community and
environment, therefore suffering brand damage
and loss of esteemed reputation.
According to the model of CDCR, however,
the legal, ethical, and philanthropic layers would
be necessary to the economic foundation of the
company. In accordance with this model, the
bottom line would be directly impacted if the
company did not respond to consumer demand
for companies to act socially and environmentally responsibly. Further, in the Pyramid model,
the philanthropic activities of the company are
placed at the top, suggesting that they are the
piece de resistance of the socially responsible
achievements of the company. However, philanthropy is not the most successful way in which
CSR can be achieved.
Model of Sustainable Development
Yet another criticism of Carrolls Pyramid
observes its lack of consideration of

447

environmental management and corporate sustainability, which is particularly pertinent as corporate managers are more likely to adopt CSR
using the triple bottom line approach (Visser
2005). Developing this argument, Aras and
Crowther (2009) have focused specifically on
the development of the models surrounding
CSR, specifically those concerned with sustainability. They assert that most analyses of sustainability are inadequate as they concentrate solely
on the environmental and the social while financial performance, which is also imperative to the
success of sustainability, is overlooked. It is
likely this is so because as the authors see
a conflict between financial performance of
a corporation and its social and environmental
performance (Aras and Crowther 2009). As
such, most work on corporate sustainability
does not recognize the need for understanding
the importance of financial performance as an
essential part of sustainability. They offer, then,
a more comprehensive model, which looks at all
four aspects of CSR (environment, society, financial performance, and organizational culture) in
both the short- and long-term context. Furthermore, they assert that to achieve sustainable
development, it is necessary to first achieve sustainability, which can occur via four actions:
maintaining economic activity (as this is the
raison detre of the company); conserving the
environment (as this is essential for the maintenance of future generations); ensuring social justice which includes elimination of poverty and
the ensuring of human rights; and developing
spiritual and cultural values, where the corporate
and societal values align in the individual (Aras
and Crowther 2009). Thus, they argue that sustainable development involves more than just
managing the interest of the stakeholders versus
the shareholder.
Sustainability focuses on ensuring that the
resource utilization of the present does not affect
the future. This creates concepts with which the
corporation must engage to become sustainable
(such as renewable energy resources, minimizing
pollution, and using new techniques of manufacture and distribution), and thereby accepting the
costs involved in the present for ensuring

448

sustainability in the future. This is beneficial not

only to the environment, but also to the organization, for it cannot operate tomorrow without the
resources it has today. As this is directly relevant
to the performance of the bottom line, then, there
is no dichotomy between the environmental and
financial performance of the company as they are
mutually exclusive; the environmental performance of the company in the present day ensures
the financial performance of the company tomorrow and vice versa (Aras and Crowther 2009).
The bottom line is further impacted by the environmental aspect, firstly, in that the company has
to make sure that the company is not prohibited
by large monetary fines from government bodies
for not complying with environmental regulation
and, secondly, by the consumption practices of
the ever-increasing green consumer base. This
assertion corroborates the principles of the Pyramid of CSR, which also stresses the importance
of the bottom line of financial performance as
a prerequisite for ethical behavior thereafter.
However, though the Pyramid stresses the financial aspect as integral to a concrete model of
CSR, it does not provide an explanation of how
financial performance can actually lead to the
corporations sustainability by ensuring that
money is invested in socially responsible behavior and sustainable behavior, i.e., by investing in
renewable energy resources and other socially
responsible activities (Aras and Crowther 2009).
Instead, the Pyramid merely asserts that the business must stay profitable only because it is the
raison detre of the corporation to do so and not
because it has a direct impact on ensuring sustainability. Further, the Pyramid asserts that the
corporation can always achieve profitability,
despite relying on the other factors of CSR in
the other tiers, as the financial layer is the foundation of the Pyramid. However, Aras and
Crowthers model asserts that profitability is
predicated upon the other factors of CSR and so
the financial success of the company and its
actions of CSR exist in a continuum.
Aras and Crowther (2009) stress the
importance of the financial performance of the
company in ensuring that the social and environmental goals (and sustainability on the whole)

Consumer-Driven Corporate Responsibility

can also be achieved. They further address the

long-terms versus short-term focus and consider
both the internal and external aspects affecting
the sustainability performance of a company.
This certainly leads to a more comprehensive
model of CSR and sustainability than those seen
before. However, the model is still solely normative; it focuses on why a company should act in
relation to its social and environmental responsibilities but does not provide a pragmatic enough
approach of how a company can achieve sustainability. Further, though it does address to some
extent how sustainability can be achieved, it is
not representative of the current drivers for CSR
as evidenced in the contemporary practices of
companies, which ultimately relates to the ways
in which CSR can achieve short-term profit for
the company. The model of CDCR, then, is more
successful in addressing both how a company can
achieve short-term profit by implementing
socially and environmentally practices (i.e., by
producing ethical products and demonstrating
ethical behavior that appeals to consumers) and
long-term sustainability (i.e., by conducting its
business in an environmentally friendly manner
in response to consumer demand for CSR).
CSR 2.0
CSR 2.0 (Visser 2010) outlines five principles of
the DNA of (C)(S)(R)(2)(0). (C)onnectedness
urges company practice to break the hegemony of
shareholders and instead embrace a multistakeholder approach to business relations;
(S)calability critiques the pilot projects and best
practice programs of CSR and sustainability that
many companies often demonstrate, as they are
often very small scale over a small duration of
time, rather than being cross-market, long-term
goals; (R)esponsiveness calls for a bolder response
to the community needs, which replaces simple
philanthropy programs that are based on their
own terms to drastic response to climate change,
such as the Prince of Wales Corporate Leaders
Group on Climate Change (The Prince of Wales
Corporate Leaders Group on Climate Change is
a campaign for carbon emission reduction of
5085 % by 2050.); Duality (2) challenges the
notion of either/or, i.e., having to make the

Consumer-Driven Corporate Responsibility

choice between being either socially responsible or

not and instead CSR 2.0 affirms there can be both
economic responsibility and social responsibility;
and lastly Circularity (0) is founded upon
Hawkens (1994) model of sustainability, which
assumes three basic rules of sustainability, that
waste equals food, nature runs from current solar
income, and nature depends on diversity. Using
this notion, CSR 2.0 would depend on businesses
constantly feeding and replenishing its own social
and human capital through education, training,
community nourishment, and employee wellbeing. The shifting of CSR 1.0 to 2.0, then, will
move from being paternalistic to collaborative, risk
based to reward based, image driven to performance driven, specialized to integrated, standardized to diversified, marginal to scalable, Western to
global, and from a luxury product to an affordable
solution for those who most need improvements to
their quality of life (Visser 2010). Visser further
asserts the future of ethical business will not
include CSR departments or ethical products
which consumers choose over another less-ethical
product as the core business values of the company
and its products will be ethical, socially responsible, and sustainable. Therefore, the mission statement and the company goals will be founded upon
ethical behavior within the triple bottom line, so
the future model of CSR will cease to resemble
Carrolls Pyramid which is no longer fit for purpose (Visser 2010, p. 10). Instead, this new model
will, firstly, change from Corporate Social
Responsibility to Corporate Sustainability and
Responsibility and, secondly, change in appearance from a rigid pyramid structure to something
akin to DNA structure; a
spiralling, interconnected, non-hierarchical levels,
representing economic, human, social and environmental systems, each with a twinned sustainability/responsibility manifestation: economic
sustainability and financial responsibility; human
sustainability and labour responsibility; social sustainability and community responsibility; and environmental sustainability and moral responsibility.
(Visser 2010, p. 10)

The underlying message behind CSR 2.0 is

that CSR should be an integral part of the change
that is needed to enable sustainability of our
planet (Visser 2010). Though I agree with much

449

of how Visser claims CSR should be

implemented, it is still too normative in its
approach. It lacks the capability of providing
a pragmatic tool that companies can use to implement CSR into its everyday practices. Yet, there
are many similarities in the approaches taken by
CSR 2.0 and CDCR, as both encourage a multistakeholder approach to business relations; call
for the company to respond more to its stakeholders; abolish the notion that companies have
to make the choice between being either socially
responsible or profitable; encourage a shift from
specialized CSR aspects of the company to CSR
being fully integrated into the company; and
allow for ethical behavior to be at the core of
the companys business values (Visser 2010).
However, the model of CDCR provides a more
evocative model, which specifically demonstrates the business model that the company can
adopt, at any stage of its life, to ensure all of the
above is achieved.

Future Directions
Making a comparison between the model of
CDCR and other well-known CSR models is an
important step in assessing the credibility of
CDCR and its importance in addressing the gaps
within other CSR models. Yet, only further
research on the model of CDCR will enable
a full assessment of its applicability and further
development of the model, which should be pursued in two ways.
Firstly, the model should be examined in light
of the recent global financial crisis, to assess
whether consumers continue to demand and are
prepared to pay for CSR in times of economic
recession. An example of where this could be
contradicted is the success of Ryanair, an Irish
low budget airline operating within Europe,
which is notorious for its lack of consideration
for its employees, community, environment, and
even treatment toward its customers. Its chief
executive, Michael OLeary, famously declared
during the UK recession in 2009 that he wished to
charge passengers for using the toilet onboard the
aircraft (BBC News Online 2009). Yet, it has

450

remained profitable in a tough economic environment because the consumer demand within the
travel sector during the recession was solely for
low cost, regardless of the social and environmental reputation of the company. Further, consumer demand for CSR is dependent on a number
of factors, including national economic stability
and the social and financial circumstances of the
individual consumer. For example, Sabapathy
(2007) asserts that ethical consumption is
a phenomenon most associated with those who
have high levels of income, education, and political awareness in post-industrialized countries.
Secondly, the success of model can only
really be comprehensively assessed once it has
been implemented in a company. This will allow
an examination of its pragmatism and identify
areas of opportunity in which the model can be
further developed and enhanced, before it is
more widely adopted. As yet, this assessment
cannot be made as it is not known that
the model has been implemented within
a company, and its potential success can only
be conceived theoretically.

Cross-References
Business Case for CSR
Carroll, A.B.
Climate Change
Consumerism
Corporate Social Responsibility
Normative Versus Instrumental Corporate
Responsibility
Philanthropic CSR
Philanthropy
Pyramid of CSR
Stakeholder Theory
Sustainability and Sustainable Development

Consumer-Driven Social Justice

Campbell, J. L. (2007). Why would corporations behave
in socially responsible ways? Academy of Management Review, 32(3), 946967.
Carroll, D. (1991). The pyramid of corporate social responsibility: Toward the moral management of organisational
stakeholders. Business Horizons, 34(4), 3948.
Crane, A., & Matten, D. (2007). Business ethics (2nd ed.).
Oxford: Oxford University Press.
Frederick, W. C. (2006). Corporation, be good!
Indianapolis: Dog Ear Publishing.
Freeman, R. E. (1984). Strategic management:
A stakeholder approach. London: Pitman Publishing.
Sabapathy, J. (2007). Ethical consumption. In W. Visser
et al. (Eds.), The A to Z of corporate social responsibility. Chichester: Wiley.
Stieb, J. A. (2009). Assessing Freemans stakeholder
theory. Journal of Business Ethics, 87(3), 401414.
Visser, W. (2005). Business frontiers: social responsibility, sustainable development and economic justice.
Hyberabad: ICFAI University Press.
Visser, W. (2010). CSR 2.0: The evolution and revolution
of corporate social responsibility. In M. Pohl & N.
Tolhurst (Eds.), Responsible business: How to manage
a CSR strategy successfully. Chichester: Wiley.

Other Resources
BBC News Online. (2009). Ryanair mulls charge for
toilets,27 February 2009. Available at http://newsvote.
bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/1/hi/
business/7914542.stm?ad1

Consumer-Driven Social Justice

Fair Trade

Consumerism
Ioanna Papasolomou
Department of Marketing, School of Business
Head, University of Nicosia, Nicosia, Cyprus

Synonyms
Consumer movement; Materialist society

References and Readings

Aras, G., & Crowther, D. (2009). The durable
corporation. Surrey: Gower Publishing.
Arvidsson, A., Bauwens, M., & Peitersen, N. (2008). The
crisis of value and the ethical economy. Journal of
Futures Studies, 12(4), 920.

Definition
Undoubtedly, the term consumerism has
evolved over time and has acquired meanings

Consumerism

which tend to be conflicting and contradictory.

These meanings coexist in the literature and
have their own advocates. Yani-de-Soriano and
Slater (2009) provide three different definitions
which characterize the evolution of consumerism
over time. The original definition refers to
manipulative advertising and marketing practices
to encourage consumers to buy and consume
more (Packard 1957). The second definition
refers to the consumer movements to protect
their rights against the excesses of marketing
(Kotler et al. 2008). The third definition interprets
consumerism as a consumer ideology which
postulates that consumers happiness and wellbeing can be achieved through consumption
(Murphy 2000).

Introduction
The First Definition: Use of Manipulative
Techniques
This definition was coined by Vance Packard
(Day and Aacker 1997, p. 44) who linked
consumerism with strategies for persuading
customers to quickly expand their needs and
wants. Packard associated consumerism with
the overuse of advertising and selling and
claimed that advertising is detrimental to the
society, accusing organizations of being manipulative in their marketing practices. In supporting
Packards view, Lambin (1997) contemned the
exploitation of the society through advertising
and hard-selling techniques that he termed
as manipulative or wild marketing instead
of naming these practices consumerism as
Packard did. Activities which characterize
consumerism in this context are: encouraging
people to overconsume; exploiting peoples
insecurities and sufferings; using promotional
techniques that exploit impulsive consumer
behavior; and exaggeration of a products content
through packaging design (Lambin 1997, p. 20).
According to Packard (1957), consumerism
refers to the overuse of advertising and selling
to create customers and encompasses practices of
manipulative marketing that are self-destructive
for the organization in the long run.

451

The Second Definition: Protecting

Consumers Rights
In an effort to counteract the excesses of manipulative or wild marketing, governments
have enacted legislation for the protection of
consumers rights and consumers have formed
associations to protect themselves, giving the
foundation for the emergence of the second
definition of consumerism. According to this
notion, consumerism is defined as: organized
group pressure which has become a set of values
held not only by the consumers of a companys
products but also written by the wider society
(Gilbert 1999). Kotler et al. (2008) described
consumerism as: an organized movement of
citizens and government agencies to improve
the rights and powers of buyers in relation to
sellers. Kotler et al. (2008) state that consumerism in this context has its origins in the United
States. President Kennedys 1962 call for
a Bill of Consumer Rights initiated the
so-called consumer movement which focused
on promoting and protecting consumers rights
to safety, to be informed, to choose, and to be
heard. Massive consumer groups protest
marches and frequent boycotts generated media
attention which eventually forced the government to enact legislation protecting consumers
(Kotler et al. 2008). This view highlights the
need for corporations to behave in a more socially
responsible way toward their consumers and the
society at large.

Third Definition: The Consumer Culture

The underlying principle of this definition is that
consumption is the means for happiness and wellbeing. In this context, consumerism is defined as:
the doctrine that the self cannot be complete
without a wealth of consumer goods and that
goals can be achieved and problems solved
through proper consumption (Murphy 2000,
p. 636). This view provides the foundation for
the emergence of a consumer culture. From
a social perspective, the notion of the consumer
culture is widely discussed since the end of the
nineteenth century. Today in the twenty-first
century, people buy products that are status

452

symbols. Products are used as devices by people

to communicate to others their social standing,
wealth, and power.

Key Issues
Marketing and Consumerism
The discussion in this section is based on the first
definition of consumerism according to
which, consumerism is associated with an
overemphasis of advertising and selling aimed at
manipulating consumers and enticing them into
overconsuming. In relation to the benefits or not
of consumerism and the development of the consumer society, there are two opposing perspectives.
The first is based on the belief that marketing is not
responsible for the emergence of a materialistic
society. The second is that consumerism has
a detrimental impact on consumers and the society
at large (Abela 2006). Abela (2006) claims that
consumerism is associated with reduced personal
well-being and that the rise of consumerism parallels the rise of modern marketing to a remarkable
extent. This view is congruent with Packards
(1957) argument that consumers are manipulated
by business. The existing literature also suggests
that there is a causal relationship between advertising and materialism (Zinkhan 1994), and several
studies have drawn a relationship between watching
television and television advertising with high
levels of materialism especially among children
(Kinsey 1987). Even though it is possible that
humans have a tendency toward materialistic
behavior whenever they are given the opportunity,
it cannot be ignored that the growth of consumerism
is in parallel to the growth of modern marketing.
OShaughnessy and OShaughnessy (2002,
p. 545) argue that marketing does not create or
invent wants. Instead they posit that materialism became part of the human condition
long before the first advertising executive.
The historical evidence indicates that the growth
of consumer culture is paralleled to a remarkable
extent by increases in the sophistication and
intensity of marketing efforts over a 300-year
period. The rise of consumerism and the increase
in the quantity and sophistication of marketing

Consumerism

efforts appear to have tracked each other for the

last three centuries.
Therefore, the literature suggests that there is
an apparent parallel growth in both marketing and
consumerism although this does not necessarily
demonstrate causality. There is a possibility that
the growth of materialism emerged as a natural
development from the increase in human prosperity which encouraged the growth in the use of
marketing and consumerist behavior.
If consumers appear to choose excessive material consumption, then there is a need to educate
them in relation to the fact that this does not necessarily lead to higher levels of satisfaction. Therefore, enhanced levels of communication and
education with consumers may lead to changes in
consumer behavior and, hence, consumerism.
Empirical Evidence on Consumers Attitudes
Toward Consumerism
Many studies have been conducted in order to
understand consumers attitudes toward marketing
and consumerism and the degree to which consumers have expressed dissatisfaction with marketing activities. For the discussion in this section,
consumerism is defined as a multitude of group
actions concerned with such issues as consumer
protection laws, the availability of product and
price information, fraudulent and deceptive business practices and product safety (Cravens and
Hills 1973, p. 164). Hence, consumerism deals
with consumer issues regarding a range of marketing-related areas. Due to the fact that marketing is
a function that is reflected more vividly on organizational activities and practices, these in turn are
seen as clues by consumers as to how ethical and
socially responsible marketers and their companies
are. Consumerism issues usually relate to the marketing mix elements. For example, an organizations product policy is often under scrutiny in
relation to safety, labeling, and obsolescence
issues. Pricing policies are often under intense criticism usually in periods of economic recession or
inflation. Promotional tools, especially advertising,
is often attacked for using false and misleading
information, exaggerating the products benefits,
using psychological positioning to differentiate
products, using deceiving claims, puffery, and

Consumerism

emphasizing materialism. Finally, the distribution

policy is usually criticized for aggressive in-store
merchandising and the lack of quality information
to evaluate price/quality relationships between
brands and, finally, for giving too much power to
distributors to the detriment of consumers.
Several studies conducted over the last 20 years
aimed at revealing consumers attitudes toward
marketing and consumerism issues. These studies
have been carried out to both developed and developing nations. A common characteristic is that they
all showed a high level of consumer discontent
with various aspects related to marketing. In general, the studies showed that consumers feel that
organizations do not deal effectively with customers complaints which are associated with the
quality of products, their reliability, and safety
aspects. One study carried out identified that there
are significant differences in the attitudes held
toward advertising and consumerism of those
born from 1946 to 1964 to those born from 1965
to 1974 in the USA. The latter group had more
favorable attitudes and considered marketers to be
more socially responsible. The focus of subsequent
studies on consumerism shifted to cross-cultural
comparisons of the USA with other countries.
These studies revealed that there are common patterns of concern about marketing and consumerism
among respondents in the USA, Venezuela, Norway, England, and other countries. Among the
problems highlighted by these studies are: high
prices, lack of product quality, lack of adequate
repair and maintenance services, deceptive advertising, and inadequate handling of complaints.
A cross-national study investigating consumer attitudes toward marketing practices, consumerism,
and governmental regulations in Australia, Canada,
England, Israel, Norway, and the USA uncovered
negative attitudes toward marketing.
A number of cross-cultural studies also found
mixed views about consumer attitudes regarding
marketing and consumerism. For example, one
study showed that consumers in Hong Kong were
more favorable in their attitudes toward marketing than those in the USA. Another study
revealed that Australian consumers were unfavorable in their attitudes toward marketing
except for retailing. Darley and Johnson (1993)

453

identified some degree of discontent among consumers in Singapore, India, Nigeria, and Kenya
in relation to marketing and consumerism.
Recently, a study carried out in New Zealand
revealed that marketing managers should continue to remain proactive in their responses to
consumer discontents.
Consumerism and Corporate Social
Responsibility
The consumer movement has evolved into
a powerful force in many developed countries.
Organizations in these countries are under
constant pressure to demonstrate social responsibility in addressing the needs of the society. The term
consumerism is linked to the behavior of organizations and the expectations of the society. Corporations should identify and define their purpose and
objectives in a way that align with the expectations
of society. If businesses are not meeting the customers and societys expectations then the customers and the society at large may lose trust
subsequently leading to the firms loss of market
share, market position and customer loyalty.
Heightened corporate responsibility emerged
as a phenomenon in the 1980s and early 1990s
when corporations such as Cadburys, Brook
Bond, and Co-operative were increasingly
adopting ethical consumerism in their purchasing
and supply policies. In addition, food retailers such
as Tesco, Sainsburys, and Safeway have played
a crucial role in the green consumer revolution.
Consumers of the 1990s are claimed to be
caring, environmentally and socially aware, and
demand a say in the production, processing, and
resourcing of the products they regularly
purchase. The increasingly well-informed consumer exercises pressure upon marketers for
fairly traded products, for guarantees of the ethical claims marketers make about their products,
for safe products, for concern about the potential
damage of manufacturing processes on the environment, and for the careful disposal of waste.
This awareness demonstrates a concern for Third
World issues which come into the spotlight as
a result of the media coverage, from the work of
special interest groups, from the increased
amount of information available, and an

454

emphasis on human rights and the quality of life

of the people living in third world countries.
Ethical Consumerism: According to Strong
(1996), ethical consumerism is a marketing concept which has emerged only recently in the UK,
but like green consumerism, it is a source of
gaining a competitive advantage for organizations that are socially and ethically conscious.
The emergence of ethical consumerism has been
supported by a number of features: the evolving
caring consumer of the 1990s; pressure group
support for Third world countries; fair trade
issues endorsed by media interest; heightened
corporate responsibility; and supplier power.
These factors have led to wider availability of
fair trade products and increased quality of
alternative products. In addition, studies have
shown that an increasing number of consumers
of the 1990s were exhibiting a caring, environmentally and socially caring attitude. These environmentally and ethically conscious consumers
have shown increased demand for fairly traded
products, which constitutes a challenge for
producers who claim to be producing such products. The increased demand for fairly traded
products was conducive for the development of
the Fair Trade Label introduced by the Fair
Trade Foundation, an independent fair trade
validating body that is supported by many
charities. Strongs study revealed that consumers
were not solely interested in price, quality,
delivery, and environmental issues but were also
concerned about the ethical dimension of the
marketing exchange. This finding highlights the
importance of managers realizing the power of
ethical consumerism which drives consumers
toward brands with an ethical marketing focus,
if they do not want to lose market share.

Consumerism

about health, animal welfare, environmental

protection, and ethical trading. At the same time,
green consumerism motivates consumers to
become more actively ecologically and ethically
aware. As a result, an increasing number of consumers move away from leading a life of excessive
consumption and materialism toward more enduring values such as respect, compassion, and empathy. At the same time, the business sector has
become more responsive to consumerism. This is
manifested in the wide acceptance and practice of
societal and sustainable marketing across the business sector. The increasing acceptance of consumerism by managers and corporations is founded on
its positive role on society and the economy. Consumerism has the potential to play a constructive
role in building a sustainable business environment by emphasizing, for example, consumer
awareness, fair trading, codes of conduct, and
ethical business practices. It encourages managers
to think beyond the narrow boundaries of generating short-term sales and profits. It motivates them
to adopt a sustainable approach to production
which is not at the expense of the standard of living
of future generations. An underlying factor of such
provision includes fair trading, providing for the
needs of the least advantaged in society,
and adopting a people-orientated marketing
approach.

Cross-References
Communicating with Stakeholders
Consumers Protection
Corporate Codes of Conduct
Corporate Social Marketing
Corporate Social Responsibility
Sustainable Consumption

Future Directions
References and Readings
Undoubtedly the consumers of the twenty-first
century is becoming more caring and socially
aware, moving toward a more responsible and
responsive attitude to issues which do not directly
concern them such as Third World exploitation.
There is evidence of increased consumer concern

Abela, A. (2006). Marketing and consumerism:

A response to OShaughnessy and OShaughnessy.
European Journal of Marketing, 40(), 516.
Ahuvia, A. C., & Wong, N. Y. (2002). Personality and values
based materialism: Their relationship and origins. Journal of Consumer Psychology, 12(4), 389402.

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Cravens, D. W., & Hills, G. E. (1973). The eternal triangle:
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(Ed.), Consumerism (pp. 3754). Pacific Palisades:
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Darley, W. K., & Johnson, D. M. (1993). Cross-national
comparison of consumer attitudes towards consumerism in four developing countries, The Journal of
Consumer Affairs, 27(1), 3754.
Day, G. S., & Aacker, D. A. (1997). A guide to consumerism: What is it, where did it come from, and where is
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Galbraith, J. K. (1969). The affluent society (2nd ed.).
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and the impact of advertising aimed at children.
International Journal of Advertising, 6(2), 169.
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(2008). Principles of marketing, Fifth European edn.
Essex: Pearson Education Ltd.
Lambin, J. J. (1997). Strategic marketing management.
Maidenhead: McGraw-Hill.
Murphy, P. (2000). The commodified self in consumer
culture: A cross-cultural perspective. The Journal of
Social Psychology, 40(October), 636647.
OShaughnessy, J., & OShaughnessy, N. J. (2002).
Marketing, the consumer society and hedonism.
European Journal of Marketing, 36(5/6), 524547.
Packard, V. (1957). The hidden persuaders. London:
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Strong, C. (1996). Features constributing to the growth of
ethical consumerism A preliminary investigation.
Marketing Intelligence and Planning, 14(5), 513.
Yani-de-Soriano, M., & Slater, S. (2009). Revisiting Druckers
theory: Has consumerism led to the overuse of marketing?
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Zinkhan, G. M. (1994). Advertising, materialism, and
quality of life. Journal of Advertising, 23(2), 14.

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Definition
As a critical facet of social policies, any society
must promote, and as a basic component of protection programs, consumer protection (CP) is
a set of regulations and laws regarding the public
and private initiative designed to ensure and continuously improve consumer rights. In its complexity, the definition emphasizes the correlation
between two main issues. On one hand, the comprehensive set of Consumer Protection Laws,
which were conceived to guarantee the right
competition and unrestricted stream of ethical
data in the marketplace, to forbid activities that
attempt in fraud, forgery, or other specific unjust
businesses and to deliver additional protection for
all types of consumers. On the other hand, the
individuals as consumers and, particularly, as
customers facing various matters related to products, prices, quality, information networks to
ensure market transparency and trade systems.
Given this complexity, CP term covers aspects
of Consumer rights (consumers have rights as
initiators of consuming activity), Consumer
interests protected on the markets through competition among businesses, Consumer activism
acknowledging CP through NGOs and individuals, and nonetheless Consumer organizations
created to protect and support consumers as decisions makers on the market.

Introduction

Consumers Protection
Catalina Soriana Sitnikov
Faculty of Economics and Business
Administration, University of Craiova, Craiova,
Dolj, Romania

Synonyms
Consumer activism; Consumer advocacy groups;
Consumer organizations; Consumer product
safety; Consumer protection; Consumer protection laws; Consumer rights; Product liability

Playing a major role in the market mechanism,

consumer is the benchmark for all actions taken
by both the manufacturers and the retailers. Taking into account consumers interests and needs,
they face imbalanced relations on the market,
imbalances that influence them in many ways
economic, educational, health safety, etc. The
historical imbalance between businesses and consumers has grown more with the shift to mass
production. Later, the imbalance widened
through the impact of technological and scientific
revolution, providing the market with products
and services producers know everything about,
while consumers have no means to control or

456

evaluate their quality. Furthermore, since

a product life-cycle research and development
stages, through various marketing techniques
and means, consumers are continuously persuaded by creating them needs, expectations,
desires, and tastes.
Therefore, the issues that stand to be the subject of CP programs are extremely diverse, and
could refer to many economic, social, and even
political matters. Also, given the problematic
nature of consumption and, especially, of its management, it is obviously that inclusion of such
programs aiming consumer protection is States
responsibility, which should ensure, through its
social policy, terms and means of achievement.
This objectives fulfillment requires solving the
following problems:
Ensure the balance between supply and
demand, and further, purchasing activities
Businesses focus, through various means and
appropriate policies, toward production of
demanded goods, thus contributing to the
smooth functioning of market mechanisms
Import of goods which support the balance
between needs and resources
Providing the market with qualitative goods
and services activity involving all businesses
participating in goods circuits
Ensure a prices system according to market
requirements and product quality, which
proved to be the most controversial and
discussed area both in terms of time specificity, as well as the social protection programs
Including such issues in social protection programs, and implicitly in CP programs, involves
solving both fundamental matters related to pricing, financial policies, and the impact of costs
trends on consumers needs and requests. In
terms of market transparency, good information
for consumer, as a potential customer, are
involved. Unfortunately, this normal market feature can often be avoided or restricted using various methods related to certain interests.
Therefore, designing and implementing information systems for consumers and defending tools
and techniques against aggressive trade policies
promoted by the economic bidders on the market
is another complex area of CP process, which

Consumers Protection

involves numerous aspects as well as responsibilities incumbent on sides, the State and any trader
and/or producer. Concluding, consumers information represents one basic objective of CP
programs.
The experience gathered in this field allows
mapping information for consumers into four
major categories:
Information on products consumers are made
aware of the nature of the product, its price,
origin, provenience, periods, packaging systems and features, storage and keeping systems, etc.
Information of the market referring, in particular, to the various actors and theirs relations on the market, the agents involved,
prices systems, provided services, bonuses
in the acquisition area.
Information on distribution channels
concerning the structure and frame of goods
circulation, goods networks, operating units
localization and schedules, etc.
Information on consumers needs aiming to
clarify, both in terms of quantity and quality,
consumers needs and requests.
On the market, consumers are provided with
information on goods and services through advertising and labeling systems. Given the way consumers information unfold, in most countries are
brought up serious misgivings related to the
above-mentioned systems and their usage. This
matter is because advertising purposes, with no
regard to its form or content, is focused solely on
selling the good or providing the service, which,
unfortunately, is incompatible with fair and just
information of consumers. Very often, advertising and labeling to have sole aim sales enhancing and strengthening, doing nothing but
aggressively seeking to inoculate with preferences for the good or service a company is interested in.
From this perspective, by its very nature, CP
movement has two aspects: first, CP is sensed as
a battle urging consumers to express their dissatisfaction with goods and services they are
offered, and second, CP can be envisaged as an
action or a set of actions springing from
awareness abusive practices on the market.

Consumers Protection

457

Consumers Protection,
Fig. 1 Factors influencing
consumers protection
(Source: Dinu 1999)

GOVERNMENT
Legislation and Institutions
Laws and Regulations
Checking and control
Punitive measures

BUSINESSES
Quality
Reliability
Maintainability
Cost
Warranties

Factors
influencing
consumers
protection

UNIONS
Social monitoring
Support actions
Promoting activities

Concluding, all these relationships among businesses and consumers are subject to CP programs. In terms of the complex issues involved
in an effective system of protecting consumer
rights, Government bodies or NGOs should consider coherent policies. Both governments and
other bodies active in CP determine their specific
structures and areas for the protection programs:
Improving peoples spending and consumption through States social policies
Ensuring qualitative goods and services sold
on the market
Providing prices system according to market demands and products quality
Developing a useful information system for
consumers
Protecting consumers against aggressive
commercial practices and fake advertising
As depicted in Fig. 1, responsible for consumers protection are public institutions (governments) and, due to the complex nature of CP, other
factors that influence it by various means and ways.
A glimpse in the history of CP brings us to
Smiths words the final product unique purpose

CONSUMERS
Health protection
Security
Safety
Affordable prices
Environment protection
Quality of life

NGOs
Information
Education
Training
Representation

is the use, manufacturer being subordinated to

user needs. In a modern form, it can be said
that the purpose of economic activity is to allocate resources as efficiently as possible in order to
meet and fulfill consumer needs. Such action
leads directly to the idea of consumer sovereignty, for consumer is the individual ultimately
deciding resources allocation. This idea has,
nonetheless, political, moral, logical, and even
economical support. Moreover, the literature
states that, as in politics, democracy means
voters sovereignty, in economy and business,
democracy means consumers sovereignty based
on their capacity and possibility of choosing.
The concept of consumer rights has its origin in the Charter of Consumer Rights delivered by the former president of USA, J. F.
Kennedy, in March 1962, as an address to the
American Congress. Although the Charter has
not been finalized, it remains important through
shaping the fundamental rights of consumers (the
right to choose freely, the right to information,
the right to petition and hearing, the right to
protection). It also serves as a reference model

458

in developing CP laws that occurred in the seventh and eighth decades in the USA and other
countries of the American Continent (Canada,
Mexico) and Europe (Belgium, France,
Germany, Sweden).
For the last decades, consumer protection
issues represent the focus of economic and judicial world theories and practices. The issues,
more complex in content and especially through
the solutions claimed, relate research on the theory of CP in various international and global
communities, Governments and NGOs, to the
practice of establishing the measures and guidelines needed to create the necessary and appropriate legal and institutional frameworks, hence
providing consumers protection. Into such
a context, the global community, through its
highest forum the United Nations (UN)
found it necessary to discuss the issue of structures inferred by consumer protection, adapted by
the resolution no. 39/248, on April 8, 1985,
Guidelines on Consumer Protection.
According to this important document, Governments of all countries should develop,
strengthen, and maintain a strong CP policy, taking into account the guidelines stated. The final
document is the result of an extensive research,
consultation, and collaboration of various UN
bodies with national institutions.
The guiding principles of the United Nations
are intended to provide all countries with
a framework that can be used in CP. From this
viewpoint, the main objectives each country
must focus on, both at governmental and
nongovernmental levels are:
Facilitating manufacture and delivery of
goods suitable for consumers needs and
requests
Encouraging high level ethics of employees
working in manufacturing and delivery
Controlling, through national and international laws and regulations, abusive trade
practices affecting consumers
Promoting international cooperation in consumer protection areas
Encouraging development of market conditions providing consumers with a wide range
of products and advantageous prices

Consumers Protection

Establishing national priority systems

according to economic and social circumstances specific to level of development, population characteristics, and needs
Promoting and protecting consumers economic interests
Ensuring consumer access to accurate information, allowing them to choose according to
their personal desires and needs
Developing and providing consumers education systems
Mandatory complying with laws and regulations of the countries all companies,
manufacturing or commercial, do business
with
Obligatory complying with the international
standards of CP
Establishing nationally organizations able create and apply CP policies according to the
countrys laws
Ensuring consumers and other representative
groups or associations the freedom of
organizing and appointing leaders in order
to express their views in the decisionmaking processes and to represent their
interests
By their nature, the principles outlined by the
UN and recommended to the member states governments are subject of states public
administration.
Guiding principles for consumer protection
are the result of international efforts of the World
Consumers Organization, created in 1960.
Currently, the World Consumer Organization
consists of 220 member organizations in almost
all countries. These organizations have met in
Santiago in November 1997 as part of the 15th
World Congress, under the motto More powers
for consumers in the twenty-first century. Consumers in civil society. Congress message has
been very clear: in all countries, people in their
capacity of consumers, play a crucial role in
developing institutions arising from the ongoing
process of democratization and economic
liberalization.
Organizing consumers protection as
a complex process, which involves both public
power and consumer himself, focuses on:

Consumers Protection

National and international laws and regulations to underpin the consumer protection
Public institutions created to watch over consumer protection in each country (Offices of
Consumer Protection)
Ministries, departments, or other governmental bodies that act in branches which, besides
the sector-specific objectives, take the responsibility of consumer protection
National research institutes and scientific
centers
Organizations and consumer associations
Consumer Advisory Committees
International organizations for consumer
protection
In defending consumers rights, particular
roles get international organizations. Thus, in
1960, was founded the International Organization
of Consumers Unions (IOCU), a body which
represents and supports consumer organizations
worldwide organized as a nonprofit foundation,
the International Organization of Consumers
Unions (IOCU) currently gathers 180 organizations from 70 countries. IOCU provides support
in three directions:
Promoting collaboration among members
through various means
Enhancing consumerism movement and
supporting newly emerged organizations
Representing the consumer interests in international institutions
The IOCU leadership is provided by the General Assembly, Board and an Executive body.
Operational, the IOCU is organized as follows:
Central Office, headquarter in London
Regional Office for Asia and the Pacific
(ROAP)
Regional Office for the Latin America and
Caribbean (ROLAL)
Regional Office for Africa (ROAF)
The Program for Transition Economies
(PROTEC)
The Program for Developed Economies
(PRODEC)
In Europe, Consumers Rights Center (CRC),
created in 1978 in the University of LouvainNeuve, Belgium, participate in research programs focused on consumers laws and legal

459

regulations. Along with IOCU, the European

Committee for Standardization mandated CRC
to develop Consumers Institutions and Consumerism Policy Program (CICPP), both being also
appointed to manage the Phare Program for CP.
In Germany, the governmental bodies
involved in CP are yet to be established, consumers rights being defended by the civil
society. Generally, CP is concerned with two
primary services, namely, the information and
councils, provided by Ordnungsamt and Central
Advisory Council of Consumers. Ordnungsamts
office is responsible for monitoring laws
application in CP areas, both at federal and
Lands level. Specialized inspectors are
empowered to carry it out, to impose fines or,
sometimes, to seize certain suspected assets. Penalty system is applied following a procedure,
which includes three phases: alert, application
fines, and drive trial. In each province, there is
a CP council, while at local level consumers
counseling offices act as an independent organization, which tries to resolve disputes among
consumers and manufacturers on one hand, as
well as importers, traders, and services providers,
on the other hand.
In Italy, the General Economic Inspection is
concerned with fulfilling the laws regarding CP,
primarily those relating to prices, restricting from
activity those businesses found guilty, including
drafting the required documentation in criminal
investigations, where appropriate.
In Belgium, the General Economic Inspectorate, Department in the Ministry of Economic
Affairs coordinates all activities in CP area,
including two special units responsible for investigations, at national and European level, and
seven regional directorates, which operates in
countrys provinces.
The Swedish consumer policy has a long tradition; in 1986, Parliament has performed
a partial revision. National Council for Consumer
Policies is the main body concerned with CP, its
activities being focused on family savings, products safety, traditional marketing, and contract
terms.
In Greece, the main responsibility in CP is
assigned to Directorate for Technical Control

460

and Consumer Protection, its organizational

structure comprising five departments with activities covering areas of goods and services,
research and studies, inspections and analysis,
as well as consumer protection and information.
In Luxembourg, consumer protection is assigned
exclusively to central government, the responsibility of adopting and implementing the legislation in the field is shared among several
ministries.
In UK, the main responsibility of consumer
protection programs is assigned to local authorities. Therefore, the local authorities in England
and Wales, responsible for consumer protection
are Metropolitan Districts and Counties
Committees.
In Scotland, the legal enforcement on consumer protection is the responsibility of Regional
Councils while in Northern Ireland, Governmental Department for Economic Development leads
the specific activities.
Provided that many more voices believe that
community bodies, Council of Europe and European Commission have created an over-in consumer protection, which becomes a real
impediment, it was created EFLA, with five
members (Norway, Denmark, Sweden, Switzerland, and Luxembourg), thus conceiving a new
economic space. Consisting of economically
important countries, which do not necessarily
need community support, this organization supports the Council and Commission efforts, noting
the consumer protection actions of those bodies,
but without engaging in their implementation and
application.

Key Issues
On April 9, 1985, the United Nations General
Assembly adopted the UN Guidelines for Consumer Protection, following more than 10 years
of hard lobbying by Consumers International,
then known as IOCU as well as other consumers
organizations. As the basis of CIs work on consumer protection and law (CPL), the guidelines
embrace the principles of consumer rights and
provide a framework for strengthening national

Consumers Protection

and international consumer protection policies.

Finally, with adoption of guidelines, consumer
rights were as well internationally recognized,
legitimized, and acknowledged by most of the
countries. However, and unfortunately in many
given deeds, they are ignored or trivialized by
governments, producers, or various interests
(political or economic). Therefore, establishing
good consumer protection legislation is fundamental to the global development of consumer
rights, covering areas as campaigns on providing
essential services, to better standardization and
fair labeling.

Future Directions
The assertions made by customer protection
organizations and associations must be thought
over as reasonable claims as they come under the
consumer protection guidelines which have been
adopted by the United Nations. No doubt the
most important principles included in the consumer protection guidelines stands for
a structure or guide for states and governments,
especially in building and popularizing policies
and legislation to certify consumer protection.
This is necessary in many countries, where the
matter of consumer protection is the topic to
relevant deficiencies, and most are, however, in
need of new legislation in this scope, functioning
to build and improve the existent legislation to
encounter the demands of recent developments in
spending, business activity and production at the
local, regional, and international level. The principles must also contribute to the promotion of
global partnership in the field of consumer protection within the structure, where the states and
governments are committed to providing at more
than a minimum of these principles.
These principles provide a set of points and
guidance to governments that should be brought
out to provide a perfect protection for consumers,
while considering that each government must
acknowledge urgencies for consumer protection
complementing with the setting of the countrys
economic and social circumstances. In this context, the matters that face citizens, economies,

Continual Improvement

and societies influence consumer protection laws

and policies more. Markets globalization is
increasing the role of consumers while consumers authorization led to new and critical
responsibilities for them in managing their own
statements and decisions. In this environment
many can benefit, however children and elders
(statistically growing in consumption) increasing
the number of vulnerable consumers not so much
instructed. In these years, the need for assured
consumers to appeal to economies had never been
bigger. Globalization of manufacturing and commerce will continue leading to more import
goods consumed in various countries. Traders
will sell to global consumers through
e-commerce means. This act will increase the
challenge as well as the need to effective market
surveillance. Therefore, in the future, the governments, institutions, and any other stakeholders
must aim to achieve three main objectives at the
national, regional, and global level:
To empower consumers for putting customers
in the first place will benefit them and encourage competition considerably. Empowerment
will be fulfilled through better monitoring the
markets and national consumers protection
policies. Authorized and enforced consumers
will call for real choices, precise data, market
transparency, and the faith that comes from
efficient care and strong rights.
To increase consumers prosperity in terms of
price, quality, diversity, and safety because
their well-being and welfare are by the core
of well-functioning markets.
To defend consumers efficiently from the acute
risks they cannot intercept as people. A high
level of protection against these menaces is
necessary to customer trust through better consumer protection regulation and through continuously consumers information and education.
In order to reach these objectives a high level
of consumer protection must be ensured through:
Easy legal frames, enhanced evidence, fair
dialogue, and better representation of consumers concerns
Efficient implementation of regulations particularly by way of enforcement partnership,
knowledge guidance, and amendment

461

Cross-References
Consumerism
Health and Safety (EHS)
Responsible Consumption
Transparency
Unethical Products

References and Readings

Dinu, V. (1999). Goods standardization and certification.
Economica. Economica Publishing House, 147.
European Commission.com. (2007). EU consumer policy
strategy
20072013 empowering consumers,
enhancing their welfare, effectively protecting them.
Brussels: Commission of the European Communities.
Evans, P. (2005). Unwrapping the WTO: What consumers
need to know. London: Consumers International.
Evans, P. (2006). Consumers and the future work of WTO
where do we want to go from here? London:
Consumers International.
Sitnikov, C., & Bocean, C. (2010). New approaches of
consumers protection in terms of management
systems international standards evolution. Amfiteatru
Economic Journal, 12, 360372.
United Nations, DESA. (2003). United Nation guidelines
for consumer protection. New York: United Nations.

Contamination
Pollution (Separate Entries
e-Waste, Ecoefficiency)

on

Continental European Model

Relationship-Based Systems

Continental Model
Relationship-Based Systems

Continual Improvement
Kaizen

Carbon,

462

Continuous Improvement

Continuous Improvement

Conversion of Goods

Kaizen
TQM

View on the Ground: CSR from a Capabilities

Approach

Contractarian Ethics

Co-operation Between NPOs and

Companies in Germany

Social Contract

Contractarianism

Holger Backhaus-Maul and Martin Kunze

Philosoph. Fakultat IIIErziehungswissenschaften/Fachgebiet Recht,
Verwaltung und Organisation, Martin-LutherUniversity Halle-Wittenberg, Halle, Germany

Social Contract

Synonyms

Contractual Ethics
Social Contract

Cross-sector collaboration; Cross-sector interaction; Cross-sector partnerships; Partnerships of

NGOs and companies

Definition

Contractualism
Social Contract

Conventional Cheap Oil

Sustainable Primary Energy Production

Conventional Oil
Sustainable Primary Energy Production

Conversations
Social Dialogue

Until now, there is no common definition of the

intersectoral cooperation between nonprofit organizations (NPOs) and companies. One reason
might be the broad variety of scientific disciplines and institutional actors dealing with this
topic. Another reason is the huge variety of
characteristics of such cooperation, as the phenomenon evolves in different fields, related to the
involved sectors, the number of involved organizations, the aim, the concrete conditions, and the
circumstances of the cooperation. Furthermore,
there are no common instruments to initiate and
manage such cooperation, and there are no specific legal guidelines. In practice, intersectoral
cooperation exists within a wide range, beginning
with a very informal way with loose connections,
to contractually specified long-term relationships. As a result of this heterogeneous situation,
there is a huge variety of terms for these types of
organizational interaction across sectors, such as
strategic collaboration between nonprofits

Co-operation Between NPOs and Companies in Germany

and business (cf. Austin 2000), cross-sector

(social-oriented) partnerships (cf. Selsky and
Parker 2005), or civil-private partnerships.
With a very broad understanding, intersectoral
cooperation can be defined as a constellation,
organisations from different economic sectors
public, nonprofit, and business co-operate to
address social issues by providing society with
public goods (Seitanidi and Lindgreen 2010:
1; cf. Selsky and Parker 2005).

Introduction
The increasing debate on corporate social
responsibility (CSR) and corporate citizenship
(CC) since the 1990s illustrates a new perspective on the societal role of companies. Companies are not closed entities producing services
and goods but rather societal actors, which are
influenced by and influencing societal development. One crucial aspect is the changing relationship between companies as representatives
of the economic sector on the one hand and
organizations from the political and civil society
sector on the other hand (cf. Selsky and Parker
2005). Among the main reasons are societal
processes related to globalization, which undermine the scope of action for national states and
open spaces for new organizational constellations at different levels. The whole debate on
multilevel governance illustrates this development. On the one hand, companies get involved
in challenges, such as basic social questions.
Companies act, for instance, as providers of
social services or as purchasers of social services provided by NPOs. On the other hand,
NPOs gained more importance as stakeholders
for companies in the past years and are these
days important players in the business sector.
This can be illustrated by several campaigns
against companies by NPOs. In general, NPOs
gain importance for companies and vice versa.
Although cooperation between both actors is
becoming more likely, the specific circumstances and processes of these partnerships
remain unclear, as only companies are in the
focus of the debate until now.

463

In this entry, we would like to offer

a classification for a differentiated view on such
intersectoral cooperation. Since the last couple of
years, cooperation between companies and
NGOs have gained huge attention, especially
within the debate on CSR and CC (cf. Austin
2000; Seitanidi and Lindgreen 2010). Within
this debate, there are at least two major mutually
exclusive dimensions of how this new evolving
intersectoral cooperation should be assessed.
Instruments such as social sponsoring, causerelated marketing, or corporate volunteering are
on the one side described as a way of greenwashing, where notorious underfunded NPOs are
sleeping with their enemies (cf. Crane and
Matten 2007: 440; CorporateWatch 2006: 19)
and thereby run the risk of losing credibility and
independency as fundamental resources of societal legitimacy. On the other hand, cooperation of
companies and NPOs is assessed as drivers of
innovation, and is a part of a new form of governance, whereby actors of the civil society sector,
the business sector, and the political sector work
together in a productive way to deal with societal
problems, instead of adversarial stakeholder
strategies a real winwin situation (cf. SustainAbility 2003). From our point of view, both
perspectives are realistic, and we want to illustrate this.

Key Issues
As mentioned before, the terms CSR and CC
highlight the role and influence companies have
on society in general, besides producing goods
and services and providing jobs. As companies in
Germany have not much expertise in dealing with
societal issues like poverty, education, and social
services, in most of the cases they are relying on
NPOs to develop instruments corresponding to
the concrete social situation. According to literature, this could lead to a winwin situation, that
is, the involved organization gains (business
case) and as such cooperation meet social problems, the society benefits (social case). The business case describes expected advantages of
intersectoral cooperation from an economical

464

point of view. Core elements of the business case

are human resources, marketing, organizational,
and local development. The business case for the
NPOs is on the other hand expected in terms of
funding and such new projects, organizational
developments, and management know-how
(cf. SustainAbility 2003). The case for the
society the social case is again assumed to
occur by implication. Empirical evidence of these
assumptions has not yet been assessed. Instead the
contribution of companies as organizations with
strong resources and professional expertise is
always seen as having a positive impact on the
cooperating NPOs and of course society a real
positive-sum game (cf. SustainAbility 2003).
Besides missing empirical evidence of the
expected advantages of intersectoral cooperation,
there are also theoretical concerns related to these
relationships. A basic assumption is that companies and NPOs are considerably different, related
to their organizational logic, their organizational
goal, and their basic organizational structure (cf.
Crane and Matten 2007). While companies are
supposed to maximize private profits, NPOs
which aggregate and represent interests are supposed to be socially inclusive, associative, and
provide public services (cf. Anheier and Seibel
2001). In some respects, NPOs can be described
as an institutionalized answer of market failure.
Another distinctive feature is the decision making
process within the organization, which in most of
the cases is hierarchically organized in companies and based on membership democratic structures in NPOs (cf. Anheier and Seibel 2001).
Furthermore, differences can be identified in the
funding of organizations. NPOs are often dependent on public and private spending, and companies gain their financial resources from the
banking sector, and increasingly the financial
market. Considering these substantial differences, cooperation between companies and
NPOs seem to be highly preconditioned. This
becomes more clearly, if we have a more detailed
view of which type of NPO is involved.
Varieties of the Civil Society Organizations
The legal term of nonprofit organizations and the
correspondent in social sciences describe a wide

Co-operation Between NPOs and Companies in Germany

range of organizations with different goals,

notions, legal status, and structures (cf. Anheier
and Seibel 2001). From a functional perspective
on NPOs, four ideal types of NPOs can be
differentiated (cf. Sache 2001: 17ff.):
1. Membership-based organizations (e.g., sports
clubs)
2. Interest groups (e.g., economic or political
interest groups)
3. Service
organizations
(e.g.,
welfare
organizations)
4. Support organizations (e.g., foundations)
(1) Membership-based organizations are typical for sports and leisure. Purposes of these organizations are the representation of the common
interests of their members. Core attributes of
such organizations are the recruitment of
new members, collectivization, and bonding of
personal members. (2) Interest groups exceed the
associative character of membership organizations by pursuing certain interests of their members. The spectrum of these representative
organizations ranges from specialized interests
of small groups to the point of common societal
concerns. Besides that, interest groups represent
substitutional interests of marginalized groups in
society. They gain political influence through
participation in political decision making
processes or a position of an extra parliamentary
watchdog. Classical representatives of this type
of NPOs are trade unions, organizations of
employers and organizations like Amnesty International, Greenpeace, and Transparency International. (3) Service-oriented organizations more or
less produce and distribute services for specific
groups. Welfare organizations are a traditional
example for this type of organizations. These
welfare organizations (Wohlfahrtsverbande)
provide basic public services all over Germany
and partly worldwide, for example, German Red
Cross. In general, service-oriented organizations
are not only service providers, they are also associations and political interest and lobby organizations (cf. Backhaus-Maul 2000). (4) The aim of
support organizations is generally to support
activities and projects of a third party through
financial funding, administrative assistance,
etc. In most of the cases, these organizations are

Co-operation Between NPOs and Companies in Germany

foundations in legal terms and can be found in

fields like science, culture, and international
development aid. Besides big traditional foundations, small community foundations and a fast
growing number of corporate foundations illustrate recent developments within this field.
It is clear that this classification follows ideal
types of organizations. In reality, several
multifunctional NPOs can be found. They fulfill
more than one function at the same time, such as
huge service-oriented welfare organizations,
which understand themselves as service providers, agents of social marginalized groups,
and associative organizations. Nevertheless, this
outline of a functional differentiation of NPO
allows instructive implications related to the connections of NPOs within their organizational surrounding. Adopting these schemes on financing
of NPOs results in the following differentiated
picture: Membership-based organizations are
mostly financed through membership fees,
whereas service organizations receive payments
for their services and interest groups, just as
support organizations are often dependent on
donations. This aspect results in different
stakeholders the organization is accountable for
and thus in different strategies in the relationship
with companies. In matters of the relationship to
companies, and especially cooperation with
companies, this classification unfolds a certain
heuristic content.
To illustrate that, we explain the different
implications on intersectoral cooperation
between companies and NPOs for interest groups
and service organizations.
Cooperation Between Interest Groups and
Companies
Nonprofit interest groups have gained a lot of
public attention and have become increasingly
important within political and societal decision
making processes. Several critical campaigns of
interest groups against multinational companies
illustrate this. Accordingly, the relationship of
corresponding NPOs and companies is more
strained than cooperative (cf. Baringhorst et al.
2010; Crane and Matten 2007). After several lost
battles in the past years (e.g., Brent Spar in 1995),

465

companies seem to be much more skilled in handling critical interest groups. The systematic integration into stakeholder dialogues is one of the
companys ways of doing so (cf. Crane and
Matten 2007). The possible strategies of NPOs
vary in the scope of critique and confrontation,
from name and blame to the development of
common projects (cf. Crane and Matten 2007;
SustainAbility 2003). To cooperate with companies requires interest groups to take certain risks,
such as losing their accountability and credibility.
Many organizations criticize that companies use
the labels CC or CSR for greenwashing, without
serious efforts to act more responsibly. Cooperation with companies seems therefore like
sleeping with the enemy for many interest
groups (cf. CorporateWatch 2006: 19f.; Crane
and Matten 2007: 440). Autonomy is for interest
groups a constitutive attribute and can be lost
easily by cooperating with wrong organizations,
as the failed cooperation between Greenpeace
and Lidl 2007 in Germany illustrates. On the
other hand, it seems to be dangerous, or at least
not justified, for interest groups to refuse dialogue
with companies, which declare themselves open
for dialogue.
Many observers assume that the relationship
of interest groups and companies is changing
toward a more cooperative atmosphere. NPOs
develop new strategies, which can be described
by moving from confrontation to cooperation
and communication (cf. SustainAbility 2003).
Although there is no clear empirical evidence, it
can be expected that interest groups remain
skeptical if they should cooperate with
companies in order to preserve autonomy as
a key attribute of their societal legitimacy
and that they should react with reserve to
corporate attraction. At the same time, the
communication will be intensified between companies and interest groups. Although interest
groups gain a lot of public attention through
huge campaigns, they often represent only
a small part of the civil society. In terms of
employees, economic relevance and organizations in most of the countries service organizations are far more important (cf. Anheier and
Seibel 2001).

466

Cooperation Between Service Organizations

and Companies in Germany
In Germany, NPOs in the field of social services,
especially welfare organizations, are traditionally
incorporated in government politics and the public provision of services. These NPOs are generally financed by the state and through fees; in
other words, they are not dependent on private
donations. Due to the specific development of the
German welfare state, cooperation between companies and nonprofit service organizations have
not been relevant for NPOs. The influential idea
of subsidiarity has an important impact on the
institutionalization of nonprofit service organizations, which intend to prioritize NPOs in producing public social services before public and
private organizations. Connected to the rise of
the German welfare state since the 1960s, nonprofit service organizations began to develop
tight connections to welfare state institutions.
As a result, service-oriented NPOs in Germany
and many Western European countries did not
have much interest in building connections with
business. Globalization and the crises of the welfare state affect this privileged position of nonprofit service organizations, and the tight
connection and relationship between state and
nonprofit welfare sector have been gradually
loosened (cf. Backhaus-Maul 2000).
As the risks of social inclusion are about to
increase, established welfare state institutions
seem to be somehow overstrained and dissolving.
Furthermore, companies in almost all Western
welfare states are increasingly confronted with
social issues like poverty and social change. In
this situation, collaborative relationships between
companies and service-oriented NPOs are more
likely, as both actors can identify common interests and develop common projects to touch or
meet those interests.
Summing up, by assessing cross-sector collaborations between companies and NPOs, it is
important to consider the setting and the type of
NPO involved. As shown, different types of organizations are engaged in different settings of partnerships. Therefore, each partnership follows
distinctive rules, patterns, and circumstances of
the cooperation. While service-oriented NPOs

Co-operation Between NPOs and Companies in Germany

are far more open to cooperate with companies

(than interest groups), path-dependent patterns in
the relation of business, state, and civil society in
Germany often hinder such cooperation. On the
other hand, nonprofit interest groups are much
more reliant on independence and credibility,
and cooperating with companies implies a huge
risk of losing these sources of legitimacy.
Furthermore, independent nonprofit interest
groups are an important corrective power within
society. Therefore, it can be expected that cooperation between companies and service-oriented
NPOs will become much more likely than
cooperation between companies and nonprofit
interest groups.

Future Directions
Due to rising societal challenges, empty public
coffers, and a changing role of companies, cooperation between companies and NPOs is about to
increase. For NPOs, this development is certainly
not free of risks. In reality, those cooperations do
not always create an ideal winwin situation.
Instead cooperation between NPOs and companies is more or less a power play, where both
NPOs and companies will directly face trends
of economization within society. A long-lasting
dependency of NPOs from the business sector
could be the result; however, NPOs in Germany
are still connected with state and civil society,
which might be the guarantee for independency
in an economized global society.
Since there has not been much attention to
collaborative business-NPO relations, there are
several questions which future research should
aim to answer. Some of the main issues might
be the societal legitimization of companies,
NPOs, and the collaboration among them. Furthermore, there is a need for more experienced
practitioners who are able to handle and manage
those unbalanced partnerships. Until now, there
is no clear evidence that cooperation between
companies and NPOs can fulfill such high expectations, like, for instance, solving societal challenges. To answer these questions, instead of
more quantitative data, broader and especially

Core Principles of CSR Approaches

qualitative analysis of those partnerships is necessary to gain more in-depth knowledge on processes, outcomes, and dynamics of such
cooperation.

Cross-References
Business Case for CSR
Business in the Community (UK+Derivatives)
Corporate Citizenship
Corporatism
NGOs and CSR
Partnership
Poverty
Public-Private-Partnerships
Stakeholder Theory

References and Readings

Anheier, H. K., & Seibel, W. (2001). The nonprofit sector
in Germany. Between state economy and society. Manchester/New York: Manchester University Press.
Austin, J. E. (2000). Strategic collaboration between nonprofits and business. Nonprofit and Voluntary Sector
Quarterly, 29(1), 6997.
Backhaus-Maul, H. (2000). Wohlfahrtsverbande als

korporative Akteure. Uber

eine traditionsreiche
sozialpolitische Institution und ihre Zukunftschancen.
Aus Politik und Zeitgeschichte, 50(26/27), 2230.
Baringhorst, S., Kneip, V., Marz, A., & Niesyto, J. (Eds.).
(2010).
Unternehmenskritische
Kampagnen
Politischer
Protest
im
Zeichen
digitaler
Kommunikation. Wiesbaden: VS-Verlag.
CorporateWatch (2006). Whats wrong with corporate
social responsibility? Corporate Watch Report 2006,
Oxford.
Crane, A., & Matten, D. (2007). Civil society and business
ethics. In ebd (Ed.), Business ethics. Managing corporate citizenship and sustainability in the age of globalization (pp. 403454). Oxford: Oxford University
Press.
Sache, C. (2001). Stufen der Gemeinwohlforderlichkeit:
B
urgerschaftliche Organisationen und Steuerprivileg.
Gutersloh: Verl. Bertelsmann-Stiftung.
Seitanidi, M. M., & Lindgreen, A. (2010). Editorial:
Cross-sector social interactions. Journal of Business
Ethics, 94(1), 17.
Selsky, J. W., & Parker, B. (2005). Cross-sector partnerships to address social issues: Challenges to theory and
practice. Journal of Management, 31(6), 125.
SustainAbility. (2003). The 21st century NGO. The market
for change. London: SustainAbility.

467

Cooperative Development
CSR and Regional Development

Coordinated Market Economies

Relationship-Based Systems

Core Principles of CSR Approaches

Mia Mahmudur Rahim
Macquarie Law School, Macquarie University,
Sydney, NSW, Australia

Synonyms
Principle for corporations in environmental
performance; Principles in corporate relationship
with stakeholders; Principles of corporate
strategies for social development

Definition
The principles of corporate social responsibility
(CSR) practices at the business enterprise level
denote the basis upon which a business enterprises
economic, social, environmental, and stakeholder
approaches are based. Enterprises follow many
principles for these four approaches, and within
those, one principle for each is prominent. Those
prominent principles are the core principles for the
respective CSR approaches. For instance, the core
principle of the societal approach of CSR is that
business enterprises should integrate social concerns into their internal strategies and consider the
full extent of their respect on communities.

Introduction
CSR is increasingly an essential issue for business
enterprises. It is a company and multidimensional

468

organizational phenomenon that is understood as

the scope for which, and the way in which, an
organization is consciously responsible for its
actions and non-actions and their impact on stakeholders. However, until now, this concept has not
been conclusively determined. Despite the inconclusive definition, this concept is inwardly consistent and converges on some common characters
and similar elements. More precisely, if CSR is
looked at from a practical and operational point of
view, CSR approaches converge on two points:
they require business enterprises (a) to consider
the social, environmental, and economic impacts
of their operations and (b) to be responsive to the
needs and expectations of their stakeholders.
These two points are embedded in the meaning
of the three words (i.e., corporate, social, and
responsibility) of the phrase corporate social
responsibility. The word corporate generally
denotes business operations, social covers all
the stakeholders of business operations, and the
word responsibility generally refers to the
relationship between business corporations and
the societies within which they act together.
They encompass corporate responsibilities that
are innate on both sides of corporate relationship
with society. CSR holds business enterprise to
maintain these responsibilities following some
basic principles. These principles help them to
interact with stakeholders and maintain legitimacy
of their actions in larger society.
The triple bottom line introduced by
Elkington is one of the most well-known
models that discuss corporate approach to fulfill
their social responsibilities. Within this model,
the concept of CSR emphasizes three responsibilities of a business enterprise: social, economic,
and environmental responsibilities. These
responsibilities are necessary to ensure economic
prosperity, environmental quality, and social
justice. Corporate roles to facilitate stakeholder
engagement with corporate activities that are
related with the broader social issues are also
within CSR practices. Freeman argues that business enterprises have a responsibility to add
stakeholders with corporate activities as stakeholder engagement is a vital way for business
enterprises to deal with their external

Core Principles of CSR Approaches

environment effectively. Considering these

actions for fulfilling social responsibilities of
business enterprises, CSR practices could be
grouped into four major approaches: societal
approach, environmental approach, economic
approach, and stakeholder approach. These
approaches have their own core principles, and
business enterprises follow these principles to
extend their CSR practices. The proceeding sections describe these principles.
Core Principles of CSR Practices of Business
Enterprises
Principle of the Societal Approach of CSR
Business and business enterprises are integral part
of the society; they run the economic life of the
society. However, they were less related with the
noneconomic issues in the society as they were
meant only to do business and develop markets.
As business societies were growing as dominant
economic power, scholars started aligning their
arguments for extended roles of business in social
development. Particularly in the USA, this notion
emerged as a social and political reaction to the
rapid growth of capitalism during the 30 years
following the American civil war (18611865).
Big business enterprises were related with this
political reaction. They appeared in the USA at
around 1870, and as they grew, an antitrust
movement against the robber barons also grew
(Bichta 2003). Indeed, the rationale for this antitrust movement was due to these big enterprises
misuse of economic power, wastage of resources,
and socially irresponsible behavior. At this juncture, scholars put forward pragmatic arguments
that societal approach in CSR can promote their
reputation, employee recruitment, and retention
and can limit regulatory intervention into their
business (Davis 1960).
The societal approach of CSR practices further
developed along with the lengthy period of postwar economic development and the beginning of
vibrant cultures that originated environmentalism,
consumerism, feminism, etc (Bichta 2003). These
cultures mobilized civil societies to demand business enterprises commitment to contribute for
environmental protection, indiscrimination in
recruitment for jobs, charitable donations, and

Core Principles of CSR Approaches

community investment. With this development,

this approach gradually relates with the business
products and process and includes social cost for
business operations. Now unrestricted use of pesticides, producing chemical weapons, equality in
workplace, transporting of toxic material, etc., are
related with CSR practices (McCormick 1989).
Here, the principle in setting up the relationships
between the business and society is that business
enterprises should work for building up a better
society, and therefore, they should incorporate
social concerns in their business strategies; they
should consider the full scope of their impacts on
society. Hence, the societal approach holds business enterprises to maintain a better working
and business environment and to assure good citizenship in the society.
The social contents of an enterprises CSR
practice cover an array of issues that could be
divided into three clusters: (a) labor rights and
practices, (b) human rights, and (c) other social
issues. Business enterprises deal with these issues
based upon some principles. Generally, they
follow all general labor standards related with the
basic human rights while dealing with workers. As
far as human rights are concerned, the respect for
protection and compliance with international
human rights standards in the jurisdiction of enterprises operations are important corporate social
behaviors. The UN Global Compact affirms that
business enterprises should sustain and respect
internationally promulgated human rights within
their sphere of influence. The phrase (as quoted
from the preamble of UDHR) within their sphere
of influence indicates the inclusion of a wide
range of people who are either in or outside corporations and linked to or influenced by the business operations. Here, the principle is that business
enterprises must ensure that they are not complicit
to human rights abuse. Based upon this principle,
they engage in social investments and philanthropic activities in communities.
In sum, the societal approach of CSR practices
denotes that business enterprises have responsibilities for the promotion and protection of all relevant
civil, political, economic, social, and cultural rights
of those who are within their sphere of influence.
They should contribute to building better societies,

469

and they should therefore integrate social concerns

into their core strategies and consider the full extent
of their respect on communities.
Principle of the Economic Approach of CSR

The economic approach of CSR practices and the

development of the core principle of this approach
could be traced back to the arguments of Milton
Friedman. He argued for shareholder primacy
into the economic approach of CSR practices. He
vividly differs with the societal approach of CSR
and argues that business enterprises have only one
social responsibility which is to maximize profits.
In the societies, as he points out, every group has
specific function, and hence, business enterprises
main function is to do business for generating
returns for their investors. In other words, he is
against the trend that accepts business enterprises
performing social responsibilities other than
engaging themselves for generating more profits
for their stockholders. Those arguing in this line
also argue that business enterprises that incur cost
for performing social responsibilities put them in
economic disadvantages compared to other less
socially responsible enterprises, which in turn
hampers the effectiveness of market. Here, the
principle is that a business enterprises social
responsibility is limited to the generation of its
shareholders economic improvement, preservation of profitability, and conducting its business
operation efficiently.
These principles, however, put economic
approach of CSR practices into a narrow
economic instrumentalist conception which is,
as Duane Windsor mentions, insufficient and
counterproductive for society and business
enterprises. He adds that ensuring security and
justice in economic operations in competitive
market is not enough for economic development
of business enterprises and suggests that these
conditions should be buttressed by the broader
public policy and ethical forces. Since economic
man is not perfectly selfish, as Alfred Marshall
argued, ethical forces are among those of which
the [business enterprise] has to take account.
This notion further extends by the triple bottom
line dimension of CSR. This dimension provides
14 economic indicators that show a business

470

enterprises economic approach to meet its socioeconomic responsibilities. Among these indicators, (a) economic impact on community through
spending and geographic variations; (b) economic impact through catering suitable business
process; (c) outsourcing, knowledge, innovation,
and social investments in employees and consumers; and (d) taxes, tax incentives, wages, pensions, and other benefits paid to employees are
most important (CCBE 2003). These indicators
extend the economic approach of CSR practices;
they relate this approach with the broader sense of
CSR that also investigates moral rights of individuals in relationship to business and moral duties of
business in relationship to social outcomes
(Windsor 2006). CSR practices relate the ethos
of economic man with the philosophies of corporate citizenship. Its practices shift the narrower
economic approach of enterprises to the broader
approach of corporate citizenship. No matter what
the artificial citizen gets as privilege or responsibilities, the true standard of citizenship is selfrestraint and altruism beyond self-interest. At this
point, the comment of Adam Smith is prominent;
he mentioned: He is not a citizen who is not
disposed to respect the laws and obey the civil
magistrate; and he is certainly not a good citizen
who does not wish to promote, by every means in
his power, the welfare of the whole society of his
fellow-citizens (Smith in Windsor 2006).
Business enterprises have social responsibilities. For them, performing these responsibilities
depends upon convincing financial payoff that
these responsibilities can create. To add these
two factors performance of social responsibilities and financial payoff business enterprises
evaluate effects of its decisions on external social
system in a manner that their decision accomplish
social benefits along with traditional economic
gains. They relate with social issues as low level
of social responsibility performance may
increase their financial risk where potential investors relate business enterprises managerial inefficiencies with their less socially responsible
performance. While business enterprises relate
more with the social activities, they, in fact,
improve their standing with more important
constituencies like bankers, investors, government

Core Principles of CSR Approaches

officials,
larger
scale
of
customers,
etc. Performing corporate responsibilities not
only incurs costs for the enterprises but also
ensures sustainable profit range and brand reputation. Hence, incentives for business enterprises to
relate with CSR are many. CSR relationship can
enhance public relations through which an enterprise can avoid bad publicity and can increase
brand differentiation. CSR practices help to manage corporate risk via proactive corporate culture.
Preempting of mandatory/legislative measures
with stricter and enforceable standards is another
important incentive for business societies if they
could add CSR practices within their culture.
Indeed, proper business strategies can keep
explicit cost of social responsibilities minimal and
can create benefit out of these responsibilities.
Socially responsible actions in terms of employee
morale always raise employees productivity and
face relatively less labor problems. On the other
hand, low performance of social responsibilities
could raise doubt into the abilities of business
enterprises to produce quality products, and
because of this doubt, customers may not favorably
dispose of their products. Hence, Paul Samuelson
supports the efforts of enterprises to engage in
social performances, as he writes, a large corporation these days not only may engage in social
responsibility, it had damn well better try to do so.
The green paper on the promotion of a European
framework for CSR has endorsed this views.
While designing a CSR framework in Europe,
the European Commission in the Corporate
Social Responsibility:A Business Contribution
to Sustainable Development identifies that the
basis of this framework should be a structural
and partnership-based approach between business
and their various stakeholders and a concerted
effort by all those concerned toward shared objectives. In broader perspective, this framework aims
to interlink CSR, economic progress through
increased competitiveness of business enterprises,
public policy, and societal progress. A growing
number of countries and business enterprises are
following this perspective. They are more closely
integrating CSR notions into key aspects of their
business strategy and practice. Their abilities to
handle the main intangibles are more important

Core Principles of CSR Approaches

than before. Nowadays, successful business strategies hold clear understanding of societies changing demands. For example, British Petroleum
commits to go beyond petroleum, and the Ford
Motor Corporations vision is to become
a provider of mobility.
However, the societal concern mentioned in
the vast body of literature on CSR, stakeholder
integration into corporate governance, and business ethics has been criticized on the point that
the domain of CSR cannot be assessed by
primarily economic criteria, and neither can an
environmental ethic be developed through an
ethically pragmatic managerial mortality that
primarily serves organizational interests
(Fineman in Banerjee 2006). Hence the critics
of CSR put questions into the construct and concepts of discourses, for example, on corporate
greening based on deep ecology, ecocentric,
or sustaincentric management. The models of
strategies for incorporating CSR notions into corporate management are not beyond criticism;
these models are not conclusive in attaining its
purposes. But these models have firmly proven
that these are creeping toward creating effective
impacts on the relationship between CSR and
corporate management. Experiment of different
strategies for relating its practices with business
operations has already gained considerable
acknowledgement from the business and civil
societies. Jennifer J Griffin and John F Mahon
evaluated 62 research articles spanning 25 years
of research and found that 33 articles demonstrate
a positive correlation between corporate social
and financial performances. This finding was
reevaluated, and the number of researches that
showed positive correlation has increased. These
researches are from the real world and followed
by established methodologies. For example,
a meta-analysis conducted by Frooman concludes that good corporate social performance
leads to good corporate financial performance
(Giffin and Mahon 1997). To establish this conclusion, six chemical industries were reviewed and
concluded with the hope for those of us who
believe in some positive relationship between corporate financial and social performance (Giffin and
Mahon 1997). Fortune reputation ratings over an

471

11-year period also find evidences of positive relationship between social and financial indicators.
Business enterprises performance of their
social responsibilities could be viewed in three
major ways. First, business enterprises face
trade-off between social responsibilities and financial performance. Second, cost for performing
social responsibilities is minimal, and business
enterprises can strategically be benefited from
these expenses. Third, cost for performing these
responsibilities is significant but could be offset by
a reduction in other managerial costs. These views
hold that business societies have responsibilities to
societies, and these responsibilities could be
turned as tools for their profit maximization. This
correlation has driven the economic approach of
CSR toward a broader dimension within which the
core principle is that a business enterprise should
maintain efficiencies in producing goods and services and in adding values to the socioenvironmental life of the society.
Principle of the Environmental Approach of CSR

Environmental approach of CSR contends the

operational activities of corporations that have
immense impact on living and nonliving natural
resources, land, air, and water, including ecosystems. For the big business enterprises, this
approach is mostly based upon major international instruments providing normative standards
of corporate responsibilities for environmental
protection. The principles for this approach are
many and vary according to the varied circumstances. Among others, UN Global Compact is
a prominent international organization that fixed
some principles related with environmental
liabilities of international business enterprises. It
details that business enterprises should adopt a
precautionary approach to environmental
challenges, undertake initiatives to promote
greater environmental responsibility, and
encourage the development and diffusion of
environment-friendly technology.
ICC Business Charter for Sustainable Development and OECD are two other international
organizations that set principles for delivering
environmental responsibility of international
business enterprises. ICC Business Charter

472

extends the Global Compactinitiated environmental principles to the principles of environmental management on the basis of priority and
the efficient use of energy, materials, and renewable resources with able corporate management
systems. Here, the core principle is that business
enterprises are responsible for adopting
a precautionary approach, the minimization of
adverse environmental impact and waste generation, and the safe and responsible disposal of residual waste. ICC Charter identifies these principles
as important concern that relates environmental
approach of CSR and corporate responsibilities
for environment. OECD Guidelines for Multinational Enterprises focus on the assessment and
consideration of enterprises of the possible environmental and environment-associated health consequences of their activities and their impact on
indigenous natural resources, and on estimation of
health risks of products. These guidelines point out
that the environmental approach of CSR practices
should focus on the measures for mitigating the
adverse effects of environmental degradation.
Environmental approaches in CSR practices are
used as a vital tool, for instance, to control eco-risk
for global enterprises and retailers. A business
enterprises responsibility is not to put the environment into an awkward position. Otherwise, the
enterprise would likely face legal actions and in
most cases might lose market share. With the rise
of transparency, ethical consumerism, and impact
of branding on market share, unethical business
practices or irresponsibility usually causes huge
negative impact on business. Business enterprises
have acknowledged these principles. For instance,
McDonald pushes back on its supply chain to lower
antibiotic use in chickens or asks for documentation
that ensures that its suppliers produced cattle do
not have mad cow diseases. Intel spends millions to
ship its hazardous waste from some developing
countries to the United States so it can be disposed
of properly. Helping customers to reduce their environmental problem can generate customers loyalty
and attract new sales; reducing products energy
use or toxicity also can add to customer value.
Hence, strategies for minimizing customers burden
can also be the strategies for maximizing profits.
John Deeres recent foray into renewable energy

Core Principles of CSR Approaches

would be a good example at this point. This tractor

maker enterprise started up a business unit to help
farmers harvest wind energy: they offer financial
backing and consulting. This may seem an odd fit,
but it becomes a source of value innovation: an
enterprise known for providing farmers with the
tools they need is offering to help them survive
and create new revenue streams.
The principles for environmental approach of
CSR practices balance the demand for profit
generation out of investment and social need for
minimizing the harm in environment due to
business operations. The core of these principles
is that environmental concern in business
operations can generate long-term profit and
reputation and minimize risk in business, and therefore, business enterprises should have roles in
repairing environmental damages caused by their
irresponsible uses of natural resources.
Principle of the Stakeholder Approach of CSR

The core of the stakeholder approach of CSR is

that anybody who has been affected by the enterprises operations has stakes in enterprises
operations. It reflects the ideas that the conduct
of enterprises can be a concern of a broader range
of peoples than merely shareholders. All these
persons in these groups are vital to the success
and survival of a corporation. Generally,
these persons could be divided into three types of
stakeholders:
organizational
stakeholders,
economic stakeholders, and societal stakeholders.
Together, these three types of stakeholders form
a concentric set of circle where the employees of
the enterprises are the foremost organizational
stakeholders; customers, creditors, distributors,
suppliers, etc., are the economic stakeholders;
and communities, government, civil societies,
environment, etc., are the societal stakeholders.
Stakeholder principles hold that business organizations are responsible and accountable to their
shareholders, and they are also responsible to consider the legitimate interests of stakeholders. These
principles do not reject profitability and wealth
creation initiatives. Jones and Wicks stress that
the aim of this principle is not to shift the focus
of firms away from marketplace success toward
human decency but to come up with

Core Principles of CSR Approaches

understandings of business in which these objectives are linked and mutually reinforcing. These
principles strike a balance between business profit
and stakeholder interests as business enterprises
have immense influence on the lives of stakeholders. The core of these principles is that the
business enterprise has to value the rights of its
stakeholders. This principle implies that if the business enterprise wants to guarantee their legitimacy
in society and be granted the license to operate that
recognize the responsibilities of all parties involved
in the running of organizations, they should pay
attention to the legitimate claim of their
stakeholders.

Key Issues
Despite the inconclusive definition, different
approaches, and many dimensions of CSR, the
major approaches of CSR practices are related
with economic, social, environmental, and stakeholder issues. Although these approaches are not
conclusive, they are inwardly consistent and converged on some common characters and similar
elements. The core principle of the societal
approach of CSR is that business enterprises should
contribute to building better societies and, therefore, should relate social concerns into their core
strategies and consider the full scope of their impact
on societies. More particularly, this principle
requires business enterprises to implement fair
wage policy, upholding human rights, fair trade
and ethical issues, producing safe products, and
cooperating in the networks of business enterprises
and communities. The economic principle emphasizes business enterprises efficiencies in producing
social goods without tilting social and environmental values. This principle denotes that along with the
responses to the financial expectations of shareholders, business enterprises should have focus on
the economic well-being to society as a whole. The
environmental principle, in short, is that
the business enterprises should not harm the
environment for maximizing their profits and they
should have strong roles in repairing
the environmental damage caused by their irresponsible use of natural resources. Finally, the principle

473

of stakeholder approach of CSR practices hold

business enterprises responsible in considering the
legitimate interest of their stakeholders.

Future Directions

C
The basis of corporate responsibility has
transitioned from why business enterprises must
be socially responsible to how they can become
socially responsible. CSR is now a major component of new business and corporate governance
models for long-term sustainability. Business enterprises take different approach for fulfilling their
social responsibilities following some core principles developed in CSR scholarship and practice.
CSR is a complex subject, and its definition is
contingent on situational factors. At this point, the
core principles of its approaches are necessary for
the development of its implementation in business
regulation. The core principles of economic,
social, environmental, and stakeholder approaches
of CSR would assist the CSR standardization
regime to relate CSR notions with corporate strategies more efficiently; this would help this regime
to practice a universal standard. Moreover, this
identification would help other organizations for
initiating any strategies related with CSR. These
principles could also be considered as the cornerstone for developing a socially responsible corporate culture at the business enterprise level.

Cross-References
Caux Round Table Principles
Definitions of Social Responsibility
Equator Principles
Strategic Corporate Social Responsibility

References and Readings

Banerjee, S. B. (2006). Corporate citizenship, social
responsibility and sustainability: Corporate colonialism for the new millennium. In J. Jonker, & M. de
Witte (Eds.), The challenge of organizing and
implementing corporate social responsibility (p. 43).
New York: Palgrave Macmillan.

474

Bichta, C. (2003). Corporate social responsibility: A role

in government policy and regulation? (p. 13). Bath:
University of Bath, School of Management.
Carroll, A. B. (1999). Corporate social responsibility:
evolution of a definitional construct. Business and
Society, 38(3), 268295.
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framework for corporate social responsibility: green
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Communities.
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(CCBE). (2003). Corporate social responsibility and
the role of the legal profession: A guide for European
lawyers (p. 13). Brussels: CCBE.
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is defined: an analysis of 37 definitions. Corporate
Social Responsibility and Environmental Management, 15(1), 113.
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Friedman, M. (2007). The social responsibility of business
is to increase its profits. Corporate Ethics and
Corporate Governance 173.
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performance and corporate financial performance
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McCormick, J. (1989). The global environmental movement Reclaiming paradise. London: Belhaven Press.
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003).
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responsibility: a three-domain approach. Business
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approaches. Journal of Management Studies, 43(1), 93.

Core Values

Corporate (Social) Responsibility

Assurance
Social and Environmental Assurance

Corporate Accountability
CSR and Poverty
Good Corporation
Small- and Medium-Sized
Engagement in CSR

Enterprises

Corporate Beliefs
Corporate Mission, Vision and Values

Corporate Charitable Contributions

Corporate Giving

Corporate Citizenship
Catalina Soriana Sitnikov
Faculty of Economics and Business
Administration, University of Craiova, Craiova,
Dolj, Romania

Synonyms

Core Values
Mission Statements (Credo, Way, Vision)

Corporate governance; Corporate social responsibility; Ethical investing; Social responsibility;

Socially responsible investment

Definition

Co-regulation
Public Policies on CSR

Corporate citizenship (CC) is one of the story

words in todays business arena. Now generally

Corporate Citizenship

viewed as worthy among communities and in the

corporate world, CCs definition has been evolutionary. Since the commencements of CCs surge
in popularity over a decade ago, the most coherent trend has been for companies to engage in it
through philanthropic giving and community
involvement. These two paths have apparently
been the most obvious and logical way for companies to do the right thing. Popular press, management theory literature, and corporate PR
reports highly recommend and justifiably
numerous examples of company contributions
to charities and sponsorship of community
events.
Today, however, the definition of CC is
expanding. For some, CC is about a new contract
between businesses and society, a vision of partnership between different sections of community,
which allies profitable companies with healthy
communities because what happens to societies
happens to business. In addition, CC is seen as the
role of a company in considering its responsible
involvement within the wider community. Investors use an internal definition, including transparency, governance, and ethics as key citizenship
elements. Others often define it as the full range
of both internal and external corporate activities
that contribute to the well-being of society, those
which embrace the related concepts of sustainability and corporate social responsibility (CSR).
Corporate citizenship recognizes that businesses have a responsibility to respect the individuals, the community, and the environment in
a way that when devising or implementing any
rightful business strategy, they will abide by the
laws and regulations and adhere to high ethical
standards. With increasing awareness and study
of corporate influences across environmental,
economic, and social arenas, companies are
being prodded through both competition and
public pressure to make sustainable efforts in
all of these areas. To do this efficiently, company
must formulate the concept of corporate citizenship into their mission declarations and the very
framework of their organizational structure. Corporate governance; fair employee treatment;
green ways of thinking, doing, and being; and
structured, ongoing giving to have become the

475

fundamental underpinnings of sound and

rewarding corporate citizenship. Regardless of
the heavier responsibility of this broader symbol
of corporate citizenship, corporations are progressively feeling the concrete and progressive
benefits.

C
Introduction
The remarkably reality that corporations, experts,
scholars, and others use the term corporate citizenship as one of the equivalent words for the
public or community drives of business warrants
seizing seriously transformed corporations into
active performers from citizenship perspective.
The probability of corporations demanding, or
being allocated, a political or legal status
corresponding to individual citizens is, somewhat
rightly, a cause of interest for many scholars and
practicians. In this way, one can, at the very least,
value corporations in part on their own relationships by studying them through the lens of
citizenship.
Furthermore, citizenship is a notion which is
particularly concerned with functions and
responsibilities. More specifically, citizenship is
an establishing principle for associating roles and
responsibilities among representatives of political communities (i.e., on a leveled dimension)
and between them and other institutions exercising authority and accountability (i.e., on an
upright dimension). This is important since current controversies about the roles and responsibilities of corporations are, for example, spirited
by concerns about who the corporation should be
answering to, why, and in which ways the responsibility should be released. Citizenship puts forward a way of functioning through these
relational concerns using a set of concepts and
structures that have been well founded in theory
and practice for many years. Thirdly, and more
generally, the concept of citizenship is at the core
of larger deliberations about societal governance
of which corporations shape a central part. Consequently, criticisms of corporate power, for
example, are frequently underpinned by an opinion that corporations and their plans are directly

476

designing citizenship independence and variety.

Then again, there is the opinion that human
citizenship is being recasted since the major
institutional delegates of citizens, democratic
governments, are being replaced by corporate
power. However, more extensively, there is the
concern that the modern forces of globalization
and the diluting of national governments are also
detrimental to efficient citizenship. Although this
latter point does not forcefully straight connect to
corporations, by virtue of their capacity as envoys
of globalization, they are implicated in broader
political debates about citizenship. Linking corporations with citizenship should not be perceived from citizenship viewpoint where this is
merely used to assist in understanding particular
points of the corporation. Furthermore, the corporation can be used to study the theory and
practice of citizenship. Nowadays, various concepts of citizenship are in movement, while
experts of political science and sociology have
gotten to be more and more interested in the role
of marketplaces, multinationals, and other economic causes involved in the change of citizenship. Therefore, the time is suitable for
a concentrated inquiry of the nature and influences of corporate players on citizenship. Of
course, even to start this attempt, one needs to
recognize at least some initiating points for what
one means by citizenship in the context. As the
dynamic tasks of corporations in business society relationships are complicated and manysided, throughout the last decades, a triad of
tracks in which the notion of citizenship can and
has been used to light up business society relationships developed corporations as citizens, as
governments, and stakeholders as citizens.
In this context, one must focus on the thought
that corporations can be considered citizens. The
idea that corporations are or not like humans or,
more specifically, citizens, has been examined
recently. In this view, corporations are examined
on a related leveled connection with other corporate and humans as citizens. From human citizens perspective, corporate citizens are studied
on an upright connection of entrustment with
authorities in which the citizens author the
mandate of authorities. Corporations can be

Corporate Citizenship

thought over as citizens, inasmuch as they work

with and participate in society and in putting
forward their concerns to authorities and
responding to authorities legislation and action.
The target here is especially on the ways corporations share the levels and process principles of
citizenship. Assertions about corporations being
like citizens can have a number of origins; anyway, inevitably these are not coherent. For centuries, European business people immersed in
citizenship-like paths by way of their integration
of and involvement in their associations, the heralds of business organizations, which supplied
structures of administration in distinctive businesses and forms of reciprocal assistance. In
ancient periods of representative public affairs,
business possession empowered people to come
across a property franchise.
Furthermore, corporations may well be
thought over as part of community in that their
members, owners, executives, or workers are
members of society. Related to this matter, practices of industrial paternalism or charity voice the
social aspect of industry. Hypotheses of business
authenticity are often theorized on the required
corporations to be the winner of the confirmation
of society for their individual and collective
being and accomplishment.
The suggestion that corporations may well be
seen as citizens can as well outline on the somewhat different kind of reason that they have an
individual operational and judicial uniqueness:
They are commended or denounced, they sign
agreements, enter accords, and build internal
decision-making structures and frameworks free
from the individuals inside the corporation.
Industries can enter the legal agreements, be
owners, hire employees, prosecute, and be prosecuted. Therefore, a corporation can be dealt with
in the legal environment as an artificial person.
More widely, the use of the citizen term linked
to corporations can outline on the rationale that
every large corporation should be thought of as
a social enterprise; that is, as an entity whose
existence and decisions can be justified only insofar as they serve public or social purposes. Even
though there are obviously boundaries to the
implementation of the citizenship term to

Corporate Citizenship

corporations especially concerning their position

(they do not participate in voting or participate in
panels), corporations can have several limited
entitlements that are related to those of citizens:
protection under the judicial influence and eligibility for grants under various civil policy governments (education programs). However, their
first affirmation to be seen as citizens subsists in
the way they take part in various practices of
citizenship. In this context, corporations are
brought forward in various ways. First, corporations are involved in financing or in lobbying
different campaigns or causes. Second, corporations are involved in daily governance through
designing, manufacturing, and selling goods or
services on the markets, along with making decision on hazardous or unethical technologies to
employment, providing goods or services to or
from minorities or other groups. Then,
nongovernmental organizations and civil society
associations are seen and sought as partners for
addressing various administrative issues as such
healthcare, education, training, and community
development. Political debate is a case in view
for corporations as just the example of global
warming, governments involvement, and corporations raising the voice of the world-known
experts on addressing this policy matter.
Nowadays, it is not anymore remarkable that
there is a suggestive opposition to the implementation of citizenship into the examination of corporations, and vice versa. Envisioning
corporations through a citizenship base has been
waved as an idea whose time has not come or as
little more than neoliberal propaganda. This
hesitance to accept corporations inside the vocabulary of citizenship is founded on a hypothesis
that if one does, it will be to validate the corporations political task. Critically considering the
conception of citizenship assists to examine
governmental parts that corporations engage in
will lead one to, inevitably linking citizenship
and corporations in a whole.
The current notion of citizenship as purely
status kept under the authorization of the government has been appealed and widened to comprise
various governmental and public works of identification and redistribution as occurrences of

477

assertion making and consequently, in addition

of citizenship. As an outcome, many works
founded upon particularity and distinction
(whether sex, ethnic, cultural, diasporas, ecologic, technical, and urban) have created tracks
of expressing their pretensions to citizenship
implied not just as a judicial position but as governmental and public identification and economic
redistribution. Consequently, there is a quite miscellaneous, many-sided comprehension of citizenship that somewhat compounds its
implementation to the corporation. At the same
time, as it is impractical to shorten this whole
argument, there are various reshaping of citizenship, which have relevant links for corporations
such as urban (cosmopolitan), ecological, and
ethnic citizenship.
The primary and evident change of citizenship
took place as a consequence of globalization as
this has pregnantly influenced the control means
of the key reference pinpoint of the long
established conceptions of citizenship, the state
nation. The increase occurrence of urban citizenship particularly a citizenship performed by
multinational associations shows a quite vivid
range of transformed and extended forms of citizens entitlements, position, and practices of
involvement. While theories such as human
rights control the aspects of status and entitlements, there is seen a recent field of involvement
in the many-sided, several might even state
a disorder, field of international civil community
with its abundance of players who contrast considerably from every one with regard to authority,
authenticity, and concerns. The deliberation on
urban citizenship stresses courses of authorizing
citizenship, modern ways of involvement, as well
as broader and various remark points for what
composes the pertinent governmental community. Nowadays, urban citizenship makes
a place for positioning corporations in the international ground. Moreover, during the last
decades, it was witnessed the enterprising task
of corporations in changing almost all of this
general specifics and traits of citizenship. Subsequently, urban citizenship gives a start area for
much wider conceptions of citizenship, particularly concerning the part that any corporation

478

plays in modeling citizenship. The meanings of

the conception of CC at the international level are
large and various. First, urban citizenship gives
plenty of space for positioning corporations in
a diversity of angles of citizenship and hence
inlays them in the brand new scene of global
governmental organization. Second, this aspect
also underlines a number of boundaries of corporations in seizing up this new political function.
Apart from the clearly unassuming goals corporations expose when using the language of international citizenship, the field of urban citizenship
presently still occurs as a quite diffuse acting
scene, granting political tasks to corporate
players who provide a low amount of complementary levels of clarity, comprehensibility, temperateness, and accessibility to public discussion
and control.
During the last years, as a reply to developing
apprehensions about the planet and its future,
conceiving relationships of citizenship versus
the background of the ecologic environment has
become a steadily more favored method of framing discussions in environmental policies. Ecologic citizenship is focused on the position,
entitlements, and practices of involvement that
relate citizens to the environment. Once more,
the conceptions of ecologic citizenship are
many-sided, changing from percepting citizenship as informal bond with a definite land or as
just a supplement of usual citizenship entitlements, comprising the right to a protected and
normal natural ambience and environment. Like
urban citizenship, ecological aspects can also
pregnant develop privileges and responsibilities
of civilians, producing new communal ties to
people in various territorial areas or new generations (who could be influenced by the ecologic
effect of the current time). Once more, the viewpoint of ecologic citizenship has a sum of meanings for comprehending corporations as
governmental players. On the one hand, corporations actually have been quite enthusiastic in
exportation and modeling conceptions and convictions of (tolerant) citizenship that disjoints
people from their environment (no matter which
one). On the other hand, corporations have also
confronted a developing inquiry for valuing

Corporate Citizenship

ecologic pleas of their stakeholders, who steadily

more comprehend a secure environment as one of
their integral civic entitlements. In the end, the
ongoing discussion on suitable acknowledgments
to global climate alteration has faced corporations with the difficulty of distinguishing their
pertinent community of duty. Taking all these
facts into account, the conceptions of ecologic
citizenship can lead to a resettlement of corporate
accountability close to local as well as global
communities, and moreover, to tomorrow generations and beings.
Following the evident extensions of urbane
and ecologic citizenship, a keen multiplication
of other citizenship characters, which are theorized on social individualities such as age, ethnicity, impairment, and sexual orientation were
considered. Citizenship individuality, frequently
related to cultural citizenship, seizures the style
groups comprehend and see themselves as internally united and distinct from other people in the
polity. These traits are used as a foundation for
expressing pleas to part the larger citizenship
position from where they have been disallowed
or to get specific citizenship benefits or dispensations in relations with entitlements and/or practices. One can hold a conventional position as
a citizen yet be left out (in law or in fact) from
particular civil or public privileges or from types
of involvement in the political practice valid for
society.
In this context, one can situate corporations in
the horizon of individuality-based citizenship in
fundamental ways. Industry can mirror a citizens
identity such as industries opened and run by
disadvantage groups or various minorities or, on
the other hand, industries that provide typical
food for minorities. Then, corporations can perform a central part in empowering citizenship
individualities. This can occur at the degree of
providing people, who in other ways would not
have the right to remain in a specific state, with an
occupation (here, it is the matter of many legal
and sometimes illegal immigrants to rich countries). Moreover, corporations provide an excess
of goods and services, which empower minorities
or impaired to act like different types of involvement in their larger communities.

Corporate Citizenship

Lastly, and combining the two directions

referred to before, corporations have often been
related to binding citizenship individualities.
This can happen by banning particular ethnic or
sexual orientations from work, by limiting the
advancing of certain employees, or by providing
goods and services that lead to stamp out the
representation of citizenship individualities.

Key Issues
Corporate citizenship endeavors to widen the
perspective of political postulating about corporations by reasoning about a number of ways that
corporations and citizenship can come in conjunction. The link (as citizen) and the
reconfigurations of citizenship (urbane, ecologic,
individuality) prove that there are numerous
paths to examine corporations as the forceful
player from citizenship view. Each path exposes
the affluence and complexity of the part corporations play in citizenship area; plus in conjunction,
they prove the trouble of advocating a conclusive
consideration of the corporations duties from
citizenship point of view.

Future Directions
Even though the citizenship hypothesis does not
provide any rapid ready-made answers, it assists
to comprehend this brand new certainty and
empowers in investigating its connections for
autonomy and social administration. Discussions
about the governmental character of the corporation have already been initiated, and the developing of concepts about corporations and
citizenship can give them a significant input. In
the future, the inputs of citizenship theory must
initiate discussions on the settings, requirements,
usual approaches, and restrictions of corporation
involvement in power dividing in community
like (un)equal citizens accompanied by distinct
citizens on a parallel level or as players implicated in the administration of citizenship on an
upright level. Furthermore, investigation is
needed here regarding what this could actually

479

represent for executives and policies makers and

what the prescriptive implications of such evolutions could be. Therefore, mapping out the actual
area of research and using various methods of
study academic, heuristic, prescriptive, and
applicable prove to be useful to further the
understanding in this field.
There is also the need of reshaping citizenship,
which opens the view of watching at corporations
in the framework of citizenship, while being
aware of the probability that corporations might,
in fact, have important influences on citizenship.
Corporations are not unassertive actors in a firm
scene of citizenship practices and organizations.
The motion of citizenship is, to some extent,
modeled by the projects of corporations. Therefore, there is a need for a greatly large consideration in the adjacent disciplines of political
sciences, international relations, philosophy,
sociology, and legislation about the effect of corporations on the movement of current citizenship
theory and practice. Comparing, the corporations
and their position have lately got thorough consideration, while the discussion on citizenship
still indicates bordered increase of the corporate
character in actively modeling and changing the
idea of citizenship. Therefore, new and large
debates about corporations and citizenship must
eventually be able to conduce to understand not
only corporations but also the conception of citizenship. This issue is one of the most stimulating
and demanding courses of theoretical evolution
yet expecting to be uncovered.

Cross-References
Business Case for CSR
Community
Corporate Governance
Corporate Governance as a Tool for
Alleviating Developmental Issues
Corporate Social Innovation
Corporate Social Responsibility
Corporate Social Responsibility in Tourism
Economic Globalization
Embedded CSR
Global Environmental Management Initiative

480

Good Corporation
Institutes of Directors and CSR
Philanthropy
Poverty
Small- and Medium-Sized Enterprises
Engagement in CSR

Corporate Citizenship and Africa

Corporate Citizenship Reporting

Disclosure (CSR Reporting)

Corporate Codes of Conduct

References and Readings
CCRU (Corporate Citizenship Research Unit) at Deakin
University in Australia. (2005). View of corporate
citizenship. http://www.deakin.edu.au/arts/ccr/index.
php
Dahl, R. (1985). A preface to economic democracy.
Berkeley: University of California Press.
Jones, M. T., & Haigh, M. (2007). The transnational
corporation and new corporate citizenship theory:
A critical analysis. Journal of Corporate Citizenship,
27, 1829.
Matten, D., Crane, A., & Moon, J. (2009). The
corporation as a political actor: A citizenship perspective. Paper presented at the annual meeting of the
WPSA ANNUAL MEETING Ideas, Interests and
Institutions, Hyatt Regency Vancouver (Online).
http://www.allacademic.com/meta/p317271_index.html
The Center for Corporate Citizenship at Boston
College. (2005). What is corporate citizenship?
http://www.bcccc.net/index.cfm?fuseactionPage.view
Page&pageId567&nodeID1&parentID473
van Oosterhout, J. (2005). Corporate citizenship: An idea
whose time has not yet come. Academy of Management Review, 30(4), 677684.

Corporate Citizenship and Africa

CSR and Africa

Corporate Citizenship and Poverty

CSR and Poverty

Corporate Citizenship Measurement

(Instrument)
Corporate Social Performance Measurement

Lutz Preuss
School of Management, Royal Holloway,
University of London, Egham, Surrey, UK

Synonyms
Business code; Business principles; Code of
ethics; Ethical policy; Statement of business
practice

Definition
According to the OECD (1999, p. 5; in the original in italics), corporate codes of conduct are
defined as commitments voluntarily made by
companies, associations or other entities, which
put forth standards and principles for the conduct
of business activities in the marketplace.
Such obligations can either be unilaterally
adopted by the organization or be negotiated
with a range of stakeholders. From an initial
prominence in US corporations, codes of conduct
have over the last few decades spread to most
parts of the world. The code of conduct has thus
become one of the most widespread CSR tools
globally. Furthermore, codes have been adopted
not only at organizational level but also at the
supra-organizational one such as codes by
industry associations, civil society organizations,
or intergovernmental organizations as well as at
the suborganizational one like codes for specific
corporate functions or individual CSR issues.
Given that codes are situated within the issuing
organization as well as within the social system in
which the organization is embedded, their
content should reflect both organizational and
social priorities. Codes of conduct have thus

Corporate Codes of Conduct

given rise to the twin hopes that they embody

an emerging global consensus on standards of
corporate behavior vis-a`-vis key organizational
stakeholders and through that are able to
make a substantial contribution to filling the
regulatory void that currently exists at transnational level.

Introduction
In a few cases, codes of conduct were adopted by
values-led firms in the early part of the twentieth
century. For example, US retailer J. C. Penney
introduced a code, termed The Penney Idea, in
1913. It consisted of seven statements that
reflected the corporate philosophy of the
companys founder and included the requirement
To test our every policy, method and act in this
wise: Does it square with what is right and just?
Another early example that is still in use today is
Our Credo, a code drafted by Johnson &
Johnson in 1943. From about the 1970s onward,
codes of conduct have become more widespread.
They also underwent a shift in nature from
expressing founder values to becoming a more
compliance-driven tool.
Codes of conduct are particularly prominent in
the United States, where they had developed into
a standard CSR tool by the 1990s. During the last
two decades, such documents have also become
widespread in other industrialized nations, such
as Canada, the United Kingdom, Germany,
France, Sweden, or Australia. Following the transition from centrally planned to market economy
in Eastern Europe, codes of conduct have
emerged in that part of the world too. In developing countries, significant adoption rates of codes
have been reported for countries as diverse as
South Africa, India, Argentina, Brazil, or
Mexico. In Asia, a growing trend of addressing
CSR through formal corporate documents is
noticeable too, although this is seemingly linked
to the stage of economic development of the
respective country, as companies in Japan or
South Korea have more relevant documents in
place than those in Malaysia or China. Today,
most large companies 92% of the G250

481

(KPMG 2008) have a code of conduct in place

(see also OECD 1999; Kaptein 2004).
In addition to company-level codes, such
documents have also been adopted at
supra-organizational level by various business
associations, social interest groups, and intergovernmental organizations (Preuss 2010). These
contain a range of stipulations that companies
then take up in their codes or not. In any case,
a discussion of corporate codes would be incomplete without acknowledging the range of
supra-organizational codes:
Such codes have been developed by a range of
industry associations, like the Code of Business Practices by the International Council of
Toy Industries or the the Equator Principles,
which provide guidance to the financial services industry on the assessment and management of environmental and social issues in
project financing. Industry association codes
were often developed in response to criticism
over environmental issues or labor standards
in supply chains but have recently also
emerged in industries beyond those that were
in the initial limelight. As industry associations need to find a common denominator
among their members, the requirements of
their codes are often less demanding than
those of other codes (Kolk and van Tulder
2002).
Parallel to industry associations, a number of
social interest groups have designed their own
codes. Examples are the Coalition for Environmentally Responsible Economies with its
CERES Principles for environmentally
sound business or the Workplace Code of
Conduct through which the Fair Labor Association (FLA) seeks to protect worker rights
and improve working conditions. NGO codes
are often much more demanding than codes
developed by other organizations, but their
chances of implementation are low, since
social interest groups lack the power to coerce
companies into the acceptance of these (Kolk
and van Tulder 2002).
Some codes can be classified as national-level
ones where national governments are instrumental in their adoption. An example would

482

be the Base Code of the Ethical Trading

Initiative (ETI) in the United Kingdom which
was set up with support from the UK Department for International Development. At
regional level, there are codes that are promoted by a set of national governments, such
as the Code of Business Conduct designed
by Asia-Pacific Economic Cooperation
(APEC).
Furthermore, codes have been adopted by
a range of intergovernmental organizations,
like the conventions by the International
Labour Organization (ILO) or the Organisation for Economic Co-operation and Developments (OECD) Guidelines for Multinational
Enterprises. Strictly speaking, these are binding on national governments rather than individual firms, yet references to the fundamental
ILO Conventions and the OECD Guidelines
are frequently included in many companylevel codes. Often, codes by intergovernmental organizations cover a wide range of issues
but may not be as detailed in terms of their
stipulations as NGO codes. Having said this,
the OECD Guidelines are one of the most
comprehensive codes of conduct, as they
address corporate reporting, employment and
industrial relations, environmental issues,
combating bribery, consumer interests,
science and technology implications, competition, as well as taxation.
Codes by intergovernmental organizations
culminate at the global level in the United
Nations Global Compact, a set of ten principles of responsible business practice in the
areas of human rights, labor standards, environment, and anticorruption, which companies of any sector or size can subscribe to.
The Global Compact is often hailed as the
largest corporate citizenship initiative in the
world. According to its own figures, 5,300
businesses from 130 countries participated in
the initiative by June 2009. However, the
Global Compact is also an illustration of the
weaknesses of code issues by intergovernmental organizations, particularly in terms of the
clout they have to enforce corporate adherence
to the code.

Corporate Codes of Conduct

At suborganizational level, codes can give

guidance for members of individual corporate
functions, such as engineers or computer professionals, as well as for specific CSR challenges,
whether these are child labor, corporate philanthropy, or biodiversity. Again, a discussion of
corporate codes of conduct requires taking notice
of these suborganizational codes. Some companies use an all-in-one model for their codes where
all CSR requirements are collected in a single
document, whereas others use a differentiated
suite model and have adopted a range of standalone documents to address individual CSR challenges (Preuss 2010).
A first suborganizational code is the code of
ethics. This can be an alternative term for
a code of conduct, yet some companies have
adopted both. In such cases, the code of ethics
often deals with specific ethical issues
employees may face, such as compliance
with legislation, conflicts of interest, gifts
and hospitality, or insider information,
whereas the code of conduct may set out stakeholder relationships that are important to the
company. As a more pronounced version of
this division of labor, some codes of ethics
deal specifically with the requirements that
arise for senior managers out of legislative
developments like the Sarbanes-Oxley Act of
2002.
Another widespread category of suborganizational codes are environmental or sustainability policies. Given their title, these policies
tend to concentrate on environmental issues,
sometimes, but not necessarily so, to the
detriment of social ones. Greatest salience is
usually given to issues that promise concrete
economic returns, such as reducing energy
consumption, increasing resource efficiency,
or reducing waste generation, whereas issues
that are less easy to convert into tangible benefits, like climate change or biodiversity, tend
to be addressed less often.
Some companies adopt CSR policies, quite
often in addition to an environmental one.
Their content is often organized either by
CSR issue or by stakeholder. CSR policies
tend to concentrate on social issues, such as

Corporate Codes of Conduct

support for local communities, decent

working conditions, or health and safety at
work. They also tend to contain general commitments to environmental protection,
although in contrast to environmental policies,
these commitments are often not spelled out in
further detail.
In addition to these, many companies have also
adopted codes for individual CSR challenges,
like a human rights policy, a community
investment policy, or a biodiversity statement. Such codes tend to be found in industries that have been in the public limelight over
specific issues, as the adoption of an animal
testing policy by retailers of home care and
personal care products illustrates.
Another widely adopted category are codes for
individual
corporate
functions,
such
as marketing or supply chain management.
A responsible marketing code by
a manufacturer of alcoholic beverages is an
example of this category. In some organizations,
these function-specific codes are backed up further by ethical codes for the function. Both categories are often influenced by codes developed
by the respective professional bodies. For example, with regard to the supply chain management
function, the US-based Institute for Supply
Management has developed Principles and
Standards of Ethical Supply Management Conduct and the UK-headquartered Chartered
Institute of Purchasing and Supply adopted its
CIPS Code of Ethics.
Codes at organizational, supra-organizational,
and suborganizational levels thus form
a latticework of intermeshing documents (see
Fig. 1). Some of these documents stand in a hierarchical order to each other, as stipulations of the
ILO Conventions or the OECD Guidelines for
Multinational Enterprises may be taken up in
corporate codes of conduct and then also included
in environmental or CSR policies. Other codes
operate in parallel to each other, as for example,
codes by industry associations, social interest
groups, and intergovernmental organizations do
at the supra-organizational level or codes of
conduct and codes of ethics at the organizational
level.

483

Code Content
Although the range of codes a company adopts
may be impressive, the question arises how
comprehensive corporate codes of conduct are.
Comprehensiveness is an important indicator of
code quality as the more elaborate a code is, the
better the adherence to its stipulations can be
monitored (Kolk et al. 1999). Code comprehensiveness can be discussed along three dimensions: (a) in terms of which CSR issues
corporate codes of conduct typically address,
(b) what the reach of the code is along the
value chain, and (c) what monitoring and compliance stipulations codes entail.
With reference to the range of issues
addressed in codes of conduct, the OECD
(2001) analyzed a sample of 246 corporate,
industry association, NGO, and intergovernmental codes in terms of nine issues: environmental
stewardship, labor standards, science and technology, competition, information disclosure, taxation, bribery and corruption, and consumer
protection; in essence, the areas the OECD
Guidelines for Multinational Enterprises
cover (see Fig. 2). While noting considerable
differences in terms of both code content and
degree of detail, the OECD study found that
labor standards (60% of 246 codes) and environmental stewardship (59%) were addressed most
often across the sample, followed by consumer
protection (48%). By contrast, bribery and corruption (23%), competition issues (20%), information disclosure (18%), or science and
technology issues (11%) were only mentioned
in a minority of documents, taxation just in
a single one (0.4% of the sample). However,
many codes also contained extensive passages
regarding some fairly narrow questions of internal control and shareholder value. In terms of
labor standards, the provision of a reasonable
working environment (76% of codes), compliance with labor laws (66%), and banning discrimination and harassment (61%) were mentioned
most often. These were matched on the environmental side by a commitment to comply with
environmental laws (68%) as well as in terms of
consumer protection by a commitment to provide

484

Corporate Codes of Conduct

Supra-organizational level
Global code

IGO code
NGO code

Regional code

Industry code
National code
Specific stipulations
Code of conduct
General
stipulations

Code of ethics
Environmental/
sustainability policy

CSR policy
Ethical code for a
function

Functional code

Code for specific

CSR issue

Sub-organizational level

Corporate Codes of Conduct, Fig. 1 The Range of

Corporate Codes of Conduct. Reproduced with kind
permission by Springer from Preuss, L. (2010) Codes of

Conduct in Organisational Context: From Cascade to

Lattice-Work of Codes, Journal of Business Ethics, 94
(4), p. 477

goods and services that are safe and of high

quality (77%).
A second aspect of code comprehensiveness
concerns the reach of the code, that is, whether it
applies to the code issuing company only or goes
beyond this to cover business partners along the
value chain too. Indeed, it is one of the key
challenges in CSR management that the boundary of responsibility for the firms social and
environmental impacts is often much wider than
both the boundary of its legal responsibility and

its sphere of direct control (KPMG 2008). The

OECD (1999) thus distinguished between codes
that apply to:
The code issuing company only but including
its affiliates and joint ventures (or in the case
of industry association codes its member
companies)
Contractors, that is, any business which
directly contracts with the code issuing company to perform work or provide services,
materials, or components

Corporate Codes of Conduct

485

70
60
50
40
30
20

10

di

n
at
io

Sc

ie

nc

an

at
io

Ta
x

og
te
c

sc

hn

lo

ol

su

tit
io
pe
m
m
fo
r
In

re

y
er
Co

ot
ec
er

pr

Br
ib

n
tio

p
hi
ds
um
Co

ns

ta
l
m
en

En
vir
on

La
b

or

st

an

st
ew
ar

da

rd
s

Corporate Codes of Conduct, Fig. 2 CSR issues

addressed in codes of conduct (in percent, n 246
codes) (Source: OECD 2001, p. 8). Reproduced with
kind permission by the OECD from OECD (2001).
Codes of Corporate Conduct: Expanded Review of their

Contents, OECD Working Papers on International Investment, No. 2001/06. Paris: Organisation for Economic
Co-operation and Development. http://dx.doi.org/
10.1787/206157234626

Subcontractors, that is, any business which

does not contract directly with the code issuing company but contracts with one or more of
its contractors
Customers, that is, any natural or legal person
who distributes, buys, or sells the companys
goods or services, including the final
consumer
Analyzing a sample of 233 corporate, industry
association, NGO, and intergovernmental codes,
the OECD (1999) found that 82% of codes apply
to the code issuing organization, 50% also to its
contractors, 22% furthermore to subcontractors,
and 34% also to customers. The vast majority of
codes thus cover only the code issuing company
and its employees, usually containing a clause
that the code provisions are to be applied across
all the locations the company operates in.
A significant number of codes seek to influence
the behavior of business partners in the upstream
supply chain. Here, codes typically contain
nondiscrimination clauses, for example, stating
that domestic and overseas suppliers are to
receive equal treatment. By comparison, attempts
to influence downstream business partners, such
as agents, distributors, or final consumers, are
rarer. However, these figures do illustrate that

companies increasingly utilize codes of conduct

to regulate CSR issues that occur beyond their
legal boundaries (Preuss 2009).
A third aspect of code comprehensiveness
concerns monitoring and compliance, as in the
absence of legal stipulations regarding these
issues, a code would be of little more than symbolic value. A range of tools exist that could aid
code monitoring and compliance (Kolk et al.
1999; Wood et al. 2004). These include:
Employee training in CSR issues and ethical
performance appraisals of employees
Enforcement of code stipulations, including
stating the consequences for individuals who
fail to uphold the code, from verbal warning
through demotion to cessation of employment
Formal complaint channels and investigation
processes, including guaranteeing confidentiality and whistleblower protection and
establishing an ethics ombudsman/ethics
committee
Regular review of the code and its
implementation
In practice, the provision of information
regarding monitoring and compliance is underdeveloped relative to other aspects of code content.
While 92% of the G250 companies have a code of

486

conduct in place, only 59% report on

noncompliance with their code (KPMG 2008).
Code monitoring and compliance is also largely
a company internal matter, as third parties do not
play a significant role in these processes. For
example, government authorities may be
involved in the development of codes by some
professional associations but are hardly ever
consulted in corporate ones (OECD 1999).
The various aspects of code comprehensiveness were synthesized by van Tulder et al. (2009)
into a stage model that classifies the CSR stance
of a company from inactive through reactive and
active to proactive based on two dimensions: the
specificity of the code content and the degree of
monitoring and compliance. Thus, an inactive
approach to CSR is evident in a code of conduct
that is weak in both specificity and compliance
measures. A reactive firm will have a code that
shows greater content specificity but is rather
vague in terms of compliance because the firm
does not have a strong incentive to implement the
code. A firm with an active approach to CSR is
likely to have a code that is much more detailed in
its compliance mechanisms, although specificity
may not be high as the firm may refer to rather
general principles or a limited number of issues
only. By contrast, the code of a proactive company will score highly on both the specificity and
compliance accounts.

Advantages and Disadvantages

of Codes
A code of conduct can offer several advantages
for the firm that adopts it (Adams et al. 2001;
OECD 2001). From a management perspective,
drawing up a code can be part of an attempt to
manage the CSR performance of the firm, as the
code can send messages about what constitutes
good business practice and hence clarify expectations of employees. In view of the greater moral
space available for MNEs as they operate in different national contexts, the code can furthermore
reduce inconsistencies in the behavior of organizational members and introduce coherent standards across the organization (Carasco and

Corporate Codes of Conduct

Singh 2003). In a related fashion, the adoption

of a code can improve the companys organizational climate by providing a moral compass for
existing organizational members and socializing
new ones into its culture. A code can hence motivate and guide employees, as well as provide
encouragement and support for ethical behavior
(Adams et al. 2001).
Beyond the organization, the adoption of
a code can project a responsible image to outside
stakeholders, such as regulators, customers, communities, suppliers, or shareholders (Kolk et al.
1999). The existence of a code could thus signal
an enhanced corporate reputation, forming
a self-regulatory contribution to higher industry
standards to fend off legislation (Diller 1999).
A further significant rationale for the adoption
of a code has been quasi-legal pressure. In the
United States, the 1991 Federal Sentencing
Guidelines encouraged the adoption of codes of
conduct through allowing a reduction in fines for
companies with meaningful ethics compliance
programs. The Sarbanes-Oxley Act of 2002 has
made having a code at least for directors and
senior officers a necessity for quoted companies
with a presence in the United States (Carasco and
Singh 2003). For companies from developing
countries, the adoption of a code may furthermore boil down to an issue of market access as
it reflects demands by overseas customers and
financial markets.
Empirical data regarding the spread of these
motives for code adoption has been provided by
the OECD (2001) analysis of 246 corporate,
industry association, NGO, and intergovernmental codes. Protecting or enhancing reputation
emerges here as the most important reason for
code adoption (21%), with some codes stating
that the company aims to be an industry leader
in terms of CSR. Beyond this, companies suggest
that the adoption of a code can aid customer
loyalty and confidence in its product or service
(9%), improve internal operations (6%), or help
control risks related to violations of legal requirements and associated litigation or increased government regulation (6%). In a small number of
cases, companies also expect codes to strengthen
the loyalty of staff (4%). To the extent that the

Corporate Codes of Conduct

487

25

20

15

C
10

0
Protect or
enhance
reputation

More customer
loyalty

Improved
operation of
business

Control of legal Stronger staff

risks
loyalty

Corporate Codes of Conduct, Fig. 3 Motives for the

adoption of codes of conduct (in percent, n 246 codes)
(Source: OECD 2001, p. 17). Reproduced with kind
permission by the OECD from OECD (2001). Codes of
Corporate Conduct: Expanded Review of their Contents,

OECD Working Papers on International Investment,

No. 2001/06. Paris: Organisation for Economic Co-operation
and
Development.
http://dx.doi.org/10.1787/
206157234626

text of the codes comments on motives for code

adoption, economic issues do not seem to be at
the forefront of motives that prompt companies to
adopt codes of conduct (Fig. 3).
However, the usefulness of codes of conduct
has been questioned from two main directions,
on the one hand, whether they provide an effective form of CSR regulation and on the other,
whether they actually promote ethical decisionmaking among organizational members.
A major weakness of codes with regard to the
first issue lies in their voluntary and often selective nature. Although the adoption rate of codes
has made vast strides in recent decades, far from
all companies have a code in place. Apart from
a degree of peer pressure, there is little that the
code as such can do to persuade or coerce hesitant companies to follow the more proactive
ones. Selectivity also applies to the stipulations
of the code, as these are often limited to general
statements or win-win issues. In terms of labor
standards, for example, companies have put
much more emphasis on issues with salient
media impact, such as child labor, while
neglecting fundamental social rights, like freedom of association and collective bargaining
(Sobczak 2003). Such selectivity is reinforced

where monitoring and compliance issues

receive little attention (KPMG 2008). Selfregulation through codes of conduct thus does
not have the same clout as government regulation. Additionally, there could be a danger that
codes may actually replace legislation and
hence result in lower standards, in particular
concerning working conditions or environmental protection.
In terms of the ability of codes to promote
ethical behavior, the suggestion has been
made that codes may actually aid unethical
behavior through encouraging employees to
work by the book to the detriment of
moral imagination. In a sense, such limitations
apply to all CSR tools: all organizations
face limits in terms of their ability to control the
ethical reasoning that their members follow;
in particular, they cannot easily alter external
impacts on ethical behavior. However, there
seems to be evidence that the presence of a code
of conduct can have a positive impact on the
perceptions of ethical behavior in organizations,
in particular when coupled with key aspects
of a supportive organizational climate. These
include both agency-related issues, such as
support given by senior management to ethical

488

behavior and the freedom to act ethically, as

well as structural ones, like the provision of
anonymous help lines (Adams et al. 2001;
Schwartz 2004).

Future Directions
Codes of conduct have been hailed not only as
a compass for ethical behavior but also as a new
institution that may be able to fill the regulatory
gap which opens up when companies move
beyond their domestic borders to operate across
several regulatory, moral, and cultural areas (van
Tulder et al. 2009). However, despite their significant internal and external advantages, questions remain regarding the effectiveness of codes,
in particular in terms of monitoring and sanctioning of incompliant behavior. Such criticism of
codes can be mitigated where the document is
drawn up in conjunction with key internal stakeholders, such as employees, and external ones,
like civil society actors (Frenkel and Scott 2002).
From a more radical perspective, codes of conduct have been characterized as a preliminary
tool in a global campaign to alter the power
relationship between capital and labour (Braun
and Gearhart 2004, p. 184). The suggestion here
is that the application of codes of conduct in
global value chains can through the
empowering of workers open up a political
space that in turn will lead to social change. It
remains to be seen whether codes of conduct can
live up to these expectations.

Cross-References
Blue Ocean Strategy and CSR
Coalition of Environmentally Responsible
Economies (CERES)
Code of Best Practice
Corporate Mission, Vision and Values
Equator Principles
Ethical Trading Initiative
Mission Statements (Credo, Way, Vision)
OECD Guideline for Multiinternational
Enterprises

Corporate Codes of Conduct

References and Readings

Adams, J. S., Taschian, A., & Shore, T. H. (2001). Codes
of ethics as signals for ethical behaviour. Journal of
Business Ethics, 29(3), 199211.
Braun, R., & Gearhart, J. (2004). Who should code your
conduct? Trade union and NGO differences in the fight
for workers rights. Development in Practice, 14(1/2),
183196.
Carasco, E. F., & Singh, J. B. (2003). The Content and
Focus of the Codes of Ethics of the Worlds Largest
Transnational Corporations. Business and Society
Review, 108(1), 7194.
Diller, J. (1999). A social conscience in the global
marketplace? Labour dimensions of codes of conduct,
social labelling and investor initiatives. International
Labour Review, 138(2), 99129.
Frenkel, S. J., & Scott, D. (2002). Compliance,
collaboration, and codes of labor practice: The Adidas
connection. California Management Review, 45(1),
2949.
Kaptein, M. (2004). Business codes of multinational
firms: What do they say? Journal of Business Ethics,
50(1), 1331.
Kolk, A., & van Tulder, R. (2002). Child labour and
multinational conduct: A comparison of international
business and stakeholder codes. Journal of Business
Ethics, 36(3), 291301.
Kolk, A., Tulder, R., & Welters, C. (1999). International
codes of conduct and corporate social responsibility:
Can transnational corporations regulate themselves?
Transnational Corporations, 8(1), 143180.
KPMG. (2008). KPMG international survey of corporate
responsibility reporting. Amstelveen: KPMG Sustainability Services.
OECD. (1999). Codes of corporate conduct: An inventory.
Paris: Organisation for Economic Co-operation and
Development, Working Party of the Trade Committee.
OECD. (2001). Codes of corporate conduct: Expanded
review of their contents (OECD Working Papers on
International Investment, No. 2001/06). Paris: Organisation for Economic Co-operation and Development.
http://dx.doi.org/10.1787/206157234626. Accessed
10 April 2011.
Preuss, L. (2009). Ethical sourcing codes of large
UK-based corporations: Prevalence, content, limitations. Journal of Business Ethics, 88(4), 735747.
Preuss, L. (2010). Codes of conduct in organisational
context: From cascade to lattice-work of codes. Journal of Business Ethics, 94(4), 471487.
Schwartz, M. S. (2004). Effective corporate codes of
ethics: Perceptions of code users. Journal of Business
Ethics, 55(4), 323343.
Sobczak, A. (2003). Codes of conduct in subcontracting
networks: A labour law perspective. Journal of Business Ethics, 44(2/3), 225234.
van Tulder, R., van Wijk, J., & Kolk, A. (2009). From
chain liability to chain responsibility: MNE
approaches to implement safety and health codes in

Corporate Giving
international supply chains. Journal of Business
Ethics, 85(Suppl. 2), 399412.
Wood, G., Svensson, G., Singh, J., Carasco, E., &
Callaghan, M. (2004). Implementing the ethos of
corporate codes of ethics: Australia, Canada, and Sweden. Business Ethics: A European Review, 13(4),
389403.

489

Corporate Giving
Jean D. Kabongo
University of South Florida, Sarasota-Manatee
College of Business, Sarasota, FL, USA

Corporate Communication
Media CSR Forum

Corporate- Community Involvement

and Poverty
CSR and Poverty

Corporate Control
Company Directors and CSR

Corporate Credo, Statement of Core

Values and Principles
Mission Statements (Credo, Way, Vision)

Corporate Culture
Cultures, Businesses, and Global CSR

Corporate Environmental
Management
Corporate Social Responsibility in Tourism

Synonyms
Charitable giving; Community giving; Corporate
charitable contributions; Corporate philanthropy

Definition
Corporate giving can be seen as an application of
individual generosity at the firm level. Corporate
giving is a synonym for corporate philanthropy.
The word philanthropy comes from Greek,
philanthropia (philos, love, and anthropos,
human being) and it originally meant goodwill
to human beings, active effort to promote human
welfare. In the corporate world, when a company
uses its resources to support philanthropic activities carried out by nonprofit organizations, especially in communities where the company
operates, corporate giving occurs. Generally
speaking, the term corporate giving refers to
the donations of some of a companys profits and
resources to social causes and philanthropic projects. In large corporations, corporate giving
often is handled through a foundation. Smaller
firms usually give directly to nonprofits. While
the primary focus of corporate giving has been on
cash donations, recent forms include time and
human resources through employee volunteering.
Other practices of corporate giving include promoting self-sufficiency among economically
disadvantaged communities, charitable contributions abroad, support for housing, support for
education, establishment of relations with indigenous peoples in areas of proposed or current
operations, etc. For firm leaders and managers,
corporate giving goes beyond the simple fact of
donating cash and other resources to nonprofits.

490

It has become a way for managers to integrate

social demands into firm core mission, culture,
and strategy. For that reason, corporate giving is
a subset of a much broader concept of corporate
social responsibility (CSR). Corporate social
responsibility means that corporations should be
held accountable for any of their actions that
affect people, communities, and the natural
environment.

Introduction
Over recent decades, the interest in corporate
giving has increased in various business,
research, government, and community circles,
especially in the United States. How a firm connects or tries to do so with the communities
where it operates through charitable donations
generates a lot of buzz in local and national
media. There is no doubt that corporate giving
or corporate philanthropy has emerged as
a genuine social phenomenon with its sponsors,
givers, and receivers or consumers. First, many
professional organizations composed of businesses and foundations have been created to
promote corporate giving among business
leaders and managers, and these organizations
seem to be successful in achieving their goals.
These organizations also have created mechanisms to monitor and report periodically the
state of corporate philanthropy and grant awards
to companies that distinguish themselves in different categories of charitable contributions.
Second, for firm leaders and managers, corporate giving is not only a matter of writing a check
to nonprofits. Rather, it is has become a way for
a firm to align its mission, competencies, and
strategy with philanthropic efforts in order to
build a competitive advantage in its industry segment. Giving back to the community through any
kinds of philanthropic activities has become central to doing business in modern times. Finally,
thousands of nonprofit organizations of different
types are recipients of corporate giving and
depend on cash donations as a sole source of
income of their operations. In fact, in the wake of
the global financial crisis that began in 20072008,

Corporate Giving

many experts have expressed concerns that the

work of nonprofits, foundations, and charitable
institutions throughout the United States and
the world would be compromised substantially.
In an encouraging note, several reports in recent
years have confirmed the increasing of corporate
giving rates, even when profits of many
firms were declining. For instance, the Committee Encouraging Corporate Philanthropy
(CECP) reported an increase in total giving by
corporations from 2009 to 2010. Similarly, for
year 2010, Giving USA reported that corporate
giving rose an estimated 10.6% (8.8% adjusted
for inflation).
Corporate giving also has been the object of
a growing number of research studies and publications that have focused on corporate giving
behavior, its principles, perceived benefits, and
implementation. Several specialized academic
and trade journals also have been created. The
perceived benefits and therefore motives of corporate giving include building trust, facilitating
public relations, involving the company in the
community, improving social and economic life
and infrastructure, improving the companys
image, improving the loyalty and motivation of
employees, increasing general public awareness
of the firm and/or its products, and encouraging
loyalty among existing customers. Several firm
characteristics seem to influence how much
a corporation gives to charity: slack resources,
cash flow, advertising expenses, size, public
scrutiny, unions, board composition/diversity,
and operational diversity. The increased scrutiny of firm behaviors toward social issues has
made many realize the importance of
reassessing their business practices and outcomes. Some corporations among the larger
ones even have been playing leading roles in
corporate giving by introducing new ideas and
strong business models to formalize and internalize their philanthropic efforts. These innovations and business models often are analyzed in
research studies conducted at various educational institutions. The publication of the results
of these studies usually has theoretical and
practical impacts on corporate philanthropic
behavior of other firms.

Corporate Giving

Background
With all of these developments, there seems to be
enough evidence that, despite some critics and
decrease of donations due to the global financial
crisis that began in 20072008, corporate giving
as a social phenomenon is here to stay and for
a long time. The overall relative success of corporate philanthropy can be explained by the
series of transformations this practice has undergone over the past few decades. These transformations are the results of the ongoing debate over
whether or not corporations should donate portions of their profit to support social causes. In
other words, why and how should corporations
integrate social demands into their business practices? This question is at the core of the broader
concept of corporate social responsibility. In fact,
corporate philanthropy as a subset of the broader
concept of social responsibility began with philanthropic efforts by wealthy industrialists at the
turn of the twentieth century. These efforts were
aimed at educational and cultural institutions.
The development of corporate philanthropy practices, at least in the United States, can be divided
into five major periods: nineteenth century
through the 1950s, 1960s and 1970s, 1970s and
1980s, early 1990s, and mid-1990s and beyond.
The question of the participation of corporations in charitable activities has long dominated
the debate in various circles of the society. However, during the first period in the development of
corporate giving in the nineteenth and twentieth
centuries, corporate donations in support of charitable causes were illegal. Federal law prohibited
the use of corporate funds for philanthropic activities unless they were in line with stockholders
interests. As a consequence, it was very common
for stockholders to sue their companies. During
this period, many big businesses were criticized
for being too big and too powerful, hence leading
to corrupt business practices. The government
attempted to address these concerns with regulation: antitrust laws, banking regulations, and consumer-protection laws. But some executives saw
an opportunity beyond regulation. They encouraged the idea of using the businesss power and
financial influence for a broader social purpose.

491

Some contributed to educational and charitable

institutions; others developed internal programs
to support the health and well-being of their
employees. This trend resulted in the development of two foundational principles upon which
social responsibility is formed: the charity principle and the stewardship principle. The charity
principle is the idea that the wealthiest members
of society should be charitable toward those less
fortunate. Andrew Carnegie and John D. Rockefeller were two of the earliest philanthropists,
donating millions of dollars to society even
before tax provisions provided incentives for
this kind of giving. Their example was followed
by business firms giving to charitable programs
versus just business owners as individuals. The
stewardship principle is the belief that a business
has an obligation to see that everyone, particularly those in need or at risk, benefits from the
firms actions. Under this principle, firms have
been put in a position of public trust and therefore
have a responsibility to use their resources for the
benefit of society as a whole.
The charity principle and, to a larger extent,
the stewardship principle made charitable contributions a business-related activity. As the debate
over the legitimization of corporate giving
progressed through the twentieth century, the
business-related benefits of charitable contributions began to surface. By the 1920s, charitable
contributions to communities made by small
groups of wealthy philanthropists shifted to business firm themselves. The legal legitimization of
corporate giving occurred in 1953 when the US
Supreme Court ruled in favor of a company
engaging in philanthropic activities. The ruling
recognized the idea that charitable contributions
impact the society positively. Upon the ruling,
the societal perception that companies should
play a role in the society increased. At the same
period, the concept of social responsibilities of
organizations began to be used and popularized in
business, academic, and community circles.
Through the 1950s, corporations began to make
contributions to charities even though they were
not related to stockholders interests. The second
period in the development of corporate philanthropy was the 1960s and 1970s, a time generally

492

associated with rapid economic growth. As companies grew and expanded their economic power
through big financial gains, social inequalities
widened in many communities. The general public began to question the role of businesses in
society and believed that corporations should
use a portion of their profits to support the communities. In response, larger corporations started
to set up foundations responsible for coordinating
charitable donations to nonprofits.
The third period, the 1970s and 1980s, coincided with the economic slowdown due to the oil
crisis that started in October of 1973. As
a consequence, the corporate giving movement
registered big losses and companies backed off
their involvement in charitable contributions.
During the fourth period of the early 1990s, companies recovered from the economic crisis and
the public exercised pressures to formalize corporate governance and corporate accountability.
The corporate scandals fueled by greed of firm
executives raised expectations for businesses to
participate more in charitable activities. From the
mid-1990s and beyond, the corporate giving phenomenon entered its fifth period of development.
Corporate giving gained legitimacy and philanthropic practices expanded beyond cash donations to include time and human resources. The
legitimacy of philanthropic activities of corporations was an important step in recognizing the
relationship between philanthropy and corporate
benefits, with its stakeholders including
employees, customers, suppliers, and communities. Businesses began to form partnerships with
other entities to analyze and solve social problems. Finally, corporations are recognizing that
charitable contributions must be an integral part
of their overall mission, vision, and strategy.

Key Issues
Although corporate giving has gained legitimacy
among business leaders, some say that social
responsibility comes at an economic cost, that
a firm cannot be socially responsible and competitive at the same time. The way a firm must strike
a balance among its economic, social, and legal

Corporate Giving

responsibilities has generated a variety of conceptualizations and practices of corporate giving

accepted by some and contested by others. The
main challenge for firms remains the creation of
a corporate strategy that incorporates all three
obligations. Among the key issues of corporate
giving are: the conception of corporate giving as
a strategic tool, the alignment of corporate giving
with firm core competencies, and the relationship
between corporate giving and firm performance.
One of the main criticisms of corporate social
responsibility and therefore corporate philanthropy was the argument by economist Milton
Friedman, who wrote in a famous 1970 article
in the New York Times that the only social
responsibility of business is to increase its
profits. This was immediately criticized as an
extreme view of corporate social responsibility as
a practice that prevents the corporation from
maximizing its value for its shareholders.
Today, while recognizing that the corporation is
the instrument of wealth creation, many believe
that corporations social involvement should provide a means to achieve economic results. This
approach is called strategic philanthropy,
which means that when a firm engages in philanthropic activities, managers accept that, in the
long term, the donations made to nonprofits and
communities will pay back in some way or
another. Philanthropic activities are viewed as
strategic investments. As an illustration, when
a pharmaceutical company sponsors a molecular
biology program at a local community college,
there is a recognition that corporate philanthropy
is not merely an altruistic practice, because the
firm expects a return on its investment. This
comes as a counter argument to Friedmans position. The rationale behind strategic philanthropy
is that businesses and society are interdependent.
Therefore, to survive, firms need to improve the
context of the environments in which they
compete. By investing in the communities, they
are investing in future employees and customers.
There is an expectation that, with corporate donations, firms will be perceived as good citizens,
which might boost employee productivity and
customer loyalty, and help recruit and retain talented employees. In this way, strategic

Corporate Giving

philanthropy can be viewed as a means to achieve

competitive advantage. As a strategic tool, corporate managers need to be cautious when making decisions regarding charitable donations.
They need to identify where philanthropic activities will add value and select carefully the nonprofits and other recipients of charitable
contributions to work with. Formulating and
implementing marketing strategies by asking
consumers to buy promotional products/services
because a portion of the proceeds will go directly
to nonprofit organizations is termed cause-related
marketing. Because cause-related marketing benefits both the corporation and nonprofit institutions, it often is viewed as a form of strategic
philanthropy. Because going international provides an opportunity for corporations to improve
their competitive advantage, corporate leaders
should take strategic philanthropy to the global
level for the same purpose.
Aligning corporate giving with firm core competencies is another key issue. To be strategic, the
practice of corporate giving must be tied to the
firms key resources, capabilities, and core competencies. The ability to integrate, combine, and
coordinate new competencies is essential to successfully implement strategic philanthropy.
Improving competitive advantage with philanthropic
activities
cannot
stem
from
uncoordinated and disparate charitable activities
without any clear vision. The lack of coordination
is often the result of philanthropic activities
selected by managers or board members without
a rigorous assessment of the needs of recipients
and nonprofits organizations. This often creates
a misunderstanding among all participants in
these activities. The firm donates to charity, but
the real outcomes of its actions are unknown or
difficult to monitor, so the firm cannot make sure
that it will benefit from its actions in the long
term. Improving competitive advantage through
philanthropic activities cannot be accomplished,
either, when these activities are skewed toward
community demands and overlook firm competencies. The implementation of philanthropic
activities in line with firm competencies that
ignore external demands might not lead to competitive advantage. The most effective approach

493

to strategic philanthropy that will lead to competitive advantage involved the integration of both
the firm competencies and its market orientation.
This integration requires the development of specific competencies involving various functional
levels. These competencies must be collectively
integrated, coordinated, and learned. How such
a combination of complementary capabilities and
competencies can emerge in practical terms and
contribute to competitive advantage remains
unclear, especially with regard to corporate
philanthropy.
Perhaps the most interesting issue in corporate
philanthropy today is the measure of the overall
results of the actions taken by a company to
improve its impact on the communities in which
it operates. This is referred to as corporate social
performance. The fundamental questions for
businesses that give a portion of their profit to
charity is: Does corporate philanthropy contribute to firm profitability or does firm profitability
lead to more corporate giving? The answers to
these questions provide interesting opportunities
for the future of corporate giving as a business
practice.

Future Directions
As a subset of corporate social responsibility and
a relatively new phenomenon, corporate giving
has gained a solid legitimate status among business leaders after decades of much debate. The
integration of chapters on corporate philanthropy
in the textbooks of various courses such as
Business Ethics, Business and Society, and
Strategic Management has also consolidated its
status in business programs in the United States
and around the world. This legitimacy is an indication that corporate giving has been an effective
way to respond to societal demands. The number
of corporations implementing corporate giving
initiatives will continue to rise. The current
knowledge of the relationship between corporations and society shows that the analysis and
a deeper understanding of the challenges of corporate philanthropy lay open an interesting area
for future research. So far, research on corporate

494

philanthropy has demonstrated mixed results

regarding the conceptualization and operationalization of various key concepts. There is much
more to be learned by elevating what is known
today to the next level.
Although the results of many empirical studies
on corporate philanthropy have been validated,
these studies have noted limitations. Overcoming
these limitations represents interesting topics for
future research. First, corporate philanthropy key
concepts such as strategic philanthropy, corporate citizenship, and corporate social performance are rarely clearly defined and described
in current studies. Common concepts describing
strategic philanthropy practices and strategy,
such as social impact, strategy alignment, or
competencies related to philanthropy remain relatively broad. Similarly, organizational capabilities purported to boost competitive advantage
through corporate philanthropic practices tend
to be rather broad and unspecific, such as capabilities for proactive management, shared vision,
market orientation, etc. Future research should
focus on defining clearly key concepts of corporate philanthropy and indicating ways to better
operationalize
these
concepts
within
corporations.
Second, quantitative analysis tends to be the
predominant methodology used in most studies
of corporate philanthropy. The analysis of the
experiences and interpretation of managers who
have designed and implemented corporate philanthropy practices have been overlooked. Future
research may focus on qualitative studies to help
understand how capabilities needed for corporate
philanthropy are actually understood, learned,
and implemented inside corporations.
Third, the predominant approaches to corporate philanthropy are generally considered to be
an output of philanthropic practices and organizational capabilities. In other words, corporations
are encouraged to engage in philanthropic initiatives and develop competencies because corporate philanthropy pays back. However, it would
seem simplistic to take for granted that all philanthropic initiatives based on organizational
competencies would be profitable. This relates
to the measure of specific outcomes of corporate

Corporate Giving

philanthropy for the firms and specific communities. Future research can explore approaches
more focused on the normative questions of the
relationship between business and society.

Cross-References
Business Case for CSR
Business for Social Responsibility
Corporate Citizenship
Corporate Governance
Corporate Social Performance
Corporate Social Responsibility
Philanthropic CSR
Philanthropy

References and Readings

Brammer, S., & Millington, A. (2004). The development
of corporate charitable contributions in the UK:
A stakeholder analysis. Journal of Management
Studies, 41, 14111434.
Chen, J., Patten, D., & Roberts, R. (2008). Corporate
charitable contributions: A corporate social performance or legitimacy strategy? Journal of Business
Ethics, 82, 131144.
Committee Encouraging Corporate Philanthropy (CECP).
(2011). Giving in numbers 2010 edition, report.
Fry, L. W., Keim, G. D., & Meiners, R. E. (1982). Corporate contributions: Altruistic or for-profit? The Academy of Management Journal, 25, 94106.
Galaskiewicz, J. (1989). Corporate contributions to
charity: Nothing more than a marketing strategy?
In R. Magat (Ed.), Philanthropic giving: Studies in
varieties and goals (pp. 246260). Oxford: Oxford
University Press.
Giving, U. S. A. (2011). The annual report on philanthropy for the year 2010. Indianapolis: Giving USA
Foundation.
Navarro, P. (1988). Why do corporations give to charity?
Journal of Business, 61, 6593.
Porter, M. E., & Kramer, M. R. (2002). The competitive
advantage of corporate philanthropy. Harvard
Business Review, 80, 5669.
Smith, C. (1994). The new corporate philanthropy.
Harvard Business Review, 72, 105116.
Vaidyanathan, B. (2008). Corporate giving: A literature
review (Working paper). Center for the Study of Religion and Society, University of Notre Dame.
Varadarajan, P. R., & Menon, A. (1988). Cause-related
marketing: A coalignment of marketing strategy and
corporate philanthropy. The Journal of Marketing, 52,
5874.

Corporate Governance

495

Introduction

Corporate Globalism
Corporatism

Corporate Governance
Dirk Classen1 and Matthias S. Fifka2
1
Classen Fuhrmanns & Partner Rechtsanwalte,
Koln, Germany
2
Cologne Business School (CBS), Dr. J
urgen
Meyer Endowed Chair for International Business
Ethics and Sustainability, Koeln, Germany

Synonyms
Code of conduct; Corporate guidelines; Corporate principles; Corporate regulations; Corporate
standards; Laws of governance

Definition
Though Corporate Governance is not a legal
term and its definition is ambiguous, Corporate
Governance can be regarded as a system by
which companies are directed and controlled
(the Cadbury Report, 1992). In the Preamble of
the OECD Principles of Corporate Governance
(2004, 11), Corporate Governance is defined as
a set of relationships between a companys management, its board, its shareholders, and other
stakeholders. Corporate governance also provides the structure through which the objectives
of the company are set, and the means of attaining
those objectives and monitoring performance are
determined. In a broader perspective, as shown
in Fig. 1, governance determines how all corporate players (such as shareholders, supervisory
board, management board, authorities, auditors,
and the society) influence a company.
The sources of Corporate Governance can be
divided into (1) binding law (e.g., European Directives, regulations, national acts), (2) European and
national court decisions, and (3) soft law
(e.g., OECD Principles, (European) recommendations, (national) Corporate Governance codes).

During the 1970s and 1980s Corporate Governance was debated by academics worldwide
(often with regard to US corporations), but in
particular the financial scandals that erupted in
the end of the 1990s (such as the German shipbuilder Bremer Vulkan) and in 2000 and 2001
(such as Enron and WorldCom) have made Corporate Governance a topic of great international
attention. The financial scandals were caused by
dubious accounting methods, bad management,
and insufficient internal control systems. As
listed companies were involved, investors
increasingly lost confidence in the companies
and in the integrity of the financial markets. To
rebuild the impaired confidence of the investors,
various legislative actions were taken around the
world (Cheffins, 2011). In the following, some of
these international and national measures
shall be described and explained:
The Sarbanes-Oxley Act, which was as part
of the binding law for companies listed in the
USA introduced in 2002 by the Securities and
Exchange Commission (SEC), was a precursor
for an international codification of Corporate
Governance regulations. It aims at ensuring
a more effective way of controlling corporate
financial reports, the reorganization of the
responsibility for financial accounting, and
the extension of management duties. As a result,
the management and the monitoring of the management should be strengthened, and the shareholders lost trust in the financial markets should
be reinforced.
The OECD Principles of Corporate Governance (OECD Principles) were originally developed in 1998 and then agreed on in 1999. They
have formed the basis for Corporate Governance
initiatives in both OECD and non-OECD
countries alike. In light of the developments in
Corporate Governance described above, the
OECD Council Meeting at Ministerial Level in
2002 agreed to assess the OECD Principles. This
task was entrusted to the OECD Steering Group
on Corporate Governance, which comprises representatives from OECD countries. In addition,
the World Bank, the Bank for International

496

Corporate Governance,
Fig. 1 Actors in Corporate
Governance (Source: own
illustration)

Corporate Governance

Shareholders
Supervisory Board

Management Board
Company

Authorities

Society
Auditors

Settlements (BIS), and the International Monetary Fund (IMF) were observers to the Group. For
the assessment, the Steering Group also invited
the Financial Stability Forum, the Basel Committee, and the International Organization of Securities Commissions (IOSCO) as ad hoc observers.
In 2004, the principles were revised in order to
include suggestions made by a variety of actors
and to address shortcomings that had become
evident in the meantime.
According to the Preamble, the OECD Principles (2004, 11) are intended to assist OECD and
non-OECD governments in their efforts to evaluate and improve the legal, institutional, and
regulatory framework for corporate governance
in their countries, and to provide guidance and
suggestions for stock exchanges, investors,
corporations, and other parties that have a role
in the process of developing good corporate
governance. The OECD Principles focus on
publicly traded companies, both financial and
nonfinancial, and represent a common basis that
OECD Member States consider essential for the
development of good governance practices, and
are not intended to substitute for government,
semi-government, or private sector initiatives to
develop more detailed best practice in Corporate Governance.
Furthermore, the OECD considers Corporate
Governance as one key element in improving
economic efficiency and growth as well as
enhancing investor confidence. It involves a set
of relationships between a companys management, its board, its shareholders, and other stakeholders. It also provides the structure through
which the objectives of the company are set,
and determines the means of attaining those

objectives and of monitoring performance. In

this context, the Corporate Governance framework depends on the legal, regulatory, and institutional environment. In addition, factors such as
business ethics and corporate awareness of the
environmental and societal interests of the communities in which a company operates can also
have an impact on its reputation and its long-term
success.
In the OECD Principles, the organization
stresses that there is no single model of good
Corporate Governance. However, the OECD
has identified some common elements that underlie good Corporate Governance and build the
Principles on these common elements. Furthermore, the OECD points out that the Principles are
nonbinding and do not aim at detailed prescriptions for national legislation. Rather, they seek to
identify objectives and suggest various means for
achieving them. Their purpose is to serve as
a reference point. The Principles can be used by
policy makers as they examine and develop the
legal and regulatory frameworks for Corporate
Governance that reflect their own economic,
social, legal, and cultural circumstances, and by
market participants as they develop their own
practices. In conclusion, it is up to the governments and market participants to decide how to
apply these Principles in developing their own
frameworks for corporate governance, taking
into account the costs and benefits of regulation
(OECD 2004, 13).
The European Commission (EC) reacted to the
situation described above in September 2001 by
appointing a High Level Group of Company Law
Experts chaired by J. Winter (so-called Winter
Group). At first, the Winter Group dealt with

Corporate Governance

497

Action Plan

Corporate Governance,
Fig. 2 The EU Action
Plan (Source: own
illustration)

Modernization of Company Law

and Enhancement of Corporate Governance

C
Effective and integrated approach for

Strengthening shareholders and third

parties rights and achieving
a high degree of investors confidence

issues related to the takeover bids directive, but

then the EC extended the original mandate in
April 2002 in the light of the recent corporate
scandals to deal specifically with a number of
Corporate Governance issues. In its Report
released on 4 November 2002, the Winter
Group recommended to create a system of flexible and efficiently adaptable subordinate rules.
The Winter Group believed that the detailed
rules should be set by the appropriate bodies
within the EU Member States in view of their
national company laws, but the EU should ensure
a certain level of coordination of the setting of
these detailed rules by the EU Member States.
This was to be part of the general framework to
be set up in the EU to coordinate the Corporate
Governance efforts of the EU Member States.
Due to the extended mandate of the Winter
Group, the report contained detailed recommendations on Corporate Governance, capital formation and maintenance, groups and pyramids,
corporate restructuring and mobility, the European Private Company as well as cooperatives
and other forms of enterprises. The Winter
Group recommended that one of the short-term
priorities for the EU should be to improve the EU
framework for Corporate Governance.
The Winter Groups recommendations formed
the basis of the ambitious Action Plan on Modernizing Company Law and Enhancing Corporate
Governance in the European Union that was
presented by the EC on 21 May 2003 (the Action
Plan). Since then, it has been in the center of

Fostering efficiency and competitiveness

of European business at world-wide level

corporate law discussions in Europe for almost

a decade now (Hopt 2010). In the opinion of the
EC, as illustrated in Fig. 2, the future initiatives
taken in the field of company law should be dedicated to the achievement of two main objectives
as far as possible: to strengthen the shareholder
rights and third party protection, with a proper
distinction between categories of companies, and
to foster efficiency and competitiveness of business, with special attention to some specific
cross-border issues.
As the EC pointed out in the Action Plan, the
reasons for a such a European regulatory framework for company law and Corporate Governance are the following: (1) the damaging
impact of recent financial scandals; (2) the growing trend for European companies to operate
cross-border in the Internal market; (3) the continuing integration of European capital markets;
(4) the rapid development of new information and
communication technologies; and (5) the forthcoming enlargement of the EU to new Member
States.
Achieving the aforementioned key policy
objectives, which should inspire any future action
to be taken at EU level in these areas, the Communication contained numerous legislative and
nonlegislative proposals. It included a plan seeking to lay out various actions which appear
necessary over the short (20032005), medium
(20062008), and long (2009 onward) term, and
determined which type of regulatory instrument
should be used, and approximately by when.

498

The proposals (following the proposals of the

Winter Groups Report) covered the fields of
Corporate Governance, capital maintenance and
alteration, groups and pyramids, corporate
restructuring and mobility, the European Private
Company, the European cooperative society, and
other EU legal forms of enterprise, enhancing the
transparency of national legal forms of enterprise. The proposals taken in regard to Corporate
Governance (under the headings: enhancing Corporate Governance disclosure, strengthening
shareholders rights, modernizing the board of
directors, coordinating Corporate Governance
efforts of the EU Member States) constituted the
focal point of the Action Plan.
Subsequent to the Action Plan, European
institutions adopted a great number of Directives,
creating a framework of European company law
rules that had to be implemented into national
law. The most relevant EU measures in the field
of Corporate Governance in the recent years are
as follows:
1. Directive 2006/46/EC of the European Parliament and of the Council of 14 June 2006
amending Council Directives 78/660/EEC on
the annual accounts of certain types of companies, 83/349/EEC on consolidated accounts, 86/
635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions and 91/674/EEC on the annual accounts
and consolidated accounts of insurance undertakings, OJ L 224, 16.8.2006, p. 17.
2. Directive 2004/109/EC of the European Parliament and of the Council of 15 December
2004 on the harmonization of transparency
requirements in relation to information about
issuers whose securities are admitted to trading on a regulated market and amending
Directive 2001/34/EC, OJ L 390, 31.12.2004,
p. 3857.
3. Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the
exercise of certain rights of shareholders in
listed companies, OJ L 184, 14.7.2007, p.
1724.
4. Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on
takeover bids, OJ L 142, 30.4.2004, p. 1223.

Corporate Governance

5. Commission Recommendation of 15 February

2005 on the role of nonexecutive or supervisory directors of listed companies and on the
committees of the (supervisory) board (2005/
162/EC) OJ L 52, 25.2.2005, p. 5163.
6. Commission Recommendation of 14 December
2004 fostering an appropriate regime for the
remuneration of directors of listed companies
(2004/913/EC) OJ L 385, 29.12.2004, p. 5559.
7. Commission Recommendation of 30 April
2009 complementing Recommendations
2004/913/EC and 2005/162/EC as regards
the regime for the remuneration of directors
of listed companies (2009/385/EC), OJ L 120,
15.5.2009, p. 2831.
In general, the Corporate Governance framework for listed companies in the EU is
a combination of legislation and soft law, including recommendations and Corporate Governance
codes. While Corporate Governance codes are
adopted at national level, Directive 2006/46/EC
promotes their application by requiring that listed
companies refer in their Corporate Governance
statement to a code and that they report on their
application of that code on a comply or explain
basis (this approach means that a company choosing to depart from a Corporate Governance code
has to explain which parts of the Corporate Governance code it has departed from and the reasons
for doing so).
By this, the Action Plan proclaimed
a significant change in legislative direction
regarding company law in the EU; it focused
much more on business needs than previous legislative efforts had, seeing the role of harmonization as instrumental for that objective (Armour
and Ringe 2010). However, the EC underlined in
the Action Plan that it does not believe that
a European Corporate Governance code would
offer significant added value, but would simply
add an additional layer between international
principles and national codes. However, a selfregulatory market approach, based solely on
nonbinding recommendations, is not sufficient
to guarantee sound Corporate Governance. With
regard to the growing integration of European
capital markets, the EU should adopt a common
approach covering a few essential rules and

Corporate Governance

ensuring an adequate coordination of national

Corporate Governance codes (see below).
In practice, the OECD Principles as well as the
European Commissions Action Plan (though not
or only partly incorporated in EU binding law)
have a high impact on Corporate Governance in
Europe: While, on the one hand, the OECD assists
member and nonmember states in their efforts to
evaluate and improve a Corporate Governance
framework for their countries and to provide guidance and suggestions for all parties involved, the
European Commission, on the other hand, ensures
adequate coordination of national Corporate Governance codes without implementing a European
Corporate Governance Code. So, in both
approaches, the OECD and the EC are not aiming
for a total harmonization. Instead, they seek to
implement a few essential principles and rules
helping to restore confidence in the financial markets and to ensure the genuine integration of European economies.
The national Corporate Governance codes
present the essential recommendations for the
management and supervision of listed companies
and standards for good and responsible governance. They depend heavily on the shareholder
constituency of the company, which is based on
the legal system of its respective state (for details
please see European Corporate Governance Institute, 2012 and European Union, 2002). While in
countries with a so-called two-tier system, such as
Germany or Austria, the governing body is comprised of two separate boards (i.e., the management board and the supervisory board), in
countries with a so-called one-tier system, such
as in the USA and Ireland, the governing body is
comprised of a single board.
Since the purpose of this entry is not to further
the understanding of the differences in the respective national Corporate Governance code and its
underlying legal system, this aspect shall not be
covered in detail here. However, there are two
(general) criteria by which some Corporate Governance codes can be distinguished from other
Corporate Governance codes:
1. Internal and external Corporate Governance.
A distinction in the national Corporate Governance codes can be made between internal and

499

external Corporate Governance: The internal

Corporate Governance considers the internal
balance of powers within a company, in particular the relationship between the governing
body (in countries with a two-tier system the
management board and the supervisory board,
and in countries with a one-tier system the
board of directors) and the shareholders. In
contrast, the external Corporate Governance
refers to the relationship between the
governing body and the shareholders (also
known as the so-called principal-agent conflict). The principal agent conflict has been
a challenge for corporate law and legislators
since the beginning of the modern corporation
in the early nineteenth century, and efforts to
minimize this conflict between the managers
and the shareholders have been made with
limited success (Hopt 2011).
2. The insider and the outsider system. Another
distinction in the Corporate Governance codes
can be made between the insider system and
the outsider system. The insider system is
mainly predominant in continental Europe
and in Japan. Usually, the shares of the companies are held by only a few groups, e.g.,
families, banks, or insurance companies. In
the majority of cases, these groups seek
a long-term collaboration with the company.
Management and shareholders have a close
and stable relationship with each other. Corporate control usually takes place internally by
small groups of major shareholders and the
main bank. The outsider system is predominant in Great Britain and the USA. Here, the
shares of the company are widely dispersed.
The interest in the company is usually temporary. The investors focus on the achievement
of returns and therefore hardly have any influence on management decisions. There is an
active market for corporate control and independent supervisory committees.
According to a study called Comparative
Study of Corporate Governance Codes Relevant
to the European Union and its EU Member
States published on behalf of the EC in January
2002, the greatest distinctions between the Corporate Governance practices in EU Member

500

Corporate Governance

Corporate Governance,
Fig. 3 Key issues of
Corporate Governance
(Source: own illustration)

Compensation systems
for executive and
non-executive directors

Executive and
non-executive
stock ownership

Corporate Governance

Shareholder rights
and their protection

States appear to result from the differences in law

and not from differences in the recommendations
that emanate from the types of codes analyzed in
the study. While some EU Member States may
embed more governance requirements in law
than others do, the final result is that within all
EU Member States it is recognized that good
governance practices are beneficial for listed
companies, the markets themselves, as well as
for shareholders and other stakeholders. In the
end, the authors of the study conclude that there
does not appear to be a need for a European
Union-wide Corporate Governance code (for
further details, please see the link to the study
under the references). In another study, published
by the European Industrial Relations Observatory
(EIRO) in September 2002, the EIRO described
the key aspects of the Corporate Governance
systems in 15 EU Member States and Norway,
and the main provisions concerning employee
representation (the study also includes an overview of the variations of the 16 national systems
of Corporate Governance).
Overall, the national Corporate Governance
codes have proven beneficial in a number of
ways. They (1) stimulate discussion of Corporate
Governance issues; (2) encourage companies to
adopt widely accepted governance standards;
(3) help to explain both governance-related
legal requirements and common Corporate Governance practices to investors; (4) can be used to
benchmark supervisory and management bodies;
(5) may help to prepare the ground for changes in
securities regulation and company law, where
such changes are deemed necessary; and
(6) lead to higher market valuations.

Structure and
independence of
the board

Independence and
integrity of
the audit process

Key Issues
The topic of Corporate Governance is of particular concern in practice, especially for the
shareholders, stock exchanges, listed corporations, banks and financial institutions, industrial
associations, regulators and parliaments of
many countries. During the last two decades in
many of these countries, corporate and capital
market law reforms have taken place (Hopt
2011). The key issues of Corporate Governance
are (Fig. 3):
In its Action Plan, the EC emphasized that the
following initiatives should be regarded as the
most urgent ones (as a priority for the short term):
1. Introduction of an annual Corporate Governance statement. Listed companies should be
required to include in their annual documents
a coherent and descriptive statement covering
the key elements of their Corporate Governance structures and practices.
2. Development of a legislative framework
aiming at helping shareholders to exercise
various rights (e.g., asking questions, tabling
resolutions, voting in absentia, participating
in general meetings via electronic means).
These facilities should be offered to shareholders across the EU, and specific problems
relating to cross-border voting should be
solved urgently.
3. Adoption of a recommendation aiming at promoting the role of (independent) nonexecutive
or supervisory directors. Minimum standards
on the creation, composition, and role of the
nomination, remuneration, and audit committees should be defined at EU level and

Corporate Governance

enforced by EU Member States, at least on

a comply or explain basis.
4. Adoption of a recommendation on directors
remuneration. The EU Member States should
be rapidly invited to put in place an appropriate regulatory regime giving shareholders
more transparency and influence, which
includes detailed disclosure of individual
remuneration.
5. European Corporate Governance Forum. The
EC proposes the creation of a European Corporate Governance Forum to help encourage
coordination and convergence of national
codes and of the way they are enforced and
monitored.
6. Other Corporate Governance initiatives.
Other Corporate Governance initiatives proposed in the Action Plan cover: achieving
better information on the role played by institutional investors in Corporate Governance;
giving further effect to the principle of proportionality between capital and control; offering
to listed companies the choice between the
one-tier and two-tier board structures; and
enhancing directors responsibilities for financial and key nonfinancial statements.
According to the Green Paper The EU Corporate Governance Framework, published by
the EC in April 2011 (the Green Paper), the
following subjects are at the heart of good Corporate Governance:
1. The board of directors: High-performing,
effective boards are needed to challenge executive management. This means that boards
need nonexecutive members with diverse
views, skills, and appropriate professional
experience. Such members must also be willing to invest sufficient time in the work of the
board. The role of chairman of the board is
particularly important, as are the boards
responsibilities for risk management.
2. Shareholders: The Corporate Governance
framework is built on the assumption that
shareholders engage with companies and
hold the management to account for its performance. However, there is evidence that the
majority of shareholders are passive and
often only focused on short-term profits.

501

Therefore, it seems useful to consider whether

more shareholders can be encouraged to take
an interest in sustainable returns and longerterm performance, and how to encourage them
to be more active on Corporate Governance
issues. Moreover, in different shareholding
structures there are other issues, such as
minority protection.
3. How to apply the comply or explain
approach which underpins the EU Corporate
Governance framework: A recent study
(Study on Monitoring and Enforcement Practices in Corporate Governance in the EU
Member States) showed that the informative
quality of explanations published by companies departing from the Corporate Governance
codes recommendation is in the majority of
the cases not satisfactory and that in many
EU Member States there is insufficient monitoring of the application of the codes. Thus, it
is appropriate to consider how to improve this
situation.

Future Directions
With regard to future directions, the Corporate
Governance of small- and medium-sized enterprises (SMEs) can clearly be identified as one of
the main issues. So far, European rules on Corporate Governance and national Corporate Governance codes apply only to listed companies
(i.e., companies that issue shares admitted to
trading on a regulated market), though some EU
Member States have developed specific Corporate Governance codes tailored to SME (e.g.,
where the controlling shareholder may also be
the manager). Those codes include recommendations that reflect company size and structure in
order to be less complex for small businesses to
implement. Nevertheless, the question remains
as the EC itself has pointed out in its recent Green
paper (2011) whether the EU should take
a differentiated approach to Corporate Governance of SMEs, since there is a large potential
difficulty of simply applying some of the existing
Corporate Governance practices to a wide range
of companies of different size and legal status.

502

In this context, a question not addressed in the

Green Paper is whether in (not listed) familyowned companies, a specific code should
apply instead of the national Corporate Governance code. This is of crucial importance as
family-owned companies are the most common
company type. They are particularly predominant
among medium- and smaller-sized companies,
but in many markets even most of the large
companies have a family as their controlling
shareholder. Family-owned companies can be
defined as companies in which the founders or
the founders families have either complete
ownership or effective control of the companies
and, usually, play a significant role in the companies management. The complex interaction of
the family and the company that it controls
creates several difficult governance issues in
addition to those faced by other companies.
These include the succession planning for the
family management, family versus nonfamily
employment, equitable treatment of nonfamily
shareholders, and the role of family meetings
vis-a`-vis board meetings and shareholders
meetings.
In order to address these issues, some efforts
have already been made. In Germany, where
SMEs are of vital importance, the first Corporate
Governance code especially for family-owned
companies was established in accordance with
the German Corporate Governance Code in
2004. It contains some broad recommendations
for organizing Family Business Governance. On
an international level, the IFC Family Business
Governance Handbook was initiated by the International Finance Corporation, which is part of the
World Bank Group, in 2008. Its intention is to
complement the existing tools for improving the
governance practice in family-owned enterprises.
On the European level, the Corporate Governance Guidance and Principles for Unlisted
Companies in Europe was established by the
European Confederation of Directors Associations in 2010 and puts forward some overriding
principles.
Nevertheless, the issues of Family Business
Governance need to be addressed more profoundly in the future, since SMEs are central to

Corporate Governance

many economies. From this perspective, it

becomes clear that the respective matters are not
only important for the owners and stakeholders of
family businesses, but also for society as such,
since SMEs are major providers of products,
employment, and taxes. The underestimation of
issues in Family Business Governance thus could
have fatal consequences.

Cross-References
Agency and Corporate Governance
Board of Directors
Bonuses and the Recent Global Financial
Crisis
Business Judgment Rule
Company Directors and CSR
Comply or Explain
Corporate Citizenship
Corporate Codes of Conduct
Corporate Governance as a Tool for
Alleviating Developmental Issues
Ethical CSR
Evolution of Corporate Governance Reports in
the UK and Ireland
Global Governance and CSR
Good Corporation
Legitimacy Theory
OECD Principles of Corporate Governance
and CSR
One Tier Board
Shareholder Rights
Theory of Corporate Governance Emergence
Two-Tier Board

References and Readings

Armour, J., & Ringe, W.-G. (2010). European company
law 19992010: Renaissance and crisis (Oxford Legal
Studies Research Paper, No. 63).
Cheffins, B. R. (2011). The history of corporate governance (University of Cambridge Faculty of Law
Research Paper No. 54).
European Commission. (2011). Green paper of the
European
Commission.
http://ec.europa.eu/
internal_market/company/docs/modern/com2011-164_
en.pdf. Accessed 29 May 2012.

Corporate Governance as a Tool for Alleviating Developmental Issues

European Corporate Governance Institute. (2012). Index
of corporate governance codes. http://www.ecgi.org/
codes/all_codes.php. Accessed 29 May 2012.
European Union. (2002). Comparative study of corporate
governance codes relevant to the European Union
and its member states on behalf of the European
Commission.
http://ec.europa.eu/internal_market/
company/docs/corpgov/corp-gov-codes-rpt-part1_en.
pdf. Accessed 29 May 2012.
Hopt, K. J. (2010). The European company law action
plan revisited: An introduction. In K. Geens & K. J.
Hopt (Eds.), The European company law action plan
revisited. Leuven: Leuven University Press.
Hopt, K. J. (2011). Comparative corporate governance:
The state of the art and international regulation. American Journal of Comparative Law, 59, 1.
OECD Principles of Corporate Governance. (2004).
http://www.oecd.org/dataoecd/32/18/31557724.pdf.
Accessed 29 May 2012.
Report of the Committee on the Financial Aspects of
Corporate Governance. (1992). The Cadbury report.
http://www.ecgi.org/codes/documents/cadbury.pdf.
Accessed 29 May 2012.

Corporate Governance as a Tool for

Alleviating Developmental Issues
John O. Okpara
Department of Management, College of
Business, Bloomsburg University of
Pennsylvania, Bloomsburg,
PA, USA

503

have framed different definitions of CSR. Some

of the definitions found in the literature include
that of Ghillyer (2008), who described CSR as the
actions of a corporation that are directed toward
the achievement of a social benefit over and
above maximizing profits for its shareholders
and meeting all its legal obligations. Pearce and
Doh (2005) defined CSR as the actions of
a company to benefit society beyond the requirements of the law and the direct interests of shareholders. A similar but more general definition
says CSR is about the interaction of the corporation with the legal and social obligations of the
societies in which it operates, and how it accounts
for those obligations. Furthermore, corporate
social responsibility is defined by the World
Business Council for Sustainable Development
as the continuing commitment by business to
behave ethically and contribute to economic
development while improving the quality of life
of the workforce and their families, as well as of
the local community and society at large
(WBCSD Stakeholder Dialogue on CSR 1998).
The WBCSD on CSR have argued that the lack of
an all-embracing definition of CSR should not
discourage corporations and those involved in
CSR activities from grappling with the CSR
issues. They believed that a formal definition of
the concept will eventually emerge.

Introduction
Synonyms
Corporate citizenship; Corporate governance;
Corporate social performance; Poverty alleviation; Social entrepreneurship; Social responsibility; Sustainability; Sustainable development

Definition
One of the most frequently asked questions about
corporate social responsibility (CSR) is the obvious: What is CSR? A formal and generally
acceptable definition of CSR has yet to emerge
as the topic is debated in local and international
mediums. At present, different organizations

For the last two decades, CSR philosophies

requiring businesses to act as good and responsible members of their society seem to have been
accepted by the majority of corporations. Many
leading corporations, in both developed and
developing economies, have adopted a CSR
philosophy, implemented CSR activities, and
reported their CSR performance. CSR has also
become a popular subject among leaders and
members of every social segment: academic,
business, and government. Though there still
might be some critics of CSR who claim that it
is a distraction from the essential activities of
a business, the majority of reports and research
studies indicate that CSR is important to

504

Corporate Governance as a Tool for Alleviating Developmental Issues

a companys performance. There are nevertheless still many scholars and business leaders
who believe that CSR has no clear business benefits and could destroy shareholder value by
diverting resources from core commercial activities. Many business leaders and scholars are
concerned that businesses will be persuaded to
take on social responsibilities that should be handled by government and individuals. They
believe that the social responsibility of
a business is to fulfill its role as a business, that
is, to maximize profits for shareholders in the
provision of goods and services that meet the
needs of its customers. According to this view,
customers, employees, and shareholders are the
main groups of people for which the business is
responsible, and nothing else. In a New York
Times article about business social responsibility, Friedman (1970) argued that the responsibility of a business is to make profit for its owners
within the legal-compliance boundaries.
According to Friedman:
There is one and only one social responsibility of
businessto use its 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. (Friedman 1970, p. 33)

There are others who disagreed with

Friedmans view. These groups of scholars have
argued that the responsibility of a business goes
beyond making a profit. They argued that a CSR
strategy based on ethical and core values offer
clear business benefits. These benefits may
accrue from the adoption of a broader worldview,
which enables businesses to monitor shifts in
social expectations and helps control risks and
identify market opportunities. Such a strategy
also helps to align corporate and societal values,
thus improving reputation and maintaining public
support. Supporters of this viewpoint described
CSR in terms of moral obligations of a business.
They believed that the role and contributions of
businesses allowed communities to attain a good
quality of life. They also maintained that CSR
should encompass the value system of a business,
such as moral philosophy, ethical conscience,
benevolence, or volunteer commitment. CSR is

the ethical behavior of a company toward society.

This means that management should act responsibly in its relationships with other stakeholders
who have a legitimate interest in the business, not
just the shareholders.
For many corporations engaging in corporate
social responsibility, activity is no longer viewed
as an extra cost or burden. Rather, CSR is increasingly viewed as not only making good business
sense but also contributing to the long-term prosperity of companies and ultimately their existence.
The driving forces behind corporate philanthropy
or social responsibility have been grouped into
two categories: morally driven or to-do-the-rightthing approach; and economically driven or to-dothe-mutually beneficial-thing approach. Both positions have impacted CSR. Examination of the
philanthropic behavior of large companies indicates that these companies CSR activities are
both altruistic and strategic. For example, companies have adopted environmentally responsible
behavior due to both ethical and economic reasons. On justifying their reasons for CSR initiatives, economic or bottom-line arguments were
used more by US multinationals; while their European counterparts relied more on moral justification. Branco and Rodriguesr (2006) argued that
public perception or opinions of the public at
large are persuasive in fostering social and good
work from companies. According to Gan (2006),
the driving force of CSR in big and powerful
corporations was their vulnerability to governmental scrutiny, court cases, and pressure from
general public opinion. Overall, the reasons companies are becoming more socially responsible
include enhanced reputation, competitive advantage, cost savings, industry trends, stakeholders
pressure, social/cultural interests, genuine concern
of top management, customer demand, shareholder demand, access to capital, and economic
performance. Technology and globalization have
also been identified as two important factors
influencing ethical and social responsibility decisions. Both of these make possible the very rapid
sharing of information. As a result, stakeholders
are more informed about how well a corporation
conducts their social responsibility activities. Furthermore, due to the accelerating decline in the

Corporate Governance as a Tool for Alleviating Developmental Issues

earths natural resources, corporations are now

under increasing pressure from diverse stakeholders to show that their businesses contributed
to sustainable development.
For the last few years, development agencies
and academic scholars have brought to attention
the positive role that corporations can play in
addressing social and economic issues not only
in terms of poverty but also in such areas of
health, hunger reduction, child labor elimination,
and more (Frynas 2008). For example, the UN
estimates that there are approximately 70,000
multinational corporations (MNCs) with
hundreds of thousands of subsidiaries, and many
MNCs have turnovers significantly higher than
the gross domestic product (GDP) of the developing nations in which they operate (Jamali
2010). Corporations have a role to play in
addressing development issues because quite
often corporations have more expertise and
resources then governments in developing countries to eliminate social and economic problems.
As the key generator of wealth and employment,
businesses are crucial to the economic and social
development of the societies in which they operate, and a review of the literature confirms that
these companies CSR programs have the potential to contribute to these communities local
development. For example, companies CSR programs have resulted in greater environmental
protection and conservation, increased access to
health care, better sanitation, and improved labor
practices for many people in developing countries. CSR Business owners and leaders often saw
a broader role for themselves in society and participated in nation building by helping to finance
the construction of low-income houses, schools,
libraries, museums, roads, and universities. Many
well-known and successful entrepreneurs, such
as Andrew Carnegie, Bernard van Leer, and
Joseph Rowntree, and many wealthy but less
famous names, endowed foundations to carry
out philanthropic work. They saw this as part of
their civic obligations, of giving something back,
although on a very paternalistic basis. Todays
wealthy entrepreneurs such as Ted Turner, Bill
Gates, Warren Buffet, and many others have continued this tradition.

505

Role of CSR in Alleviating

Developmental Issues
Corporate social responsibility has implications
on improving the lives of the society. According
to the report of Towers Perrin (2009), CSR is the
third most important driver of employee engagement overall. For most communities, local community organizations are the second most
important driver of employee engagement, and
a companys reputation for social responsibility
is also among the top ten drivers. The common
roles of CSR in alleviating developmental issues
are discussed as follows:
1. Develop closer relationship between corporations and community. Through CSR, the purpose of corporations in the social system
becomes more than just a place to get employment or to produce goods and services. By
developing a closer relationship between the
two entities, corporations and community
would be able to achieve and remain in peace
and harmony. This becomes a social capital
that is essential in community development.
2. Developing and sustaining local talents.
Organizations with reputations for CSR can
take advantage of their status and strengthen
their appeal as an attractive employer by making their commitment part of their value proposition for potential candidates, in terms of
developing and training future employees. It
is found that when employees more favorably
view their organizations commitment to
social responsibility, they also tend to have
more positive attitudes in other areas that correlate with better performance. They believe
their organizations recognize and reward great
customer service, act quickly to address and
resolve customer concerns, and are led by
people in senior management who act in the
best interest of customers. This in turn
increases the confidence of senior management in other areas. For example, if a large
number of employees perceive that their organizations senior management supports new
ideas and new ways of doing things, this
results in the employees also having increased
trust in, and loyalty to, the organization.

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Corporate Governance as a Tool for Alleviating Developmental Issues

Additionally, this becomes a factor in

a companys ability to attract and retain talents. In terms of developmental issues,
employees with positive perceptions of the
corporation they work for leads to a more successful company as well as improving the
community in which the company operates.
3. Role in transfer of technology (TOT). Developing closer ties between corporations and
communities will allow MNCs to see the
need for TOT as a CSR in the communities
in the host countries. Very large multinationals have budgets that exceed those of
some countries in developing and emerging
economies. According to Barton (2007),
there are three mechanisms of international
technology transfer: (1) the flow of human
resources; (2) the flow of public-sector technology support; and (3) the flow of private
technology from MNCs to developing countries. Barton argues for greater mobility within
the worlds scientific enterprise and reasserts
an economic rationale for investing in publicsector research in the developing countries.
Through TOT coupled with CSR processes,
the targeted community would gain in the
various aspects of product development and
marketing, such as better price and quality, as
well as concern for peoples well-being.
4. CSR helps to protect environment. Some of
the worlds largest MNCs have made a highly
visible commitment to CSR, with initiatives
aimed at reducing their environmental impact
on communities where they operate. These
companies take the view that financial and
environmental performance can work together
to drive company growth and social reputation. This attitude can only serve to enhance
the employment value proposition such as
interest in going green gains traction
(Towers Perrin 2009). We green the earth
slogan made by some MNCs who own large
golf areas within the vicinity of residential
areas is another CSR initiative that seems to
protect the environment.
5. Interdependency between a corporation and
community. The close link between
a corporation and community is another aspect

of CSRs role in community development

because in the long run it creates sustainable
development. An example of this is the Shell
Foundations involvement in the Flower Valley in South Africa and Marks and Spencer in
Africa. The CSR projects give aids to local
organizations and impoverished communities.
This certainly leads to sustainable community
development and helps to remedy community
developmental issues.
6. Role of CSR on poverty alleviation. CSR programs play an important part in poverty alleviation. Some examples of corporations that
have played a significant role in this endeavor
are shown in the Table 1.
7. A CSR program helps in data gathering for
other public organization function. In the
United States, Intel and IBM helped some
police departments with information gathering and processing by installing cameras with
video processing abilities in areas where
there are high rates of crimes. Intel has also
conducted initiatives to educate local communities on how they can use technology to
prevent crime and detect who committed the
crime. This is an example of technology companies implementing CSR initiatives that
benefit communities. This type of technology
can be transferred to developing countries to
help their local law enforcement organizations to fight crime. From the foregoing analysis, it is obvious that CSR can play a leading
role in helping to alleviate the social problems that plague many nations. Although
many corporations are now involved in social
responsibility programs around the world,
there is still a need for more corporations to
get involved and be committed to CSR, particularly in developing and emerging
economies.

Key Issues
With increasing and widespread commitment of
corporate resources to CSR, attention is now
shifting to the strategic formulation, implementation, and measurement of the market returns to

Corporate Governance as a Tool for Alleviating Developmental Issues

Corporate Governance as a Tool for Alleviating
Developmental Issues, Table 1 Role of CSR in poverty alleviation
Corporation
CSR Program
Fight against Epidemics by Program introduces AIDS
Accor SA
and malaria prevention to
hotel managers throughout
the world
Life for a Child by Eli Lilly Eli Lilly sponsors the Life
and Company
for a Child program
operated by the
International Diabetes
Foundation to provide
financial and clinical care to
children in developing
countries
The Lilly MDR-TB
The Lilly MDR-TB
partnership by Eli Lilly and partnership helps save lives
Company
by preventing and treating
multidrug resistant
tuberculosis, a disease that
affects people in the poorest
regions of the world
Got 2B Safe! Think Smart Honeywells aim is to keep
and Take Charge by
communities safer by
Honeywell International
educating one child, one
Inc.
teacher, one family at a time
Working with communities BBA provides employment
by BBA Aviation plc.
and also gives back in other
ways to the communities
where they operate
Hope through
Lenovo is helping small-toentrepreneurship by Lenovo medium businesses to grow
Group Limited
around the world by
sponsoring a variety of
programs
Poverty Alleviation
ABC donated money to
Program by Agricultural
alleviate poverty stricken
Bank of China
communities in China
Supporting Math and
Baxter International is
Science Education by
seeking means of improving
Baxter International Inc.
math and science education
through forming programs
that focus on biotechnology
education
Source: www.csrpedia.com/programs/stakeholders/individuals/families/

CSR programs. But still a concern to corporations

is whether their focus on doing good will provide positive returns to their CSR actions. This
emphasizes the need for better measurement
models of CSR that capture and estimate clearly
the effects of a companys CSR actions on its

507

stakeholders as well as the nations in which they

are operating. It is difficult to measure corporate
social involvement for purposes of research. It is
difficult to get detailed information in quantitative (monetary and other forms) terms of the
social activities that have relevance for the general rubric of social responsibilities. Another difficulty is that performance in the social area is
inevitably more difficult to quantify than commercial or even environmental performance.
Although measures of CSR are still evolving,
a model that is gaining the most supporters is
the Global Reporting Index (GRI). There is
a need to develop additional measures that are
reliable and understood by all those involved in
CSR programs.

Future Directions
Although a great deal of research has been
conducted in CSR in the last two decades,
some controversy has remained, leaving opportunities for future research. Future research
should examine how to develop capacity to
help communities to help themselves. Such
capacity building should be a necessary part of
the formation of social capital in communities,
and would be a qualifying criterion of any social
investment. Future research should develop conceptual frameworks on how to build sustainable
partnerships between corporations and communities in which they operate. Such partnerships
provide a better platform for success, as opposed
to the paternalism, which so often characterized
corporate/community relationships of the past.
Future research should focus on developing
a cooperative strategy on technology between
MNCs and host communities. The benefits of
innovative technologies can be best achieved
through cooperation between those who own
the technology and those who need it. Simply
transferring technology without cooperation has
been shown to fail. Such cooperation should be
an integral part of capacity building and partnership. Another area of future research should
focus on CSR issues such openness and

508

Corporate Governance Codes and Principles United Kingdom

transparency in corporate affairs, which is

essential in a well-informed world that demands
evidence of responsible behavior. Future
research should examine how to integrate CSR
across a variety of functional areas, including
financial, environmental, and social dimensions.
Future research should include areas such as
examining the role of CSR in poverty alleviation. There is a need to focus on antipoverty
strategies which address the problems instead
of simply the symptoms of poverty. Excessive
elaboration about who the poor are is not enough
without finding solutions on how to combat poverty. In this case, analyzing poverty alleviation
programs through empirical research have the
potential for identifying new forms of collaborative value creation in support of poverty alleviation programs. Future research should
investigate the role and commitment of top management to their CSR programs.
Employee rights are important to all stakeholders; these rights include freedom of association and the right to collective bargaining,
elimination of all forms of forced and compulsory labor, abolition of all child labor, and the
elimination of discrimination in respect of
employment and occupation. Effective management of CSR demands monitoring, measuring, and reporting of performance against
generally accepted indicators. The systems to
achieve this are still in their infancy, thus, more
research is needed on monitoring and reporting
of environmental impacts and performance
of CSR.

Cross-References
Corporate Citizenship
Corporate Governance
Corporate Social Performance
Poverty Alleviation
Social Entrepreneurship
Sustainability
Sustainable Development

References and Readings

Barton, J. H. (2007). New trends in technology transfer:
Implications for national and international policy
(Issue Paper No. 18). Geneva: International Center
for Trade and Sustainable Development (ICTSD).
Branco, M. C., & Rodriguesr, L. L. (2006). Corporate
social responsibility and resource-based perspective.
Journal of Business Ethics, 69(2), 111132.
Friedman, M. (1970, September 13). The social responsibility of business is to increase its profits. The
New York Times, 33.
Frynas, J. G. (2008). Corporate social responsibility and
international development: Critical assessment. Corporate Governance: An International Review, 16(4),
274279.
Gan, A. (2006). The impact of public scrutiny of corporate
philanthropy. Journal of Business Ethics, 69, 217236.
Ghillyer, A. (2008). Business ethics: A real world
approach. Boston: McGraw-Hill Irwin.
Habid, M., & Zurawicki, L. (2010). The bottom of the
pyramid: Key roles for businesses. Journal of Business
& Economics Research, 8(5), 2335.
Hartman, L. P., Rubin, R. S., & Dhanda, K. K. (2007). The
communication of corporate social responsibility:
United States and European Union multinational corporations. Journal of Business Ethics, 74(4), 373389.
Jamali, D. (2010). The CSR of MNC subsidiaries in developing countries: Global, local, substantive or diluted?
Journal of Business Ethics, 93, 181196.
Pearce, J. A., II, & Doh, J. P. (2005). The high impact of
collaborative social initiatives. MIT Sloan Management Review, 46(3), 3039.
Tower Perrin. (2009) Corporate social responsibility: Its
no longer an option. http://www.towersperrin.com/tp/
showdctmdoc.jsp. Accessed 9 June 2011.
World Business Council for Sustainable Development
Corporate Social Responsibility (WBCSD). (1998).
Working Group submissions Team A (Scoping and
defining) Work Group Progress Report, The
Netherlands.

Corporate Governance Codes and

Principles United Kingdom
Review of the Combined Code 2009

Corporate Governance Professional

Corporate Secretaries

Corporate Governance Reporting

509

Introduction

Corporate Governance Reporting

Reiner Quick and Daniela Wiemann
Department of Accounting and Auditing,
Technical University Darmstadt, Darmstadt,
Germany

Synonyms
Corporate governance statement; Voluntary
disclosures on corporate governance

Definition
Corporate governance describes the legal and
institutional conditions as well as the internal
mechanisms that influence the firms management and control and consequently have an effect
on firm performance. It is based on transparency
and responsibility in regard to shareholders and
other stakeholders.
Corporate governance reporting is the pivotal
instrument to communicate a companys corporate governance practices to third parties.
National corporate governance codes containing
statutory regulations as well as internationally
and nationally recognized standards for good corporate governance in the form of recommendations and suggestions (i.e., code of best practice)
often form the basis for corporate governance
reporting. These codes help to fulfill the
companys duties and responsibilities in the best
interest of the shareholders. In most countries,
disclosure on corporate governance is largely
voluntary, although some countries, such as the
United Kingdom, Italy, or Germany, require
companies to disclose whether they comply
with a national corporate governance code
under a comply or explain approach. To ensure
a high level of transparency, information should
be given in a separate corporate governance
report so that all shareholders will be informed
equally.

Relevance of Corporate Governance

Reporting
Separation of ownership and control creates
agency conflicts between the management of
a company, which has control but no economic
interest, and its shareholders, who have an economic interest but no control. A conflict of interest between both is obvious. A system of
corporate governance is necessary to supervise
management and match the interests of management and investors. Good corporate governance
mechanisms help to ensure that management
properly utilizes the enterprises resources in the
best interest of absent owners.
Due to the globalization of capital markets that
led to a worldwide competition for equity capital,
the increased importance of institutional investors, and a wave of corporate scandals at the
beginning of the millennium, corporate governance issues have been put at the top of the
agenda to ensure public trust in capital markets
and to fulfill the increased demand for good corporate governance. In particular, large institutional investors hinge their investment decisions
on the compliance with a defined minimum standard of corporate governance. According to the
results of a frequently quoted survey, the capital
market prices a relative premium of 1116% for
firms with a good corporate governance. Good
corporate governance affects a firms performance by reducing equity costs. To benefit from
corporate governance mechanisms, good corporate governance has to be recognizable clearly.
An insufficient supply of information makes it
difficult for investors to make risk and return
assessments. Furthermore, the presence of debt
induces owner/managers to take financing and
investment decisions that increase the firms
default risk. Debtholders use company disclosures to assess the firms default risk or to avoid
debt covenant violations. Companies can reduce
the resulting costs of debt by disclosing corporate
governance information. In this way, disclosure
on corporate governance serves as an instrument

510

to reduce a gap between information that is internally available and externally requested. Through
corporate governance reporting, firms can signal
high corporate governance quality. Due to an
increasing demand for external information, disclosure on corporate governance will gain further
attention.
Contents of Corporate Governance Reporting
Despite the importance of corporate governance
reporting, precise instructions regarding the contents of corporate governance reports do not
exist. Instead, various recommendations regarding the content of corporate governance report
are published by different national and international institutions that are mostly private. The
components of a corporate governance report
outlined below represent the major corporate
governance aspects that are covered in codes of
best practices and are widely mentioned by commercial corporate governance rating agencies,
like Standard & Poors and Deminor, and
research groups, such as the German AKEU, the
Compliance Scorecard and Transparency Disclosure Scorecard or the EU High Level Group.
Accordingly, a corporate governance report
should inform about:
The national corporate governance system
Accountability and audit
The compensation of board members
Directors dealing and stock ownership
The compliance to a national code of best
practice
National Corporate Governance System

A description of the corporate governance

system is a crucial part of corporate governance
reporting. Differences between continental
Europe, especially Germany, and AngloAmerican countries are reflected in divergent
corporate governance systems that are based on
an interaction between statutory regulations and
further institutional and environmental conditions. Corporate governance reporting is an
important contributor for understanding differences in the use of corporate governance mechanisms in a given corporate governance system.
The main characteristics are the boards

Corporate Governance Reporting

organization structure, shareholders rights, and

the ownership structure.
Boards Organization Structure The boards
organization structure addresses the role of the
corporate board and its ability to perform independent oversight on the managements performance. Separation of authority at the board level
is important. In Anglo-American countries, the
boards organization structure is characterized by
a unitary board of directors (one-tier system)
comprising both full-time executive and parttime nonexecutive directors. The nonexecutive
directors are primarily responsible for management oversight. In European countries, corporate
boards are often based on two-tier boards as proposed by the Fifth EU Directive (two-tier
System). Two-tier boards involve a separation
into a management board, which is responsible
for the strategy and the operative business of the
company, and a supervisory board, which is
responsible for supervision and accountability
of the management boards members.
The corporate governance report should
describe the organization structure and functioning of the board, especially its responsibilities
and interaction. It should describe the procedures
adopted by the board to fulfill its duties (e.g.,
frequency of, and procedures at, boards meetings). In addition, further information should be
given on board members contracts, especially
with regard to compensations in the event of
a termination of activity.
Boards Committees The board should establish committees, consisting of at least three independent nonexecutive directors of the board
respectively members of the supervisory board.
Most countries obligate a company to have at
least three committees: the remuneration committee, the nomination committee, and the audit
committee. The nomination committee has to
decide on new appointments to the board and
other senior positions in the company. The remuneration committee devises an appropriate
remuneration system, including benefit and
bonus packages, for the executive directors. Due
to the importance of executive payments, it is

Corporate Governance Reporting

vital that pertinent decisions are taken by those

who do not benefit from them. In smaller companies, duties and responsibilities of the nomination
and remuneration committees may be combined.
The audit committee assists the board in overseeing the financial reporting process. It is intended
to provide a link between auditor and executive
directors since the latter are responsible for the
companys financial reporting which is the subject of the audit. The audit committee gives
recommendations regarding the appointment,
reappointment, and removal of the external auditor. It reviews the independence and competence
of the external auditor and the effectiveness of the
audit process. Furthermore, the audit committee
is assigned with the review of the internal control
and risk management system and monitors the
effectiveness of the companys internal audit
function.
The corporate governance report should
inform about the designated committees, their
size, and the relevant expertise of their members.
Information should also be given on the frequency of meetings during the fiscal year and
the underlying charter.
Shareholders
Rights
and
Ownership
Structure In continental European countries,
corporate governance is often characterized by
concentrated ownership, smaller and more narrow capital markets (regarding both equity and
debt capital), and poorer investor protection. For
that reason, the continental European corporate
governance system is also called an insider system. In contrast, in Anglo-American countries
corporate governance involves characteristics
like dispersed ownership, larger and wider capital
markets, and better investor protection. Therefore, it is called an outsider system.
The corporate governance report should contain information on shareholders meeting (e.g.,
voting procedures), financial rights (e.g., dividends, ability to exercise rights), or takeover
defenses. In this context, the report should also
inform on the companys shareholders and the
capital structure, on blockholders and their voting
and control rights and other direct or indirect
relationships between the company and major

511

shareholders, in particular all material transactions which require explanation.

Accountability and Audit

Internal Control The board should implement

a sound system of internal control and an adequate risk management system to safeguard
shareholders investments and companys assets.
The actual financial crises have contributed to
a growing skepticism among share- and
debtholders concerning the effectiveness of internal control and risk management systems. The
corporate governance report should include
a description of the main features of the
companys internal control and risk management
system. In this context, information on the
companys risk profile and risk tolerance is desirable. Risks are not static. Thus, there is also
a need to review the effectiveness of the internal
control and risk management system. The review
should cover all material controls, especially with
regard to financial, strategic, operational, compliance, and financial reporting risks. As
a consequence, the corporate governance report
should inform share- and debtholders that the
companys board or the audit committee performs such a review.
External Auditor External auditors verify
whether financial statements are fairly stated in
conformity with the relevant accounting standards and that these statements reflect the true
economic situations and operating results. Thus,
the external auditors verification adds credibility
to the companys financial reporting. Therefore,
an audit of a high quality is expected to reduce
information risk. Audit quality is determined by
an auditors competence and independence and is
affected by the auditors brand name or the provision of non-audit services. Differences in audit
quality result in a variation of credibility offered
by the auditors. Thus, the corporate governance
report should include at least information on the
name of the auditor, a declaration of auditors
independence and auditors total fees, differentiated into audit and non-audit fees. Non-audit fees
should be further subdivided into their main
categories (e.g., tax advisory).

512

Compensation of the Board

An appropriate compensation structure attracts,

retains, and motivates directors sufficiently. In
regard to agency conflicts, incentive payments
are essential to match the interests of the executive directors, respectively members of the management board with those of the shareholders.
Incentive payments can trigger improvements in
the business strategy, the firms profitability, and
managers individual performance. Therefore,
an appropriate part of the compensation should
be based on long-term profitability. Share-based
compensation shall depend on long-term
share price and profit development. Due to public
alertness, disclosure on the boards compensation
is a crucial part of corporate governance
reporting. The total compensation of each board
member should be disclosed and differentiated
into fixed and performance-related components
as well as long-term incentive components. The
report should also inform on the board members
contracts in terms of bonus compensations or
pension awards in the event of termination of
activity and on kinds of fringe benefits. Payments
made by the company to the boards members or
advantages for services provided individually, in
particular advisory or agency services, should
also be listed.
Directors Dealing and Stock Ownership

It is of interest for investors and shareholders how

the company handles potential conflicts of interests arising from directors dealing and directors
share ownership. Reporting on directors
dealing and share ownership is closely related
to a disclosure of boards compensation.
A corporate governance report should give information on the total amount of shares held by
directors if it is material. In some countries like
Germany, there is a recommendation to report
stock ownership that exceeds either directly or
indirectly 1% of the shares issued by the company. In terms of transparent reporting, it should
also be mentioned if the critical percentage had
not been exceeded. Furthermore, the corporate
governance report should inform on current
changes in the amount of shares held by directors
and on the amount that is available for sale.

Corporate Governance Reporting

Compliance with a Code of Best Practice and

Further Voluntary Agreements

According to existing national corporate governance codes, compliance with a code is largely
voluntary. However, some countries require
companies to disclose whether they comply
with a national corporate governance code
under a comply or explain approach. Regardless of an explicit requirement to comply or
explain, firms should explain in the corporate
governance report whether and to what extent
they comply with a particular corporate governance code, and if they do not fully comply, they
should explain why they do not. Additionally, it is
also possible to introduce a firm-specific code of
best practice or to get involved in other voluntary
agreements which guarantee to act in
a responsible or ethical manner. The existence
and execution of such voluntary agreements
should be described in the corporate governance
report.

Empirical Findings
The relevance of corporate governance reporting
is of international research interest. Basically,
Beeks and Brown (2006) found that Australian
companies with better corporate governance disclose more corporate governance information.
Bhat et al. (2006) showed that disclosure on corporate governance is more important when financial information is restricted. Moreover, Bhat
et al. (2006) pointed out the relevance of corporate governance information for the precision of
analysts forecasts especially in context of weak
enforcement mechanisms. The majority of studies use scorings or ratings as evaluation criterion
for the quality of corporate governance with the
primary objective to highlight deficiencies in corporate governance and to analyze the relation
between corporate governance and firm performance. One has to distinguish between commercial and scientific rating providers. The most
popular commercial ratings are Deminor corporate governance rating (2001), Standard & Poors
corporate governance rating (2002), or Governance Metrics International (2008). The validity

Corporate Governance Reporting

of those commercial ratings is questionable.

A deficit of commercial ratings lies in
a nontransparent rating method respectively rating criteria which hamper comparability and replicability of those results. Furthermore,
commercial ratings are often conducted solicited.
In contrast, scientific ratings are not driven by any
tangible interest in specific firms, so these studies
create more important results.
A review of literature identifies 15 national
and six international studies which investigate
the relation between the compliance statement
to a code of best practice and firm performance.
Most studies find a positive correlation. In
a survey of 91 German firms, for example,
Drobetz et al. (2004) found an increase in shareholder value of 11.7% and an annually average
return rise of 2.33% for firms with better corporate governance. Bress (2008) analyzed the compliance statements of 128 German-listed
companies. He showed a positive effect of compliance to the national corporate governance code
on Tobins Q, but no significant influence of the
declared compliance on stock return. Running an
event study with 138 German-listed companies,
Nowak et al. (2005) could not find a significant
effect of disclosure on the compliance statement
and the current share performance. MacNeil and
Li (2006) investigated the share performance of
FTSE-100 firms which do not comply to the UK
Combined Code. They did not find a decline in
share performance as long as deviations are
explained by the firms. In a survey of 191
Spanish-listed companies, Del Brio et al. (2006)
show that Tobins Q increases significantly with
the degree of compliance.
There are nine studies that examine the effect
of further corporate governance criteria that are
beyond the scope of the standard of corporate
governance codes on firm performance. These
results are also mixed. Brown and Caylor
(2009) found a positive relation between corporate governance and return on investment for
US-listed companies. In contrast, Larcker et al.
(2005) found no effect of corporate governance
on firm performance. Durnev and Kim (2005)
analyzed corporate governance modalities of
firms in 27 countries. They found a significant

513

positive correlation between high corporate governance standards, a high transparency level, and
firms stock market evaluation.
Only two national and three international studies analyzed the transparency of corporate governance reporting. Graf and Stiglbauer (2008)
analyzed differences in classification within the
Germany stock index (DAX 30, MDAX, SDAX,
TecDAX) and transparency of corporate governance reporting. They found that firms with the
highest market capitalization (DAX 30) provide
the highest transparency of corporate governance
reporting. Quick et al. (2009) analyzed the quality of corporate governance reporting of the 50
largest listed companies in Germany based on the
German corporate governance code and on the
recommendation of the AKEU. They found that
reporting quality is mainly determined by a firms
market capitalization and a US-listing. Vander
Bauwhede and Willekens (2008) analyzed the
corporate governance reporting of 130 European
companies listed on FTSE Eurotop 300 Index
based on Deminor Rating. The results showed
that companies with a higher degree of separation
of ownership and control, and companies that
stem from common law countries, disclose significantly more corporate governance information and consequently achieve significantly
higher corporate governance ratings. These
results support the arguments that companies disclose more information to reduce agency conflicts. In context of Canadian banks, Maingot
and Zeghal (2008) detected that larger companies
report more corporate governance information in
their annual report. Toksal (2004) and Cheng
et al. (2008) found that transparent corporate
governance reporting results in lower cost of capital. Collett and Hrasky (2005) analyzed the quality of corporate governance reporting of 299
Australian-listed companies. They found that
higher reporting quality simplifies the rising of
equity capital.
Despite these partially mixed results, most
studies find a positive relation between corporate
governance and a companys success. Therefore,
it can be concluded that corporate governance
and corporate governance reporting are relevant
for shareholders and creditors.

514

Key Issues
Corporate governance reporting is not mandatory.
As far as companies give information on corporate
governance, it is advisable to publish a separate
corporate governance report in addition to the
annual report in order to guarantee a transparent
reporting process. In doing so, the importance of
the corporate governance will be emphasized and
the increased information demands of share- and
stakeholders will be taken into account. A problem
of corporate governance reporting is that instructions regarding the content of such a report are
missing. Instead, recommendations stem from various international, mostly private, institutions or
research groups. If a national code of best practice
exists, firms should report on the compliance with
this code as a minimum standard. A transparent
reporting process also involves a timely disclosure
of relevant information concerning corporate governance, especially current changes in corporate
governance. Therefore, current information
should be given on a companys homepage (ad
hoc publicity) in addition to a corporate governance report. Only transparency and timely disclosure enable share- and stakeholders to monitor the
actions of management effectively.

Future Directions
Due to the relevance of corporate governance
issues, it has to be scrutinized whether voluntary
reporting is sufficient or to what extent corporate
governance reporting should be mandatory.
A mandatory corporate governance disclosure
requirement would ignore that costs and economic benefits of such a policy differ across
individual companies. Actually, in few firms,
economic benefits of corporate governance
reporting would exceed the associated costs.
However, not only efficiency considerations, but
also distributional aspects, play a role in deciding
on the installation of new disclosure requirements. In regard to the documented empirical
findings, the positive and significant relation
between corporate governance and firm performance could be an indication that mandatory

Corporate Governance Reporting

corporate governance reporting is abundant.

Instead, the capital market can sanction lower
corporate governance quality. Thus, at least capital market-oriented firms should be willing to
disclose corporate governance information to
reduce their costs of capital. Besides this, further
efforts are necessary to standardize the content
of corporate governance reports. Only
a standardized reporting process will inform all
shareholders and creditors equally and, moreover, will serve as a benchmark that can be used
to compare individual companies in the course of
their investment decisions.

Cross-References
Agency Theory
Board of Directors
Code of Best Practice
Comply or Explain
Corporate Codes of Conduct
Corporate Governance
German Corporate Governance Code (6/6/
2008)
International Corporate Governance Network
OECD Principles of Corporate Governance
and CSR
One Tier Board
Risk Management
Shareholder Rights
Transparency
Two-Tier Board

References and Readings

Beeks, W., & Brown, P. (2006). Do better-governed Australian firms make more informative disclosures?
Journal of Business Finance & Accounting, 33,
422450.
Bhat, G., Hope, O. K., & Kang, T. (2006). Does corporate
governance transparency affect the accuracy of analyst
forecasts? Accounting & Finance, 46, 715732.
Bress, S. (2008). Corporate governance in Deutschland.
Brandenberg: EUL Verlag.
Brown, L. D., & Caylor, M. L. (2009). Corporate
governance and firm operating performance.
Review of Quantitative Finance and Accounting, 32,
129144.

Corporate Involvement in Poverty Alleviation

Cheng, C. S. A., Collins, D., & Huang, H. H. (2008). The
market response to Standard & Poors transparency &
disclosure rankings. Corporate Ownership & Control,
5, 244254.
Collett, T., & Hrasky, S. (2005). Voluntary disclosure of
corporate governance practices by listed Australian
companies. Corporate Governance An International
Review, 13, 188196.
Del Brio, E. B., Maia-Ramires, E., & Perote, J. (2006).
Corporate governance mechanisms and their impact
on firm value. Corporate Ownership & Control, 4,
2536.
Deminor Rating. (2001). The global corporate governance
benchmark applied to Europe. http://deminor.com.
Accessed 23 May 2012.
Drobetz, W., Schillhofer, A., & Zimmermann, H. (2004).
Ein corporate governance rating f
ur deutsche
Publikumsgesellschaften. Zeitschrift f
ur Betriebswirtschaftslehre, 74, 525.
Durnev, A., & Kim, E. H. (2005). To steal or not to steal:
Firm attributes, legal environment, and valuation.
Journal of Finance, 60, 14611493.
Governance Metrics International. (2008). Products and
services overview. http://gmiratings.com. Accessed
23 May 2012.
Graf, A., & Stiglbauer, M. (2008). Measuring corporate
governance in Germany: An integrated framework on
compliance and transparency & disclosure. Corporate
Ownership & Control, 6, 456466.
Larcker, D. F., Richardson, S., & Tuna, A. I. (2005). How
important is corporate governance? (Working Paper),
Philadelphia, PA: University of Pennsylvania.
MacNeil, I., & Li, X. (2006). Comply or explain: Market
discipline and non-compliance with the combined
code. Corporate Governance An International
Review, 14, 486496.
Maingot, M., & Zeghal, D. (2008). An analysis of corporate governance information disclosure by Canadian
banks. Corporate Ownership & Control, 5, 225236.
Nowak, E., Rott, R., & Mahr, T. G. (2005). Wer den
Kodex nicht einhalt den bestraft der Kapitalmarkt?
Zeitschrift f
ur Unternehmens- und Gesellschaftsrecht,
34, 252279.
Parum, E. (2005). Does disclosure on corporate governance lead to openness and transparency in how companies are managed? Corporate Governance An
International Review, 13, 702709.
Quick, R., Wiemann, D., & Wiltfang, I. (2009). Corporate
governance Berichterstattung Empirische Befunde
zur
Qualitat
der
Berichterstattung.
Die
Wirtschaftspr
ufung, 62, 205215.
Standard & Poors. (2002). Standard and Poors corporate governance scores and evaluations: Criteria,
methodology and definitions. Standard and Poors
governance services. New York: Standard and Poors.
Stiglbauer, M. (2010). Corporate governance Berichterstattung und Unternehmenserfolg Eine empirische
Untersuchung f
ur den deutschen Aktienmarkt.
Wiesbaden: Gabler.

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Toksal, A. (2004). The impact of corporate governance on

shareholder value. Kolner Universitats-PublicationsServer.
http://kups.ub.uni-koeln.de/volltexte/2005/
1389. Accessed 23 May 2012.
Vander Bauwhede, H., & Willekens, M. (2008). Disclosure on corporate governance in the European Union.
Corporate Governance An International Review, 16,
101115.
Werder, A., & Grundei, J. (2003). Evaluation der corporate governance. In P. Hommelhoff et al. (Eds.),
Handbuch corporate governance (pp. 675695).
Stuttgart: Otto Schmidt Verlag.

Corporate Governance Statement

Corporate Governance Reporting

Corporate Guidelines
Corporate Governance

Corporate Identity
Good Corporation
Reputation

Corporate Image
Corporate Reputation

Corporate Information
Media CSR Forum

Corporate Involvement in Poverty

Alleviation
Poverty

516

Corporate Irresponsibility

Definition

Corporate Irresponsibility
Corporation as Psychopath

Corporate Local Responsibility

CSR and Regional Development

Corporate Mandate
Profit Maximization

Corporate Misconduct
Corporation as Psychopath

Corporate Mission
Corporate Mission, Vision and Values

Corporate Mission, Vision and

Values
Theodore Lynn1 and Malcolm Brady2
1
DCU Leadership, Innovation and Knowledge
Research Centre, DCU Business School,
Dublin City University, Glasnevin, Dublin 9,
Ireland
2
DCU Leadership, Innovation and Knowledge
Research Centre, DCU Business School,
Dublin City University, Dublin 9, Ireland

Building on Druckers 1973 definition of corporate

mission, Pearce and David (1987, p. 109) define
a corporate mission as . . .the fundamental, unique
purpose that sets a business apart from other firms
of its type and identifies the scope of businesss
operations in product and market terms. They go
on to define a mission statement as:
. . .an enduring statement of purpose that reveals an
organizations product or service, markets,
customers, and philosophy. . .a mission statement
provides the foundation for priorities, strategies,
plans, and work assignments. It is the starting
point for the design of managerial jobs and structures. It specifies the fundamental reason why an
organization exists.

While the mission statement provides purpose, it does not provide direction (Levin 2000,
p. 93). The corporate vision fills this gap by
providing an elaboration of a desired future state
for the organization.
Enz (1988, p. 27) defines organizational
values in the corporate context as:
. . .the beliefs held by an individual or group
regarding means and ends organizations ought
to or should identify in the running of the
enterprise, in choosing what business actions or
objectives are preferable to alternative actions,
or in establishing organizational objectives.

Schwartz and Bilsky (1987) further refine this

definition as:
. . .(a) concepts or beliefs, (b) about desirable end
states or behaviors, (c) that transcend specific situations, (d) guide selection or evaluation of behavior
and events, and (e) are ordered by relative importance. (p. 551)

While they may be shared, they often reflect

the values of company founders or significant
leaders (Hofstede 1997, p. xiii).

Introduction
Synonyms
Company mission; Corporate beliefs; Corporate
mission; Corporate purpose; Creed statement;
Mission statement; Statement of philosophy;
Statement of purpose; Vision statement

The old adage states that if you dont know

where youre going, any old road will take you
there. There is much wisdom in this statement.
As individuals, we need some sense of direction
in order to guide us through life; otherwise, we
risk wandering around somewhat aimlessly and

Corporate Mission, Vision and Values

achieving less than our potential. So too it is with

business firms. A firm without a clear sense of
direction may take up opportunities in an ad hoc
manner and make little real progress on any one
opportunity. Just as for people, it is very useful
for a firm to have a clear sense of purpose.
One way for a firm to set out its purpose and
direction is through one or more formal statements. Such statements are often termed mission,
vision, or values statements. The mission statement sets out the current purpose of the firm and
its range of activity and declares what the firm
stands for. The vision statement sets out the long
run aspirations of the firm: where it is headed and
where it wants to be in a number of years time.
The values statement sets out the values that
define the firm; these values in turn form the
basis on which the firm carries out its operations
and the basis for behavior of individuals who
work in or for the firm. Together, these three
statements set out the purpose of, the direction
of, and the nature of the firm: why the firm exists,
what future does it envisage, and what the firm
stands for (Collins and Porras 1996).
While mission, vision, and values are usually
determined as statements, it is not necessary for
them to be formally written down. In former time
purpose, direction and values were transmitted
through the organization by means of stories,
examples, and analogies. In current times, mission, vision, and values are more commonly written down and transmitted as formal statements.
Either way, what is vital is that the mission, vision,
and values are clear and made well known to all
members of the firm. This helps ensure that there
exists within the firm a sense of mission (Campbell and Yeung 1991). Without such a widespread
sense of mission, the mission, vision, and values
will be ineffective in driving the firm forward:
mission, vision, and values become only of relevance to a small group of individuals within the
organization, usually the group that developed
them, or to one tier in the firm, usually top management. On the other hand, in firms with a strong
sense of mission, all members are clear about what
the firm stands for and where it is going.
In order to gain the attention of members of
the firm, statements of mission, vision, and values

517

must be engaging. Their primary purpose is to

inspire employees of the firm. For that reason, the
actual wording of the statements is of vital importance. Thompson et al. (2010, p. 26) suggest that
the vision statement should be graphic, specific to
the firm, distinctive, and forward looking; the
envisaged future should be desirable and feasible
to achieve. The statement should avoid being
bland, vague, too broad, or overly reliant on
superlatives. These authors criticize many
existing vision statements as being too lofty and
generic: more akin to public relations statements
than statements of future direction; they argue
that such statements may not be of great use in
propelling a company forward. Henry Fords
famous vision of a car in every garage is often
given as an example of a good vision statement:
one that captures peoples attention and imagination. Notwithstanding this, it should be noted that
Beaver (2000) and others have noted that the
language of mission, vision, and value statements
is often the same.
Two broad mechanisms exist by which the
mission, vision, and values can be developed:
top down and bottom up. OBrien and Meadows
(2003) found in their study of financial organizations that the vision was primarily developed by
the CEO and senior management of the firm, with
little consultation taking place outside of that
group and with little use being made of formal
methodology or theory. These authors found that
this top-down, low-participation process sometimes leads to significant lack of engagement
with the vision on the part of junior or frontline
staff. Where the visioning process was successful, embedding the vision in the organization, that
is, generating a sense of mission, typically took
2 years. A bottom-up visioning process by its
nature is much more inclusive but has its own
issues: it can take a long time; it can be difficult to
gain agreement; it can pander to too many tastes
leading to an overly broad, vague vision; and it
can result in a vision that is less strategic and
more operational in nature. It should be noted
that Beaver (2000) and others have noted that the
language and themes corporate missions, visions,
and even values are often the same. Indeed in the
case of values, Beaver (2000, p. 208) posits that

518

there are four basic values a company need concern itself with:
First, produce high quality goods that add real
value to both customers and consumers. Second,
be a good place for employees to work. Third,
behave in a publicly responsible manner. Finally,
provide those that own the business with a good
return on their investment. The language can be
modified to customize the ideas to the operating
context and particular circumstances of the organization but those basic values will serve it well.

While the mission, vision, and value statements are primarily directed at employees, they
can also be useful in making other stakeholders
aware of the firms intentions. Organizations may
make them available to other stakeholders, make
them available to the general public on their
websites, and may even incorporate them into
advertisements. For example, Siemens included
their corporate values on advertisements on
the back of public transportation; the
Johnson&Johnson credo is well known and regularly cited; and Yahoo!s core values are given
in Thompson et al.s (2010) strategic management textbook.
It is not just business firms that need mission,
vision, and values statements. Noncommercial,
volunteer, not for profit, and public sector organizations also need to have a clear understanding
of their purpose, their direction, and the values
that they espouse. Arguably, such a clear understanding of purpose is even more important for
nonprofit organizations as these organizations are
not always subject to the discipline of the marketplace. Not for profit organizations with an
unclear purpose face the real risk of serving too
many masters, and serving none of those well, or
risk serving no real purpose at all, saves to continue in existence. A clear mission sets out the
mandate for such an organization to its various
stakeholders and can be used to hold the organization accountable. This may well be in the best
interest of those served by the organization but
also in the organizations own long run best interest as the nature and value of the service it provides is clear to all its stakeholders. Without
a clear, distinct mission, the organization may
find it difficult to prioritize future opportunities
or discriminate between possible projects and

Corporate Mission, Vision and Values

initiatives that it would like to carry out. It is all

too easy for nonbusiness organizations, and even
business firms, to take up opportunities in a willynilly fashion and so fall into the trap of mission
creep (extending the organizations activities into
too many areas resulting in it performing less
efficiently and competently) or mission drift
(moving away from the organizations core area
resulting in the organization becoming less effective). It is also important for the organization to
ensure that strategic drift (Johnson et al. 2008,
p. 179) does not occur: this happens if the organization keeps to its track but fails to realize that
the environment has changed resulting in its
product or service no longer fully meeting the
need of its customer.
To avoid mission creep and drift, it is important to monitor the organizations performance.
Up until relatively recently, performance assessment was almost entirely restricted to financial
results in the case of business firms and budgetary
performance in the case of noncommercial organizations. Kaplan and Norton (2007, 1992) introduced the concept of the balanced scorecards in
1992, and this has fostered a much more rounded
assessment of organizational performance, driven
by the organizations mission, vision, and values.
Those authors suggest measuring organizational
performance along four distinct dimensions: customer, operational, innovation, and financial. Customer dimensions measure the extent to which
users or buyers of the organizations product or
service are satisfied. Operational dimensions measure the efficiency with which the product or service is produced or carried out. Innovation
dimensions represent how well the organization
is positioned for the future. Financial dimensions
measure financial performance. Together, these
four dimensions give a balanced view of how the
organization is performing and whether or not it is
on track to carry out its mission, achieve its vision,
and stick to its values.

Key Issues
While corporate statements of mission, vision,
and values are widely referenced in academic

Corporate Mission, Vision and Values

texts, popular business books and research,

researchers and commentators highlight the
homogeneity of such statements. They often use
similar language and proclaim their commitment
to similar themes and goals. As such, the value of
such statements has been questioned if there are
no fundamental differences at all. This is not to
say that having a mission, vision, and clear articulation of corporate values is not important but
that in many respects, statements are often
generic.
The degree to which statements of mission,
vision, and values reflects actuality is another key
issue. This is particularly relevant in the area of
corporate social responsibility where companies
have been criticized for engaging in boxchecking
behavior. Collins sums this up as the need for
organizations to worry more about what they do
as an organization and less about what they say.
Unless values are central to competitiveness, one
might argue they will never be central to strategy.
While organizations mission and vision are
relatively straightforward concepts, there is
ongoing debate on organizational values and in
particular research methodologies and frameworks for aligning previous and current research
on values. This is further complicated by the
influence of individuals, groups, institutions,
and industries on organizational values and the
characteristics and dynamics of values over time,
for example, are values stable or developmental?

Future Directions
Populist sentiment, regulatory authorities and
stakeholders in the investment market are requiring increasing disclosure on organizational position regarding corporate social responsibility.
Unfortunately, many corporate social responsibility issues are not black and white and therefore
may not lend themselves to easy articulation in
a way that differentiates one organization from
another. Language and values are often similar
within and across industries. This lack of uniqueness makes it difficult for stakeholders to assess
the veracity and utility of mission, vision, and
value statements in a meaningful way,

519

a situation exacerbated by rapidly changing

complex environments requiring near-constant
adaptation.

Cross-References

C
Business Strategy
Corporate Codes of Conduct
Corporate Strategy
Cultural Differences in Values/Ethics and
Decision-Making
Reputation/Reputation Management
Responsible Leadership
Stakeholder Theory

References and Readings

Beaver, G. (2000). The significance of strategic vision,
mission and values. Strategic Change, 9(4), 205207.
Campbell, A., & Yeung, S. (1991). Creating a sense of
mission. Long Range Planning, 24(4), 1020.
Collins, J. C., & Porras, J. I. (1996). Building your companys
vision. Harvard Business Review, 74(5), 6577.
Drucker, P. F. (1973). Management: Tasks, responsibilities, practices. New York: Harper & Row.
Enz, C. (1988). The role of value congruity in intraorganizational power. Administrative Science Quarterly,
33, 284304.
Hofstede, G. (1997). Cultures and organizations: Software of the mind. New York: McGraw-Hill.
Johnson, G., Scholes, K., & Whittington, R. (2008).
Exploring corporate strategy (8th ed.). New York:
Prentice Hall.
Kaplan, R., & Norton, D. (1992). The balanced scorecard:
Measures that drive performance. Harvard Business
Review, 70(1), 7179.
Kaplan, R., & Norton, D. (2007). Using the balanced
scorecard as a strategic management system. Harvard
Business Review, 85(7/8), 150161.
Levin, I. M. (2000). Vision revisited. Journal of Applied
Behavioral Science, 36(1), 91107.
OBrien, F., & Meadows, M. (2003). Exploring the current
practice of visioning: case studies from the UK financial
services sector. Management Decision, 41(5), 488497.
Pearce, J. A., & David, F. R. (1987). Corporate mission
statements: The bottom line. Academy of Management
Executive, 1(2), 109.
Schwartz, S. H., & Bilsky, W. (1987). Toward a universal
psychological structure of human values. Journal of
Personality and Social Psychology, 53, 550562.
Thompson, A., Strickland, A., & Gamble, J. (2010).
Crafting and executing strategy (17th ed.). New
York: McGraw-Hill Irwin.

520

Corporate Morals

Corporate Morals

Corporate Political Activities

Agency and Corporate Governance

Corporate Political Connections

Corporate Political Connections

Corporate Performance
Business Performance

Corporate Philanthropic
Measurement (Instrument)
Corporate Social Performance Measurement

Corporate Philanthropy
Corporate Giving
CSR and Africa
CSR and Poverty
Philanthropic CSR

Corporate Political Liaison

Corporate Political Connections

Corporate Political Access

Corporate Political Connections

Corporate Political Actions

Corporate Political Connections

Teresa Bianchi1, Rui Couto Viana1 and

Branco Manuel Castelo2
1
Faculty of Economics, University of Porto,
Porto, Portugal
2
Faculty of Economics, University of Porto:
OBEGEF (Observatory in Economics and
Management of Fraud), Porto, Portugal

Synonyms
Corporate political access; Corporate political
actions; Corporate political activities; Corporate
political
influences;
Corporate
political
interferences; Corporate political involvement;
Corporate political liaison; Corporate political
relationship; Corporate political ties

Definition
There are many ways to create corporate political
connections (CPCs). These links can be focused on
direct political connections, i.e., relations between
present or former top managers, employees, or
investors and politicians with present or past political
activities, or on indirect political connections such as
campaign contributions and lobbying activity.
The concept is a brand new term in management literature in recent years. Since there is no
fit-for-all definition for the concept, it can be
associated either with negative consequences for
the corporation or for the society (e.g., high levels
of corruption; damages to minority shareholders;
destruction of the firm value) or with positive
consequences (e.g., knowledge about how to navigate government bureaucracies; increased firm
value; better performance; enhanced economic
competitiveness; charity; corporate philanthropy;
regional development). This sometimes translates into multiple sets of definitions for the

Corporate Political Connections

same concept that were constructed to fit in with

an authors research and its theoretical framework. For example, according to standard definitions used in the literature, CPCs are related to the
political involvement between shareholders, top
officers, and government (officials). Others associate it to contributions to political campaigns or
to political parties. Others still associate CPCs to
the interests in government policies/government
functioning (local, national, and international).
Since Kruegers (1974) seminal work on rent
seeking, there has been a proliferation of studies
that have tried to ascertain the relationship
between firms and political connections.
Researchers generally believe that political connections are obscure relationships between companies and the individuals with political influence
and power. The idea is simple: Firms (or individuals) are said to seek rents when they try to obtain
benefits through the political arena. Firms usually
do so to get a subsidy or a tariff on a good they
produce or to get a special regulation that hampers
their competitors. Steel producers, for example,
often seek restrictions on imports of steel, and
firms with a socially responsible position often
lobby to keep regulations in place that restrict
competition from less socially responsible firms.
However, it is also true that some firms
complement its relative social irresponsibility
with its lobbying efforts to maintain the
regulatory/policy status quo.
Recent studies show three distinct approaches
to identify a company or individual with political
connections. One definition qualifies a firm as
politically connected if its top executives or
largest shareholders are or were politicians, civil
servants, members of parliament, or close to
political power. For example, according to Faccio
(2006), a firm is politically connected if at least
one of the firms largest shareholders (anybody
directly or indirectly controlling at least 10 % of
votes), or one of its top officers (CEO, chairman
of the board, president, vice president, or secretary) is a member of parliament, a minister, or
head of state or is closely related to a politician or
party. Connections with government ministers
include not only cases in which the minister himself or head of state is a shareholder or member of

521

the board, but also cases in which a politicians

close relative (husband, wife, children, or parents
siblings) holds such positions. Close relationships include share ownership or directorships
held by former prime ministers or heads of state
as well as former directorships held by current
politicians, foreign politicians, and relationships
with political parties.
A second definition of CPCs is based on corporate donations to finance campaigns, parties, or
political activities. Most studies adopting this
approach focus on countries where corporate
donations are legally allowed (such as the USA
or Brazil). It is clear that firm contributions are
related to political connections and political
favors. For instance, in some emerging markets,
firm financing and financial structure depends on
their relationships with politicians, with negative
welfare effects (Claessens et al. 2008). Nevertheless, it appears that campaign contributions have
less relevant effect on political decisions than it
seems. Several studies argue that lobbying is
more relevant than contributions, and firms,
after all, spend much more on lobbying than on
parties or campaigns contributions. These facts
are very important for countries where lobbying
activities have no legal framework or where there
is no legal support to party or campaign contributions. In such countries, CPCs can be associated with negative consequences (e.g., high
levels of corruption).
A third definition relates CPCs to corporate
lobbying activities. Lobbying is the practice of
attempting to persuade legislators to propose,
pass, or defeat legislation or to change existing
laws, which could provide gains for special interests. Lobbying expenditures, payments by special
interests to political insiders to influence legislative outcomes in ways to provide gains to special
interests, is a measure that can be used to quantify
the degree of the connectedness, as firms with
greater lobbying expenses are expected to have
stronger political ties (Hill et al. 2010). For some,
lobbying can be a more effective path to influence
legislation than campaign contributions. This
happens because usually there are no legal limits
to lobby expenditures, whereas such legal limits
exist in the case of political funding. Lobbying

522

firms typically employ former government officials as lobbyists (Yu and Yu 2010), and this
implies that lobbyists tend to be political insiders.
Thus, lobbying activity provides firms a way to
become politically connected.

Introduction
In a broad view, CPCs can be found all over the
world. They exist in developed countries (e.g.,
the USA, Canada, Germany, etc.), emergent
countries (e.g., Brazil or China), and in poor
countries; in countries with high (e.g., Malaysia,
the Philippines) or low (e.g., Denmark, Finland,
Singapore) levels of perceived corruption; in
countries with common-law (the UK, the USA)
and code-law legal systems (France, Italy, etc.);
in countries with a strong legal environment (the
USA, the UK, and Sweden) and in countries with
weak legal systems (Indonesia, the Philippines,
India, etc.). CPCs exists either in global players
(Multinational Corporation) or in domestic
corporations.
Faccio (2010) suggests that connections are
especially common in countries with higher
levels of corruption and countries imposing
restrictions on foreign investments. On the other
hand, she argues that connections are less common in countries with regulation that sets more
rigorous limits on political conflicts of interest.
Furthermore, the incidence of political connections is greater in firms with large sales to government, large exports, and large lobbying
expenditures (Agrawal and Knoeber 2001).
Politically connected firms differ more from
nonconnected firms when their political links are
stronger. That is, differences are greater when
companies are connected through owners rather
than directors. Similarly, differences are greater
when the connection is with a minister or a head
of state rather than with a member of parliament.
The main motivation for the establishment of
CPCs pertains to the enhancement of a firms
value. Firms are motivated to be politically
connected by the expectation of obtaining gains
from the preferential treatment given to these
firms that will result in competitive advantages

Corporate Political Connections

and will positively reflect on their economic performance and value. Politically connected firms
may benefit from easier access to debt financing
by government institutions, preferential treatment in competition for government contracts,
privileged access to government subsidies, regulatory protection, and government aid for financially troubled firms, and many other forms.
Meanwhile, some firms (global players) are led
to CPCs due to countries perceived corruption or
to make CSR works. Sometimes firms can adopt
CPCs in order to deal with environment or market
issues. In high perceived corruption countries,
firms may need to establish political connections
in order not to lose some market position to
competitors. Perceived corruption can work as
an incentive to CPCs. In countries or industries
with weak legal or regulatory environment, firms
with high competitive concerns are led to CPCs
in order to reduce or mitigate this weakness or
market threat. Be that as it may, in the end CPCs
are driven by the desire to enhance firm value.
In addition to being important to firms, political connections may also have beneficial consequences both to politicians and to firms
connected managers. Politicians themselves will
extract at least some of the rents generated by
the connections. The chances of politicians
(re) election can be favorably affected by management practices adopted. This much is
suggested in the context of state-controlled companies and in the case of listed companies not
directly controlled by the state. Such connection
also gives politically connected managers certain
incentives as they may receive a share of the rents
extracted (higher wages, public status, easy
access to political decisions).
In the companys view, managers compete for
a political position to extract economic benefits
(rents) of political power regarding firms interests
(Boubakri et al. 2008). On the other hand, companies are interested in having managers who are
influential in the political scene and could be able
to extract rents from the public and competitors
on behalf of their firms (Agrawal and Knoeber
2001).
The sources of value of connections are contradictory. On the one hand, there is a positive

Corporate Political Connections

correlation between political connections and

firm value and performance, both in countries
with weak legal systems and high levels of corruption and in countries with strong legal systems
and lower levels of corruption. Thus, it prevails
the idea that political connections create value by
generating future benefits to the firm. These benefits are mainly due to preferential access to
credit, allocation of lucrative government contracts, favorable regulatory conditions, government support (bailouts) in times of economic
distress, enhanced lobbying power. On the other
hand, Chaney et al. (2011) claim that political
connections have a negative effect upon firms
value and their economic performance. Furthermore, political interference in business management and the poor management profile of the
political connected individuals can be harmful
to economic performance.
For the explanation of these effects, arguments
based on agency and resource-based theories can
be used. Thus, while the positive impact of CPCs
on firm value can be explained through the
resource-based theory, the agency theory fits the
explanation of the negative effects of CPCs.
According to the resource-based theory of the
firm, the competitive advantage of politically
connected firms is mainly driven by ties with
government, which help firms to obtain key
resources that are difficult or costly for other
firms to obtain, and thereby increase the value
of connected firms. Based on agency theory, the
politically connected managers (especially in
state-owned companies) will prioritize the alignment of firm goals with government rather than
the maximization of firm value.
The concept of CPCs seems to be associated to
environmental, social, and economic aspects that
could be described as corporate social irresponsibility, namely in situations that represent distortions of competition and of democratic
representation. In these cases, CPCs may be said
to have a negative relation to Corporate Social
Responsibility (CSR). However, there are many
situations in which the concept can also be associated to aspects that could be rightly described as
CSR. In these latter instances, the relation may
work in both directions:

523

CPCs can allow better CSR. When studying

corporate philanthropy, Jia et al. (2008) found
that the optimal level of philanthropic contribution is dependent on the value of managers
personal political connections. In these cases
shareholders should be concerned about large
levels of philanthropy, indicating that their
managers are obtaining personal benefits
from the firms philanthropy. It is also much
better that the firm invests the money on the
corporate relational wealth such as brand reputation, firm image but not on the transferable
relational wealth such as managers personal
political connections.
CSR can promote CPCs. Campaign contributions and lobbying expenditures influence the
voting behavior of individual politicians and
result in creation of regulatory environments
that are beneficial to specific industries. As we
have seen above, institutional environments
affect the value of political connections,
given the firms operating in a higher level of
law enforcement environment, the value of
political connection decreases and it is better
for the firms to invest less in political connection. This also suggests that CSR engagement
is much more probable in the case of firms
operating in good law enforcement environments. CSR allows firms present in different
environments (markets) to deal more consistently with perceived corruption. As Luo
(2006) suggests, when perceived corruption
in the business segment increases, multinational enterprises that focus more on ethics
have a greater propensity to use arms length
bargaining to deal with the government,
whereas their counterparts that focus less on
ethics have a greater propensity to use social
connections to deal with the government.
As far as the authors are aware, Richter (2011)
was the first author to establish a direct relationship between CSR and CPCs. According to Richter (2011), firms CSR positions work as an
economic complement to its political activity
rather than as a substitute. When joint, the two,
CPCs and CSR, increase a firms value. On the
contrary, acting independently each activity is
more difficult to reconcile.

524

Key Issues
The concept of CPCs relates to the practice of
establishing relationships between firms and
political power. They are often seen as an
obscure relation between politicians and managers that usually engages corrupt practices in
order to gain advantages in business. Nowadays,
CPCs range from lobbying activities to blood
relationships between managers and politicians
or direct funding to parties or politicians. The
concept of CPCs has progressed after recent
years research. Still, it is a relatively wide concept, and there has been little success in the
academic literature in making it sufficiently concrete. Therefore, defining and rationalizing
CPCs in management literature becomes
increasingly important, because of the absence
of a widely agreed definition.
In many cases CPCs may be said to have
a negative relation to CSR, in particular in
situations that represent distortions of competition and of democratic representation. There
are, however, other cases in which CPCs are
associated to socially responsible actions
and activities. In these cases, the relation may
work in both directions: CPCs allows better
CSR (for example, demand for philanthropy) as
well as CSR promotes CPCs (engagement in
political activities seeking market or regulatory
issues).

Future Directions
The concept of CPCs is still under construction.
At the empirical level, the vagueness of the
concept of CPCs hinders the establishment of
measures to capture both the impact on firm
value or on social responsibility. The lack of
consensus on what should be encompassed in
the notion of CPCs makes the comparison of
results obtained in different studies more difficult or even impossible. The motivations that
have led to political involvement can be
explained by considerations of economic rationality, external constraints, or both. Determinant factors such as the degree of economic

Corporate Political Connections

development and culture, the level of perceived

corruption, the legal system, the profile of managers, organizational culture, among others are
not indifferent to CPCs strategies and its impact
on the financial performance of enterprises and
their commitment to social responsibility. These
aspects should be present in models that intend
to make the empirical validation of the hypotheses suggesting the existence of a positive relationship and complementarily between the
CPCs and CSR. CPCs have increasingly
assumed a major role in CSR research. It raises
several research questions about the processes
through which CPCs have succeeded in convincing managers to adopt socially responsible
forms of acting. Firms with strong commitment
for CSR need to reinforce their CPCs in order
assure CSR effectiveness. The extent to which
the corporate political connection is influenced
by CSR should be further explored. Potentially,
CPCs are a powerful way for managers to promote behavior that is perceived to be socially
responsible. Notwithstanding, until now managers ability to affect social change through
CPCs has been limited. Some investors still
believe that companies with poor performance
in terms of CSR tend to be involved in litigation,
industrial action, and/or suffer from fines and
sanctions imposed by government. But in the
end, companies with a good CSR record can be
seen as better investments over the longer term
since companies with bad CSR performance are
more likely to be involved in business activities
that are unsustainable.
The need for further debate and research
regarding the definition of CPCs is obvious. The
case is the same regarding the understanding of
the motivations underlying the involvement in
CPCs, the identification of the effects of political
commitment on CSR, and the identification of
possible strategies for CPCs with positive relations with CSR. Other areas which are worthy of
intensive study in the future are those associated
with CPCs and small- and medium-sized enterprises (What is the difference between CPCs in
SMEs and in large enterprises? How CPCs works
in a SME?) and those associated with codifying
the best and responsible practices in CPCs.

Corporate Principles

Cross-References
Bribery and Corruption
Company Directors and CSR
Competitive Advantage
Corporate Social Irresponsibility
Corporate Social Responsibility
CSR and Corruption
Lobbying
Philanthropic CSR
Philanthropy

525

Richter, B. K. (2011). Good and evil: The relationship

between corporate social responsibility and corporate
political activity. http://ssrn.com/abstract1750368 or
http://dx.doi.org/10.2139/ssrn.1750368. Accessed 7
Feb 2012.
Yu, F., & Yu, X. (2010). Corporate Lobbying and
Fraud Detection. Journal of Financial and Quantitative
Analysis. Available at SSRN: http://ssrn.com/
abstract954368. Accessed 8 Feb 2012.

Corporate Political Influences

References and Readings
Agrawal, A., & Knoeber, C. (2001). Do some outside
directors play a political role? Journal of Law and
Economics, 44, 179198.
Boubakri, N., Cosset, J. C., & Saffar, W. (2008). Political
connections of newly privatized firms. Journal of Corporate Finance, 14, 654673.
Chaney, P. K., Faccio, M., & Parsley, D. (2011). The
quality of accounting information in politically
connected firms. Journal of accounting and Economics, 51, 5876.
Claessens, S., Feijen, E., & Laeven, L. (2008). Political
connections and preferential access to finance: The
role of campaign contributions. Journal of Financial
Economics, 88, 554580.
Faccio, M. (2006). Politically connected firms. The America Economic Review, 96, 369386.
Faccio, M. (2010). Differences between politically
connected and nonconected firms. Financial Management, 39(3), 905927.
Hill, M. D., Fuller, K., Kelly, G. W., & Washam, J. (2010).
Corporate cash holdings and political connections.
Available at SSRN: http://ssrn.com/abstract1601502
or http://dx.doi.org/10.2139/ssrn.1601502. Accessed 7
Feb 2012.
Jia, M., Wan, D., & Zhang, Z. (2008). Political
connection,
institutional
environment
and
corporate philanthropy. http://www.google.pt/search?
hlpt-PT&q Political+Connection%2C+Institutional
+Environment+and+Corporate+Philanthropy&oqPoli
tical+Connection%2C+Institutional+Environment+and
+Corporate+Philanthropy&aqf&aqi&aql&gs_sm
12&gs_upl3758l3758l0l5153l1l1l0l0l0l0l138l138l0
.1l1l0. Accessed 8 Feb 2012.
Krueger, A. (1974). The political economy of the rentseeking society. American Economic Review, 64,
291303.
Luo, Y. (2006). Political behavior, social responsibility
and perceived corruption: A structuration perspective.
Journal of International Business Studies, 37(6),
747766.

Corporate Political Connections

Corporate Political Interferences

Corporate Political Connections

Corporate Political Involvement

Corporate Political Connections

Corporate Political Relationship

Corporate Political Connections

Corporate Political Ties

Corporate Political Connections

Corporate Principles
Corporate Governance

526

Corporate Purpose

Corporate Purpose
Corporate Mission, Vision and Values

which large, medium-sized, and small businesses

are perceived by publics and stakeholders. The
concept of corporate reputation is much deeper
than mere perception for it is deemed to have
intrinsic business value.

Corporate Regional Responsibility

Introduction

CSR and Regional Development

Corporate reputation can be of two types good or

bad. Businesses strive to build a good corporate
reputation and shy away from and try to avoid
being tarnished or associated with a bad, poor, or
damaged reputation. Fombrum (1996) argues that
credibility, reliability, trustworthiness, and responsibility are key to building a positive and favorable
reputation. A range of managerial and communication tools can be deployed to protect, minimize
damage to, improve, and enhance corporate image,
brand, and reputation. Separating out these concepts from one another is not always easy, and at
times, terms can be conflated. By way of example,
corporate reputation is often equated to or associated with company image. It is certainly true that
there is a degree of overlap between the two, but it
should be acknowledged that corporate reputation
is more than just another term for company image.
It is something that can enhance and is deemed to
have inherent value. However, Kennedy (1977),
Alvesson (1998), Dichter (1985), and Dutton
et al. (1994) argue that image and reputation are
pretty much one and the same thing and contend
that it is acceptable for the terms to be used
interchangeably.
A good corporate reputation is in itself
deemed to be of value to a business, and this
can be reflected in the share price. A business
with a good reputation is argued to help build
business brand, offer consumers a higher level
customer service experience, grow market
share, and among other things deliver better
returns for investors. A poor corporate reputation
is likely to reflect weak performance in a number
of areas including customer care, the environment, profitability, and among other things delivery of and meeting key business objectives.
CSR has an important role to play in enhancing
and helping to build a good, positive corporate

Corporate Regulations
Corporate Governance

Corporate Reporting
Small- and Medium-Sized
Engagement in CSR

Enterprises

Corporate Reporting for Sustainable

Development
Reporting Sustainable Development

Corporate Reputation
Brian Jones
Leeds Business School, Leeds Metropolitan
University, Leeds, West Yorkshire, UK

Synonyms
Corporate image; Reputation management

Definition
Corporate reputation is an intangible highly valued business asset. The term refers to the ways in

Corporate Reputation

reputation. Businesses that do harm to the environment, that do not engage with or take account of
societal and community interests, and behave
unethically can suffer as a result of reputation
damage. In todays competitive market, the public,
along with stakeholders, are more aware, educated
about, and concerned with environmental and
community issues. As a result of this, the public
expect businesses to behave in a socially responsible way, and those that do not can suffer reputation
damage.

Key Issues
A good reputation has to be earned and does not
necessarily last. Rather it is prone to change as
a result of changing attitudes, expectations, standards, values, and as a result of competitors entering the market. Once damaged, it is possible to
rescue reputation, but this can be costly as well as
difficult to manage and is not always guaranteed
to succeed. In a world dominated by media coverage, corporate reputation has to be monitored
carefully and any challenge posed to it rebutted
and questioned. Competitors recognize the value
associated with corporate reputation and recognize that by attacking reputation, the underlying
value of businesses can be questioned, eroded,
and diminished.
The media play an important part in helping to
shape and inform public understanding of reputation in all its guises from good to bad. Businesses use the media to communicate good news
stories that enhance corporate reputation. Communicating a bad news story that has potential to
harm reputation can require the deployment of
the skills and competencies of public relations
professionals. Stakeholders can by association
affect the image and reputation of businesses
they supply or work with. Companies that are
supplied by or have dealings with businesses
that operate in an unethical way, by, for example,
use of child labor, can as a result suffer
a tarnished reputation. Therefore, careful management of stakeholders from suppliers through
to customers is key to maintaining a positive corporate reputation.

527

Future Directions
Web 2.0 social media has transformed the communication landscape and the means by which
businesses build and manage reputation. Businesses such as Primark (Jones et al. 2009) are
increasingly deploying tools of Web 2.0 such as
Facebook to communicate in partnership with
their stakeholders and publics. Companies monitor contributions to social media to rebut and challenge false comments or misrepresentations. They
endeavor to communicate with rather than simply
to their stakeholders. A myriad of opportunities
and threats to corporate reputation are thrown up
by the advent of Web 2.0 social media. The future
of corporate reputation is prone to shift and change
in light of developments in CSR, communication,
stakeholder management, and new social media.
A positive reputation should not be taken for
granted but rather should be earned, and businesses that do so will prosper long into the future.

Cross-References
Communicating with Stakeholders
Corporate Social Marketing
Corporate Social Responsibility
CSR Communication
Media CSR Forum
Media Reporting of CSR
Reputation/Reputation Management

References and Readings

Alvesson, M. (1998). The business concept as a symbol.
International Studies of Management and Organisation, 28(3), 86108.
Dichter, E. (1985). Whats in an image? Journal of
Consumer Marketing, 2, 7581.
Dutton, J. E., Dukerich, J. M., & Harquail, C. V. (1994).
Organisational images and member identification.
Administrative Science Quarterly, 39, 239263.
Fombrum, C. (1996). Reputation: Realising value from
the corporate image. Cambridge, MA: Harvard
Business School Press.
Jones, B., Temperley, J., & Lima, A. (2009). Corporate
reputation in the era of Web 2.0: The case of Primark.
Journal of Marketing Management, 25(910), 927939.
Kennedy, S. (1977). Nurturing corporate images.
European Journal of Marketing, 11(3), 120164.

528

Corporate Response to Social

Demands
Corporate Social Responsiveness (Carroll,
Frederick, and Ackerman)

Corporate Response to Social Demands

Corporate Responsibility Index

Ahmed El-Masry1 and Nahla Kamal2
1
Plymouth Business School, Devon,
Plymouth, UK
2
ALROWAD, Dokki, Giza, Egypt

Synonyms

Corporate Responsibility
Business Case for CSR
Corporate Social Innovation
Corporate Social Responsibility
Corporate Social Responsibility in Tourism
Institute of Business Ethics (UK)
Institutes of Directors and CSR

Corporate Responsibility
(Management)
Sustainability Management

CR index; CRI; ESG index; S&P index;

S&P/EGX ESG index; Sustainability index

Definition
The Corporate Responsibility Index (CRI) is
a management and benchmarking tool produced
by UKs Business in the Community (BITC). It
was developed in collaboration with BITCs corporate members.
It is designed to assist managers enhance their
CSR performance and to allow benchmarking of
companies on certain aspects of CSR.

Introduction

Corporate Responsibility and Africa

CSR and Africa

Corporate Responsibility and

Sustainability Standard
AA 1000

Corporate Responsibility
Communication
Media CSR Forum

Business in the Community in the United

Kingdom created the CRI in 2002. Over 350
organizations have used the tool in the UK since
its creation, most of which are UK-based companies listed in the FTSE 350.
It has been argued that the essential features
upon which corporations work are the management of risks, transparency of systems, and corporate ethics (Hopkins 2004). The CRI uses
a standardized method and question set through
which corporations can report on their ethical and
environmental performance. It is an instrument
and not an entire system; however, it is
a successful one. It is a voluntary survey which
offers a yearly benchmark of how corporations
manage measure and report their corporate
responsibility.
BITC defines corporate responsibility as a
companys positive impact on society and the

Corporate Responsibility Index

529

Corporate Responsibility Index, Fig. 1 The CRI annual cycle (Source: Corporate Responsibility index 2010)

environment, through its operations, products or

services and through its interaction with key
stakeholders such as employees, customers,
investors, communities and supplies.

complete the survey. All submissions must be

signed off at main board level to ensure director-level commitment to the veracity of the
responses to the survey.
The annual cycle is shown in Fig. 1.

Key Issues

Scores and Feedback

Details of the CRI

CRI Process
The CRI operates on an annual cycle. Companies
submit a large volume of information and documents in support of their submission, and BITC
reviews all submissions for consistency and quality. The survey is opened online each year in
September. Qualifying corporations (mostly
BITC members) are sent an exclusive username
and password and have about 2 months to

All participants receive a feedback report

explaining their performance and comparing it
to their peers and the overall average. Such feedback is designed to promote better management
of CSR issues and also comparison of companies
against peers and other participants in the CRI.
The CRI results are published each year with
a media partner, currently the Financial Times.
The UK participating companies are listed in an
extension titled Companies that Count in May
or June every year. The names of the participating

530

companies are not being announced until the

results are published. It is the decision of the
corporation of whether they wish to announce
their participation on their own website or if
they desire case studies of their corporate responsibility practices to be submitted for consideration by the Financial Times (Corporate
Responsibility Index 2010).
Eligibility

The CR Index is designed for large companies.

Typically participants meet two of the three
criteria below, although this is not a mandatory
requirement (Corporate Responsibility Index
2010).
Turnover of 250 m
Assets greater than 125 m
Greater than 1,500 employees
Sector leaders of the Dow Jones Sustainability
Index are also eligible to participate in the index.

Licensing of the CRI

BITC also licenses the CRI, including the following organizations in the following countries:
Australia The St James Ethics Centre licensed the CRI
from 2003 to 2009. Since 2009, some
Australian companies have continued to
participate in the CRI through BITC.
Greece
Licensed from 2008, the Institute of Corporate
Responsibility runs the CRI for Greece-based
companies.

While the CRI was licensed to the St James

Ethics Centre in Australia, publication of results
of Australian companies was with two leading
daily newspapers: The Sydney Morning Herald
and Melbournes The Age. The conditions of the
contract proposed between St James Ethics
Centre and Fairfax (publishers of The Sydney
Morning Herald and Melbournes The Age newspapers in Australia) officially identify an intention to encourage best practice as the main
purpose of the implementation. Presumably this
was because participants are not likely to be
attracted to a blame and shame game that has
informed other methods to this form of

Corporate Responsibility Index

implementation (Corporate Responsibility Index

2010). Fairfax drew upon information from the
broader debate about responsibility and concentrated on the benefits of responsible corporate
activity. The approaches used by The Sydney
Morning Herald and Melbournes The Age (Fairfax) follow the media partner approach adopted
by BITCs UK experience.
The seventh Australian Corporate Responsibility Index (CRI) Awards were published on
May 27, 2010, at the 11th National Business
Leaders Forum on Sustainable Development at
Parliament House, Canberra. Eligible entrants in
the awards included all Australian and/or New
Zealand companies that participated in the 2009
CRI in Australia.
The 2009 CRI Award winners in Australia and
New Zealand (Aus/NZ CRI) were as follows:
Best Overall Performance Platinum Award:
Energy Australia for the corporation that
has attained the highest overall score in the
2009 Aus/NZ CRI
Platinum Award Certificate: Australian
Broadcasting Corporation and Country
Energy for corporations that have attained
a Platinum overall score (more than or equal to
95%) in the 2009 Aus/NZ CRI
Best Progress Gold Award: PricewaterhouseCoopers for the corporation that has
attained a Gold overall score in the 2009
Aus/NZ CRI and the highest score enhancement between 2008 and 2009
Best Progress Silver Award: New Zealand
Post Group for the corporation that has
attained a Silver overall score in the 2009
Aus/NZ CRI and the highest score enhancement between 2008 and 2009
Best Progress Bronze Award: Western
Power for the corporation that has attained
a Bronze overall score in the 2009 Aus/NZ
CRI and the highest score enhancement
between 2008 and 2009
The CRI Leaders Network in Australia
includes
ANZ,
BHP
Billiton,
Boral,
EnergyAustralia, Rio Tinto, Toyota Australia,
and Westpac Banking Corporation. In addition,
Australian Broadcasting Corporation and Country Energy are entitled to join the CRI Leaders

Corporate Responsibility Index

Corporate Responsibility
Index, Fig. 2 CRI
compared to FTSE
companies on total
shareholder return (Source:
Corporate Responsibility
index 2010)

531
CR Index Companies versus FTSE All-Share Index - TSR by year
50
40
30

Mean TSR

20

10
0
10

2002

2003

2004

2005

2006

2007

2008

2009

20
30
40
Year
CRI Companies

Network in 2010. CRI Leaders Network refers to

Australian and/or New Zealand corporations that
have accomplished more than or equal to 95% in
previous Aus/NZ CRI surveys (PWC 2005).

Details of Greek Companies

Brief History
The CRI was established in collaboration with
over 80 leading UK corporations and with UKbased nonprofit organizations.
There has been a tremendously positive
response from corporations, investment fund
managers and city analysts, pension funds,
insurers, government, and the public. Over 100
corporations have participated in the Business in
the Community (BITC) Index every year from
the time of its establishment. For instance, in
2004, 500 companies were asked to join in. 139
corporations of these finished the index, which
represents 14% increase compared to 2003.
Essentially the 139 embrace the majority of the
biggest corporations in UK (Pricewatercoopershouse 2005). Companies which have
achieved Platinum for their global operations
are Anglo American, BHP Billiton, British Telecom, Rio Tinto, Tata Consultancy Services,
Unilever, and Xstrata.

All-Share Index

FTSE 350

CRI Performance Compared to Total

Shareholder Return
In October 2008, Business in the Community
published research showing that FTSE 350 companies which consistently managed and measured their corporate responsibility as evidenced
by good performance on the CRI outperformed
their FTSE 350 peers on total shareholder return
20022007 by between 3.3% and 7.7% per year.
In 2010, further research was published which
showed a similar trend (see Fig. 2) (Corporate
Responsibility index 2010). That result is in contrast to a negative correlation for TSR for the
Dow Jones Sustainability Index and a slightly
positive correlation for FTSE4Good Index.
How Does the CRI Work?
The CRI has released corporations with a webbased tool created by Business in the Community, and is protected by a password to every
corporation, permitting members to finish the
survey online and to download the information
that assists their proposals. Corporate strategy,
integration, management, performance and
impact, and assurance and disclosure are the
five main components of the index model. The
corporate strategy section observes how the
nature of the corporation and its activities impact
the corporations values, how these relate to

532

strategy, and how they are tackled through its

management, development of policies, and
responsibilities held at a senior level in the corporation. The integration section observes how
corporations make plans for, administer, and
incorporate corporate responsibilities all over
their operations. This integration is measured in
the management section, which checks procedures for supervising various stakeholder relationships. This section embraces the main topics
for corporations, and it observes its procedures,
objectives, and targets. Community, environment, marketplace, and workplace are included
in the four management areas. The performance
and impact section engages the corporations performance across a variety of social and environmental areas. In total, they are six impact areas
where all corporations make obligatory reports
on two environmental impacts: global warming
or energy and transport together and waste
management.
Also corporations are asked to choose two
social impacts obtained from product safety,
occupational health and safety, human rights
and the supply chain, diversity in the workplace,
and community investment as well as two additional self-selected impact areas that matter to the
corporation. The score of the survey is set by
summing up the marks of the five sections, as
shown in the diagram below where 10% of the
total score is awarded to the corporate strategy
section; 22% of the total score is awarded to the
integration section; 26% of the total score is
awarded to the management practice section,
including community, environment, marketplace, and workplace management sections;
36% of the total score is awarded to the performance and impact section, including a choice of
social and environmental impact areas; and the
last 6% of the total score is awarded to the assurance and disclosure section. It should be noted
that each management section of community,
environment, marketplace, and workplace, as
well as each of the social and environmental
impact areas, is equally weighted. All this represents a self-assessment process, and every corporation is accountable for signing off its own index
findings by CEO or through the board member

Corporate Responsibility Index

handling the corporate responsibility to guarantee

director-level dedication to the reliability of the
responses to the survey. The index process offers
a number of levels of assurance. Business in the
Community has worked through a validation process to strengthen the honesty of the index,
including checks throughout key stages in the
compilation, examination, aggregation, and presentation of information. Once the validation process has been completed by corporations, the
results are electronically published by BITCs
online benchmarking system, as shown in Fig. 3.
Benefits
Corporations who adopt the CRI as an internal
management instrument have discovered that it is
very helpful in recognizing how the integration of
corporate responsibility offers the opportunity to
add value to the corporation. Here are some comments of different directors using CRI in their
corporations (bitc.org.uk):
Mark Johnson, Chief Executive Officer of
PricewaterhouseCoopers (PwC), stated that
Corporate Responsibility is an integral part
of our business it is not a sideshow. PwCs
corporate responsibility commitment includes
our contribution to the community, protecting
the environment, creating the right culture for
our people and embedding these values in
everything we do. The CRI helps us to not
only measure our performance but to be transparent in our results.
Craig Murray, the Managing Director of
Country Energy, says: At Country Energy
corporate responsibility is integral to our corporate strategy. The CRI process provides
independent and comprehensive feedback on
how well we are doing relative to our internal
targets as well as to industry best practice. Our
progress in the survey has been a pleasing
reflection of the companys commitment to
corporate responsibility principles.
George Maltabarow, the Managing Director
of Energy Australia, states: An independent
benchmark like the CRI is the best way for
a company to truly gauge its performance in
key areas like the community and environment. Using the CRI pushes us to improve

Corporate Responsibility Index

Corporate Responsibility
Index, Fig. 3 Online
benchmarking system
(Source: BITC 2010)

533

SECTION LEVEL:
10%

22%

26%

36%

6%

Corporate
Strategy

Integration

Management

Performance
and Impact

Assurance &
Disclosure

C
SUB-SECTION LEVEL:

Community

Environmental

Environment

Social

Marketplace
Workplace
QUESTION LEVEL:

Qs1 6

Qs7 15

year after year and shows our commitment to

doing the right thing.
Consequently, CRI provides the participating
corporations with several benefits (bitc.org.uk):
1. It helps corporations improve, execute, and
assess their responsible practice and assists
corporations in creating a corporate responsibility issues into corporate strategy.
2. By identifying what responsible corporation
means in practice, the Corporate Responsible
Index helps to set the management and
reporting criteria against which corporation
will be judged.
3. It challenges whether the corporation is
performing its activities in an organized and
integrated way and directs companies through
the process of integration.
4. It brings various functions in the corporation
together to comprehend and manage the key
CSR issues for the business.
5. It provides corporations with a practical gap
analysis through a confidential feedback
report, stressing on parts of great performance
and spotting where enhancements need to take
place.
6. It is a benchmark that permits corporations to
contrast their performance inside and across
divisions through tracking their progress over

Qs16 38

Qs 39 85

Qs 86 87

time, comparing progress to that of industry

peers and the wider universe of all other participants, and showing cases and sharing best practice publicly or through the optional mutual
disclosure tool companies are ranked and
results are published annually in the Financial
Times, which reaches 500,000 readers daily.
7. It offers a communication tool with various
stakeholders both internal and external, which
creates transparency and builds trust. This is
achieved by enabling more direct and focused
commitment with stakeholders; by regularly
assisting stakeholders to understand the corporation such as its operations and the constraints
it faces and, on the other hand, assisting the
company to understand its stakeholders, for
instance, their perceptions and issues of importance; and by also helping in creating trustable
and long-lasting relationships.
What Differentiates CRI from Other Indices?
The CRI is the only voluntary, business-led
benchmarking index which embraces all corporation divisions and reports on the four basic
influence sections of corporate responsibility:
community, workplace, marketplace, and environment. The CRI works as a business instrument
rather than an investment instrument. Indices that

534

are applied mainly as socially responsible investment indices include the Dow Jones Sustainability Index and the FTSE4 Good. Other indices
concentrate on one influence area, for instance,
climate change and community, respectively,
such as the Carbon Disclosure Project and the
London Benchmarking Group (Corporate
Responsibility Index 2010). The main distinctive
characteristics that the CRI embraces are:
It is a voluntary action.
It is established by business for business.
Its core focus is on corporate responsibility
management, not financial performance.
It is a self-assessment with third-party validation.
It has worldwide scope.
It has verified its value to management.
It is flexible and responsive where questions
are updated including input from participants
and reference groups from corporations and
society groups.
Other Indices
Other indices exist in other countries, including:
Dow Jones Sustainability Index
FTSE4Good
ESG Index (Egypt)
CSR Index (Estonia)
Sustainability Index (Latvia)

Corporate Responsibility Maturity

References and Readings

BITC. (2010). Retrieved from www.bitc.org.uk/cr_index/
about_the_cr_index/index.html. Accessed on Sep 9,
2010.
Corporate Responsibility Index. (2010). Available from
http://www.corporate-responsibility.com.au/. Accessed
on Sep 9, 2010.
ESG Index. (2010). http://www.ecrc.org.eg/Index.aspx
Hopkins, M. (2004). Corporate social responsibility: An
issues paper (Working Paper No. 27). Geneva: Policy
Integration Department, World Commission on the
Social Dimension of Globalization, International
Labour Office.
Idowu, S., & Filho, W. (2008). Global practices of corporate social responsibility. Berlin: Springer.
Mullerat, R., & Brennan, D. (2005). Corporate social
responsibility: The corporate governance of the 21st
century. Netherlands: Kluwer Law International.
PWC. (2005). Corporate responsibility: A guide for
Australian directors. Retrieved from http://www.
pwc.co.uk/assets/pdf/pwc-annualreport2005-full.pdf.
Accessed on Sep 3, 2010.
www.ipsos-mori.com. Accessed on Sep 9, 2010.

Corporate Responsibility Maturity

Heiko Spitzeck
Doughty Centre for Corporate Responsibility,
Cranfield School of Management, Cranfield
University, Cranfield, Bedford, UK

Future Directions
Further research could be based on analyzing the
experience of a wider list of corporations using
the CRI and what value it adds to them compared
to other companies.

Synonyms
Corporate responsibility maturity; Developmental corporate responsibility; Evolutionary corporate responsibility

Cross-References
Business in the Community (UK+Derivatives)
Corporate Governance
Corporate Social Responsibility
Dow Jones Sustainability Indices
ESG Index
FTSE4Good Index
S&P Index
S&P/EGX ESG Index

Definition
Corporate responsibility (CR) maturity describes
the state of responsible business practices of an
organization. Different stages of corporate
responsibility maturity are distinguished along
an evolutionary/developmental process from
basically none to exemplary practices.

Corporate Responsibility Maturity

Introduction
CR maturity frameworks are useful for sorting
organizations into a grid of beginners, conformists, and leaders. These frameworks enable the
assessment of an organizations current approach
to social and environmental issues; help to identify major risks as well as opportunities; and
enable governments, consultants, and researchers
to plan useful interventions to foster CR learning
and innovation.
A number of CR maturity frameworks have
been suggested by academics and practitioners
alike (Avastone Consulting 2007; Basu and
Palazzo 2008; Spitzeck 2009b; Zadek 2004).
While all these models describe corporate
responsibility development as an evolutionary
process, they differ fundamentally in approach,
descriptions of evolutionary stages, and empirical evidence. Two publications provide a review
of existing models (Maon et al. 2010; Spitzeck
2009b).

Key Issues
Concepts and Dimensions of CR Maturity
The conceptualization of CR maturity takes
either of the following: a historical,
a
performance-oriented,
a
structural,
a cognitive, and a moral-cognitive perspective.
Most frameworks apply a combination of those
aspects.
Historical: The Time Development Perspective

The historical perspective describes CR evolution in terms of the corporate sectors interpretation of CR in different times. The general
conclusion is that the understanding of CR
developed from philanthropy to successive
integration into core business operations
(Grayson and Hodges 2004). The indicators
used to classify organizations regarding their
general approach to CR over time are to identify
corporate CR programs and analyze their nature
in relation to the core business model. The empirical evidence presented is limited to illustrative
case studies.

535

Performance: The Behavioral Perspective

The performance perspective describes CR evolution in terms of corporate behavior or corporate social performance (Wood 1991). Indicators
are social (e.g., the number of fatal accidents) and
environmental performance data (e.g., CO2 emissions, waste generated, water used) in regard to
specific issues or stakeholder groups. Different
mechanisms, such as the Global Reporting initiative, the Dow Jones Sustainability Index, the
FTSE4Good, or the Business in the Community
Corporate Responsibility Index (Spitzeck
2009a), have been applied to measure corporate
social performance. Also different measures and
research methods have been used in numerous
studies relating social and financial performance
(for an overview see Margolis and Walsh 2003).
Structural: The Importance of Organizational
Structures

Maon et al. (2010) take a structural perspective

and relate CR evolution in terms of features of the
organizations structures. Both cite organizational structures such as the quality of leadership
and stakeholder relationships as important evaluation criteria for assigning a certain CR evolution
stage. Indicators used are highly qualitative and
the case examples presented are used illustratively and do not serve as an empirical verification of the stages presented.
Cognitive: The Motivational Perspective

The cognitive perspective describes CR evolution

in terms of the displayed motivation of the corporate actor to integrate CR aspects in its management practices. These range from reactive (Dunphy
et al. 2007), to defensive, to compliant, to strategic,
and finally to a civil stage (Zadek 2004).
A part of the studies (Dunphy et al. 2007;
Zadek 2004) uses the companys response to
criticism regarding their course of conduct to
sort organizations in cognitive stages. This
response is expressed in their communication
(e.g., not our job to fix that) as well as their
behavior (e.g., not adapting new policies and
processes) (Zadek 2004). As this process lacks
precise indicators, empirical work is limited to
illustrative case studies. The second group of

536

Corporate Responsibility
Maturity,
Fig. 1 Integrative
perspective (Adapted from
Wood 1991)

Corporate Responsibility Maturity

Integrative Perspective

Corporate Motivation
Principles
Values
Mindset

Corporate
Structures & Processes
Stakeholder Engagement
Issue Management
Leadership

Corporate Performance
Economic & Social &
Environmental
Results
(Triple Bottom Line)

Adapted from Wood (1991)

studies (Mirvis and Googins 2006a) differentiates stages by characteristics of the management
systems, for example, by the inclusion of CR in
the mission statement, the influence of stakeholders in corporate decision making, or the quality of leadership. None of the studies in this group
use a replicable process with precise indicators in
order to determine stages of CR maturity.
Moral-Cognitive: The Mind-Set Perspective

The moral-cognitive perspective describes CR

evolution in terms of the organizational ethos
(Spitzeck 2009b; Sridhar and Camburn 1993).
Organizational ethos is defined as the moral consciousness and principles, which guide collective
decision making and rationalization within the
organization.
The main indicator used to sort organizations
in different moral-cognitive development stages
is the form of moral argumentation. This methodology has been developed by Kohlberg and has
been applied to broad empirical research on individual moral development (Kohlberg 1969,
1971).
In terms of empirical evidence of moralcognitive CR evolution, the design of the frameworks is always case study based and takes three
basic forms: (1) illustrative cases to describe the
different stages of moral-cognitive development
which have been deducted from Kohlbergs
framework of individual moral development,
(2) comparative case study design taking
a snapshot of moral development at a single
moment of time, and (3) a single longitudinal
case study to test evolution of the organizational
ethos (Spitzeck 2009b). Both the comparative as

well as the single case study approach used discourse analysis in order to describe the moral
rationalization processes of the corporate actor.
Integrative Models

Some models aim to present an integrated model

of CR evolution comprised of different dimensions (Avastone Consulting 2007; Maon et al.
2010; Wood 1991). The cognitive dimension
describes the corporate principles and values,
which influence structures such as stakeholder
engagement mechanisms, which in turn, influence performance (Fig. 1).
However, research has not yet presented evidence for a correlation between principles, structures, and performance. Research on CR
evolution seems to have developed from a focus
on measurable performance toward a more sensemaking perspective (Basu and Palazzo 2008).
A similar process takes place in practice if one
compares the GRI (founded in 1997 with the
vision that disclosure on economic, environmental, and social performance becomes as commonplace and comparable as financial reporting) and
the ISO26000 guidance on social responsibility,
which takes a social-constructivist view and is
envisioned for 2010. Also the level of analysis
has shifted from the whole organization to the
question how the organization deals with specific
CR issues (Zadek 2004).

Future Directions
Empirical evidence in general is very weak as it is
mostly based on illustrative case studies except

Corporate Secretaries

for measuring CR performance and some parts of

the organizational ethos. Also, all cases depict an
upward learning trend of organizations becoming
more responsible. Some studies suggest that delearning is also possible especially in the case of
a change in leadership but no cases of CR delearning have been analyzed empirically in this
respect.
Learning Triggers
Nearly all the research on evolutionary CR relies
on a crisis as a learning trigger. Therefore, companies going through a CR crisis are taken as
objects of study to evaluate the evolution of their
CR approach (Zadek 2004). Only Mirvis and
Googins (2006) relate high CR evolution with
reasons such as the founding spirit, internal development challenges, as well as laws and regulations. However, also they acknowledge the
learning triggers presented by crisis from external
forces. The moral development of executives
seems to be of particular importance for the organizational ethos (Sridhar and Camburn 1993), and
a change of leadership might trigger de-learning.

Cross-References
Corporate Social Responsibility
Global Reporting Initiative
ISO 26000

537

Kohlberg, L. (1971). From is to ought: How to commit the

naturalistic fallacy and get away with it in the study of
moral development. In T. Mischel (Ed.), Cognitive
development and epistemology (pp. 151235). New
York: Academic.
Maon, F., Lindgreen, A., & Swaen, V. (2010). Organizational stages and cultural phases: A critical review and
a consolidative model of corporate social responsibility development. International Journal of Management Reviews, 12(1), 2038.
Margolis, J. D., & Walsh, J. P. (2003). Misery loves
companies: Rethinking social initiatives by business.
Administrative Science Quarterly, 48(2), 268305.
Mirvis, P. H., & Googins, B. (2006). Stages of corporate
citizenship. California Management Review, 48(2),
104126.
Mirvis, P.H., & Googins, B. (2006b). Stages of corporate
citizenship: A developmental framework. Boston: Center for Corporate Citizenship at Boston College.
Spitzeck, H. (2009a). The development of governance
structures for corporate responsibility. Corporate Governance, 9(4), 495505.
Spitzeck, H. (2009b). Organizational moral learning:
What, if anything, do corporations learn from NGO
critique? Journal of Business Ethics, 88(1), 157173.
Sridhar, B. S., & Camburn, A. (1993). Stages of moral
development of corporations. Journal of Business
Ethics, 12(9), 727739.
Wood, D. J. (1991). Corporate social performance
revisited. Academy of Management Review, 16(4),
691718.
Zadek, S. (2004). The path to corporate responsibility.
Harvard Business Review, 82(12), 125132.

Corporate Restructuring
Restructuring

References and Readings

Avastone Consulting (2007). Mindsets in action leadership and the corporate sustainability challenge,
Atlanta.
Basu, K., & Palazzo, G. (2008). Corporate social responsibility: A process model of sensemaking. Academy of
Management Review, 33(1), 122136.
Dunphy, D. C., Griffiths, A., & Benn, S. (2007). Organizational change for corporate sustainability: A guide
for leaders and change agents of the future (2nd ed.).
London/New York: Routledge.
Grayson, D., & Hodges, A. (2004). Corporate social
opportunity. Sheffield: Greenleaf.
Kohlberg, L. (1969). Stage and sequence: The cognitivedevelopmental approach to socialization. In D. Goslin
(Ed.), Handbook of sozialization theory and research
(pp. 7255). Chicago: Rand McNally.

Corporate Secretaries
Samuel O. Idowu
London Metropolitan Business School, London
Metropolitan University, London, UK

Synonyms
Company secretary; Corporate governance
professional; Officer of the company; Servant
of the Board of Directors

538

Corporate Secretaries

Definition

activities which fall under the umbrella of CSR

are voluntary both in theory and practice, some
scholars and members of society refer to these
activities and initiatives as add-on activities by
socially responsible corporate entities. What is
meant by this phrase add-on could only be
interpreted as something they do in addition to
their normal business activities. It should be clear
to all and sundry that despite its very young age
on the corporate scene, there is no standard definition of corporate social responsibility and there
may likely be no such standard definition. What
has transpired over time in terms of its definition
is that scholars, international organizations, and
governments have tended to define CSR in terms
of their social, economic, and environmental
activities which is perhaps one of the realisms
and charms of CSR.
Finally, the term, corporate governance (CG),
was explained and defined in April 1999 by the
Organization for Economic Cooperation and
Development (OECD) as the key system by
which business organizations are directed and
controlled. The corporate governance structure
specifies the distribution of rights and responsibilities amongst different participants in the corporation, such as, the board, managers,
shareholders and other stakeholders, and spells
out the rules and procedures for making decisions
on corporate affairs. By doing this, it also provides the structure through which the company
objectives are set and the means of attaining those
objectives and monitoring performance. Idowu
(2010) provides a few definitions of corporate
governance, which also means that there is no
standard definition of the term. Corporate governance is therefore a system which stipulates how
a corporate entity is controlled and directed by
those at the helm of managing its activities on
a day-to-day basis. Weak and ineffective governance in any corporate entity could be a recipe for
a future corporate scandal and disaster.

The three key words we need to define here are

Corporate secretary, Corporate social responsibility, and corporate governance. We have
included corporate governance because corporate
secretaries basic duties involve governance. Let
us start our definitions with the first one
corporate secretary. The UKs Companies Act
(CA) 2006 (which is the latest and operative
Companies Act that deals with both technical
and legal issues relating to the running of companies including the role and duties of this corporate
officer the company secretary) describes
a secretary as an officer of the company; at the
center of its decision making process, who shares
legal responsibilities of running its day to day
activities with the directors for certain specified
tasks as contained in the CA 2006. This description of a company secretary makes it clear that
anyone who holds that office within a corporate
entity is a corporate officer who is charged with
maintaining and operating the technical machinery associated with the smooth and effective running of the administrative mechanisms of the
corporate entity he or she serves according to
the legislation of the companys country of
abode; the individual works closely with members of the board of directors. This perhaps,
explains why the secretary is sometimes referred
to as a servant of the Board of Directors (BOD),
even though the position does not confer on its
incumbent a full membership of the BOD, but
still the secretary organizes and attends all board
meetings.
Corporate social responsibility (CSR) on the
other hand has been variously defined; Idowu
(2009, 2011) provides a few of these definitions.
Let us for the purpose of this entry define corporate social responsibility according to the definition provided by the European Union in 2004
which says that CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their
interaction with their stakeholders on
a voluntary basis. This definition reinforces the
voluntary nature of all activities encompassed in
CSR, as a result, most of the initiatives and

Introduction
That a public limited company (Plc) should have
in post a company secretary is a statutory

Corporate Secretaries

requirement in both the United Kingdom and all

its associated countries (its former colonies)
(Idowu 2010), Part 12 CA 2006 Sections
270280 is the authority for this statement.
The Act explicitly notes that a private limited
company is not required by law to have in
post a secretary, as such any communication
that is required to be served on or given or sent
to the secretary of a private company, may be
served on, given or sent to the company itself.
That communication will be deemed to have been
properly served. Similarly, any act which the law
requires or authorizes a secretary to perform may
be performed by a director or anyone authorized
generally or specifically by the director of that
private company.
Section 271 states clearly that a public limited
company (Plc) must have a secretary in post.
Section 273 states that the secretary must have
the required knowledge and experience to discharge the functions of a secretary and must be
a member of one or more of the listed professional bodies specified in Section 273 Subsections 3a3g as listed below:
(a) The Institute of Chartered Accountants in
England and Wales
(b) The Institute of Chartered Accountants of
Scotland
(c) The Association of Chartered Certified
Accountants
(d) The Institute of Chartered Accountants in
Ireland
(e) The Institute of Chartered Secretaries and
Administrators
(f) The Chartered Institute of Management
Accountants
(g) The Chartered Institute of Public Finance and
Accountancy
A company secretary as stated in the CA 2006
has some standard or statutory duties they must
perform. The following are a few of these statutory duties of the secretary; failure to meet the
obligation in carrying out these duties as and
when specified by the Act could result in serious
consequences to the company. The secretary:
Files annual returns to companies house
Establishes and maintains the registered
office

539

Maintains the companys statutory books and

records
Secures the legal documents of the company
Informs the registrar of companies using the
appropriate forms, any significant changes in
the companys structures or management
Arranges a board meeting if any director asks
for one
Arranges the annual general meeting (AGM)
if the company is a publicly listed one (Plc)
Has in addition to the above noted duties some
administrative duties which are not necessarily statutory but are important for the company
to run smoothly and effectively
The above noted duties clearly amplify that
the secretary is at the core of the governance
mechanism of the company they work for which
makes him or her a specialist in this aspect of
effective corporate management.
In Australia, an old colony of Great Britain,
the Corporations Act (2001) is the relevant Act
similar to the UK Companies Act 2006 which
deals with this officer of a public limited company. Understandably, the requirement for
a company to have a secretary in post is similar
to that of the UK, and it is also a statutory requirement in that country. Part 2D.4 of the Corporations Act 2001, Section 204A Subsection 1 states
clearly that a proprietary company is not
required to have a secretary but Subsection 2
says that a public company must have at least
one secretary; at least one of them must ordinarily
reside in Australia. A proprietory company is the
name or term used in Australia for a private limited company. Other issues relating to the office
of the secretary are made explicit in sections
204C204G. Part 2D.5 of the Act deals with
public information about directors and secretaries. Issues relating to this aspect are enumerated
in detail in Sections 205A205G.
The Chartered Secretaries Australia (CSA) on
their web site states that their members who are
governance professionals have a variety of job
titles apart from that of corporate secretaries.
They might be given any of the following job
titles depending on the circumstances of the
entity which employ them: chief financial officer,
chief governance officer or general counsel.

540

They are called upon by their organizations to

carry of the following functions:
Drive and advice on best practice in
governance.
Champion the compliance framework to safeguard the integrity of the organization.
Promote and sound the board on, high standards of corporate behavior.
Bridge interest of the board or governing
body, management, and stakeholders.
The CSA also argues that anyone who is
referred to by his or her organization as governance professional has a significant impact on
the level and quality of the organizations corporate governance and governance culture and often
has a pivotal role in assisting the board to achieve
the entitys vision and strategy. It concludes that
the activities of the governance professional
encompass legal and regulatory duties and obligations and additional responsibilities assigned
by the employer.

Key Issues
A series of high-profile corporate scandals
involving some corporate executives, which
occurred in both the developed and developing
economies around the world, have led several
CSR-related questions being asked about the
state and effectiveness of corporate governance
in many countries. Bearing in mind that CSR
involves how a company manages its social, economic, and environmental impacts of its activities on all its stakeholders regardless of whether
these are primary or secondary stakeholders. The
state of corporate entities governance is in fact
not the only issue here. Our world over the last
50 or so years has gone through a series of transformation and development which have brought
to the fore some important issues about the relationship which subsists between business and
society.
Our key issues here therefore relate to corporate governance and corporate social responsibility as they both impact on what corporate
secretaries do. Corporate secretaries are governance professionals; the Chartered Secretary

Corporate Secretaries

Australia (CSA) describes its members as governance professionals and the CSA describes itself
on their website as The peak professional body
committed to the promotion and advancement of
effective governance and administration of organizations in the private and public sectors, CSA
has developed its structure and reporting mechanisms to promote these ideals and principles.
CSR and Corporate Governance
Professional Institutions of Corporate Secretaries
In the UK, the Institute of Chartered Secretaries
and Administrators (ICSA) is the professional
body which assesses and certifies the competences of prospective chartered secretaries with
a series of examinations and post qualification
(CPD) programs. The ICSA is the only body
among the seven chartered bodies noted above
and specified in Section 273 Subsection 3a3g
CA 2006 which trains its members solely to
become corporate secretaries; having said this,
it must be noted that qualified members of the
ICSA do end up in other senior executive positions in organizations which are not necessarily in
company secretariat. There are two grades of
membership of the institute associate membership [a member becomes an associate (having
completed the institutes examinations) after
serving a period of time in their chosen industry]
and fellow membership (an associate becomes
a fellow after a period of time in a senior management position in their chosen industry). The
institute represents the profession with all external bodies including governments and international organizations. Its American equivalent is
the Society of Corporate Secretaries and Governance Professionals (SCSGP). There are also
similar bodies in some other countries of the
world, for example, the Chartered Secretaries,
Australia, Canada, Hong Kong, India, Malaysia,
New Zealand, Nigeria, Singapore, South Africa,
and Zimbabwe. These bodies are all affiliates of
the ICSA, UK, or had been related to it at some
point in the past.
The ICSA in the UK states that it promotes
best practice in corporate governance, liaising
with governments and regulatory bodies worldwide. The SCSGP states that it recognizes that

Corporate Secretaries

the corporate secretary is a senior corporate officer who is expected to hold wide ranging responsibilities and is often the confidant and counselor
to the Chief Executive Officer and other members
of senior management, especially on corporate
governance affairs. The Institute of Chartered
Secretaries & Administrators in both the UK and
in some of the countrys other former colonies
note earlier for instance Australia, Canada, New
Zealand and others consider that governance as
one of the main duties of corporate secretaries.
Corporate governance therefore ranks highly
in the roles corporate secretaries perform in organizations. Corporate social responsibility is part
of governance since the decision to embark on
socially responsible actions whether this relates
to strategic, altruistic, ethical, and philanthropic
Lantos (2001) or some other forms of CSR will
start at the board level and works its way down
the corporate ladder.
Because issues relating to CSR now rank
highly on corporate agendas in the UK, several
large UK companies now have a member of the
board in charge of CSR; in other words, there are
now CSR directors. The UK labor governments
since March 2000 have had in post several Members of Parliament at different times that have
held the position of CSR Ministers Idowu
(2009). It must be noted that a UK CSR minister
does not spend 100 % of their time on CSR
duties; CSR issues are only part of what the
minister does.
A Study on Corporate Secretaries
Involvements in CSR in the UK
In an attempt to understand how UK corporate
secretaries have absorbed the requirements of the
field of CSR in addition to their statutory duties
for their various organizations and what parts
they have played in their organizations quest to
join the CSR bandwagon the author carried out
a study in order to obtain information from UK
companies company secretaries using two
methods direct and indirect methods.
Direct Method

The author sent letters directly to 30 company

secretaries of large listed UK companies asking

541

Corporate Secretaries, Table 1 Companies participating in the study

1.
2.
3.
4.
5.
6.
7.

Balfour Beatty Plc

Bellway Plc
Bovis Homes Plc
Centrical Plc
ITV Plc
Llyods TSB Plc
Tesco Plc

them to explain in as much detail as possible

their experiences of how their companies have
absorbed the requirements of field of CSR into
their professional activities giving both the challenges and opportunities that have accrued from
inculcating CSR into what they do.
The direct method generated ten responses out
of which only three provided the required information; the other seven stated that they were
unwilling to participate in the study for different
reasons; for example, some companies stated that
the time to provide the required information was
not available to them.
Indirect Method

The author with the assistance of a practicing

company secretary enlisted the assistance of
a company which specializes in the recruitment
of company secretaries for FTSE100, FTSE250,
and other quoted companies in the UK. The company emailed 40 letters to these companies asking them to do exactly the same thing as
contained in the letter sent out by the direct
method. The indirect method on the other hand
generated eight responses with four of these companies providing the required information; the
remainder stated that they did not have the time
to participate in the study and wanted to wish the
study every success. Table 1 below gives
information about companies which provided
information for the study.
The information provided by these seven companies from the two different methods used in the
study was in different forms. Some companies
provided detailed written explanations as
required by our letter, some sent their most recent
CSR reports, with some explanations, some sent

542

an electronic version of their most recent CSR

reports and one of these companies provided
a link to their web address, where information
about their most recent CSR report could be
obtained.
Findings
The study reveals clearly that corporate secretaries in the UK and perhaps elsewhere working in
collaboration with their other senior executive
colleagues within their various organizations are
actively involved in decisions about corporate
involvements in corporate social responsibility
activities. We were able to decipher from this
study that several large UK companies now
have Corporate Responsibility Committees
which are chaired by one of their executive directors usually having the title of CSR director or
some similar titles. The Group Company Secretary of one of our seven participating companies
stated that they had chaired this committee
between 2003 and 2006. The Group Company
Secretary of another of our companies currently
chairs this committee. These committees have an
explicit remit to carry out several CSR activities
within the particular company. It was also
revealed that these companies corporate secretaries are members of these Corporate Responsibility Committees.
The following is a summary of some of the
CSR issues included in the explicit remit for
which the committees in each of our participating
companies are responsible:
Assess and manage risk
Develop corporate responsibility strategy
Review social, ethical, and environmental
(SEE) policies and practices
Encourage best practice throughout the
business
Identify opportunities to improve the effectiveness and sustainability of the business
using community and environmental
initiatives
Review, agree, monitor, and report on corporate responsibility key performance indicators
(KPIs)
Increase internal awareness of corporate
responsibility

Corporate Secretaries

Improve stakeholder communication and

engagement
Ensure that the companys KPIs are meeting
the needs of their stakeholders and the company continues to be good neighbors in the
communities they serve
Ensure that their KPIs are robust enough to
reduce drastically their areas of adverse
impact for example climate change, health
and safety, local impact, and employees
Governance arrangements
Reporting and disclosure of their non financial
performance.
Stakeholder engagement
Increase employee engagement and customer
satisfaction
Conduct and behaviors
Better corporate responsibility management
Apart from the above issues, the Group
Company Secretary of a particular company
which calls it own committee the Sustainability
Working Group explains clearly that apart
from being a member of the Sustainability
Group, they are by virtue of their position in the
group personally responsible for the following
activities:
Coordinating the production of the CSR report
Ensuring that its coverage accurately reflects
the companys activities and provides
a balanced view
Providing information to various rating agencies and organizations
The CSR report being a reputational tool is
also used internally by the Company Secretarial Department to educate the business on the
extent of CSR initiatives.
Coordinating the quarterly meeting of the Sustainability Working Group

Discussion
From the information which the study has
elicited, it appears that corporate secretaries in
their various organizations are not working in
isolation in their quest to absorb the field of
CSR into what they do while representing
their profession in these organizations. The field

Corporate Secretaries

touches all professions that are required by corporate entities in order to ensure that they
successfully achieve their missions and objectives and at the same time demonstrate to the
world at large that they are socially responsible.
The roles each of these senior managers (who are
perhaps members of other professions and who
bring the knowledge and experiences of these
professions on to the board of corporate entities)
play in order to ensure that the field of CSR is
built into the corporate strategy are not explicit
to non-insiders. There could be several reasons
for this:
There are still many things that are unclear
about CSR. Lantos (2001) suggests that CSR
has unclear boundaries and debatable legitimacy; Idowu (2009) argues that what falls
under the umbrella of CSR in one political
setting may probably be of little or no significance in another political setting.
This field of CSR is not an exact art or science;
corporations are only practicing it the way
they believe it affects their core business or
the way they understand it.
Corporate entities that have chosen to adopt
the requirements of the field are only doing so
voluntarily; it must be noted that even though
CSR is still voluntary, there are currently not
many corporate entities which are not embedding the ethos of CSR into what they do. In
most countries around the world, there appears
to be no legal compulsion (except in Indonesia
and Mauritius) on the part of corporate entities
to mandatorily practice CSR, but some governments and international organizations are
encouraging corporate entities to behave
responsibly. In addition to this some NGOs
and stakeholders are putting pressure on corporations to behave responsibly. Some companies are probably trying to stay out of
trouble by adopting CSR ethos into their
strategies.
The field is still evolving, it is hoped that
within the next 1020 years, its situation
would become clearer and the way to address
some of the difficulties scholars and practitioners have identified up to now would also
become clearer.

543

It was also apparent to us that the roles executives play in an attempt by corporate entities to
inculcate the field of CSR into their activities are
unclear. These executives appear to innovate as
they go along. Adopting a strategy of innovation
is perhaps the best action they could take under
the circumstances, since the field is neither an
exact art nor science, it must be noted that the
practices of CSR have improved drastically of the
last 10 years.

Future Directions
CSR is perhaps one of those issues that will never
go away from societies around the world; corporate strategies would continue to include CSRrelated issues. This is certainly this authors view.
Social, economic and environmental challenges
would continue to affect the world economies;
the solutions of these challenges would require
CSR actions.
The objective of this entry was to provide
a framework that facilitates some understanding
of the contributions corporate secretaries have
made and continue to make in the development
of the field of CSR using the United Kingdom as
our main focus and case example. The issue of
CSR, sustainability, sustainable development,
and corporate governance is one that corporate
secretaries as the servant of the board of directors cannot take lightly. This is so because most
of the duties performed by corporate secretaries
are statutory in nature. For our planet to stand the
test of time; actions must start at the board level.
The secretary has a unique role here. He or she
would need to direct members of the boards
attention to aspects they need to deliberate on at
board meetings.
Failure to take this issue on board at the board
level has serious implications and consequences
not just for this generation but more importantly
for future generations. Those at the board level
are aware that stakeholders, in particular, institutional investors, customers, NGOs, etc., are
requesting that corporations take effective
actions about those issues relating to CSR; apart
from that, members of the board are aware that

544

any corporation that takes the issue lightly will

lose the trust, loyalty, and advocacy of its stakeholders. These are important sine qua non which
any corporation that aspires to prosper in modern
markets cannot do without.
It is the responsibility of the corporate secretary
to steer the board to the path of formulating an
effective CSR strategy on issues relating to CSR
and to similarly steer executive directors attention
to an effective path of executing the strategy.
Formulating the strategy on paper or the corporate
web site for people to see will not suffice. Actions
must be taken to ensure that their key performance
indicators on CSR are met in terms of measurable
CSR initiatives across the business operations.
One of the UK companies studied in the project
noted above uses an annual business plan based on
steering wheel drivers made up of community,
customer, people, operations, and finance. At the
beginning of the companys year, it sets out specific projects which they hope to deliver over the
following 12 months in terms of the five-wheel
drivers in all its operations around the world. During the 12 months, it directs resources, energy,
focus, and vigor to delivering their expectations
in these areas. At the end of the 12 months, it
measures its performance in the areas and asks
a third party to take an independent examination
of its performance in each of the five-wheel drivers
and reports on the strengths and weaknesses in
terms of their actions during the operating period.
This is perhaps one of the future directions of CSR
initiatives.
CSR is a field that will remain with us for the
foreseeable future as long as business and society
continue to co-exist and it will continue to cut
across different organizational functions including that of the corporate secretary. Over time, it is
hoped that all professions will become more
equipped and effective to dealing with its requirements in order to make our world a better place to
live in by this generation and future generations.

Corporate Social and Environmental Responsibility

Company Directors and CSR

Corporate Governance
Definitions of Social Responsibility

References and Readings

Department of Business, Enterprise and Regulatory
Reform. (2006). Companies Act 2006. London: HM
Stationery Office.
Idowu, S. O. (2009). Practicing corporate social responsibility in the United Kingdom and northern Ireland. In S. O.
Idowu & W. Leal Filho (Eds.), Global practices of corporate social responsibility. Berlin/Hiedlberg: Springer.
Idowu, S. O. (2010). Corporate social responsibility from the
perspective of corporate secretaries. In S. O. Idowu & W.
Leal Filho (Eds.), Professionals perspectives of corporate social responsibility. Berlin/Heidelberg: Springer.
Idowu, S. O. (2011). An exploratory study of the historical
landscape of corporate social responsibility in the UK,
Corporate Governance, 11(2), 149160.
Lantos, G. P. (2001). The boundaries of strategic corporate social responsibility. Journal of Consumer
Marketing, 18(7), 595632.

Corporate Social and Environmental

Responsibility
Sustainable Production and Consumption

Corporate Social Development

CSR and Poverty

Corporate Social Entrepreneurship

Christine A. Hemingway
Work and Organisational Psychology Group,
Aston Business School, Aston University,
Birmingham, UK

Cross-References
Synonyms
Agency and Corporate Governance
Board of Directors

Policy entrepreneurship; Social intrapreneurship

Corporate Social Entrepreneurship

Definition
The entrepreneurial process has been described as
a blend between the individuals personal attributes, such as psychological and demographic factors, which combine with environmental factors
and the individuals discovery of an opportunity
and the successful exploitation of that opportunity
(Shane 2003). Hence, the notion of corporate social
entrepreneurship (CSE) relates to both personal
characteristics and particular behaviors. The CSE
is thus defined as an employee of a corporation who
operates in a socially entrepreneurial manner, i.e.,
identifying opportunities for and/or championing
socially responsible activity, in addition to their
formal job role in working toward achieving the
firms business targets. Interestingly, the CSE
operates regardless of an organizational context
that is predisposed toward corporate social responsibility (CSR). This is because the CSE is driven by
dominant self-transcendent (other-orientated) as
opposed to dominant self-enhancement personal
values. Consequently, due to the CSEs concern
with the development of social capital as well as
economic capital: the formal job role of the CSE
may not necessarily be connected with CSR
nor does the CSE have to be in an executive or
management position in order to progress his or her
socially responsible (SR) agenda. This may suggest
similarities with the social entrepreneur (SE)
in terms of personal values and the outcomes of
entrepreneurship which may benefit society, but
there is also a key distinction. This is connected to
the differences between the remit, or mission, of the
corporation and that of the social enterprise.
Distinction from Social Entrepreneurship
The social entrepreneurship literature has largely
concentrated on the voluntary, not-for-profit or
third sector. Moreover, the social entrepreneur
in a for-profit context is traditionally perceived as
a philanthropic agent or business owner.
The exception to this might be the UKs
Co-operative Group, which describes its business
as guided by social mission and is not responsible
to shareholders for delivering profit. However,
the corporate model, as defined by the companys
directors and shareholders in its articles of

545

association, requires employees to deliver returns

to shareholders, through their job roles.
Consequently, unless a corporate employee has
been given dispensation from the profit motive in
order to specifically create social value,
their employed work cannot be described as
social entrepreneurship (although their activities
outside of the workplace might be). This is an
important distinction. Hence, even though the
majority of corporations, nowadays, claim to
be fully committed to CSR, it is pushing the
boundaries to describe even the most hybrid of
companies (such as those dedicated to the growth
of fair trade or environmentally sustainable production), as social enterprises staffed by social
entrepreneurs. This is because the remit of the
organization as a corporation prevents this. As
a consequence, the CSE is unlikely to have the
time or other resources to commit full scale
toward progressing a socially responsible agenda
because the corporation imparts constraints.
Thus, corporate social entrepreneurship is characterized by its informality, in terms of being
added on to the job and performed in an ad hoc
way and this results in its tremendous variability.
And the entrepreneurial discretion which is
required to perform it is controversial (Hemingway and Maclagan 2004). Even if the CSE is part
of a CSR departmental function, CSR can produce both trade-offs and/or oncosts due to its
connections with stakeholder management. So
the concept of the CSE specifically reflects its
nuanced nature within corporations, akin to the
idea of the different shades of green of corporate environmental champions (Crane 2001).
Moreover, tentative empirical research in this
area has indicated that the penetration of corporate social entrepreneurship within the firm is
dependent upon the levels of integration of CSR
within the firms strategic corporate plan and also
its organizational climate and culture. In the following section, the relevance of the CSE is put
into its scholarly interdisciplinary context and
some key themes are articulated. These concern
some of the fundamentals of CSR, in terms of its
connections with stakeholder theory; its discretionary nature and that, despite its widespread
adoption in industry and as a subject taught in

546

business schools and across other academic

departments (e.g., schools of environment, law,
politics), CSR remains contested both theoretically and empirically. Other premises of the CSE
relate to its philosophical roots in business ethics,
plus, connections with the psychological literature on personal values and prosocial behavior.

Introduction
The notion of the CSE primarily relates to the
field of corporate social responsibility (see separate entry). It is thus relevant to both practitioners
and scholars of business and management and,
more specifically, to business ethics, business
strategy, organizational behavior, work psychology, and entrepreneurship. Such complexity
reflects the interdisciplinary nature of the field
of corporate social responsibility.
CSR, corporate responsibility (CR), sustainability, social responsibility (SR), and all related
concepts are most commonly understood to
incorporate two key themes. First is stakeholder
theory, whereby CSR is understood in terms of its
effects on and how it is affected by all the different stakeholder groups: shareholders, employees,
customers, end-consumers, suppliers, competitors, civil society (NGOs, pressure and local
community groups, unions), and governments,
including regulation. This perspective is inherent
within definitions of CSR as a balance between
people; the planet and profit, sometimes referred
to as the triple bottom line of the environment;
and society and economics. The second key
theme of CSR relates to its voluntary nature in
terms of activities that exceed legal standards
(Carroll 1999). It is this discretionary quality
which connects it with the notion of personal
values. As a consequence, the concept of CSR
has been described as essentially contested
(Moon 2003), due to the controversial and often
political nature of the debate around the role of
business in society, since the start of the industrial
revolution. Thus, CSR is embedded within the
field of business ethics, which considers ideas
about morality in business and, in turn, the CSE
is synonymous with (moral) agency. So, while

Corporate Social Entrepreneurship

the social entrepreneur and corporate social

entrepreneur are united in their quest to create
social value, a business ethics perspective
encourages us to ask the question For what
end? Thus, business ethics can be helpful as it
uses intellectual frameworks to encourage us to
think deeply about means and ends. For example,
the idea of the CSE creating social value which
benefits both the corporation and society is
known as enlightened self interest, whereas
a deontological viewpoint frames acts of socially
responsible behavior as driven by the individuals
sense of moral duty. Alternatively, virtue ethics is
concerned with the desirable and habitual behavior that serves the common good, in the form of
a moral character (Walton 1988). However, it is
important to note that not all values may be
regarded as virtuous and that value and virtue
may be distinguished. In other words, while
a virtue might be described as being a value,
whether or not a value can be described as
a virtue is subjective and in the eye of the
beholder. The point is this: how a virtue is applied
and to what ends can be variable and subject to
what is valued. Further, the idea of a plurality of
values in the world has been validated in the work
of social psychologists (see below). Contentiously, then, this also implies subjectivity associated with the term morality (i.e., principles of
right and wrong), and thus agency may encompass all types of behavior that may be regarded as
ethical or unethical. Nevertheless, the possibility of dominant self-transcendent values, in
some people, which are deployed out of a sense
of duty to society, is implicit within the notion of
corporate social entrepreneurship.
Personal Values
The behaviorist dimension associated with
personal values was expressed thus: values influence most if not all motivated behavior (Schwartz
2006). Moreover, in the Schwartz Values Theory
(SVT), our values are conceptualized as
a hierarchical system of priorities and we act in
accordance with our dominant, high-priority
values. The SVT is depicted at Fig. 1, below.
The SVT (Fig. 1) contains 10 motivationally
distinct values which represent approximately 40

Corporate Social Entrepreneurship

Corporate Social
Entrepreneurship,
Fig. 1 Schwartz (2010)
theoretical model of
relations among
motivational types of
values

547

GE

SE

N
HA

S
ES

TO

LF

AN

Self Direction

NN

TR

SC

EN

Universalism

DE

E
OP

NC

Stimulation
Benevolence
Hedonism
Conformity
Tradition
Achievement
SE

LF

EN

Power

HA

ON

I
AT
V
ER

Security

NC

NS

EM

EN

individual value items, such as ambition (in the

achievement domain) or honesty (in the benevolence domain). Essentially, while we possess
many thousands of attitudes, Rokeach (1973)
identified just 36 values, Schwartz and Boehnke
(2004) used 46 value items, and Confucius said
that we have 50 values (Zhang 2002). Moreover,
the SVT represents a motivational continuum: the
closer any two domains in either direction around
the circle, the more similar their underlying motivations. This means that the domains on opposing
parts of the circle represent conflicting values.
According to Schwartz: . . .people can and do
pursue competing values but not in a single act.
They do so through different acts, at different
times and in different settings (Schwartz 2010:
225). And if we consider the essentially contested
nature of CSR, referred to above, the SVT is also
useful toward our understanding of the role of
employees values in corporate social entrepreneurship. Of particular relevance are the four
higher-order value types, most notably, the
opposing dimensions of self-enhancement and
self-transcendence. Self-enhancement encompasses the motivational domains of power and

CO

achievement, while the self-transcendence values

are contained within the motivational domains of
universalism and benevolence. Benevolence was
defined in terms of values that preserve and
enhance the welfare of those with whom one is
in frequent personal contact and universalism as
understanding, appreciation, tolerance and protection for the welfare of all people and for
nature (Schwartz et al. 2001: 521). This selfother dimension to our values was also identified
by scholars such as Rokeach (1973: 9), who
described values as having either a personal
focus or a social focus and also as self-centered or society-centered. Significantly, the
SVT represents an almost universal structure of
human values, which helps us to understand and
predict different kinds of human behavior. See
Table 1, below, which defines the 10 value
domains and their value items in the SVT.
Hence, the employees degree of involvement in
CSR may be connected with their personal values,
in addition to the formal requirements of their role.
For example, if we examine the motives of
a philanthropist, these might be viewed in terms
of Reschers (1969) benefit at issue classification

548

Corporate Social Entrepreneurship

Corporate Social Entrepreneurship, Table 1 Definitions of the motivational types of values and items
(Schwartz and Boehnke 2004: 239)
Power: Social status and prestige, control or dominance
over people and resources (authority, social power,
wealth, preserving my public image)
Achievement: Personal success through demonstrating
competence according to social standards (ambitious,
successful, capable, influential)
Hedonism: Pleasure or sensuous gratification for oneself
(pleasure, enjoying life, self-indulgent)
Stimulation: Excitement, novelty, and challenge in life
(daring, a varied life, an exciting life)
Self-direction: Independent thought and action
choosing, creating, exploring (creativity, freedom,
independent, choosing own goals, curious)
Universalism: Understanding, appreciation, tolerance,
and protection for the welfare of all people and for nature
(equality, social justice, wisdom, broadminded, protecting
the environment, unity with nature, a world of beauty)
Benevolence: Preservation and enhancement of the
welfare of people with whom one is in frequent personal
contact (helpful, honest, forgiving, loyal, responsible)
Tradition: Respect, commitment, and acceptance of the
customs and ideas that traditional culture or religion
provides (devout, respect for tradition, humble, moderate)
Conformity: Restraint of actions, inclinations, and
impulses likely to upset or harm others and violate social
expectations or norms (self-discipline, politeness,
honoring parents and elders, obedience)
Security: Safety, harmony, and stability of society, of
relationships, and of self (family security, national
security, social order, clean, reciprocation of favors)

of values, which included religious and spiritual

values, moral values, economic values, or sentimental values. And in behavioral terms, this might
be regarded in terms of altruism. Figure 2, below,
shows the relationship between altruism and
helping behavior.
Prosocial Behavior
According to Bierhoff (2002), the terms altruism,
helping behavior, or prosocial behavior may be
used interchangeably. However, he also distinguished between these concepts and described
helping behavior as the broadest term, including
all forms of interpersonal support. Further,
prosocial behavior is narrower, where the action
is intended to improve the situation of the helprecipient. This is pertinent to the definition of

Helping
Behavior

Prosocial
Behavior

Altruism

Corporate Social Entrepreneurship, Fig. 2 The relationship between helping behavior, prosocial behavior,
and altruism (Bierhoff 2002: 9)

the corporate social entrepreneur, in that the

actor is not motivated by the fulfilment of professional obligations, i.e., the employees job
description may not contain references to any of
the forms of CSR, such as environmentalism.
Furthermore, Bierhoff defined altruism as
prosocial behavior that has an additional constraint, namely, that the helpers motivation is
characterized by perspective-taking and empathy (Bierhoff 2002: 9). Importantly, then, the
contested essence of CSR (and the notion of
corporate social entrepreneurship) is not
restricted to its theoretical analysis and description. It was also indicated via a study of corporate
employees (Drumwright 1994). Moreover, even
though there is a dearth of empirical study into
the relationship between prosocial behavior and
CSR, some empirical insight was also derived
from an exploratory investigation into the relationship between the personal values of corporate
employees and CSR.
Exploratory Empirical Support
Between 2005 and 2008, an exploratory, qualitative investigation was conducted within an
FTSE 100 listed UK corporation. It included
personal, in-depth interviews with just 28
employees, and the findings revealed four
modes of moral commitment to CSR, described
as extreme cases. The study provided examples of employees who demonstrated all three
types of the helping behaviors, described above,
who were found at all levels in the organizational hierarchy and not just among some of

Corporate Social Entrepreneurship

the senior executives. The results included 12

corporate social entrepreneurs (Hemingway
2010; Hemingway forthcoming).
These corporate social entrepreneurs were
described as principled moral leaders who demonstrated a moral conscience and integrity at
work (Horowitz 2002) and also the independence and risk-taking commonly associated
with entrepreneurship, which manifested as
moral courage. Significantly, they demonstrated
empathy (described, above, as a characteristic
associated with altruism), humility, and an internal locus of control. The CSEs also espoused
very strong opinions regarding personal responsibility and what they believed to be the social
moral duty of individuals and corporations. This
had driven them to enlarge and enrich their own
jobs (see the human relations theorists Argyris
and Herzberg in Pugh and Hickson 2007) across
a range of CSR domains, such as championing
fairness at work with regard to health and safety
issues and discrimination in recruitment or performance appraisal. Some were passionate
leaders of community fund-raising projects, or
they helped disadvantaged members of the community. Some of the CSR domains, such as an
environmental project, became formalized and
incorporated within the companys systems.
Others were regular occurrences that were
indicative of the CSEs personal values, such
as the engineer who angrily spoke out against
the racist comments he heard at work. Importantly, these examples of helping behavior indicated tentative empirical support for the
philosophical notion of moral character, all of
which contrasts with the consensus in business
and management regarding the homogeneity of
management as an amoral group (Carroll 1987).
The study also supported the notions of ethical
and authentic leadership (Michie and Gooty
2005). Moreover, these CSEs expressed tremendous satisfaction with their lives. Furthermore, the non-senior employees who operated
as CSEs is worthy of note, running counter to
the prevailing view of the CEO and top executives setting the moral tone of the corporation.
However, a subset of the CSEs felt constrained
in their attempts to progress some CSR

549

domains, which resulted in some activities

being confined to outside of work and also produced espoused frustrations and some job
dissatisfaction.
Significantly, the majority of informants in
this study could not be described as CSEs,
even though they were involved in at least one
of the CSR domains and some were also
employed in a formal CSR role. These people
placed greatest emphasis on their own capability, their ambition, and the importance of their
families and home life. This is not to say that the
CSEs within the firm were not ambitious or
pragmatic individuals. Only that the non-CSEs
concerns
were
underpinned
by
their
dominant self-enhancement as opposed to
self-transcendent values, for example, the health
and safety manager whose top priority was his
next career move and who was considering
studying for a masters degree in CSR, as part
of his drive toward directorship. Similarly,
a number of young graduates lower management, administrators, and factory operatives
who had volunteered as brand ambassadors
within the firm, a role which incorporated local
community projects. These people were characterized by the pragmatic emphasis they placed
on CSR as good for their careers.
Hence, some tentative, exploratory insight
was derived regarding social responsibility as
a subjective state, moral agency, and employee
self-identity. Moreover, there were indications of
integrity, whereby job satisfaction may be an
outcome of the congruence between the
employees self-transcendent values and their
job role. Indeed, the espoused job satisfaction
associated with corporate social entrepreneurship
lends support to the claims regarding the economic benefits of CSR to the firm, including the
potential for its sustainability. As a consequence,
preliminary empirical study of corporate social
entrepreneurship refocuses attention on the role
of the individual in CSR, and it highlights a very
interesting and alternative perspective to the traditional idea of rational management. More
importantly, initial exploratory investigation provides us with a sense of hope and optimism, by
indicating that amoral or even Machiavellian

550

tendencies in management might be overcome,

against the backdrop of the current global financial crisis, which was compounded by lapses in
governance systems and personal integrity.

Key Issues
Three key issues may be identified from the above
discussion. Firstly, the notion of employee discretion may be regarded as problematic. Certainly,
there is an argument for organizational control and
governance measures in order to prevent unethical
employees abusing their right to act autonomously
in their appointed role: an argument which has
been produced in favor of bureaucracy. Secondly,
if employees do have the freedom to use such
discretion with regard to the allocation of
resources, or the time to champion CSR, tension
and conflict may develop when an employee
decides to support a different cause than has
been directed by their manager. And not everyone
will agree on what the right activities are (Buono
and Nichols 1985: 68). Moreover, despite the
widespread adoption of CSR by corporations (as
evidenced in their corporate communications), the
aforementioned study revealed some levels of
ignorance and disengagement from CSR at the
top of the organizational hierarchy, thereby continuing the contested theme of CSR. It also implies
the necessity for greater access to educational programs in CSR for directors and senior managers,
as well as those targeted at middle and junior
management. Thirdly, methodological difficulties
abound with regard to the investigation of social
responsibility as a subjective state. However,
despite the growing literature which connects
values and behavior in systematic, predictable
ways (Schwartz et al. 2001), these exploratory
insights present scholars with both a highly complex and potentially fruitful research agenda.

Corporate Social Entrepreneurship

much scope for replication and verification, perhaps using a comparison of industries and
national contexts. Certainly, the quantification
of the personal values of the different types of
entrepreneur (business start-up, intrapreneur,
public/social entrepreneur) is a starting point.
Indeed, while the distinction has been made,
above, between the social entrepreneur and
CSE, preliminary insights into the personal characteristics of corporate social entrepreneurs and
also what they do, i.e., corporate social entrepreneurship, is useful in our understanding of the
motivations and activities of social entrepreneurs. Further studies might ask: What is the
relationship between family background, personal values and CSR or between education and
corporate social entrepreneurship? And considering the exploratory insights regarding younger
employees who volunteered in CSR activities to
help their career, is there a connection between
life-stage and dominant self-enhancement or selftranscendent values? Can some predictive capability be developed on the basis of comparisons
between the characteristics of the CSE and other
employees? Also, the situation in the public sector remains unexplored. There is no reason why
the C in CSR cannot be dropped for the purposes
of such an investigation, particularly when the
ethical conduct of public sector leaders and politicians can attract similar amounts of publicity
for misdemeanor as their corporate counterparts,
with regard to fraudulent expense claims or the
negligent discharge of duties, for example.
Therefore, the tentative empirically derived
insights described above are just the beginning
for management and business ethics scholars who
need to dig much deeper in their quest toward the
development of socially responsible organizations and a less flawed form of capitalism.

Cross-References
Future Directions
Following initial empirical investigation into the
nature of corporate social entrepreneurship,
a significant research agenda has emerged, with

Agency Theory
Business Ethics
Corporate Social Responsibility
Philanthropy
Social Entrepreneurship

Corporate Social Innovation

References and Readings

Bierhoff, H.-W. (2002). Prosocial behaviour. Hove:
Psychology Press.
Buono, A. F., & Nichols, L. (1985). Corporate policy,
values and social responsibility. New York: Praeger.
Carroll, A. B. (1987). In search of the moral manager.
Business Horizons, 30(2), 715.
Carroll, A. B. (1999). Corporate social responsibility.
Business and Society, 38(3), 268295.
Crane, A. (2001). Corporate greening as amoralization.
Organization Studies, 21(4), 673696.
Drumwright, M. E. (1994). Socially responsible organizational buying: Environmental concern as a noneconomic buying criterion. Journal of Marketing, 58,
119.
Hemingway, C. A. (2010). The conditions and character
traits of corporate social entrepreneurship: Insights
from a UK-based multi-national corporation.
Presented at the 23rd European Business Ethics Network (EBEN) Annual Conference, University of
Trento, Italy, September 911.
Hemingway, C. A. (Forthcoming) Corporate social entrepreneurship: Integrity within. In R. E. Freeman, J. Moon,
& M. Morsingin (Eds.), Business, value creation, and
society. Cambridge: Cambridge University Press.
Hemingway, C. A., & Maclagan, P. W. (2004). Managers
personal values as drivers of corporate social responsibility. Journal of Business Ethics, 50(1), 3344.
Horowitz, M. (2002). Defining character integrity. Journal of the American Psychoanalytic Association,
50(2), 551572.
Michie, S., & Gooty, J. (2005). Values, emotions, and
authenticity: Will the real leader please stand up? The
Leadership Quarterly, 16, 441457.
Moon, J. (2003). Corporate social responsibility: An overview. In C. Hartley (Ed.), The international directory
of corporate philanthropy (pp. 113). London:
Europa.
Pugh, D. S., & Hickson, D. J. (2007). Writers on organizations (6th ed.). London: Penguin.
Rescher, N. (1969). Introduction to value theory. New
Jersey: Prentice-Hall.
Rokeach, M. (1973). The nature of human values. New
York: Free Press.
Schwartz, S. H. (2006). Les Valeurs de Base de la
Personne: Theorie, Mesures et Applications [Basic
human values: Theory, methods and applications].
Revue Francaise de Sociologie, 47(4), 929968.
Schwartz, S. H. (2010). Basic values: how they motivate
and inhibit prosocial behavior. In M. Mikulincer, & P.
Shaver (Eds.), Prosocial motives, emotions, and
behavior: The better angels of our nature (pp. 221
241). Washington, DC: American Psychological
Association.
Schwartz, S. H., & Boehnke, K. (2004). Evaluating the
structure of human values with confirmatory factor
analysis. Journal of Research in Personality, 38,
230255.

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Schwartz, S. H., Melech, G., Lehmann, A., Burgess, S.,

Harris, M., & Owens, V. (2001). Extending the crosscultural validity of the theory of basic human values
with a different method of measurement. Journal of
Cross-Cultural Psychology, 32, 519542.
Shane, S. (2003). A general theory of entrepreneurship:
The individual-opportunity nexus. Cheltenham, UK:
Edward Elgar.
Walton, C. C. (1988). The moral manager. New York:
Harper Business.
Zhang, Z. (2002). Confucius: The oriental sage and philosopher. Shandong, China: Shandong Friendship Press.

Corporate Social Innovation

Ananda Das Gupta
HRD, Indian Institute of Plantation Management,
Bangalore, Karnataka, India

Synonyms
Corporate citizenship; Corporate responsibility;
Corporate social performance; Sustainability;
Sustainable development

Definition
Companies today are increasingly focused on
corporate social and environmental responsibility
as they face new constraints in decision-making
processes, including the impact of activities on
climate and local communities. This, together
with unprecedented growth in the number of
NGOs worldwide, has led companies and NGOs
to forge new types of relationships. Corporate
social innovation works because it is a listening,
problem-solving process. Most importantly it
shifts the point of knowledge away from individuals in companies, to embrace knowledge (of
whatever kind) that everyday normal people
hold, and can easily share. It is a carefully managed process, one which guarantees change and
development for those willing to embrace it.
Corporate social innovation is also called sustainable innovation. Corporate social innovation
is about creating a good business by having

552

sustainability as a focal point when the corporation develops a new product or service. This
entails developing products or services which
may relieve some of the worlds problems, such
as disease, contaminated water, CO2 emission,
hunger, or the lack of education. CSI is also
referred to as CSR innovation. CSI is useful for
businesses which work with innovation and/or
CSR (corporate social responsibility).
The increasing number of cases from around
the globe that showcase how responsible business
conduct and corporate social innovation open up
new revenue streams, new industries, and radically different business models and prove to be
crisis-resistant is creating a new business
mindset. In the new economic world order, social
responsibility and innovation drive good business. Sustainable value creation is the way for
companies to future proof their business.

Introduction
Socially responsible investing (SRI) is increasing
the attention on corporate social and environmental practices either through positive screens, that
is, identifying companies that in some way benefit society, or through negative screens which
weed out poor SRI performers, including those
who pollute or maintain poor working conditions.
Large pension funds around the world are
already using screening agencies to assess how
companies tackle the so-called ESG (environmental, social, governance) issues like ecofriendly practices, human rights, and corruption.
Four hundred seventy five large institutional
investors around the world representing more
than $55 trillion of funds (2009 figures) investigate the emissions strategy of companies through
the Carbon Disclosure Project (CDP). And stock
market indexes like the FTSE4Good Index Series
and the Dow Jones Sustainability Index are tracking the financial performance of companies that
focus on creating long-term shareholder value by
embracing opportunities and managing risks
derived from economic, environmental, and
social developments. Like an increasing number
of companies around the globe, they realize that

Corporate Social Innovation

addressing business risks in a proactive manner

will gain them a competitive advantage and that
the key principles of sustainable business success
are to:
Shift from a philanthropic add-on approach to
corporate social responsibility (CSR) to
a strategic approach, where CSR activities
complement or maybe even become the
core of business
That the vision and strategy must be accompanied by changes in the companys
hardwiring and softwiring, that is, with
accompanying structures, processes, performance, and measurement systems as well as
communications, employee, and leadership
development programs designed to encourage
sustainable value creation thinking, skills, and
practices
That they must work in partnerships that combine private, public, and civil sector resources,
skills, and expertise to infuse their mainstream
practices and thinking

Key Issues
It is perhaps less surprising but equally important
for companies wishing to maintain a good relationship with its stakeholders that a large majority of the surveyed citizens also held companies
completely responsible for the safety of their
products, fair treatment of employees, responsible management of their supply chain, and not
harming the environment. In the wake of the
economic crisis, the gap between the needs and
expectations of society on the one hand and the
objectives and practices of many businesses on
the other has also widened dramatically:
according to the 2009 Edelman Trust Barometer,
nearly two thirds of the public reported less trust
in businesses than the year before.
Stakeholder responses ranging from public
campaigning to lawsuits underline the demand
for trustworthiness and responsible business
practices. Consider, for example, the lawsuits
filed against car companies for the costs of their
alleged diminution of ecosystems, against
tobacco companies for their alleged misleading

Corporate Social Innovation

of smokers about the dangers and addictiveness

of cigarettes, and against fast food companies for
the alleged responsibility for their customers
obesity.
It is for reasons like these that investors of
capital are starting to steer away from companies
within sectors whose risks and potential liabilities
are not well understood. Their calculus is increasingly reflecting the uncertainties of potential
costs and liabilities associated with externalities,
future regulatory constraints, or restricted access
to natural resources. And it is for reasons like
these that corporations are rising to the challenge
of rebuilding stakeholder trust by linking business with sustainability and including the broader
interests of society in core strategic efforts.
In recent years, the business strategy field has
experienced the renaissance of corporate social
responsibility (CSR) as a major topic of interest.
The concept has not surfaced for the first time.
CSR had already known considerable interest in
the 1960s and 1970s, spawning a broad range of
scholarly contributions and a veritable industry of
social auditors and consultants. However, the
topic all but vanished from most managers
minds in the 1980s; having blossomed in the
1970s, CSR all but vanished and only reemerged
in recent years.
CSR resurfaced forcefully over the past
10 years in response to mounting public concern
about globalization. Firms find themselves held
responsible for human rights abuses by their suppliers in developing countries; interest groups
demand corporate governance to be transparent
and accountable; rioters from Seattle to Genoa
protest violently against the cost of free trade and
other perceived negative consequences of globalization. However, nearly two decades of
neglect have helped to undo much of the past
achievements of corporate social responsibility.
It is thus no surprise that both practitioners
and scholars are struggling once again to answer
the question what the strategic implications of
CSR are.
Innovation can also be characterized by its
ability either to strengthen a firms existing capabilities and market position or to disrupt them by
rendering competencies obsolete or reaching out

553

to new customers and so far unserved markets.

Points out that established firms often find it
difficult to react properly to new technologies if
they happen outside their current markets. He
differentiates between sustaining and disruptive
technologies. Sustaining innovations happen in
the core market of a firm and result in a product
delivering better quality at a lower price. Disruptive innovations occur at the margins of
established markets.
Recent research has focused on what commercial firms can do to motivate and capture such
innovations and their related benefits. Learning
and innovation efforts from which a firm may
benefit need not necessarily be located within
the organization, but may well reside in the consumer environment. These learning processes
can, however, be structured, motivated, and
partly organized by a commercial firm by organizing the infrastructure for consumers interactive learning. IT company Intel provides an
example of user-driven innovation in the 1990s
with the launch of two in-house departments
implementing concrete product innovations and
long-term strategic implications directly derived
from user-obtained knowledge.
The notion that sustainable development
drives disruptive innovations has come quite naturally to the sustainability debate. Sustainability
innovations (also called eco-innovations, ecodesign, eco-preneurship, or clean technology
venturing) have been proposed as a source for
environmentally
benign
growth,
as
a breakthrough discipline for innovation, and
as a source of creative destruction as well as the
beginning of the next industrial revolution, or
a source for the great leap downward will persist in the years to come.
In the following, the four levels of analysis
introduced will serve as foundation for further
analysis of how CSR and innovation interlink
and come together.
Institutional Level: Innovation and Legitimacy
At the institutional level, literature on innovation and CSR has mainly focused on standards-driven institutional entrepreneurship.
Examples include research work on the creation of the Global Compact, an institutional

554

innovation aiming at creating a framework for

reporting the social, environmental, and economic performance of firms. As such, the
Global Compact aims to help firms attain and
maintain legitimacy with society.
Individual Level: The Social Entrepreneur
At the individual level, social entrepreneurship focuses on persons driving social change
and innovation. These social or civic entrepreneurs can be individual citizens, community
activists, or civil servants who use entrepreneurial spirit in order to reach social objectives. Bornstein defines a social entrepreneur
as a pathbreaker with a powerful new idea,
who combines visionary and real-world problem-solving creativity, who has a strong ethical fiber, and who is totally possessed by his
or her vision for change. Identify empathy,
moral judgment, self-efficacy, and social support as the key aspects that distinguish social
entrepreneurs. Although the motivation to
build a viable business can be part of social
entrepreneurship, many authors do not think
this to be a necessary condition. A real-life
example of a social entrepreneur is Florence
Nightingale, who was the founder of modern
nursing. She established the first school for
nurses and fought to improve hospital conditions balancing an innovative drive and
a passion for social improvements.
Organizational Level: Stakeholder-Driven
Innovation
While there is a growing literature stream
on user-driven innovation, there exists so far
very little research on how innovation can be
driven by other stakeholders besides users and
consumers. Another example of activistdriven innovation concerns the fair trade
movement which was initiated and launched
by activist NGOs. Drawing on church groups,
developmental charities, and activist networks
fair trade has matured from a nonprofit startup idea into a profitable business proposition.
Global Level: Sustainability Innovation
At the global level, much attention has been
paid to the role venture capital (VC) plays in
promoting sustainability innovation. The term
clean technology venture capital has been

Corporate Social Innovation

introduced in order to delimit this new type

of innovation from earlier environmental technology or green tech investments popularized in the 1970s and 1980s. The latter were
mainly end-of-pipe solutions that strongly
relied on particular legislation support.
Role of NGO
From the perspective of multinational corporations, and their response to globalization pressures, the emergence of NGOs as important
actors presents both challenges and opportunities.
A number of individual corporations and representative associations have embraced NGOs as
partners in forging a new alliance that meets both
economic objectives and goals of social and environmental development. The GRI described
above is a clear example of the potential dual
benefits from these partnerships. At the same
time, however, the insertion of NGOs into a set
of exchanges that had previously been the exclusive domain of governments and business places
MNCs in a confusing and sometimes contradictory situation in which they must meet government requirements and obligations as well as
respond to NGO pressures and demands
(Doh/Teegen 2002). This situation presents
MNCs with a potential double jeopardy in
which responding to government regulation may
sour relations with NGOs and vice versa. On the
other hand, it may also offer the possibility of
satisfying governmental requirements through
demonstration of responsiveness to NGOs,
a potentially productive development for the
future of business-government-NGO deliberations over globalization (Doh forthcoming).
The role of NGOs in development and implementation of international environmental and
labor codes is evolving rapidly. Once viewed as
outsiders who serve to frustrate or interfere
with the operation of governments and corporations internationally, NGOs are becoming more
integral to the process and outcome of global
discussions over important social and environmental issues. Governments and corporations
must respond to the increasing interest of NGOs
and the broader civil society groups they represent. The initial insights presented in this entry

Corporate Social Innovation

provide an ample agenda for future research

directions, especially consideration of the
timing of NGO intervention, and the evolutionary
nature of NGO involvement in these codes
and agreements. Careful consideration by all
relevant stakeholders of how best to include
NGOs in the policymaking process will have
a substantial influence not only on the evolution
of multilateral approaches to environmental and
labor codes but also on the very nature of global
governance and the future role of multinational
enterprise in the global economy.
The typology of codes of conduct presented here
does not capture fully the dynamism of this phenomenon. In particular, there is an increasing incidence of multi-stakeholder agreements, such as the
Global Reporting Initiative (GRI), that reflect significant participation by all of the major groups
discussed here. The GRI was established in 1997
to develop globally applicable guidelines for
reporting on the economic, environmental, and
social performance, initially for corporations and
eventually for any business, governmental, or
nongovernmental organization. Convened by the
Coalition for Environmentally Responsible Economies (CERES) in partnership with the UN Environment Programme, the GRI includes participation of
corporations, NGOs, accountancy organizations,
business associations, and other stakeholders from
around the world (GRI 2002). The GRIs 1999 draft
Sustainability Reporting Guidelines represent the
first global framework for comprehensive sustainability reporting, encompassing the triple bottom
line of economic, environmental, and social issues.
Social Innovation
Social innovation refers to new or enhanced products or services that have a positive impact on
social or environmental issues, often termed
environmentally friendly or green products.
Examples
illustrating
possibilities
for
social innovation include production of fibers
entirely from renewable resources, fuel oils from
vegetation, energy and water savers, chemical-free
cleaning, recycled materials, organic food and
cosmetic products, natural home furnishings, etc.
Social innovation represents social learning and
problem solving in areas ranging from

555

improvements in human health, education,

human welfare, environmental protection, and
energy.
Innovation capabilities are not different from
those needed to create new products with novel
functionalities. The difference is on the focus and
perhaps on a stronger emphasis on understanding
social problem areas and creating new forms of
alliances to create solutions.
Social innovation can thus be regarded as an
experimental space which provides leeway for
the renewal of services (commercial or public)
but also of the main forces (the businessman,
utility, and value) that drive our societies.
It needs to be studied, analyzed, and appraised.
However, for various reasons, it is not that simple.
First, right away integrating the concept of externality, that is to say, of collateral results that are
impossible to measure, is the characteristic of
these innovations. In the longer run, they may
well develop a social efficiency that could go
beyond the agenda of the initial project by being
a catalyst for social change and by contributing to
the emergence of a new development model. But it
remains difficult to reduce their value to statistics
that command public policy and investor interest.
How can greater recognition and development
of such experimental spaces be achieved? Speaking at the aforementioned conference, Romain
Beaume, professor at the Ecole Polytechnique
(chair of Innovation Management), rightly pointed
out that for over 100 years, technological innovation has been the center of attention: be it through
tracking, promotion, training of stakeholders, creation of dedicated private or public structures, tax
policy, nothing has been neglected in fostering it.
In contrast, social innovation is a practice at once
ancient and very recent in the sense that its value
has only been noticed in recent years. Institutions
and economic tools liable to support its development are still of a rudimentary nature.

Future Directions
Socially responsible investing (SRI) is increasing
the attention on corporate social and environmental practices through either through positive

556

screens, that is, identifying companies that in

some way benefit society, or through negative
screens which weed out poor SRI performers,
including those who pollute or maintain poor
working conditions.
Large pension funds around the world are
already using screening agencies to assess how
companies tackle so-called ESG (environmental,
social, governance) issues like eco-friendly practices, human rights and corruption. Four hundred
seventy five large institutional investors around the
world representing more than $55 trillion of funds
(2009 figures) investigate the emissions strategy of
companies through The Carbon Disclosure Project
(CDP). And stock market indexes like the
FTSE4Good Index Series and the Dow Jones Sustainability Index are tracking the financial performance of companies that focus on creating longterm shareholder value by embracing opportunities
and managing risks derived from economic, environmental, and social developments.
Marks & Spencer has linked up with NGOs and
social organizations to share knowledge, develop
solutions, and support causes linked to plan A, and
as part of its employee engagement program, it provides, among other things, one days paid time off
for all employees to participate in a plan A initiative.
Traditional business models are consequently
being stretched. And with the reinforcing impact
of the economic crisis, some of them are being
stretched to a breaking point where short-term
shareholder value creation cannot stand alone. As
a result, companies are responding with attempts to
reconfigure their DNA as pure profit seekers through
responsible and sustainable business actions.
Multinational companies based in Europe,
North America, Japan, and other developed regions
of the world are starting to recognize the need to
move into regions with growing populations and
developing economies. Thereby, they can access
new markets and new consumer segments instead
of relying on their traditional markets which are
stagnating, shrinking, or competition intensifying.
Some Cases in Corporate Social Innovation
Novo Nordisk
Novo Nordisk has undertaken a shift from an
internal focus to a reflective view through

Corporate Social Innovation

a corporate history and culture that lays the foundation for its values-based and holistic approach to
doing business. By establishing the link between
healths as a driver of wealth, it has been possible to
pursue triple bottom line strategies in a way that
increasingly gets at the heart of core business
processes in the markets as well as in the corporate functions and governance mechanisms. The
approach is shaped through extensive stakeholder
engagement embedded in organizational behavior
and business operations. An example of these
stakeholder-driven initiatives is the DAWN program, the largest-ever, global survey to uncover
diabetes attitudes, wishes, and needs. The study
focuses on the person behind the disease and is
aimed to uncover the psychosocial aspects of diabetes. The DAWN program taught all parties
involved that the patients also need mental encouragement and positive guidance empowering them
to take charge of their own health. Such innovation
in public health promotion activities helps effectively reduce the burden of diseases such as diabetes. Furthermore, Novo Nordisk is driving
national diabetes programs to educate stakeholders as well as actively supporting the growing
international advocacy platform to put chronic
disease prevention on the political agenda. One
such initiative is the Oxford Health Alliance.
Procter & Gamble

Proctor & Gamble provides an example of a social

innovative product that failed to be marketed for
profit. The case is a water purification system
called PUR, which P&G developed in collaboration with the US Centers for Disease Control for
commercial markets, targeting low-income consumers. The product had clear social benefits,
providing clean drinking water for households in
places where the health risks of untreated drinking
water are high, especially for children. After
3 years of market tests though, PUR was looking
like a commercial failure. Many other firms would
have closed down the project, but P&G instead
moved PUR to its corporate sustainability department, where focus no longer relied solely on making a profit. Since 2003, P&G has sold the product
at cost and worked in partnership with nonprofit
organizations, which distribute the product

Corporate Social Irresponsibility

through their development and humanitarian relief

networks. However, by using the marketplace,
P&G felt they could relieve people at a global
level, whereas philanthropic activity would not
be as effective. Using social marketing models
by collaborating with NGOs created greater
impact than commercial marketing.
Unilever

Unilever defines their social innovation as utilizing consumer concerns about social and environmental issues. Unilever has initiated the largest
rural health and hygiene education program ever
undertaken in India. Education teams are visiting
communities and schools to reach the broad
masses. In order to help low-income households,
the soap is sold in 18-g bars, enough for one person
to wash their hands once a day for 10 weeks.
Another project is the Shakri, which deals with
reaching small Indian villages with less than 2,000
people. Lack of retail distribution networks to
reach the 500,000 smaller villages brought innovative thinking at the core of strategy. The solution
was recruiting women from these small villages to
act as freelance direct sales operators. Cooperation
between Unilever and many womens self-help
groups (Indian NGOs) provided training and education to these women and made them local entrepreneurs. The women typically doubled the
household income tending to use the money on
education for their children. Since 2000, Unilever
has extended Shakri to cover 80,000 villages.
There are many more product examples for
instance in India, Indonesia, and Brazil.

557

http://www.europeanfinancialreview.com/?p2287
http://www.jstor.org/stable/3857969
http://www.purwater.com/
http://www.unilever.com/Images/Beyond%20Corporate%
20Responsibilty%20-%20Social%20innovation%20and
%20sustainable%20development%20as%20drivers%20of
%20business%20growth_tcm13-95521.pdf
Doh, J. P., and Teegen, H. (2002). Nongovernmental
organizations as institutional actors in international
business: theory and implications, International Business Review, 11, 665684.
Marcel, V. M., Wuisman, I., Cleyn, W. D., Timmers, J.,
Panapanaan, V., & Linnanen, L. (2004). A phase-wise
development approach to business excellence: Towards
an innovative, stakeholder-oriented assessment tool for
organizational excellence and CSR. Journal of Business
Ethics, 55(2), 8398. doi: 10.1007/s1055100421549.
Murtha, T. P., Lenway, S. A., & Bagozzi, R. P. (1998).
Global mind-sets and cognitive shift in a complex
multinational corporation. Strategic Management
Journal, 19, 97114. doi:10.1002/(SICI109702669199802)
19:2<97::AIDSMJ943>3.0.CO;2-2.
Petrick, J. A., & Quinn, J. F. (2001). The challenge
of leadership accountability for integrity capacity
as a strategic asset. Journal of Business Ethics, 34,
331343. doi:0.1023/A:1012597201948.
Schwartz, M. S., & Carroll, A. B. (2003). Corporate social
responsibility: A three-domain approach. Business
Ethics Quarterly, 13, 508530.

Corporate Social Investment and

Poverty
CSR and Poverty

Corporate Social Investment in

Africa
CSR and Africa

Cross-References
Social Enterprise
Social Innovation
Sustainable Development

Corporate Social Irresponsibility

Brian Jones
Leeds Business School, Leeds Metropolitan
University, Leeds, West Yorkshire, UK

References and Readings

http://annualreport.novonordisk.com/images/2006/PDFs/
Lise%20Kingo_InaugurationSpeech.pdf\
http://www.eco-business.com/opinion/sustainable-businesssuccess-through-corporate-soc/

Synonyms
Doing bad; Externalization of costs; Self-interest;
Unethical behavior

558

Corporate Social Irresponsibility

Definition

responsible. As a theoretical tool for business

analysis, it helps companies identify areas in
which they are not doing particularly well as
a way of developing a process of continuous
CSR business improvement. It serves to demonstrate to management and stakeholders the importance of doing the right thing and putting in place
policies, strategies, and practices to minimize
damage that can result from irresponsible attitudes, behaviors, and actions. It can help businesses become proactive as opposed to reactive in
areas that cover the responsibility agenda.
In recent years and especially since the turn of
the millennium, there has been growing interest
in the concept of Corporate Social Irresponsibility (CSI) (see, e.g., Mitchell 2001; Bansal and
Kandola 2003). The focus on irresponsibility
serves to demarcate it from that of CSR. The
suggestion that there is irresponsible business
behavior and practices is borne out by a number
of recent and not so recent corporate scandals that
have had at their heart issues to do with CSR.
Environmental scandals such as the Exxon
Valdez, the BP Gulf of Mexico oil spill, and the
Union Carbide Bhopal disaster serve as clear
examples of irresponsibility in terms of damage
caused through failures of management. Financial scandals such as the collapse of Barings Bank
and Lehman Brothers together with accounting
scandals such as Enron and Worldcom are wellknown examples of irresponsibility.
CSI neglects environmental, ethical, and social
responsibilities and primarily focuses on profitability. It occurs when companies focus primarily
on profits and do not fully take into account the
effect they have on their environment. It is about
businesses that act unethically and selfishly with
their own interests at heart. Business strategy that
ignores the wider societal opinion and concentrates solely on increasing profit for shareholders
can in general, and with the inevitable qualifying
odd exception, be defined as CSI.

The focus of Corporate Social Irresponsibility

(CSI) is on businesses that behave in a less than
ideal way with regards to their legal obligations,
ethical commitments, and the consideration they
give to economic, social, and environmental factors. CSI defines itself as distinctive from and at
the same time in relation to CSR. Corporate
Social Irresponsibility can be defined as business
doing wrong in relation to the environment, community, society, ethics, and business practices.
CSI is when things go wrong in relation to profitability, the environment, and people (customers, suppliers, or employees). It is an
emergent and growing subject area.

Introduction
CSI is something businesses should aim to avoid.
CSI is the opposite of CSR and revolves around
companies being irresponsible through means
such as not putting anything back into the local
community, not trading ethically, or being environmentally unfriendly. Irresponsible corporate
behavior can result in harm to individuals, to
communities, and to the environment. Corporate
law institutionalizes rules that seek to prevent
corporate irresponsibility, to prevent corporations from doing harm. In extreme cases, irresponsible corporate behavior has resulted in
death, physical and mental injuries, environmental damage, and financial or economic failings
that ruin livelihoods and damage communities.
CSI happens when a business primarily and overwhelmingly focuses on its own self-interests to
the detriment of those it affects, be that society,
stakeholders, or the environment.
CSI offers a critical analysis of the CSR concept. It challenges and critiques the idea that
businesses are in and of themselves socially
responsible. It lies at the opposite end of the
spectrum to Corporate Social Responsibility
(CSR). It adopts a questioning approach to issues
that are related to CSR. It challenges the assumption built in to the CSR concept that businesses
are inherently, always, and necessarily

Key Issues
One key issue focuses on the drive to separate
out irresponsibility from responsibility. This

Corporate Social Irresponsibility

separation of terms has both conceptual and business practice implications. From an academic
theoretical and conceptual viewpoint, it allows
for a clearer exposition of terms that allows for
deeper and more meaningful analysis of both
CSR and CSI. From a business practice perspective, it has real-world implications for reporting
on, improving, developing, and dealing with
stakeholder and media issues surrounding CSR
and CSI.
Irresponsibility can take a number of forms
and guises including and in relation to finance,
accounting, human resources, community, law,
ethics, and amongst other things the environment.
It is perfectly possible for businesses to behave in
a responsible way in some areas of their work
whilst behaving irresponsibly in others (Jones
et al. 2009a). Much of what passes for CSR can
actually be interpreted as being about irresponsibility either in terms of its actual occurrence or in
terms of strategies, policies, and practices
designed to prevent it.
The fact that companies regularly behave irresponsibly is no surprise. There are media reports
over and over again about corporations providing
poor working conditions or causing pollution,
etc. Well-known examples include Shell (Brent
Spa), Nike (working conditions of suppliers),
Mannesmann (severance packages), Enron
(accounting fraud), and BP (oil spill/pollution).
For most of the companies, CSI damages the
companys image, which can hurt sales and in
the worst-case scenario may lead to the collapse
of the company (Kogler 2007). Many companies
respond to acts of irresponsibility with CSR campaigns to try to protect and improve their image.
CSI can cause irreversible damage to the reputation of a business. CSI can be defined as
a business knowingly or unknowingly negatively
impacting on the sustainable development of the
environment and society in which it operates.
From a stakeholder perspective, it is suggested
that different stakeholders perceive responsible
and irresponsible activities differently. Corporate
behaviors, practices, policies, and attitudes can be
perceived by one set of stakeholders as being
socially responsible but can be perceived by others
as socially irresponsible. The tension between

559

what is deemed to be CSR and CSI is in part

derived from competing stakeholder expectations.
From an economic perspective, it can be
argued that CSI is a negative externality. There
are many and varied negative external costs associated with CSI, and by way of example, one only
has to think of environmental damage and degradation. CSI is a cost (e.g., an environmental
externality) not always included or factored into
business accounts or their ways of working
(doing business). It might be argued that businesses should incorporate CSI as a cost into
their business accounts but should also seek
ways to minimize the negative and maximize
positive externalities.

Future Directions
Greenwood (2007, p. 325) noted, there is negligible discussion of the notion of corporate irresponsibility. The future for CSI is likely to see
a growth in academic research, policy, and business interest in the study of irresponsibility. The
aim must surely be to identify those areas in
which businesses can improve on those areas in
which they are doing less than good. Academic
work in the field of CSI is at an early stage of
development. It is undoubtedly one of the key
twenty-first-century issues for management,
businesses, and society as a whole.

Cross-References
Communicating with Stakeholders
Corporate Social Marketing
Corporate Social Responsibility
CSR Communication
Media Reporting of CSR
Reputation/Reputation Management

References and Readings

Bansal, P., & Kandola, S. (2003). Corporate social irresponsibility: Why good people behave badly in organizations. Ivey Business Journal (March/April), 15.

560

Frooman, J. (1997). Socially irresponsible and illegal

behaviour and shareholder wealth. Business and Society, 36(3), 221.
Greenwood, M. (2007). Stakeholder engagement: Beyond
the myth of corporate responsibility. Journal of Business Ethics, 74, 315327.
Jones, B. (2010). Corporate social irresponsibility: The
role of government and ideology. In W. Sun, J. Stewart, & D. Pollard (Eds.), Reframing corporate social
responsibility: Lessons from the global financial crisis
(pp. 5776). Bingley: Emerald.
Jones, B., Bowd, R., & Tench, R. (2009a). Corporate
irresponsibility and corporate social responsibility:
Competing realities. Social Responsibility Journal,
5(3), 300310. ISSN 1747-1117.
Jones, B., Temperley, J., & Lima, A. (2009b). Corporate
reputation in the era of Web 2.0: The case of Primark.
Journal of Marketing Management, 25(910), 927939.
Kogler, D. (2007). Unternehmensethik in internationalen
Unternehmen. Norderstedt: Grin.
Kotchen, M. J., & Moon, J. J. (2007). Corporate social
responsibility for irresponsibility [Internet]. U.C.
Santa Barbara and NBER University of Pennsylvania.
Retrieved June 12, 2010, http://www2.bren.ucsb.edu/
Bkotchen/links/CSR9-04-07.pdf
Mitchell, L. E. (2001). Corporate irresponsibility: Americas
newest export. New Haven: Yale University Press.
Strike, V., Gao, J., & Bansal, P. (2006). Being good while
being bad: Social responsibility and the international
diversification of U.S. firms. Journal of International
Business Studies, 37(6), 850862.
Wagner, T., Bicen, P., & Hall, Z. R. (2008). The dark side
of retailing: Towards a scale of corporate social irresponsibility. International Journal of Retail and Distribution Management, 36(2), 124142.

Corporate Social Irresponsibility

CSIR
Irresponsibility

Corporate Social Marketing

Hart O. Awa
Department of Marketing, University of Port
Harcourt, Port Harcourt, Rivers State, Nigeria

Synonyms
Community-based social marketing; Cross-transfer; Multiple publics; Not-for-profit organizations;

Corporate Social Irresponsibility CSIR

Social causes, social change campaigns; Social

marketing; Social marketing and assessment
response tools; Traditional economic domain of
marketing

Definition
Not-for-profit and social marketing, like many
other fast-evolving areas of inquiry in social and
management sciences, lacks consensus definition
and name perhaps because its scope of activities
is yet to be thoroughly exhausted. Doug
McKenzie-Mohr of Canada referred to it as community-based social marketing (CBSM) and tried
to sustain behavior by using tools and findings
from social psychology to unveil the perceived
barriers (and remedies) to behavior change.
Perhaps CBSM underscores SMART (Social
Marketing and Assessment Response Tools) as
it uses focus groups and surveys to unveil barriers
and commitments, prompts, social norms, social
diffusion, feedbacks, and incentive to change
behavior. However, a seemingly complete definition is right here, at least for now, to recognize
knowledge migration to social causes. Corporate
social marketing is the systematic transfer of
commercial marketing concepts and tools to programs designed to influence the voluntary behavior of target audiences, where the primary
objective is to improve the social welfare of the
target audiences and/or the society of which they
are a part. It defines instilling traditional marketing domains into programs primarily packaged to
secure and maintain target audiences social
engagement.
While these definitions differ from societal
marketing concept integrated issues of social
responsibility into commercial marketing strategies it conveys three integrated points. First,
the primary focus is on social change campaign
and social good changing specific behavior
in health, safety and security, sustainability,
recycling, etc. It strives to borrow managerial
skills similar to those of traditional businesses to
change the behaviors of communities and to
persuade them to accept, modify, or abandon
certain ideas, attitudes, practices, or behaviors.

Corporate Social Marketing

Campaigns that encourage people to get antibiotics may be assumed more tactical and rarely
connote the difficulties to attain long-run behavioral change of social marketing. Scholarship
shows that from the fall of Soviet Union to
rapid spread of technological innovation, the
power and resilience of commercial modes of
operation have become a major theme in many
stories of social change, and so social enterprises
are increasingly and/or grudgingly admired for
their dynamism, their market discipline, their
incentives for efficiency and innovation, and
their economically self-sustaining character.
Second, the interest is not that of the marketer
rather to influence long-term social behavior
of the audiences and the general society. For
instance, social causes that promote and remind
the audiences of zip up; the use of condom
and seat belts by macho-men; regular medical
check-ups and blood donations; speed limits;
and avoidance of some kinds of unacceptable
social behavior. And finally, cross-sector transfer
of intellectual armory creates new dimensions of
organizations and new kinds of transactions as
well as different kinds of sponsorship. For
instance, a typical manager follows market
conditions, minimizes waste, misdirection, and
inefficiency, but a new kind of business
philosophy emerges once deeply committed to
the social causes that may demand overlooking
such inhibiting factors in attempts to deliver
favorable outcomes. In both commercial and
noncommercial entities, five classes of transactions, expanded from Alan Andreasens framework and Philip Kotlers Consciousness 3, are
distinguished at consumers level:
Transactions involving exchange of goods and
services for money (Consciousness 1).
Transactions involving the exchange of
money for intangible goods, e.g., donations
of money to Red Cross Society, Girls Guilds,
etc. (Consciousness 3). This is an attempt to
positively relate to every public, not just the
consuming public.
Transactions involving the exchange of
money for intangible social benefits, e.g.,
5 % of sales of Procter & Gamble (P&G)
going into cause-related marketing, e.g., Red

561

Cross Society (Consciousness 1 and Consciousness 3).

Transactions involving the exchange of intangible costs for tangible benefits, e.g., going on
a certain diet or giving up habits, such as
smoking, prostitution, night clubbing, thefts,
drinking, etc.
Transactions that do not involve moneypassing hands (Consciousness 2). Connotative
transfer is slowest here because transaction
does not involve economic considerations in
either side of the exchange.
Less hostility to marketing favorably affects
the rapid transfer within organizational categories, and specifically improves effectiveness in
terms of costs and service delivery. The greater
the similarity of not-for-profit organizational
environment to a commercial environment, the
more extensive would the transfer. Also, the
greater the similarity of the not-for-profits focal
transaction, the faster and more extensive would
the adoption. Added to consumer transactions are
organization-to-organization transactions involving profit and not-for-profit sectors. Recognizing
that not all not-for-profit marketing is social
marketing, Alan Andreasen suggested joint promotions and licensing as strategic options for
cross-sector relationships. According to him,
not-for-profit organizations form partnership
relationship (joint promotion) with a profitmaking company to promote the formers message, image, or social causes. For instance, private health-care givers (e.g., hospitals, clinics,
and NGOs) and public health institutions and
agencies may form alliance to promote
breastfeeding and/or to avert HIV/AIDS and
breast cancer. Health Magazines partner with
health agencies to promote knowing your HIV
status and to discourage unprotected sex and
breast cancer. In the United States, McDonald
House Charities works with several local and
national not-for-profit organizations to help
critically ill children and their families through
difficult times.
On the other hand, licensing involves
a situation whereby commercial organizations
pay licensing fee to a not-for-profit organization
in return for using the latters name and/or logo.

562

For instance, The Organization Save the Children

Federation, which provides food, clothing, and
shelter to the impoverished children around the
world, has 27 profit-making licensees that use the
name of the organization on various products and
donate portions of their proceeds to save the
children.

Introduction
Perhaps one of the most striking trends in the
world that is speedily grabbing huge scholarship
in the recent moments is the convergence of
thoughts from traditional economic domain to
social causes bearing in mind that both differ
greatly by their corporate objectives and missions. Statutorily, nonbusiness organizations,
such as War Museum, the Police and Army,
Red Cross Society, etc., provide economic,
social, and political infrastructures in a society.
Many corporate social marketing campaigns typically involve noneconomic transactions. Managing them poses almost same challenges as
managing Procter and Gamble (P&G), General
Motors (GM), and Guinness Breweries; thus,
interdisciplinary and intersector inquiries aimed
at transferring knowledge acquired in other disciplines makes for strategic achievement of
objectives. The convergence theorists believe
that theories, concepts, hypotheses, postulates,
and paradigms developed in psychology, sociology, anthropology, economics, management sciences, and other relevant disciplines are
technologies that somewhat apply to noneconomic settings. Corporate social marketing is an
evolving area with fascinating growth spanning
from Philip Kotler and Sidney Levys classic and
most celebrated intellectual grenade on broadening the concept of marketing and perhaps
Theodore Levitts marketing myopia. The grenade lobbed in a resounding morale and support
for a change in thought of the domain of marketing scholarship and its relationships to
noncommercial organizations. The transfer of
commercial marketings tool kits and techniques
to achieve specific behavioral goals for social and
not-for-profit causes precipitated the discipline of

Corporate Social Marketing

corporate social marketing. Corporate social

marketing is a child of two disciplinary parents:
a social parent social sciences and social policy
approaches, and a marketing parent commercial
as well as social media and public sector
marketing.
Attempts by Philip Kotler and Gerald Zaltman
to formalize corporate social marketing emphasize that the traditional economic domain of marketing technology could be systematically
extrapolated to promote social issues and ideas,
merit goods, attitudes, and social well-being and/
or to avoid demerit behaviors public smoking,
answering calls on steering, etc. Marketing is
a pervasive societal activity that transcends buying and selling; increasing amount of societys
work is being performed by organizations other
than business firms, and so every organization
performs marketing-like activities whether or
not they are recognized as such. The premise is
that both commercial and social marketers promote values to their respective audiences, who
may have varying needs that require differentiated marketing efforts. For instance, Choosing
Health (2004), Its our health (2006), and Health
Challenge England (2006) made operational and
strategic use of social marketing to convey social
values to the people.
Key structural and cultural characteristics
fondly differentiate commercial and not-forprofit marketing, and influence adoption. Studies
show that social marketing is affected by basic
conflicts among myriad of cultures. Traditionally, management emphasizes willingness to
overlook cost-effectiveness if it is in good
cause. But recent development shows that social
marketing develops more sensitivity to providing
services and to competing with other organizations for donors favors hence the essence of
marketing in not-for-profit organizations. In
most social sector organizations, costs rise faster
than general inflation, and the underlying social
problems increase in intensity and complexity,
thereby yearning for more sophisticated
responses from government and private donations and grants. The government itself is often
constrained by balancing off budgets, and she and
other providers of social capitals increasingly

Corporate Social Marketing

demand greater results and accountability from

their social investments, forcing social enterprises to aggressively compete for scarce funds,
seek new ways to control costs, improve effectiveness, and increase revenue. They often need
to do more with less.
The initial philosophy frequently conflicts that
of the marketers who through their emphases on
corporate mindset, attempt to increase efficiency
and effectiveness perhaps via increasing the number and range of programs offered. So while the
social service people accuse the proponents of
corporate culture mindset of being heartless,
uncaring, or even immoral, the corporate culture
mindset group attacks their counterpart (the
social service people) as being ill-focused, wasteful, and somewhere on cloud nine. All things
being equal, conflicts between these two cultures
must be carefully addressed for effective social
marketing programs:
(a) Sponsorship and ownership. The Health
Media and Safety Campaigns, National
Action Committee on AIDS (NACA), HIV/
AIDS Emergency Action Plan (HEAP),
among others, are directly funded by government grants and subsidies, revenues from
sales (where necessary), individual and corporate donors, foundations, licensing fees,
and royalties and indirectly from tax concessions, donations of goods and services, and
voluntary labor. Quasieconomic transactions
exist here to the extent that there is money
exchanged, but the other side of the transaction does not involve goods and services.
Unlike for-profits, not-for-profits are not
keyed to profitability targets and they mobilize as much resources as possible from various publics, thereby enforcing multiple
objectives and differential measurement metrics. Sponsors or donors often have little or no
direct influence on corporate decisions; they
do not share in the organizations surpluses
and as such their commitment to organizational success may come about in some other
ways, perhaps in psychic and social satisfaction. They might interfere in marketing programs in order to promote ideas they deem
relevant.

563

(b) Measurement metrics. Commercial marketing is characterized by very clear and relatively simple line (perhaps uniform)
measurement metrics (e.g., sales volumes,
market positioning, market share upsurge,
profits, cost reduction, etc.) upon which efforts
are evaluated and guided by stakeholders
employees, shareholders, and the organization
itself. Consumers themselves are regarded as
the most significant public to deal with, and
consumer research guides decisions. On the
other hand, social marketing is often besieged
with difficult-to-measure and time-consuming
objectives, which perhaps are subject to complexities of influences outside the marketers
control. Such less-exact objectives relate to
such causes as reduction of spousal and child
abuses, increasing physical activity, making
less stressful life/career, fighting corruption,
preserving wilderness, etc. Further, explanation to the measurement metric is the issue of
multiple publics and multiple peculiarities in
terms of expectations and measurement standards. This has caused not-for-profit firms to
remain competitive in packaging programs
that simultaneously win the favor of the target
audiences as well as that of individuals and
groups who offer assistance and/or regulate
activities. For instance, the Economic and
Financial Crime Commission (EFCC) has
the ordeals of marketing itself simultaneously
to the governments, to honorable members
and other politicians, and to other Nigerians/
stakeholders, and each has a distinct measurement standard(s). Also, universities target prospective students as clients of its marketing
programs, and also current students, parents/
guardians of students, alumni, government
agencies, staff, etc.
(c) Public scrutiny. Consequent upon receiving
donations and tax concession to achieve their
multiple objectives, not-for-profit organizations are often subjected to ample measures
of formal and/or informal public scrutiny,
which perhaps, among others, limits risk taking and increases the relevance of politics and
public relations in the design of marketing
mix strategy. Such scrutiny may come from

564

the governments, funding sources, and/or the

general public(s) as may be represented by
the press or academic researchers and critics.
(d) Acute budgetary control. Commercial marketing takes more of strategic decision involving a long-range marketing plan of say 5 years
and rework it regularly to accommodate
unforeseen environmental changes (rolling
plan). This may call for beefing up budgets
and other variables that would inhibit the actualization of the set objectives. Conversely,
not-for-profit organizations suffer severe budget restrictions, which are often placed by
watchdog groups who emphasize on limiting
expenditures on overheads irrespective of
changing situations and changing opportunities in the environment. The watchdog groups
believe that high salaries and high commitments to sales commissions, advertising, and
other overheads may mean a waste of societal
funds. Even when being strategic is thought
of, the red-tapism associated with decision
making in not-for-profit organizations frustrates the exploitation of the right opportunities at the right time.
(e) Fewer opportunities to modify market offerings. Many nonprofits operate in environments where the desired behavior involves
market offerings that are relatively stable and
less-than-desirable from the customers perspective. For instance, in the crusade on quitting smoking, drug addition, cultism, or
unprotected sex (by government departments),
the marketers strategies often get frustrated
with products or behaviors that are rarely easy
to modify. In the private sector marketing,
resources are strategically deployed to change
the situation to an exploitable one.

Key Issues
Social marketing is an evolving area with so
much unknown; it is a relatively vague concept
with mixed academic and operational excellence.
The yet to be exhausted scope as well as the
absence of generally accepted definition complicate understanding and cynicism toward social

Corporate Social Marketing

marketing. Recognizing that social marketing

intends to achieve basic social service missions,
(e.g., to eliminate homelessness, destitutions,
child abuse, drug abuse, and infant mortality or
to improve the physical and mental well-being
of the elderly, disabled, and the motherless),
the basic issue is to direct scholarly thinking to
articulating a single unifying definition that
incorporates its entire activities.

Future Directions
The business domain of marketing provides useful
concepts that guide all manner of organizations,
including not-for-profits. Social marketing is carried out by public sector and not-for-profit organizations with contemporary focus on health care,
energy conversation, safety and environmental
regulations, and recycling. The future is bright
for the transfer of marketing tool kits to social
causes. Recently, quite a number of key government policies (e.g., Health and Safety Campaigns)
in many countries, including Australia, United
States, Canada, New Zealand, and United Kingdom adopt corporate social marketing approach to
the planned social change and achievement of
specific behavioral goals for social goods. For
instance, the Victoria Cancer Council of Australia
develops antitobacco campaign with slogan Quit
and its SunSmart campaigns against skin cancer
had the slogan Slip! Slop! Slap! The AIDS controlling programs in India use social marketing
and trained social workers, and the government
of United Kingdom in 2007 launched the first
social marketing strategy for all aspects of health.
Further, the state-run Occupational Health and
Safety Organization in Australia with the theme
Work-safe Victoria uses social marketing to
reduce social and human impacts of workplace
safety failures just as Dance-Safe exploited social
marketing ideas in its communications.
Such intellectual migration has the potential of
profoundly improving research/thinking and the
general ways nonbusiness sectors operate, bearing in mind their need to redefine values as well
as their chronic financial ordeals. Nevertheless,
the transfer has been vigorously challenged by

Corporate Social Obligation & CSR

Robert Bartels and David Luck, among others,

who indicated that the concept takes marketing
beyond its proper domain and plunges it into
confusion and identity crises. To Bartels, the
problem was to reconcile whether marketing
was defined by its technology (Kotler and
Levys position) or by the class or classes of
behaviors toward which marketing was directed
(Lucks position). Luck posited that diversion of
attention from critical issues and encroaching
into other disciplines may jeopardize the obvious
involvement of marketing. While it is obvious
that marketing goes beyond buying and selling,
Kotler and Levy warned that marketing is all
about transactions, not just market-based transactions. However, Nickels surveyed 74 marketing professors on the extent of acceptance of the
broadened view of marketing within the marketing academic circles, and found that 95 % agreed
with Kotler and Levy in furthering the application of marketing to social issues. Observations
have shown that barely four decades now marketing scholars have widely and routinely
embraced, discussed, researched, and taught subjects on the application of marketing thoughts to
not-for-profit organizations, which is a clear indication of acceptance of the broadened scope. It is
hoped that in the next few decades, the controversies raised by opponents of cross-sector transfer will be completely addressed.
Today, there are full-fledged textbooks on the
subject, marketing texts and journals with wellblown discussion on the subject, and specific
journals devoted to social and not-for-profit marketing. One of the subthemes of the Marketing
Educators Conference organized by National
Institute of Marketing of Nigeria (NIMN) in
University of Benin on August 9 and 10, 2006
was public sector marketing in a developing
economy. This shows that the broadening concept has permeated every economy.

565

References and Readings

Andreasen, A. (1978). A marketing audit of the smoking
and breast cancer program of the Office of Cancer
Communications, National Cancer Communications,
National Cancer Institute. Washington, DC: Office of
Cancer Communications, National Cancer Institute.
Andreasen, A. (1995). Marketing social change: Changing behaviour to promote health, social development
and environment. San Francisco: Jossey-Bass.
Andreasen, A., & Manning, J. (1978). Culture conflict
in healthcare marketing. Journal of Healthcare
Marketing, 7(1), 28.
Bartels, R. (1974). The identity crisis in marketing.
Journal of Marketing, 38, 7376.
David, L. (1969). Broadening the concept of marketing
too far. Journal of Marketing, 33, 5355.
Kotler, P., & Levy, S. (1969a). Broadening the concept of
marketing. Journal of Marketing, 33, 1015.
Kotler, P., & Levy, S. (1969b). A new form of marketing
myopia: Rejoinder to Professor Luck. Journal of
Marketing, 33, 5557.
Kotler, P., & Roberto, E. (1989). Social marketing: Strategies
for changing public behaviour. New York: The Free Press.
Kotler, P., & Zaltman, G. (1971). Social marketing:
An approach to planned social change. Journal of
Marketing, 35, 312.
Nickels, W. (1974). Conceptual conflicts in marketing.
Journal of Economics and Business, 27, 140143.

Corporate Social Obligation & CSR

Kim Cheng Patrick Low1,2, Sik-Liong Ang3 and
Yue Shuang Ang4
1
Universiti Brunei Darussalam, Gadong, Brunei
Darussalam
2
University of South Australia, Adelaide,
Australia
3
Faculty of Business, Economics & Policy
Studies (FBEPS), Universiti Brunei Darussalam,
Bandar Seri Begawan, Brunei Darussalam
4
Birmingham Law School, University of
Birmingham, Edgbaston, UK

Synonyms
Duty and obligations to society; Duty and responsibility to community

Cross-References
Definitions
Canadian Business for Corporate Social
Responsibility
Cross-Transfer

Corporate social responsibility (CSR) in its plain

meaning is a social rather than a legal concept.

566

The practice of CSR is not mandatory in many

countries around the globe. Thus, a business can
choose whether to adopt or disregard it. CSR
takes different interests of an entitys stakeholders into account.
The concept of corporate social obligation
(CSO) on the other hand has emerged from two
proposed changes alterations to a paradigm of
what businesses are and an extension to the
dimension of the concept of CSR. The concept
of CSO is the engagement of three or more participants working together in a business venture
to maintain good business behavior. Its implementation should enable businesses to be
engaged in successful and profitable multilateral
contractual agreements.

Introduction
This entry aims to examine and analyze the concept of corporate social responsibility and its
limitations. It introduces a concept of corporate
social obligation (CSO) in business practice.
In doing so, it crosses over three disciplines
business, law (or legal theory), and social philosophy. It provides a number of brief case studies
and recommendations promoting socially
responsible business behavior.
Corporate Social Responsibility (CSR)
As CSR takes the interests of a businesss stakeholders into account, it may include a range of
activities including the following:
(a) Employees working conditions and wellbeing at work
(b) Employees pay
(c) Fair trade with suppliers (e.g., farmers and
manufacturers)
(d) Sustainable use of resources
(e) Business activities which are kind and
friendly to the natural environment
Therefore, a businesss economic duty which
is profit maximizing for its owners is no longer its
sole priority. A business adopting CSR is taken to
satisfy two probably conflicting interests of its
shareholders and stakeholders. A criticism of
this concept is that these two interests are

Corporate Social Obligation & CSR

invariably in contradiction with each other.

Going by the phrase no man can serve two
masters, it can be argued that a business
adopting the concept of CSR is embarking in
costly venture (Johnson 1998).
The Problems of Bad Business Behavior
There are two schools of thought on business
behavior. One of them believes that a business is
a creation of law (Barry 2000). Thus, its obligation
and responsibility should not go beyond what is
stipulated by the law. CSR is a not a legal responsibility. A business has the choice of either to adopt
or disregard CSR; this choice should not be
allowed to be influenced by some activist groups.
The other school of thought takes the view that
organizations such as a business are social actors
(Meyer and Jepperson 2000). In addition to its legal
identity, a business as social actor also has its own
social identity. Thus, businesses can act for themselves (e.g., in its quest to make a profit) and also
they can act for others (e.g., to be accountable for
the socioeconomic rights of stakeholders). Table 1
shows the contrasting opinions on CSR.
This entry adopts the view of a business as
a social actor. It takes the view that a business can
be utilized to do bad and good deeds. Here, bad
deeds are interpreted as referring to exploitative
business activities. They can include irresponsible outsourcing, unfair dealing with suppliers,
and engaging in sweatshops. Bad deeds promote
bad image and reputation which are the consequential results of businesss greed. By contrast,
good deeds are interpreted as referring to
socially responsible business activities. They
can include responsible outsourcing, fair dealing
with suppliers, and refraining from the engagement in sweatshops. Good deeds promote sustainability. Bad business behavior is taken to
promote a businesss bad deeds (its greed) in the
disguise of engaging in good deeds.
CSR and Its Limitations
Here, it can be said that the concept of CSR has
three limitations. First, businesses are the creations
of law and thus, it can be argued that they should
only be regulated by law. Businesses have a legal
obligation and responsibility only toward their

Corporate Social Obligation & CSR

567

Corporate Social Obligation & CSR, Table 1 The key differences of opinion on the corporate social responsibility
issues
The free market case against corporate social responsibility
The only social responsibility of business is to create shareholder
wealth
It is a great concern that the efficient use of resources will be
reduced if businesses are restricted on how they can produce
The pursuit of social goals dilutes businesses primary purpose
Corporate management cannot decide what is in societys best
interest
Costs will be passed on to consumers
It reduces economic efficiency and profit
Directors have a legal obligation to manage the company in the
interest of shareholders and not for other stakeholders
CSR behavior imposes additional costs which reduce
competitiveness

shareholders. Thus, one of the limitations of CSR

is its adaptation by businesses. It can be stated here
that a businesss legal obligation and responsibility trump social ones. Second, it is demonstrated in
the arguments for and against CSR in Table 1
above that the adaptation of CSR is a costly venture. The priority of businesses is to be profitable,
not sustainable. Thus, it is logical for businesses to
avoid costly CSR ventures where possible. Third,
a business choice of committing to socially
responsible activities is a unilateral decision. In
other words, a business has the power to either
adopt or disregard CSR. Although a businesss
adoption of CSR promotes its reputation, it is
criticized that this unilateral dimension of this
adoption can lead to a businesss manipulation of
the concept of CSR to promote its greed as exemplified by the following key issues.

Key Issues
The key issues involving CSR are as follows:
1. A business can, in fact, blatantly carry out its
activities in a socially irresponsible way.
2. Businesses can also use a concept of CSR as
a disguise to hide or cover up their greed and
misdeeds.

Arguments for corporate social responsible (CSR)

behavior: CSR
Is the ethical or right thing to do
Improves the firms public image and reputation
Is necessary for the business in order to avoid
excessive law and regulation
Leads to socially responsible actions that can be
profitable
Leads to improved social environment that will be
beneficial to the firm/corporation
Will be attractive to some investors
Can increase employee motivation
Will help to provide solutions to some social and
environmental problems caused by business

3. Businesses can at times fail or lose focus on

their competiveness when applying the concept of CSR.
4. Businesses with unilateral dimension of CSR
at times manipulate their businesses to promote their greed and self-interests.
Using case examples, all these key issues are
now being examined as follows:
1. These case studies demonstrate that a business
can blatantly conduct its activities in a socially
irresponsible manner.
a. The case of Sanlu
In September 2008, the Chinese milk giant
Sanlu was exposed by the media for trying to
hush up reports on its infant milk formula
which had been contaminated. It was one of
Chinas worst food safety scandals. Six babies
died from kidney problems and some 860
were hospitalized. (Public outcry and anger
led to serious scrutiny of the integrity of
Chinas top Internet firms, with strong actions
taken against the culprits.) Soon after this
news broke out, a Sanlu memo which
suggested bribing a Chinese search engine
Baidu to cover up the news surfaced online.
Two men who were responsible for the contamination were executed while four others,
including the former head of Sanlu, were

568

given life sentences (Ho 2011, p. D2 cited in

Low and Ang 2011). In retrospect, the authors
questioned if these men were prosecuted and
convicted beforehand and that if the convictions were carried out with a fair trial.
2. The following two case studies demonstrate
how businesses utilize a concept of CSR as
a disguise to cover up their greedy ventures.
(a) The case of Gap, Inc.
In 1996, Gap designed a Code of
Vendor Conduct which aims to safeguard
workers rights in the factories which are
producing Gap products (Gap 2012). The
adoption of this code puts Gap in
a favorable light to its customers. Gap
began to build itself an ethical image.
However, reports in 2004 found that Gap
had been outsourcing to unethical subcontractors and its adopted code was not
abided to (Guardian 2007). In this case,
Gaps reputation was tarnished. However,
there are many other businesses that
behave in a similar way as Gap which
have still not been exposed by the media.
These businesses continue to outsource
irresponsibly.
(b) The case of Apple.
In 2004, Apple designed an Apple
Supplier Code of Conduct pledging that
all their suppliers are to provide safe and
healthy working conditions to their
workers (Apple 2012). They have also
promised that most audits are Apple-led.
This boosted Apples reputation as an ethical corporation. It subcontracts to other
businesses like Foxconn for the manufacture of its products. In 2010, a number of
employees at Foxconn, China, committed
suicide (Forbes 2010). Although the head
of Foxconn was scrutinized by the media
to take accountability for these suicides,
Apple had distanced itself from these incidents. Although Apple was reported to
have investigated these incidents, their
investigation was limited. Here, it is
shown that a business which subcontracts
to another business also passes on its
social responsibility to others and would

Corporate Social Obligation & CSR

undoubtedly be held responsible for their

suppliers irresponsible actions.
3. The following two case studies demonstrate
how businesses failed or lost their
competiveness in business when applying the
concept of CSR.
(a) The case of Coco-Cola (case study
extracted from (Barry 2000)).
In the United States in the early 1970s,
Coco-Cola employed immigrants to work
in its sub-conditioned factories. Its CSR
initiation was to commission a private
enterprise welfare system. This system
ran without success. It was a costly exercise which resulted in job losses.
(b) The case of Body Shop (case study
extracted from (Barry 2000)).
Body Shop was well known for its
ethical standing. Throughout Anita
Roddicks life (while she was the
companys founder and director), Body
Shop maintained its ethical boundaries. It
had not tested its products on animals and
had not exploited labor and resources
from third world countries. The
companys competitive edge declined
when other business rivals began to provide the same products and services at low
prices. Under this competitive pressure, it
eventually abandoned its ethical scheme
as it was seen to be costly.
4. The following case studies demonstrate how
unilateral dimension of CSR can lead to
a business manipulation to promote its greed
or self-interests.
a. The case of Wal-Mart
In 2007, Wal-Mart, Inc. was sued by the
employees of its outsourced partners (i.e.,
Wal-Marts stakeholders) for infringing
their socioeconomic rights. Those stakeholders suffered physical and psychological harm due to poor labor conditions. They
were badly paid and, at times, their pay was
withheld by their employers. Wal-Mart and
its outsourced partners had agreed on
a bilateral outsourcing contract, into
which Wal-Marts codes of conduct were
also incorporated. However, Wal-Mart did

Corporate Social Obligation & CSR

not enforce these codes against its

outsourced business partners. Therefore,
Wal-Mart allowed its outsourced business
partners to exploit labor and resources.
Those stakeholders argued in front of the
Californian Court of Appeals that in the
light of that bilateral outsourcing agreement (which the codes of conduct preserve
and protect their socioeconomic interests),
they can hold Wal-Mart responsible. (U.S.
legal case 2007 cited in Low et al. 2012a
forthcoming).
In 2009, the court held that these stakeholders cannot hold Wal-Mart responsible
for these infringements. Although WalMart had shown in its contract that it had
social responsibility for its stakeholders,
owing to the privity of contract between
itself and its outsourced partners, it owes
no duty of care to those stakeholders (U.S.
Appeal case 2009 cited in Low et al. 2012
forthcoming).
It is important to note this unilateral
dimension of CSR. The Wal-Mart case
study has demonstrated that a unilateral
dimension of CSR enables a greedy business to externalize its cost and burden to its
business partner. While passing the cost
and burden to others, a business is not
accountable for the violations of socioeconomic rights of its stakeholders by others.
Since outsourcing is a legitimate form of
business practice, the forms of outsourcing
are also largely considered legal.
Wal-Marts example has also shown that
the incorporation of CSR principles into
a bilateral contractual relationship between
the business partners could not prevent the
act of irresponsible outsourcing. Here, it
is demonstrated that a legal document
(i.e., this bilateral contract) had failed to
regulate a business to adhere to socially
responsible business behavior which it
had promised its stakeholders. Thus, there
is a limitation of a law to regulate such
business behavior. There is also a limitation
of a legal theory to explain this lack of
regulation of business behavior.

569

A study of social philosophy can suggest

a satisfactory explanation. Social agreements between individuals who are working together in a society can be created and
dissolved at any time without incurring any
consequences (Gilbert 2008). At the point
when individuals get together to form an
agreement, a joint commitment between
these individuals is created (Gilbert 2008).
At the point when these individuals decide
to dissolve a joint commitment, it can be
said that the joint commitment was legitimately forgotten by them (Gilbert 1992).
Furthermore, a dissolved joint commitment
can be replaced by a fresh one. With application of this social philosophy to the
Wal-Mart case, it can be stated that businesses are social actors and therefore, they
can build agreements among themselves
and also dissolve them. Wal-Marts bilateral contractual agreement with its partners
had shown that these two businesses had
agreed to a joint commitment. The incorporation of CSR values in the contract had
shown that these partners had agreed to
uphold CSR as part of their joint commitment. The violation of the socioeconomic
rights of both the businesses stakeholders
could be seen as a legitimate avoidance of
the socially responsible joint commitment
by its partners and that they had replaced it
with a socially irresponsible one. Furthermore and very importantly, the legitimate
act of omission of the socially responsible
joint commitment between Wal-Mart
and its business partner had incurred no
cost or any consequences (Ang 2013
forthcoming).
It has been demonstrated in this entry
that the concept of CSR can be a costly
business venture. CSR has a unilateral
dimension at which businesses can manipulate this concept to disguise their greedy
ventures. A brief study of social philosophy
has shown that businesses can bind and
unbind themselves from CSR promises to
their stakeholders in the following ways.
Firstly, they can choose not to adopt the

570

CSR principles altogether. Secondly, they

can choose to adopt the CSR principles, but
not implement them. Thirdly, they can
choose to adopt the CSR principles, but
externalize all costly activities onto their
business partners irresponsibly. Fourthly,
they can choose to adopt the CSR principles
and create a binding promise to its business
partners in a bilateral agreement to uphold
these principles and then later they could
legitimately forget about the promise. By
the process of a legitimate act of omission,
the promise they had made in a bilateral
contract could then be replaced by a
socially irresponsible business practice.
In essence, it is difficult to hold a business responsible for its violations of the
socioeconomic rights of its stakeholders.
This is because a businesss corporate
social responsibility can be passed onto
others. Thus, even if a business is not
undertaking a socially irresponsible business activity, it can enter into an agreement
with a partner who can undertake this activity on its behalf.

Corporate Social Obligation (CSO)

The concept of CSO has emerged from the
two proposed changes of the concept of CSR
alterations to a paradigm of what businesses are
and its CSR dimension.
First, a change of a paradigm of what businesses are is required. Businesses are predominately taken as corporate entities with legal
identities. It is suggested here that businesses
should be taken to also have social identities.
Therefore, businesses must be taken as social
actors which can act in the pursuit of good or
bad outcomes. Although a business is a creation
of law, the law only protects its survival. Thus, it
is argued that legal protection applies only during
the early stages of a business. Once a business
starts creating interdependent commercial ties
with others, it is argued that its ongoing legal
protection must become secondary after its concept of corporate social obligation. In doing so, it

Corporate Social Obligation & CSR

becomes easier to regulate its bad business

behavior of irresponsible outsourcing.
Second, a change of a dimension in the concept of CSR is required. It is suggested that CSR
has to change from a unilateral dimension to
a multilateral dimension. As it was mentioned
above, a unilateral dimension of CSR between
two partners is easily subjected to the process of
legitimate act of omission. It is proposed that
a multilateral dimension of CSR minimizes the
process of legitimate forgetting (Ang 2013 forthcoming). In a multilateral dimension, all businesses which are working together either to
produce goods or to provide services are viewed
as participants in a joint commitment. Thus, the
number of members of a joint commitment must
surpass two.
For example, the participants in an
outsourcing activity involve an outsourcing partner (representing its shareholders interests), an
outsourced partner (representing its shareholders
interests), employees of the outsourced partner
(representing their stakeholders interests), and
suppliers of raw materials and business logistics
(representing their stakeholders interests). It is
proposed that all of these participants are
involved in the joint commitment. Thus, an
outsourcing agreement ought not to be a bilateral
contractual agreement, but a multilateral one.
A multilateral contractual agreement includes
the participation of a selection of stakeholders
alongside with the shareholders of businesses.
A multilateral contractual agreement satisfies
the concerns of the critics of a concept of CSR
which was mentioned above. First, these businesses which are in a multilateral contractual
agreement have agreed to only be socially
accountable to their stakeholders who are fellow
participants. Thus, the fear of a socially responsible business being accountable to a public at
large is avoided. Second, the concept of CSR is
not a mere disguise for the exploitation of greedy
businesses. Rather, CSO enables participants in
a joint commitment to demand their obligations
from their fellow participants (Ang 2013 forthcoming). Third, the cost of being socially responsible is spread across all the participants. Thus,
the cost and burdens of outsourcing does not pass

Corporate Social Obligation & CSR

on from one business onto another, but they are

shared among all the participants. Furthermore,
the sharing of the cost and burdens encourages
these businesses and their stakeholders to engage
in joint problem solving either to be profitable or
to maintain sustainability (GBC Impact Initiatives, 2011 and GBC Coalition, 2011).
In essence, the concept of CSO is the engagement of three or more participants working
together in a business venture to maintain good
business behavior. The following are examples of
businesses engaging in successful and profitable
multilateral contractual agreements.
Corporate Social Obligation (CSO) and
Corporate Social Responsibility (CSR)
Here, a concept of corporate social obligation
(CSO) is viewed in the light of the concept of
corporate social responsibility (CSR). CSR is
widely practiced by businesses. It is a concept
which satisfies a businesss stakeholders interests while prioritizing its shareholders interests.
A typical shareholders interest in a business is to
achieve profit maximization. This interest can be
achieved through a low cost of production with
a large production output.
In the light of corporate responsibility,
a business is only accountable to its shareholders
(e.g., one of the many directors duties). This is
a businesss legal responsibility. In the light of
corporate social responsibility, a business is
accountable to its stakeholders. CSR is taken as
an important practice to sustain a global business,
labor, and resources. However, the incorporation
of CSR into business practices is not mandatory.
One criticism of the concept of CSR is that it
renders a business being accountable to the public
at large. In other words, the beneficiaries of
a business are indefinite. A business may find
that its CSR engagement is unfavorable as it
may make the business less profitable. Therefore,
a business has a choice whether to adopt or disregard its CSR.
This entry advances an argument that CSR can
be a profitable venture. It briefly explores the
problems of bad business behavior which are
viewed in the light of labor and resources exploitations. It demonstrates that the concept of CSR

571

alone does not provide a satisfactory solution for

these problems. It advances an idea that the concept of CSO coupled with CSR can promote
strong business relations between a businesss
shareholders and stakeholders by defining their
parameters. It also advances the idea that the
concept of CSO can promote good business
behavior and profitable business ventures.
In essence, the concept of CSO is the engagement of three or more participants working
together in a business venture to maintain good
business behavior. The following are examples of
businesses engaging in successful and profitable
multilateral contractual agreements.
(a) The case of Global Business Coalition
(GBC).
The Global Business Coalition is a group of
individual corporations involved a collective
action to fight against HIV, tuberculosis, and
malaria. Corporate participants come from
a range of multidisciplinary backgrounds including agriculture, automotive, oil and gas industries, media and entertainment, metals and
mining, to name a few. The purpose of this coalition is to turn corporate philanthropic actions
from unilateral to multilateral acts. Thus, corporations work together to fight diseases. Participation ranges from simply showing solidarity by the
payment of a membership fee (GBC Q&A 2011)
to the execution of an impact initiative (GBC
Impact Initiatives 2011). There is a competitive
edge among these participants. Participants are
encouraged to put as much effort as possible into
their commitment to collective action. Committed participants win recognition for their efforts.
The collective actions are in the form of impact
initiatives. These impact initiatives have encouraged all participants to share knowledge and
solve problems jointly for future improvements
in the initiatives (GBC Collaboration 2011). Corporations also have opportunities to improve their
own internal corporate strategies and corporate
structures. Thus, the impact initiatives have
external influence in fighting diseases and also
the internal influence which can change a corporations culture. Here, a concept of CSO promotes business sustainability through caring for
their consumers health.

572

(b) The case of the Equator Principles in Project

Finance.
Project finance is defined as a method of
funding in which the lender looks primarily to
the revenues generated by a single project, both
as the source of repayment and as security for the
exposure (Project Finance 2011). In other
words, risks of a project are spread out across
all the participants. The lenders are the Equator
Principles Funding Institutions (EPFIs) which are
mainly international banks which fund big projects such as the building of power plants, transportation infrastructure or industries (oil and
gas), or mines. In October 2002, nine international banks jointly created the Equator Principles. These principles provide a banking
industry framework for addressing environmental and social risks in project financing that could
be applied globally and across all industry sectors (Equator Principles). The EPFIs produced
a set of principles according to which all participants (who are borrowers and lenders of funds)
are required to do business. Participation in
a project is the voluntary act of a borrower or
lender of funds. Thus, the Equator Principles are
adopted through a multilateral agreement by all
participants in a project. The bodies (i.e., corporations or States) which do not wish to agree with
the Equator Principle are not participants in the
project finance team. These bodies lose either
the funding required for the project or business.
The model of this project is large scale
(Equator Principles 2011). For example, the
building of wind farms and a sugar cane plantation, and mining. Here, the concept of CSO promotes profitability through the spreading of risks
of a project. It also promotes the socioeconomic
well-being of their stakeholders and the
environment.
(c) The case of Soppexcca
Soppexcca is a movement in Nicaragua composed of 15 cooperatives. Cooperatives are an
autonomous association of persons united voluntarily to meet their common economic, social and
cultural needs and aspirations through a jointlyowned and democratically-controlled enterprise
(UCA Soppexcca 2011). It is a collectivity of
coffee planters and producers. This movement is

Corporate Social Obligation & CSR

noted not only to produce coffee, but it has also

produced coffee inspectors, baristas, counselors
for the improvement of quality, environmentalists, and groups of young planters. The cooperatives share common goals for their community
such as to eradicate extreme poverty and hunger,
to promote gender equality and empower women,
to ensure environmental sustainability, and to
develop a global partnership for development.
These goals are its multilateral agreements
which empower these cooperatives to engage in
collective bargaining with the global business.
Although Soppexcca might lose out on business
agreements with trading bodies who may dictate
the prices of coffee, there is still a niche in
the global market for socially responsible
manufactured products. This niche is created by
business across those sectors in an industry which
share collective goals with similar values. Here,
a concept of CSO protects the socioeconomic
rights of stakeholders who can exercise collective
bargaining power with the bigger and more powerful businesses.

Future Directions
1. In essence, it is difficult to hold a business
responsible for socioeconomic rights violations of its stakeholders. This is because
a businesss corporate social responsibility
can be passed onto others. Thus, even if
a business is not undertaking a socially irresponsible business activity, it can enter into an
agreement with a partner who can undertake
this activity on its behalf.
It is suggested here that a study of social
philosophy can provide a solution to this weak
concept of CSR. It has been mentioned above
that individuals who are working together can
create and dissolve a joint commitment. Furthermore, it is being suggested that the easy
dissolution of a joint commitment between the
two partners in an outsourcing agreement
could be due to a couple of factors. First,
a unilateral dimension of a concept of CSR
enables a stronger and greedier partner to
incorporate CSR values into its contracts

Corporate Social Obligation & CSR

solely for the sake of its reputation and not for

its cause. Second, there are only two members
in a joint commitment in a bilateral contract.
Thus, this enables the stronger and greedier
member of the two to exercise power to make
a unilateral decision to dissolve their socially
responsible joint commitments, leaving the
weaker member with no choice but to forget
about these CSR promises.
In essence, the concept of CSR is not
effective in its promotion of socially responsible business activities in businesses. It is
proposed here that a concept of corporate
social obligation can strengthen the effectiveness of CSR. The creation of a concept of
CSO requires alterations to a paradigm of
what businesses are and a dimension of the
concept of CSR.
2. When introducing the concept of leadership
and management for business, first of all, it is
important to start with the helping of an individual to develop and self-cultivate oneself
through relationship and continuous learning
to be a better person (gentleman/lady) so that
she or he can later lead and manage more
people to help themselves and contribute to
the betterment of society. When good people
lead, motivate, and influence other people to
be ethical and to do good for society, more
people would become ethical and do more
good for society (Low and Ang 2012 forthcoming). This aptly matches with the concept
of corporate social responsibility in which
business leaders are committed to contribute
to sustainable economic development, working with employees, their families, the local
community, and society at large to improve
their quality of life (WBCSD 2002).

Cross-References
Body Shop
Buddhist Ethics and CSR
Christianity and CSR
Confucian Ethics
Dame Anita Roddick
Equator Principles

573

Islamic Ethics and CSR

Open Source Solutions and CSR
Trust and CSR

References
Ang, Y.S. (2013 forthcoming). Solutions to outsourcing
abuses: The creation of collective obligations through
multilateral contracts, Unpublished PhD Thesis,
University of Birmingham, UK
Apple, Inc. (2012). Accessed May 25, 2012, http://www.
apple.com/supplierresponsibility/code-of-conduct
Barry, N. (2000). Respectable trade: The dangerous delusions of corporate social responsibility and business
ethics. London: Adam Smith Institute.
Equator Principles. (2011). History of the equator
principles. Accessed August 14, 2011, http://equatorprinciples.com/index.php/about-ep/faqs/38-about/
about/17
Forbes. (2010). Accessed May 28, 2012, http://www.
forbes.com/2010/05/28/foxconn-apple-suicides-chinaopinions-columnists-gordon-g-chang.html
Gap. (2012). Accessed on May 27, 2012, http://www.
gapinc.com/content/csr/html/OurResponsibility/
governance/codeofvendorconduct.html
GBC Collaboration. (2011). Collaboration, coordination
and collective action that will end disease faster.
Accessed August 14, 2011, http://www.gbcimpact.
org/about-gbc
GBC Impact Initiatives. (2011). Collective action, costsharing, bigger results: GBC impact initiatives.
accessed August 14, 2011, http://www.gbcimpact.
org/about-gbc/impact-initiatives
GBC Q&A. (2011). Engineering higher impact: Q&A
with GBC Executive Director John Tedstorm.
Accessed August 14, 2011, http://www.gbcimpact.
org/itcs_node/0/0/article/908
Gilbert, M. (1992). On social facts. Princeton: Paperback,
Princeton University Press.
Gilbert, M. (2008). A theory of political obligation: Membership, commitment and the bonds of society. Oxford:
Paperback, OUP.
Guardian. (2007). Accessed May 25, 2011, http://www.
guardian.co.uk/business/2007/oct/28/ethicalbusiness.
india
Ho, A. L. (2011). Five key Internet incidents in China. The
Straits Times, D2.
Johnson, J. F. (1998). No man can serve two masters.
London: Social Affairs Unit.
Low, K. C. P., & Ang, S. L. (2011). Information communication technology (ICT) for negotiations. Journal of
Research in International Business and Management,
1(6), 183196, (ISSN: 22510028). August 2011,
http://www.interesjournals.org/JRIBM
Copyright
#2011 International Research Journals
Low, K. C. P., & Ang, S. L. (2012). Confucian Leadership
and Corporate Social Responsibility (CSR), the way

574

forward. Asian Journal of Business Research (AJBR),

New Zealand, 2(1), ISSN: 11788933. 85108.
Low, K. C. P., Ang, S. L., & Ang, Y. S. (2012 forthcoming). Lessons on leadership, good governance
and social responsibility, the confucius perspective
[Special issue]. International Journal of Business
Governance and Ethics (IJBGE).
Meyer, J. W., & Jepperson, R. L. (2000). The Actors of
modern society: The cultural construction of social
agency. Sociological Theory, 18(1), 100120.
Project Finance. (2011). What is project finance?
Accessed August 14, 2011, http://equator-principles.
com/index.php/about-ep/faqs/42-about/frequentlyasked-questions/18
U.S. appeal case. (2009). 2009 U.S. App. LEXIS 15279
(on appeal).
U.S. legal case. (2007). Doe v Wal-Mart Stores, Inc 2007
US Dist. LEXIS 98102 (court of first instance).
UCA Soppexcca. (1997). Accessed August 14, 2011,
http://www.soppexcca.org/en/index.html
WBCSD (2002). Corporate social responsibility: The
WBCSDs Journey. Conches-Geneva: WBCSD.
Accessed on July 17, 2011, http://www.wbcsd.org/
DocRoot/I0NYLirijYoHBDflunP5/csr2002.pdf

Corporate Social Performance

Ananda Das Gupta
HRD, Indian Institute of Plantation Management,
Bangalore, Karnataka, India

Synonyms
Brand enhancement; Business decisions;
Business goal; Long-term strategy; Vision and
mission

Definition
Corporate social responsibility can be defined as
where a business attempts to meet certain ethical,
legal, and commercial expectations as set by
society. As a business goal, corporate social
responsibility has grown in importance over
recent years. The reasons for such growth have
been diverse. Managers take advantage of the
flexibility provided by generally accepted
accounting principles to manage published
earnings.

Corporate Social Performance

Introduction
Heightened consumer awareness concerning the
activities of business can be attributed to
a number of factors. For example, high-profile
cases concerning companies such as Nike and
Puma and their use of cheap labor in production
sites in Southeast Asia have attracted considerable media attention. In addition, activist groups,
which seek to name and shame and bring to the
publics attention bad business practices, have
become increasingly vocal and successful in
placing issues of social responsibility high up on
the business agenda. As government regulation
over business activities has diminished, business
has had to take increasing responsibility for identifying consumer and social concerns and acting
upon them. Such concerns, in days when government regulation was more prominent, used to be
reflected in government policy initiatives to constrain business activity.
Earnings management is employed to influence contractual relationships that are based on
accounting numbers or to alter financial reports
with a view to misleading stakeholders regarding
a firms financial performance. Several motivations have been identified in previous studies.
According to positive accounting theory,
accounting numbers are used to manage contractual objectives, notably with regard to borrowing
agreements, as regards remuneration agreements
and political costs. Other motivations relate to
income smoothing, to public share offerings, to
a desire not to report small losses, and to a desire
to reach thresholds determined by financial analysts. According to Culpan and Trussel (2005), by
behaving in such a way, managers are putting
their own interests before those of employees
and financial backers and thus contribute to the
losses made by several types of stakeholders.
Today, due to the complex network of suppliers that many businesses deal with, it is
increasingly the case that such suppliers are
being subject to the same responsibility codes as
the businesses they supply. A businesss image
may be damaged just as much by a supplier
conducting irresponsible business practices as
the business itself. There is thus pressure from

Corporate Social Performance

one firm to another to behave responsibly. The

willingness of customers to act on the identification of irresponsible business practices is a big
motivating factor in encouraging businesses to
adopt a more socially responsible position
(Ackerman 1973).

Key Issues
If corporate social responsibility has grown as
a business objective, has this in any way
impinged upon business performance? Studies,
empirical and otherwise, suggest that rather than
detracting from business performance and
harming shareholder value, in fact the opposite
appears to be the case. Corporate social responsibility appears to offer a positive contribution to
business performance, especially over the longer
term. The following factors have been identified
as some of the positive economic benefits that
businesses have gained from adopting a more
socially responsible position.
A large number of studies have attempted to
identify and evaluate the economic returns from
social responsibility. Factors that have been considered include business growth rates, stock
prices, and sales and revenue. A 1999 survey by
Roman, Hayibor, and Agle evaluated the findings
of 52 studies that considered the link between
business ethics and enhanced profits. They concluded that 33 studies showed a positive link,
14 suggested neutral effects or were inconclusive, and the remaining 5 suggested that there
was in fact a negative relationship. Although
this evidence would on balance favor an argument that corporate social responsibility is good
business practice, the whole area of linking ethics
and responsibility to profit is a contentious one
(Bauer and Ackerman 1976).
When considering ethics and social responsibility, what are we including within this definition? Is the business merely complying with
a business code, either developed within the business or by a third party? Such codes essentially
state what is not acceptable business behavior
such as taking bribes or pursuing anticompetitive
behavior. Or does the understanding of an

575

ethical business go further and entail positive

social actions, ranging from giving money to
good causes, to contributing to particular programs in which the business has competency.
For example, a pharmaceutical company might
develop a drug that might benefit the populations
of the worlds poorest countries, with no possibility of profit. So at what level do we identify an
ethical business, and to what degree might this
level of responsibility influence profitability?
(Berman and Rowley 2000).
The concept of profitability is also contentious,
most crucially so in respect to the time frame over
which the assessment takes place. Linking longrun profitability with an ethical or socially responsible program is fraught with difficulties. How are
all the other factors that influence business performance over the longer term accounted for? How
do you attribute a given percentage or contribution
to profit to the adoption of a more socially responsible business position? Can it ever be this precise,
or are we merely left with intimating that a link
exists, and is this good enough?
Related to profitability is the issue as to how
far corporate social responsibility enhances brand
image and the firms reputation. Not only would
this strengthen consumer loyalty but also aid the
firm in raising finance and attracting trading partners. An increasing number of studies have identified that value-based criteria are becoming
increasingly important in consumer buying decisions. A 1997 study by Walker Research found
that, given two products with similar quality and
price criteria, 76% of those surveyed stated they
would purchase the product produced by the
company most associated with good causes. Factors such as environmental responsibility and
active participation in the community were most
often cited as those factors most likely to affect
consumer purchasing behavior. Business may be
further encouraged to develop the social image of
their brand with an increasing number of awards
now being given to recognize and promote corporate social responsibility (Bovens 1998).
It increasingly appears to be the case that
companies with clear ethical and social positions
find it easier to not only recruit but to hold on to
their employees. In a number of surveys of

576

graduate employment intentions, students have

claimed that they would be prepared to take
a lower salary in order to work for a business
with high ethical standards and a commitment
to socially responsible business practices.
When we are competing for the brains and
energy of the brightest and best against the fashionable and apparently lucrative world of the dotcoms we do not ignore the values of the society
and particularly of the new generation. People
want to work for something they believe in and
to make a contribution to the progress of the world
in which they live. And if the business is to succeed, it has to offer them the opportunity to do that.
The growth in ethically screened investment
funds has grown by over 238% since 1995. This
phenomenal growth is driven not only by the
demands from shareholders for ethical funds,
but also by a realization from investors generally
that socially responsible business has the potential to be hugely profitable.

Future Directions
Environment issues in certain industries are some
of the most complex challenges facing management because of all the stakeholders, different
regulations, many things to measure, and a high
degree of uncertainty. Doing a good job of managing that high degree of complexity should be
transferable to other areas of business, and that is
why you see good environmental companies consistently outperforming bad ones.
Recent financial scandals provide an illustration of managerial misconduct and unethical
behaviors within firms which calls into question
the corporate governance and financial information disclosure systems. Moreover, certain firms
try to compensate for poor organizational behaviors by means of better corporate social performance (CSP) (Caldwell and Karri 2005).
The benefits from being socially responsible
appear not only to be diverse, but from an economic point of view, worth having. Not only is
business performance likely to be enhanced, but
brand image will be strengthened, employee turnover minimized, and access to stock market funds

Corporate Social Performance (CSP)

readily available. The next step for research is to

attempt to quantify the benefits, and try to relate
the economic advantages directly to the level of
social responsibility a business adopts.

Cross-References
Business Case for CSR
Corporate Citizenship
Corporate Governance as a Tool for
Alleviating Developmental Issues
Corporate Social Innovation
Corporate Social Responsibility
CSR and Poverty
Environmental Ethics
Transparency

References and Readings

Ackerman, R. W. (1973). How companies respond to social
demands. Harvard Business Review, 51(4), 8898.
Bauer, R. A., & Ackerman, R. W. (1976). Corporate
social responsiveness: The modern dilemma. Reston:
Reston Publishing Company.
Berman, S., & Rowley, T. (2000). A brand new brand of
corporate social performance. Business and Society,
39(4), 397418.
Bovens, M. A. P. (1998). The quest for responsibility.
Cambridge: Cambridge University Press.
Caldwell, C., & Karri, R. (2005). Organizational governance and ethical systems: A convenantal approach of
building trust. Journal of Business Ethics, 58, 249259.
Culpan, R., & Trussel, J. (2005). Applying the agency and
stakeholder theories to the Enron debacle: An ethical
perspective. Business and Society Review, 110(1), 5976.

Corporate Social Performance (CSP)

Corporate Social Responsibility in Tourism
CSR Measurement

Corporate Social Performance and

Africa
CSR and Africa

Corporate Social Performance Measurement

Corporate Social Performance

Instrument
Corporate Social Performance Measurement

Corporate Social Performance

Measurement
Shuo Wang and Yuhui Gao
DCU Business School, Dublin City University,
Dublin, Ireland

Synonyms
Corporate citizenship measurement (instrument);
Corporate philanthropic measurement (instrument); Corporate social performance instrument;
Corporate social responsibility measurement
(instrument)

Definition
There is no universally accepted definition of
corporate social performance (CSP). Some
scholars believe that CSP is an outcome of activities related to corporate social responsibility
(CSR) (Waddock and Graves 1997), while others
argue that CSP is a set of structural categories,
which include the principles of social responsibility, the processes of social responsiveness, and
the outcomes and impacts on performance (Wood
1991). Although a number of studies of CSP use
instruments that cannot easily be categorized into
the principles, processes, or outcomes involved,
these three descriptors nevertheless represent the
issues of greatest interest in CSP.

Introduction
The concept of CSP became popular in the 1950s,
when in his book Social Responsibilities of the

577

Businessman Bowen (1953) stated that every

corporation has a degree of responsibility for the
well-being of its community. McGuires (1963)
book, Business and Society is believed to be
the first study to explore the rationale behind
CSR. Carrolls (1979) article described the first
conceptual model of CSP by specifying four
domains of CSR, namely, economic, legal, ethical, and discretionary. Aupperles (1984) instrument of CSR orientation was developed, based on
Carrolls pyramid, and measured managers perceptions of the importance of CSR. The measurement of CSP has developed in conjunction with
the evolution of the concepts that underlie CSP
and the understanding of these concepts. Using
Orlitzky et al.s (2003) meta-analysis, we herein
summarize the widely used methods of measuring CSP in Table 1.
Of the corporate social performance instruments listed in Table 1, the KLD technique (hereafter KLD) is believed to be the most useful
approach. Having been involved in the collection
of comprehensive data on CSP since May 1991,
the aim of KLD is to provide ratings of CSP in
order to assist managers and investors to make
investment decisions that take social factors into
account. KLD thus makes use of a variety of
sources of information, such as annual reports,
financial statements, firms CSR disclosures, academic journal articles, and public government
reports. KLD evaluates the CSP of each firm
based on eleven dimensions. Table 2 provides
a brief description of the five most important of
these and lists indicators of particular concern in
each case.

Key Issues
To a certain degree, the process of measuring
CSP is perhaps not transparent. Scholars do
not always have access to data of the requisite
quality, because companies may have
reasons for concealing certain activities and
outcomes. A further concern is that there is
no universally accepted measure or standard of
CSP, and most measures are deficient in
some way.

578

Corporate Social Performance Measurement

Corporate Social Performance Measurement, Table 1 Measurement of corporate social performance

Category
CSP reputation
ratings

Examples
Fortune magazine
ratings
Moskowitz list

CSR principles and

values of leaders
CSP disclosure

Kinder, Lydenberg,
Domini (KLD)
Aupperles (1984)
forced-choice survey
Social involvement
disclosure scale

Brief description
Annual survey of corporate reputation carried out every autumn since
1982 and published in summary form the following January
Measures issues of corporate and stakeholder concern from the
following perspectives: company, employees, shareholders,
customers, suppliers, and public stakeholders
Includes the five dimensions as community, diversity, employees,
natural environment, and product safety (see Table 2)
Operationalizes Carrolls CSR pyramid (i.e., economic, legal, ethical,
and philanthropic) and tests its implied weight with a forced-choice
survey
Uses content analysis to analyze firms CSP reports from six
perspectives: environment, equal opportunities, personnel, community
activities, and products

Corporate Social Performance Measurement, Table 2 KLD rating criteria

Measure
Community

Diversity

Employees
Natural
environment

Product safety

Area of concern
Payment of substantial fines or civil penalties, or involvement in major litigation relating to
a community in which the firm operates. Company relations with the local community have clearly
become strained due to plant closures or other breaches of agreement
Payment of fines or civil penalties as a result of controversies related to affirmative action. No
members of traditionally underrepresented groups on the board of directors or among the senior
management
Obviously poor industrial relations, payment of substantial fines following breaches of health and
safety rules, dramatic reductions in workforce, underfunded pension/benefit programs
The companys current liabilities for hazardous waste sites exceed 50 million US dollars, or the
company has recently paid substantial fines or civil penalties for violations of regulations in relation
to waste management. A consistent pattern of violations of regulations pertaining to air, water, and
other environmental concerns; the use of ozone-depleting chemicals; or the release of high levels of
toxic chemicals into the environment
Payment of substantial fines or civil penalties relating to product safety or antitrust violations and
involvement in controversial advertising programs

Note: For each measure, KLD assigns a rating on a scale from 2 to 2 to firms based on the criteria summarized here with
2 representing major concerns and +2 major strengths
Adapted from Berman et al. (1999)

Future Directions
Despite the long history of development of the
concept of CSP and its systems of measurement,
some controversy has remained, leaving opportunities for future research. On the one hand, Wood
(2010) suggested that CSP scholars should focus on
stakeholders and society, and work across disciplinary boundaries to find a comprehensive and meaningful instrument for measuring CSP, which would
then be genuinely useful for the strategic decision-

making of managers and investors. On the other

hand, heated debates still continue to rage about the
causal link between CSP and corporate financial
performance (CFP) (Orlitzky, Schmidt, and Rynes
2003). This may be described as a chicken and
egg question. Some researchers believe that only
those firms with good CFP can afford to engage in
activities related to CSR (Waddock and Graves
1997), and it is these firms that therefore need to
focus on CSP, while others argue that good CSP can
help companies to make better financial returns

Corporate Social Responsibility

(Cochran and Wood 1984). CSP and CFP are likely

to be interrelated in terms of the effects of each on
the other, but it remains unclear which leads to
which. This open question generates opportunities
for future research in this area.

579

Corporate Social Responsibility

Lutz Preuss
School of Management, Royal Holloway,
University of London, Egham, Surrey, UK

C
Cross-References
Synonyms
Business for Social Responsibility
Business in the Community (UK+Derivatives)
Corporate Citizenship
Corporate Social Performance
Corporate Social Responsibility

Business and society; Business in society;

Corporate citizenship; Corporate responsibility;
Corporate social performance

Definition
References and Readings
Aupperle, K. E. (1984). An empirical measure of corporate social orientation. Research in corporate social
performance and policy, 6, 2754.
Berman, S. L., Wicks, A. C., Kotha, S., & Jones, T. M.
(1999). Does stakeholder orientation matter? The relationship between stakeholder management models and
firm financial performance. The Academy of Management Journal, 42(5), 488506.
Bowen, H. R. (1953). Social responsibilities of the businessman. New York: Harper & Row.
Carroll, A. B. (1979). A three-dimensional conceptual
model of corporate performance. The Academy of
Management Review, 4(4), 497505.
Cochran, P. L., & Wood, R. A. (1984). Corporate social
responsibility and financial performance. Academy of
Management Journal, 27(1), 4256.
McGuire, J. W. (1963). Business and society. New York:
McGraw-Hill.
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003).
Corporate social and financial performance: A metaanalysis. Organization Studies, 24(3), 403441.
Waddock, S. A., & Graves, S. B. (1997). The corporate
social performance-financial performance link. Strategic Management Journal, 18(4), 303319.
Wood, D. J. (1991). Corporate social performance
revisited. The Academy of Management Review,
16(4), 691718.
Wood, D. J. (2010). Measuring corporate social performance: A review. International Journal of Management Reviews, 12(1), 5084.

Corporate Social Reporting

Social Accounting

Corporate social responsibility (CSR) denotes

a philosophy and a corresponding set of tools
according to which a company acknowledges and
manages responsibilities to a wider group of
stakeholders than just the providers of capital.
The Commission of the European Communities
(CEC 2001, p. 6) defined CSR as a concept
whereby companies integrate social and environmental concerns in their business operations and in
their interaction with their stakeholders on
a voluntary basis. CSR has become a global
phenomenon which is not only practiced by businesses from all continents but is also promoted
by national governments, intergovernmental organizations, and civil society organizations. At the
same time, it has remained an ambiguous concept
that is open to a multitude of interpretations. CSR
can thus be perceived as (1) a call on business to
provide welfare services where national
governments, the traditional provider of these,
are not willing or able to do so; (2) a regulatory
framework that imposes novel demands on
business and does so predominantly through
voluntary commitments and soft rather than hard
law; (3) a new management trend that is disseminated by a myriad of consultants, standards organizations, and rating agencies; or even (4) an
ideological concept that distracts from the exploitative relationships that underlie modern capitalism. In any case, CSR highlights a seismic shift
in the relationship between government and

580

business, where the latter has evolved from being

a recipient of regulation to becoming its coauthor.
Another novel development that is cast into sharp
relief by CSR is the increasing role of civil society
organizations (CSOs) into shaping regulation.

Introduction
Economist and Nobel Laureate Milton Friedman
(1970) challenged the concept of CSR on three
major grounds, namely:
Only humans can have responsibilities but not
organizations or business as a whole.
Corporate executives are employees of the
owners of the business and hence have the
fiduciary responsibility to make as much
money for the owners as possible.
CSR equals the imposition of taxes on
business but without the checks and balances
through which the political process safeguards
government expenditure and without
managers being experts in addressing social
issues.
Regarding his first criticism, a company is of
course a legal person, not a natural one. However,
companies plan objectives, evaluate alternatives,
and collect information on the impact on their
actions in short, companies can act rationally.
Where a group of individuals are organized to act
as a unit, organizational features have an impact
on the individuals functioning within the
organization and may induce members to act
in a way they would not choose outside
the organization. Corporations are capable of
committing, as well as not preventing
the committing, of wrongful acts and they can
be said to act intentionally. Hence, it
seems meaningful to allocate responsibility to
a company and not just its managers (Moore
1999). However, to avoid, on the one hand,
individuals hiding behind the organization and,
on the other, to free the organization from any
responsibility, the notion of a secondary responsibility can be used: A human being still holds
primary responsibility for his or her actions, but
the corporation would hold a secondary moral
responsibility for corporate actions.

Corporate Social Responsibility

Friedmans second objection addresses the

principal-agent problem in corporate governance
that modern corporations are characterized by
a separation between those who own it and
those who manage it. This situation does provide
opportunities for managers to act in their own
interest rather than those of the company owners;
however, this applies not only to CSR projects.
Studies into mergers and acquisitions, for
example, have concluded that such projects too
may be driven as much by personal motives of
executives, such as empire building, than
increasing shareholder return. Friedmans
second point is thus first and foremost a critique
of nontransparency in corporate projects, whether
in the area of CSR or not. Furthermore, there is
no unequivocal evidence that CSR amounts to
a destruction of shareholder wealth. At
least some CSR initiatives may actually
increase a companys financial performance
(this business case for CSR is discussed in more
detail below).
Friedmans third objection de-emphasizes the
embeddedness of business in society. In return for
the privilege of existence and those necessary for
further growth, such as limited liability, business
can be urged to give something back to society.
An alternative argument regarding the emergence
of business is that the political system only
recognized what had developed autonomously:
that business is merely a matter of people having
certain rights, including rights to exchange and to
cooperate. Contractual agreements are seen as
made between those individuals, with all rights
and duties resting on them too. Yet this view
would not preclude corporate social responsibility either, as recognition of something is usually
achieved in a trade-off against something else.
Business can thus be seen as existing by permission of society because it is recognized as an
efficient form of economic wealth creation for
its members. The relation between business and
society can hence be seen as a hypothetical
contract, the conditions of which can change
(Donaldson and Dunfee 1999). This has existed
in various forms in all ages, but due to
the deterritorializing effects of globalization
the link between a particular company and

Corporate Social Responsibility

a particular society is being eroded. CSR can thus

be seen as an attempt to re-create this link.

Key Issues
If companies have responsibilities that go beyond
a responsibility to their owners, what do these
look like? Giving a precise and generally
accepted answer to this question is difficult
because CSR falls into the category of an essentially contested concept. This has been defined
by British philosopher Walter Bryce Gallie as
a concept that is seemingly shared but is nonetheless construed by different individuals in
vastly differing ways so that agreement on its
precise meaning is impossible to achieve. CSR
is essentially contested because it is appraisive,
internally complex, and relatively open in terms
of its definition. The concept is appraisive as it
expresses a phenomenon that is not just captured
in empirical terms but is seen as something
desirable. CSR is internally complex because it
involves balancing various responsibilities to
various members of society, which furthermore
differ between firms, industrial sectors, and
nations. Last but not least, it is open to new
developments in the socio-physical context of
business, shifts in stakeholder priorities, and
attention cycles for media, governments, and the
general public (Moon 2007).
In the absence of generally accepted conceptualizations of CSR, there are nonetheless some
that are more accepted than others. Particularly
influential are the conceptualizations by the
Committee for Economic Development (CED),
a nonprofit business-led public policy think tank
based in Washington, DC, and the pyramid of
CSR by Archie Carroll, Professor Emeritus of
the University of Georgia. In its 1971 publication
Social Responsibilities of Business Corporations,
the committee presented a model of CSR as
consisting of three concentric circles (quoted in
Carroll 1999, p. 275):
The inner circle includes the clear-cut basic
responsibilities for the efficient execution of
the economic function products, jobs, and
economic growth.

581

The intermediate circle encompasses responsibility to exercise this economic function with
a sensitive awareness of changing social
values and priorities, for example, with
respect to environmental conservation, hiring
and relations with employees, and more rigorous expectations of customers for information,
fair treatment, and protection from injury.
The outer circle outlines newly emerging and
still amorphous responsibilities that business
should assume to become more broadly
involved in actively improving the social
environment (e.g., poverty and urban blight).
Carrolls (1991) pyramid sees CSR as
consisting of four layers of a pyramid:
As the basic economic unit in society, the
principal role of business is to produce goods
and services that consumers want and to make
an acceptable profit in the process. Hence,
the fulfillment of a business economic
responsibilities is the foundation for all other
responsibilities.
Business is, however, also subject to government laws and regulation. Hence, the second
layer of legal responsibilities requires business
to pursue its economic responsibilities within
the framework of the law.
Since the law cannot cover all eventualities,
business furthermore has the ethical responsibility to comply with all standards, norms, or
expectations that express what consumers,
employees, shareholders, the local community, and other stakeholders regard as fair,
just, and morally right, irrespective of whether
these issues are codified into law or not.
At the top of the pyramid, there are
philanthropic
responsibilities,
business
contributions to the arts, education, or other
local community initiatives. Unlike the other
three levels, these are not expected in an
ethical or moral sense but are nonetheless
desirable.
The weighting given to each of these
responsibilities varies according to the particular
sets of stakeholder interests (across sectors and
specific to individual corporations) which
a business needs to acknowledge and engage
with. Edward Freeman (1984, p. 46) of the

582

University of Virginia defined a stakeholder in an

organization as any group or individual who can
affect, or is affected by, the achievement of the
organizations objectives. Given limits to managerial time, energy, and other resources, engaging with all self-proclaimed stakeholders would
amount to a serious challenge for any business.
Hence, management can distinguish between:
Core stakeholders: these are essential to the
survival of the firm
Strategic stakeholders: they are vital to facing
the organizations threats and opportunities
Peripheral stakeholders: all others in the
organizations context
The distinction between these three groups
can be made by establishing whether a stakeholder possesses the following attributes: (1) the
power to influence the firm, (2) a legitimate claim
on the firm, and (3) an urgent claim on the firm
(Mitchell et al. 1997). Thus, managers should
concentrate on stakeholders that have the power
to impose their will on the company, that enjoy
legitimacy in the eyes of wider society, and that
have an urgent claim on the firm. Another
useful categorization builds on the degree to
which a stakeholder bears both financial
and nonfinancial risks as a result of being
involved in a firm. While shareholders are
commonly held to be bearers of residual risk
and are hence seen as residual claimants on the
proceeds of a business, employees may not be
able to transfer the full value of their investment
to a different employer either and hence should
equally be regarded as residual claimants.
This leads to the question why a firm would
want to engage in CSR. The motives for doing do
fall into three broad categories: (1) the business
case, (2) societal pressure, and (3) ethical
arguments (see Fig. 1). The business case for
CSR suggests that a company can derive financial
benefits not only from its core business but also
from engaging with societal expectations regarding its wider responsibilities (Kurucz et al. 2008).
Transferring Michael Porters emphasis on a cost
reduction strategy to CSR, a firm may firstly
generate significant cost savings from environmental initiatives, such as reducing the number
of components in a product while maintaining

Corporate Social Responsibility

Ethics

Voluntary restraint
Business case

Legitimacy
Societal pressure

- Cost reduction

- Government regulation

- Competitive advantage

- NGOs: Name-andshame, call for boycott,

etc.

Reputation and legitimacy

management
Synergistic value creation

Corporate Social Responsibility, Fig. 1 Motives for

CSR (Source: Author)

functionality, increasing their recyclability,

better waste management, greater energy
efficiency, reduced emissions and effluents, or
better transport planning. In a related fashion,
an enlightened value maximization proposition
suggests that many CSR initiatives are not profitable in the short term, and hence the corporate
time horizon needs to be lengthened for these
benefits to become visible. In line with Porters
emphasis on differentiation, a company may secondly be able to generate a competitive advantage over rivals through its CSR initiative. It may,
for example, be able to improve the perception of
its products with consumers and thus be able to
charge higher prices or generate greater sales.
This variant of the business case tends to
be built on a successful adaptation to external
opportunities, which may lead to early mover
advantages for the firm (Welford 2000).
As a third version of the business case, an
emphasis on reputation and legitimacy could
generate financial benefits too. Internally,
environmental risk management strategies may
not only reduce exposures to environmental
hazards experienced by employees, contractors,
or customers but also reduce the need and
associated costs of emergency procedures.
Externally, CSR can lead to an enhanced
reputation with key stakeholders. For example,
marketing studies have shown that a strong reputation leads to consumer resilience to negative
information regarding the company. Last but not

Corporate Social Responsibility

least, synergistic value creation may generate

novel opportunities for value creation at multiple
levels through creating new connections between
various stakeholders. In particular, when the
relationships between an organization and its
stakeholders are seen less as dyadic ones but as
a complex network of intertwining relationships,
cooperation among stakeholders can lead to scale
effects in the search for solutions that create value
for all relevant parties.
The societal pressure model sees CSR as
resulting from social pressure by consumers and
NGOs as well as political pressure by government. The role of NGOs can be explained by
applying the distinction made by political
scientist Wyn Grant between insider and outsider
groups. Insider groups enjoy legitimacy with
decision-makers, are involved in consultation,
and, at least implicitly, abide by the rules of the
game, whereas outsiders either lack the necessary
resources and skills to gain recognition or are
opposed to having a consultative role (Grant
2004). In terms of CSR, one would thus expect
differences in strategy and effectiveness between
insider groups like Business in the Community
in the UK and outsider groups, such as
Greenpeace in the confrontation with Shell over
the proposed sinking of the Brent Spar oil
platform in the North Sea in 1995. An implication
of the typology is that insider groups are likely to
be more successful in achieving their objectives;
hence, a number of CSR NGOs have striven to
become insiders.
Ethical arguments for CSR see individuals
as company owners, managers, or employees
undertake or refrain from activities because they
perceive an ethical obligation to do what is right,
just, and fair. An application of such ethical
arguments avoids the danger of moral
inconsistency, where a person operates to
different moral standards at home and at work.
There is thus a crucial role to be played by
internal champions in initiating CSR initiatives
and steering these through difficult waters.
However, one of the main arguments against an
ethical approach to CSR is that the market cannot
distinguish between a company that decides to
forego certain opportunities for ethical reasons

583

and one that is simply inefficient. From such

a perspective, a call for ethically motivated CSR
would be futile because it raises hopes that cannot
be met under the economic system of capitalism.
In line with this, empirical examples of ethically
motivated CSR are predominantly found where
owners can adopt a longer term perspective
without immediately incurring the wrath of
shareholders, as is the case in small businesses,
family-owned firms or employee-owned firms.
Although discussed here in isolation, the three
motives for CSR are interlinked. In addition to
guiding decisions of company owners, managers,
and employees, ethics also provides a rationale
for critics why certain corporate practices
are wrong however much financial gain they
generate. Through impacting on the legitimacy
of corporate practices, specific firms, and sectors
or the private sector as a whole, ethics thus forms
the basis for societal pressure. For societal
pressure to work, companies need to be willing
to engage with stakeholder demands. Companies
are likely to weigh the costs and benefits of doing
so and may hence decide to engage with such
demands to forestall regulation or be able to
implement required changes in their own time.
Whether a company resists, accepts, or perhaps
even preempts societal demands regarding its
CSR priorities and performance may thus be subject to business case considerations.
Empirical studies into the relationship
between corporate social and financial performance are beset with numerous methodological
issues. It is therefore not surprising that they have
produced mixed results. Some authors reported
no relationship, some a positive one, others
a negative, and others again an inverted-Ushaped relationship according to which there is
an optimum amount of CSR (Griffin and Mahon
1997; Margolis and Walsh 2001; Orlitzky et al.
2003). Distinguishing between CSR investments
that are geared toward specific stakeholders and
a corporate participation in wider social issues
(e.g., avoiding nuclear energy or refraining from
doing business with countries accused of human
rights violations), the former seem to be more
likely to provide a basis for a competitive
advantage than the latter. Similarly, there is

584

some evidence for individual stakeholders, such

as employees, that a positive CSR profile aids
recruitment. Overall, however, an irrefutably
established causal connection between social
and financial performance does so far not exist,
yet as a rule of thumb, investment into CSR
seems at least not to hurt corporate financial
performance either.

Recent Developments
Models like Carrolls pyramid of CSR have been
criticized for failing to capture the complexity of
CSR, in particular for not paying enough
attention to the cultural context of specific
societies. In the USA, for example, historically
grown features of the national business system
have created greater incentives and opportunities
for companies to engage explicitly with CSR,
while the systems of wider organizational responsibilities in continental European countries have
led companies to adopt a more implicit approach
to CSR. It is only recently that various forms of
coercive pressures, for example, resulting from
a decreasing ability of European governments to
continue funding the welfare state, or normative
pressures, such as the global rise of the MBA as
standard management qualification, have led to
convergence in approaches to CSR (Matten and
Moon 2008). The importance of the cultural context for the design of appropriate CSR priorities
and programs becomes particularly evident in the
context of developing countries, where the
current dissemination of CSR and CSR
instruments has often been portrayed as
a Northern response to challenges regarding
the role of business in society, that is, one that is
based on (and perhaps even restricted to)
multinational enterprises from OECD member
countries.
Such criticism has led to new foci for recent
CSR research, in particular regarding the need for
accountability and the role of governance in CSR.
From an accountability perspective, CSR turns
into the question to whom business is and should
be accountable. In similarity to Friedmans
position and the counterarguments presented

Corporate Social Responsibility

above, the range of recipients of accountability

has increased widely from an accountability only
to shareholders to one to a range of stakeholders
if not to wider society as a whole. At the same
time, the focus on the bottom line has given way
to the triple bottom line of economic, social,
and environmental responsibility. In this context,
the distinction is useful between extensive and
intensive accountability (Donahue 2002).
The former is an accountability to a wide range
of constituents involving a range of criteria
according to which accountability can be
discharged; this situation is typical of many
public sector organizations not least government
itself. By contrast, the latter involves a narrower
set of constituents with generally much more
detailed expectations, which would be typical of
businesses. Following this distinction, CSR can
be conceptualized as a move from intensive to
more extensive accountability.
Demands for increased accountability have
led to a tremendous increase in formal and
systematic reporting on social and environmental
issues, predominantly through voluntary selfreporting. By 2005, 64 % of the Fortune Global
250 reported on their social and environmental
performance, often through stand-alone reports.
Social and environmental reporting is particularly widespread in Europe (where 90 % of the
Fortune Global 250 member firms published
a report), followed by Japan (83 %), while the
USA (35 %) lags behind (Kolk 2008). Academic
research has, however, pointed to tensions
between an upbeat tone often used in the
reporting and an selectivity in terms of the issues
that are addressed or between the dominant incremental approach in improvements to social and
environmental reporting and the trends in the
planetary data that would suggest a need for
much more radical changes. Corporate critics,
such as NGO Friends of the Earth, argue that
accountability involves not just the discharge of
information but suggest that corporations must be
held to account, that is, implying enforceability. The NGO thus demands fundamental changes
to the legal framework in which companies
operate, which are to include environmental
and social duties being placed on directors to

Corporate Social Responsibility

counterbalance their existing duties in financial

matters. Such debate over corporate accountability thus highlights issues of information
provision, bargaining and negotiating power, as
well as adjudication, remedy, and relief in the
relationship between a company and its
stakeholders.
CSR highlights governance issues since many
societies, in particular developing countries, have
longstanding deficits in their governance
structures. Under such conditions, local first
movers face first-mover disadvantages of a scale
that can lead to a failure of important public
goods, such as environmental protection, health
care, or peace, being delivered (Zadek 2007).
Due to their vastly greater access to resources,
MNEs find themselves called upon to solve social
and environmental issues. Yet this may lead to
raising expectations of what the MNE can and
should deliver, which may furthermore get tied to
local political agendas. In such circumstances,
corporations need to become proactively
involved in moving local governance toward
accountability and inclusiveness without, of
course, taking over political processes. The
other arena where CSR points to gaps in
governance structures is the transnational one.
Governments have struggled to cover this terrain
through norms generated by transnational
organizations, such as the Organisation for
Economic Co-operation and Development
(OECD)
or
the
International
Labour
Organization (ILO). In the wake of globalization,
however, transnational rule-making and
implementation have become more diffused and
have begun to involve multiple layers of actors,
including business.
One mechanism through which frameworks of
rules for the corporate sector can be designed in a
more inclusive, and hence legitimate, manner are
partnerships of private sector, public sector, and
civil society organizations (Zadek 2007).
Prominent examples of such frameworks are:
The Ethical Trading Initiative (UK-based) or
the Fair Labor Association (US-based), which
set standards for working conditions in the
supply chains of retailers from industrialized
nations

585

The Extractive Industry Transparency

Initiative, which sets a global standard for
the transparency of company payments and
government revenues in the oil and gas and
mining sectors
The Forest Stewardship Council, which
promotes responsible forest management
through certification schemes as a response
to concerns over global deforestation
The Marine Stewardship Council, which in
a similar fashion aims to address the problem
of global overfishing through a certification
and seafood eco-labeling program
The Equator Principles, a set of standards
financial institutions can use to assess and
manage the social and environmental risk in
project financing
The Global Reporting Initiative, which
pioneered the development of the worlds
most widely used sustainability reporting
framework
Such frameworks vary in the range of
actors they involve, and in the aspects of
rule-making, they seek to include from designing rules through developing these further to
ensuring their enforcement but they do
represent a significant widening of the range of
actors involved in these processes. In contrast to
traditional regulation, there is no assumption here
of a formal hierarchy of more or less
legitimate rules as, for example, exists between
a countrys constitution, its national government
laws, and its local government bylaws rather
these new forms of regulation may be more or
less stable, well defined, or overlapping
(Zadek 2007). Cross-sectoral partnerships
receive intellectual support from the concept of
a deliberative democracy developed by German
sociologist and philosopher Jurgen Habermas,
which conceptualizes political decision-making
as being based on dialogue by and public justification of interests by all citizens.

Future Directions
Much of the CSR debate to date has focused on
large corporations that have a global presence,

586

a highly visible brand name, and are

headquartered in industrialized nations. It has
focused on issues that are easily captured in
media images and that can be easily linked to
interests of consumers, particularly those in
industrialized nations. Hence, the future
challenge is to extend the reach of CSR in three
directions. First, the debate needs to beyond those
companies and sectors that have so far been in the
lime light. In contrast to branded retailers, for
example, relatively little attention has been
given to capital goods manufacturers, despite
their equally large economic role. In terms of
company size, the predominant focus on large
MNEs should be complemented with considerations of the conditions under which responsible
entrepreneurship is possible in small businesses.
Second, CSR needs to expand in geographic
terms. Following the recent growth of developing
country MNEs, CSR research and practice need
to move beyond the predominant focus on CSR
approaches by firms from industrialized nations
and examine whether and how emerging
developing country MNEs discharge their
responsibility to address social and environmental issues around the globe. This applies in
particular to situations where companies from
developed countries relinquish operations to
developing country competitors due to criticism
at home over their social and environmental
performance. Last but not least, CSR research
and practice has led to notable successes
in some areas for example, in terms of labor
standards in supply chains but has had little
overall impact on others, such as poverty and
global inequality. The range of issues that are
taken to fall under CSR is hence likely to become
even wider in future.

Cross-References
Business Case for CSR
Carroll, A.B.
Corporate Citizenship
Corporate Governance
Embedded CSR
Enlightened Self-interest

Corporate Social Responsibility

Ethical CSR
Friedman, Milton
Global Governance and CSR
Good Corporation
Philanthropic CSR
Pyramid of CSR
Risk Management
Social Contract
Social Innovation
Socially Responsible Management (SRM)
Stakeholder Engagement
Stakeholder Theory
Strategic Corporate Social Responsibility
Transparency

References and Readings

Carroll, A. B. (1991). The pyramid of corporate social
responsibility: Toward the moral management of
organizational stakeholders. Business Horizons,
34(4), 3948.
Carroll, A. B. (1999). Corporate social responsibility:
Evolution of a definitional construct. Business and
Society, 38(3), 268295.
CEC. (2001). Green paper promoting a European
framework for corporate social responsibility.
Brussels: Commission of the European Communities.
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?
uriCOM:2001:0366:FIN:EN:PDF. Accessed 20 Aug
2011.
Donahue, J. D. (2002). Market-based governance and the
architecture of accountability. In J. D. Donahue & J. S.
Nye Jr. (Eds.), Market-based governance: Supply side,
demand side, upside, and downside. Washington, DC:
Brookings Institution Press.
Donaldson, T., & Dunfee, T. W. (1999). Ties that bind:
A social contracts approach to business ethics.
Boston: Harvard Business School Press.
Freeman, R. E. (1984). Strategic management:
A stakeholder approach. Boston: Pitman.
Friedman, M. (1970, September 13). The social responsibility of business is to increase its profits. New York
Times Magazine, pp. 3233; 122126.
Grant, W. (2004). Pressure politics: The changing world
of pressure groups. Parliamentary Affairs, 57(2),
408419.
Griffin, J. J., & Mahon, J. F. (1997). The corporate social
performance and corporate financial performance
debate: Twenty-five years of incomparable research.
Business & Society, 36(5), 531.
Kolk, A. (2008). Sustainability, accountability and corporate governance: Exploring multinationals reporting
practices. Business Strategy and the Environment,
17(1), 115.

Corporate Social Responsibility in Tourism

Kurucz, E., Colbert, B., & Wheeler, D. (2008). The business case for corporate social responsibility. In
A. Crane, A. McWilliams, D. Matten, J. Moon, &
D. S. Siegel (Eds.), The Oxford handbook of corporate
social responsibility (pp. 83112). Oxford: Oxford
University Press.
Margolis, J. D., & Walsh, J. P. (2001). Misery loves
companies: Rethinking social initiatives by business.
Administrative Science Quarterly, 48(2), 268305.
Matten, D., & Moon, J. (2008). Implicit and explicit
CSR: A conceptual framework for a comparative
understanding of corporate social responsibility.
Academy of Management Review, 33(2), 404424.
Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward
a theory of stakeholder identification and salience:
Defining the principle of who and what really counts.
Academy of Management Review, 22(4), 853886.
Moon, J. (2007). The contribution of corporate social
responsibility to sustainable development. Sustainable
Development, 15(5), 296306.
Moore, G. (1999). Corporate moral agency: Review and
implications. Journal of Business Ethics, 21(4),
329343.
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003).
Corporate social and financial performance: A
meta-analysis. Organization Studies, 24(3), 403441.
Welford, R. (2000). Corporate environmental management 3: Towards sustainable development. London:
Earthscan.
Zadek, S. (2007). The civil corporation: The new economy
of corporate citizenship (2nd ed.). London: Earthscan.

587

Corporate Social Responsibility in

SMEs
Sustainable Development in SMEs

C
Corporate Social Responsibility in
Tourism
Dagmar Lund-Durlacher
Department of Tourism and Hospitality
Management, MODUL University Vienna,
Wien, Austria

Synonyms
Corporate Citizenship; Corporate Environmental
Management; Corporate Responsibility; Corporate Social Performance (CSP); Corporate
Sustainability

Definition

Corporate Social Responsibility

(CSR)
CSR in Africa
Marketing Communications and CSR
Sustainability Management

Corporate Social Responsibility

Campaign
Cause-Related Marketing

Corporate Social Responsibility

Framework
CSR Frameworks

Following the definition of the European

Commission (http://ec.europa.eu/enterprise/policies/ sustainable-business/corporate-social-responsibility/index_de.htm),
Corporate
Social
Responsibility (CSR) in tourism can be defined as
a guiding business policy whereby tourism
companies integrate social and environmental
concerns in their own business mission, strategies
and operations and in their interaction with their
stakeholders on a voluntary basis. It is important
to point out that CSR measures are voluntary
and, therefore, should exceed legal regulations
(e.g., environmental regulations, employment
rights, etc.). Furthermore, it is a multistakeholder concept where the consideration of
the different interests of the stakeholders, and the
dialogue between the stakeholders play a major
role. Important stakeholders for tourism businesses are employees, tourists, other businesses
in the supply chain, shareholders, investors, local
communities, government authorities, NGOs,

588

Corporate Social Responsibility in Tourism

International Tourist Arrivals by region (million)

Forecasts

Actual

1,600
1.6 bn

1,400

million

1,200
1,000
800

Middle East
Africa
Asia and the Pacific
Americas
Europe

940 mn

528 mn

600
400
200
0
1950

1960

1970

1980

1990 1995 2000

2010

2020

Corporate Social Responsibility in Tourism, Fig. 1 International tourist arrivals by region, UNWTO (2011a), p. 11

and media. In this context, stakeholders are not

only the beneficiaries of CSR practices but also
partners for realizing and implementing CSR
strategies and projects. CSR is closely linked
with the principle of sustainability and is seen as
an instrument for implementing those principles.
Based on the triple bottom-line approach, CSR in
tourism businesses implies assuming responsibility for the natural environment, employees, tourists, partners, and businesses in the supply chain,
the local community in the destination as well as
the society as a whole.

Introduction
Throughout the last 50 years, worldwide travel
volume has been rising substantially. From 25
million travelers in 1950, the international tourist arrivals have increased to 940 million travelers, and it is expected to reach 1 billion
travelers in 2012. In 2020, about 1.6 billion
tourist arrivals are expected (Fig. 1). Global
tourism generates an estimated 5 % of worldwide gross domestic product (GDP) and provides 67 % of the overall number of jobs

worldwide (UNWTO 2011a). Despite tourisms

large positive socioeconomic effects, rapid
tourism development entails also a huge number of negative environmental and social
impacts. Rising energy consumption and the
related pollution issues, increased charges by
garbage and sewage disposal, surface consumption and loss of biodiversity put heavy pressure
on the environment. The loss of values and
effects of acculturation through tourism,
and financial and sexual exploitation of the
host population have become major social
issues. But intact nature, beautiful landscapes,
cultural heritage, foreign cultures, and a sound
infrastructure represent the core elements of the
tourism supply side. To maintain these elements, tourism supplies should be managed in
a sustainable way and the preference for sustainable products and services should be
encouraged.
In 2005, UNWTO together with UNEP
defined goals for sustainable tourism development (UNWTO/UNEP 2005). These goals are
based on the triple bottom line comprising the
three spheres of sustainability: the environmental, social, and economic spheres. According to

Corporate Social Responsibility in Tourism

UNWTO/UNEP the goals for sustainable tourism

are to ensure the viability and competitiveness
of tourism destinations and enterprises, to maximize the contribution of tourism to the prosperity
of the host destination, to increase the number
and quality of local jobs created and supported
by tourism, to seek a widespread distribution of
economic and social benefits from tourism
throughout the recipient community, to provide
a safe, satisfying and fulfilling tourism experience for all people, to engage and empower
local communities in planning and decision making about the management and future development of tourism in their area, to maintain and
strengthen the quality of life in local communities, to respect and enhance the historic heritage,
authentic culture, traditions and distinctiveness
of host communities, to maintain and enhance
the quality of landscape, both urban and rural,
and avoid the physical and visual degradation of
the environment, to support the conservation of
natural areas, habitats and wildlife, and minimize
damage to them, to minimize the use of scarce
and non-renewable resources in the development
and operation of tourism facilities and services,
and to minimize the pollution of air, water and
land and the generation of waste by tourism
enterprises and visitors (TSG 2007).
The Tourism Sustainability Group (TSG)
which was launched in 2004 by the EU Commission in order to provide guidance for the process
of sustainable tourism development in Europe
identified eight key challenges to ensure sustainable tourism development: reducing the seasonality of demand, addressing the impact of tourism
transport, improving the quality of tourism jobs,
maintaining and enhancing community prosperity and quality of life, in the face of change,
minimizing resource use and production of
waste, conserving and giving value to natural
and cultural heritage, making holidays available
to all, and using tourism as a tool in global sustainable development (TSG 2007). These key
challenges provide a wide range of opportunities
for tourism businesses to engage in sustainable
tourism development and take on social responsibility for the natural and social environment in
which they operate.

589

Key Issues
CSR for tourism businesses means assuming
responsibility for six main areas. The first area
is
the
natural
environment.
Tourism
strongly depends on an intact nature and beautiful
landscape, and therefore, it is the obligation of
tourism businesses to engage in environmental
protection, primarily via the minimization of
pollution and waste as well as the conservation
of landscapes and biodiversity. Effective
environmental measures include efficient
energy and water management, wastewater and
waste management, reducing the use of
chemicals as well as the selection of suppliers
and partners based on ecological criteria and
contributions to the preservation of biodiversity
and nature conservation. The second area refers
to the fair and responsible treatment of
employees in order to respect and adhere to
human rights regulations as well as fair working
conditions, the prohibition of child labor, and
the protection of children and women of sexual
harassment. To take responsibility for the tourists means informing them in a transparent and
honest way about the travel products and ensuring the quality of the products in order to achieve
customer satisfaction. In tourism where often
different products from different suppliers are
bundled to a tourism product or travel package,
CSR is not only limited to an individual business
but must take the whole supply chain into consideration. Therefore, it is important to select
partners and suppliers (e.g., hotels, local agencies) which follow CSR standards as well. CSR
also means taking responsibility for the host
destination and supporting the local economy
through the use of local products and services
end keep the added value in the host destination.
Responsible use of cultural and natural
resources, the conservation of cultural heritage,
the involvement and cooperation with local
communities to improve the quality of life of
the host community are further CSR measures
of tourism businesses. The last area of responsibility addresses the society as a whole. Everyone
should be able to participate in tourism, regardless of their age, social class, income, or

590

physical condition. Tourism should be accessible for all.

There are a number of basic international
strategy papers which may serve as guidelines
for businesses integrating CSR measures. One is
the Global Code of Ethics for Tourism which
sets a frame of reference for the responsible and
sustainable development of tourism (http://www.
unwto.org/ethics/index.php). Child protection in
tourism is another important CSR-related issue.
The UNWTO has established a Task Force
(a global action platform of key-players from
the government and the tourism industry sectors,
international organizations, nongovernmental
organizations (NGOs), and media associations)
which focuses on protecting against sexual
exploitation of minors, child labor, and the trafficking of children and young people. ECPAT,
a global network of organizations and individuals
working together for child protection developed
the Code of Conduct for the Protection of
Children
from
sexual
exploitation
in
travel and tourism which many tourism
businesses have signed (http://www.thecode.org/).
Further important initiatives in the context of CSR
in tourism are the Davos Declaration, which
contains adaption and mitigation strategies
for tourism to respond to climate change
(http://www.unwto.org/climate/index.php) as well
as the Tour Operators Initiative for Sustainable
Tourism Development (TOI), founded in
2000 as a network of tour operators committed
to developing, operating and marketing tourism
in a sustainable manner and to make a positive
contribution to the natural and cultural
environment, which generate benefits for the
host communities, and which do not put at risk
the future livelihood of local people (http://
www.toinitiative.org).
Corporate Social Responsibility (CSR) was
first implemented in the late 1990s by international hotel corporations. Many international
hotel chains have integrated CSR measures such
as Marriott International with the program Spirit
to Serve Our Communities, or Street Children of
NH Hotels. Today, many hotel chains publish
annual CSR reports on their websites (e.g.,
Accor, Hilton Hotel Corporation, Inter

Corporate Social Responsibility in Tourism

Continental Hotels, NH Hotels, Banyan Tree,

Club Mediterranee, etc.).
In order to integrate CSR into the business, the
commitment of the companys management to
taking an approach that is both environmentally
and socially responsible is absolutely necessary.
A series of voluntary instruments support
businesses in implementing CSR practices. This
starts with embedding the principle of CSR in the
company vision. This must be supported by both,
management and employees. Some important
CSR-programs or codes of conducts, such as
the Earth Guest-Program of Accor Hotels
(www.accor.com/en), which was awarded with
the Tourism for Tomorrow Award by the World
Travel and Tourism Council (WTTC) in 2010,
contests in ecologically and socially responsible
tourism activities, such as EcoTrophea, the international environmental award of the German
Travel Association (DRV), (http://www.drv.de/
fachthemen/nachhaltigkeit/ecotrophea.html), the
TO DO! Award for projects and measures
relevant to tourism development whose
planning/realization ensure the involvement of
the different interests and requirements of the
local people through participation (www.to-docontest.org), or the Tourism for Tomorrow Award,
an annual award of the Travel and Tourism Council
(WTTC) (http://www.tourismfortomorrow.com/).
Some more formalized instruments include Ecoor CSR-management systems standards for environmental management in companies (ISO 14001),
standards for social responsibility (ISO 26000),
eco-management and audit schemes (EMAS) as
well as certification schemes and quality labels
for environmental and social responsible tourism
products. Common to all of them is the principle
of volunteerism with origins frequently going
back to private initiatives. Yet, certification
schemes and quality labels are subject to a more
formalized process of evaluation. Certification
schemes for sustainable tourism products and
eco-labels are part of an effort to create a more
transparent and generally comprehensible designation of sustainable tourism products. Their
functions and aims, though, go far beyond that.
The tourism businesses may use the certification
scheme or eco-labels as a guideline to improve

Corporate Social Responsibility in Tourism

the ecologically and socially responsible activities within a company. These schemes motivate
businesses to implement and continuously
improve ecologically and socially responsible
measures within the company (UNWTO 2004).
Tour operators benefit from certification schemes
to achieve a more efficient orientation when
selecting the contracting partners within their
sustainable supply chain. Certification schemes
and eco-labels help the traveler to gain a better
understanding of products. They offer a kind of
assurance that certified products or suppliers
meet particular standards and criteria even
though not every detail is visible and known by
the customer. And last but not least, certification
schemes and eco-labels are recognized as marketing instruments. They may help consumers in
their decision-making efforts by reducing the
cognitive burden when considering abstract
signs and signals from certificates and labels.
Currently, CSR certification schemes for
sustainable tourism products are still rare.
Certification is mainly found in the form of
eco-labels which are characterized by a large
scope and complexity. The majority of eco-labels
can be found in Europe and target the accommodation sector. They consist primarily of a set of
environmental indicators and incorporating
aspects of social responsibility is still rare.
However, this is about to change because more
and more socioeconomic and cultural aspects
are considered relevant indicators for CSR
certification schemes that embrace all aspects of
sustainability.
Several studies report on the effectiveness and
the benefits of certification schemes for tourism
businesses. According to these studies, whereas
the effectiveness as marketing instrument
was seen as limited, the main benefits from the
business perspective are cost savings, particularly
for water and energy supply, a capacity building
process due to education and knowledge transfer
to management and employees, the implementation of an effective management system,
increased employees motivation, and improved
standards with regard to quality and sustainability. Managers are primarily motivated to implement CSR measures in tourism businesses

591

when convinced that these measures will

reduce operational costs and create competitive
advantages in the market. Other motivations
comprise of improving the company image
and increased publicity and promotional
opportunities. In addition to these motivations,
personal values as well as awareness and
knowledge levels are of great importance to
managers when considering implementing CSR
in their tourism business. There are also
impediments to implement CSR practices.
Managers worry about the necessary amount of
time and effort to introduce CSR measures as
well as the high investments and operation
costs. Often managers lack the awareness and
knowledge of sustainability which prohibits the
introduction of CSR measures.
There is an increasing awareness and interest
of consumers for CSR when considering tourism
products. Environmental protection, careful use of
natural resources as well as security issues, protection of human rights, social justice, and fair
working conditions are topics which are of interest to the tourists. According to an international
hotel guest survey, guests see the efficient energy
and water consumption, the reduction of waste
and the protection of children as the main CSR
practices for hotels (Earth Guest Research 2011).
Tourists show a positive attitude toward CSRcertification schemes and eco-labels. But despite
this increasing interest in CSR-related topics, the
demand for CSR-certified tourism products
remains low. Tourists attribute the social responsibility mainly to tourism providers. Tour operators have recognized this trend and are
increasingly engaged in designing and offering
sustainable tourism products.
Two major categories of tourism businesses
which have different foci for their CSR practices,
the hospitality industry and the tour operator
industry, will be discussed separately.
The hospitality industry consists of a broad
range of businesses (e.g., hotels and restaurants)
which offer food services and accommodation for
people who are staying and eating away from
home. CSR in the hospitality industry has to be
considered in project planning, construction, outside facilities, energy and water supply,

592

disposable systems, housekeeping, food & beverage, programs for (guest) mobility, communications, marketing and customer service points.
Energy management which aims to reduce energy
consumption and to enforce the use of renewable
energy is seen as one of the most effective CSR
measures referring to the ecological dimension of
CSR. The hospitality industry is very energyintensive since many recreational facilities, such
as pools and saunas, as well as general infrastructure require a large amount of fossil fuels for operation. Effective practices for reducing energy
consumption include replacing energy-inefficient
heating and air conditioning systems as well as
other inefficient F&B and housekeeping equipment
(e.g., refrigerator, oven, dishwasher, laundry
machine, etc.) with modern technologies preferably using renewable energy. Insulation of the building and switching to renewable energy sources,
such as wind, solar, or geothermal power, can
reduce fossil fuels and decrease air pollution.
Another important area for CSR practices is
water management. Water, a scarce resource in
many regions of the world, is used extensively
in hotel rooms (sanitary equipment) as well
as supporting facilities, such as kitchens,
laundry rooms, swimming pools, and others.
The reduction of water usage and the reduction
of wastewater are the primary goals of an
efficient water and wastewater management
plan. Water-saving practices include the installation of water-saving devices, such as low-flush
toilets and low-flow shower heads and faucets,
the continuous detection and maintenance of
damaged devices (e.g., faucets), the use of
recycled water and the training of guests and
staff in water-saving practices. In order to avoid
ground pollution through wastewater containing
chemicals as well as fecal matter, appropriate
wastewater treatment systems are necessary.
Good practices include the installation of
grease/oil separators in kitchen, the use of biodegradable detergents and cleaning supplies, or
active oxygen for cleaning swimming pools.
Reusing treated water for flushing the toilets or
watering the garden is another possibility.
Another ecological burden consists of solid
waste. An effective waste management system

Corporate Social Responsibility in Tourism

consists of waste reduction followed by reusing

and recycling measures. Good practices include
buying products with less packaging or
collecting, separating, and recycling waste.
CSR measures addressing the social dimension
are twofold: on the one hand, hospitality businesses
should contribute to the welfare of the local communities. Good practices include employing local
people and providing fair and safe working conditions, offering training programs to develop the
local labor force, purchasing goods and services
from local providers, engaging in cooperation
with local providers as well as supporting social
projects to enhance community well-being. The
second pillar refers to the employees of the hospitality businesses and their well-being. Hospitality
businesses have to respect employees human
rights, which emphasize concern for working conditions, child labor, and sexual harassment as well
as fair and equal treatment and wages especially
with respect to women and indigenous people.
Working conditions in the hospitality industry are
known to be difficult due to unusual opening hours
(weekend and night shifts), long working days,
physical and mental stress, and low career development opportunities. Therefore, CSR measures can
improve the working conditions and the motivation
of employees. Successful CSR measures are job
rotations, offering advanced training opportunities,
team-building activities (e.g., joint travel or excursions), and workplace health promotion.
The second category refers to tour operators
and travel agencies. A tour operator typically
combines different travel components, such as
transportation, accommodation, and site visits to
create a travel package, whereas a travel agency
is a retailer who sells travel components and
package tours on behalf of suppliers to the
public. Tour operators and travel agencies
also see an increasing need to implement
CSR measures due to consumer awareness and
increasingly see it as a positioning dimension for
the companies to gain a competitive advantage. It
is particularly challenging for tour operators to
integrate CSR into their business because they
also have to be concerned about their partners
and suppliers which contribute to package their
tourist products. Therefore, tour operators not

Corporate Social Responsibility in Tourism

only have to evaluate CSR measures within their

own company but also along the value chain.
Some larger tour operators have developed their
own CSR management systems, but they lack
external verification. An effective tool for monitoring, evaluating, and improving CSR practices
in tour operator or travel businesses is TourCert,
a CSR certification scheme for tour operators and
travel agencies whereby the company considers
all business operations and evaluates its sustainability performance. Key indicators, such as
financial data, number of employees, mission
statement, consumption of water, power and
heat, staff satisfaction and training measures,
among other figures, are relevant aspects
concerning the company. However, since tour
operators core business consists of bundling
travel packages with travel products from different suppliers, the operations of all suppliers have
to be thoroughly analyzed by evaluating their
value chains as well (www.tourcert.org). There
are three main areas which have to be established:
CSR has to be integrated in the mission and
strategies of the company, a CSR manager has
to be appointed, and a sustainability report
including a program for improvement has to be
created.

Future Directions
For tourism businesses, the concept of Corporate
Social Responsibility has become a central part in
companies strategies. Environmental protection,
fair working conditions for employees, and
contributing to the welfare of local communities
are key issues in the strategies of international
tourism corporations. Tourism businesses have
strong relations to the local communities in
which they operate and, therefore, also
have a strong influence on the socioeconomic
development of these regions. For customers
as well as for employees, the integration of
CSR strategies is becoming more and more
important. To operate successfully in the future
it will be necessary for tourism businesses to
continuously implement and realize long-term
CSR strategies.

593

Cross-References
Corporate Social Responsibility
Corporate Social Responsibility Strategy
Ecolabel
Human Rights
ISO 26000
Mission Statements (Credo, Way, Vision)
Motives of CSR
Natural Environment
Supply Chain Management
Sustainable Tourism
Triple Bottom Line
UN Global Compact
Waste Management

References and Readings

Earth Guest Research (2011). Sustainable hospitality:
Ready to check in? The first international
tracking study on guest expectations regarding
sustainable development in the hospitality industry.
http://www.accor.com/fileadmin/user_upload/Contenus
_Accor/Developpement_Durable/pdf/earth_guest_research
/20110618_Accor_HospitalidadeSustentavel_EN.pdf.
Accessed 26 June 2011.
European Commission. (2011). Sustainable and responsible
business. Corporate Social Responsibility (CSR). Brussels: European Comission. http://ec.europa.eu/enterprise/policies/sustainable-business/corporate-socialresponsibility/index_en. htm. Accessed 30 May 2012.
Swarbrooke, J. (2005). Sustainable tourism management.
Wallingford: CABI.
Sweeting, J. A. N., & Sweeting, A. R. (2009). A practical
guide to good practice Managing environmental
and social issues in the accommodations sector.
http://www.toinitiative.org/fileadmin/docs/publications/
HotelGuideEnglish.pdf. Accessed 1 April 2012.
TSG (2007). Action for more sustainable European tourism.
Report of the Tourism Sustainability Group. http://ec.
europa.eu/enterprise/sectors/tourism/files/docs/tsg/tsg_
final_report_en.pdf. Accessed 30 May 2012.
UNEP, GTZ (2003). A manual for water and waste
management: What the tourism industry can do to
improve its performance, Paris: UNEP. http://www.
unep.fr/shared/publications/pdf/WEBx0015xPA-WaterWa
ste.pdf. Accessed 14 Sept 2009.
UNEP (2006). Tourism certification as a sustainability
tool: Assessment and prospects. Paris: UNEP.
UNEP, IHRA, EUHOFA (2001). Sowing the seeds of change:
An environmental teaching pack for the hospitality
industry. Paris: EUHOFA, IHRA, UNEP. http://www.
unep.org/publications/search/pub_details_s.asp?ID437.
Accessed 4 Apr 2012.

594

Corporate Social Responsibility Measurement (Instrument)

UNWTO (1999). Global code of ethics for tourism.

Madrid: UNWTO. http://ethics.unwto.org/en/content/
full-text-global-code-ethics-tourism. Accessed 20
August 2012
UNWTO (2004). Public Private Partnerships for Sustainability Certification of Tourism Activities. Final
Report. Regional Conference for Europe. Marianske
Lazne, Czeck Republic. UNWTO. http://sdt.unwto.
org/sites/all/files/docpdf/czechfin-rep.pdf. Accessed 4
April 2012.
UNWTO (2009). From Davos to Copenhagen and beyond:
advancing tourisms response to climate change. http://
www.unwto.org/pdf/From_Davos_to%20Copenhagen_
beyondUNWTO Paper_ElectronicVersion.pdf. Accessed
22 June 2011.
UNWTO (2011a). Tourism highlights. 2011 edition.
Madrid: UNWTO Publications. http://mkt.unwto.org/
sites/all/files/docpdf/unwtohighlights11enlr.pdf.
Accessed 20 August 2012.
UNWTO (2011b): Task force for the protection of children in tourism. Madrid: UNWTO. http://www.unwto.
org/protect_children/index.php. Accessed 22 June 2011
UNWTO/UNEP (2005). Making tourism more
sustainable A guide for policy makers. Paris:
UNEP. http://www.unep.fr/shared/publications/pdf/
DTIx0592xPA-TourismPolicyEN.pdf. Accessed 20
August 2012.

Corporate Social Responsibility

Measurement (Instrument)
Corporate Social Performance Measurement

Corporate Social Responsibility

Model
CSR Frameworks

Corporate Social Responsibility

Networks
Networks

Corporate Social Responsibility

Partnerships
Partnerships for CSR

Corporate Social Responsibility

Report
Samuel O. Idowu
London Metropolitan Business School,
London Metropolitan University, London, UK

Definition
There is no standard definition of what a CSR
Report is, but this author provides one from his
general understanding of what the report is all
about. It is a document issued either on paper or
electronically by a corporate entity, usually at the
end of a years operation which provides information to its stakeholders and the general public on its
nonfinancial contributions to society that is, all
the social, economic, and environmental activities
it has undertaken during a particular period, usually
an accounting period. The report could also provide
information on the entitys future activities it hopes
to undertake in these areas. The report is similar to
the mandatory traditional annual report and
accounts issued by companies worldwide; as
a matter of fact, some companies issue their CSR
reports about the same time as they issue the traditional annual reports and accounts. However, the
issuance of the CSR report is still voluntary and
unregulated in most nations of the world and
would likely remain so for some time. Having
said this, it should be noted that as at the time of
compiling this entry two countries, Indonesia and
Mauritius have taken a bold step of mandatorily
legislating that companies which operate within
their borders should report on their CSR activities.
It may therefore not be strictly accurate to say that
there is no legal compulsion for corporate entities
anywhere in the world to issue CSR reports. The
CSR report is issued by corporate entities usually
on a yearly basis but could be issued at any other
time during an accounting period if events
demanded it.

Introduction
Corporate entities around the world, in an attempt
to voluntarily disclose information on the

Corporate Social Responsibility Report

nonfinancial aspects of their activities and operations to their stakeholders and the general public
in terms of the positive contributions they make
or hope to embark on to societies, issue social
responsibility reports. The report which provides
information to all and sundry about an entitys
social, economic, and environmental (SEE) performance during a given period is variously
described by corporate entities around the globe.
The following are some examples of the names
different organizations have used and still use to
describe their social reports:
Corporate social responsibility report
Community report
Environmental report
Corporate citizenship report
Ethical performance report
Sustainability report
Corporate responsibility report
Community involvement report
Stakeholders report
Regardless of the name used by corporate
entities to describe this document, these corporate reports have one common objective to
disclose information to stakeholders and other
interested readers about an entitys positive contributions to societies in terms of its nonfinancial
aspects social and environmental activities during a particular period, usually an accounting
year. Kotler and Lee (2005) note in their review
of the Fortune 500 web sites that a majority of the
Fortune 500 companies have special reports on
voluntary giving with sections typically labeled
corporate social responsibility, corporate citizenship, community development, etc. The
report is therefore a useful source of information
to stakeholders and other interested readers of the
report.
A global professional accountancy body based
in the United Kingdom The Association of
Chartered Certified Accountants (ACCA) has
since 1991 promoted greater transparency in the
reporting of organizations social and environmental impacts through one of its key projects:
the Sustainability Reporting Awards held in the
following continents Europe, Africa, North
America, and Australasia. The ACCA states that
the aim of this award is to identify and reward

595

innovative attempts to communicate corporate

performance with special reference only to transparency and reporting standards. The ACCA has
developed a set of underpinning criteria based on
three principles of completeness, credibility, and
communication which judge these sustainability
reports used when assessing the reports to determine which of the participating companies
should win one of these annual awards.

Key Issues
The main aims of a social report are communication and disclosure, which was necessitated as
a result of corporate entities awareness that their
stakeholders have the right to know what contributions they are making to society. The provision of
information which satisfies this need is known as
accountability (Gray et al. 1996). The report
enables a corporate entity to disclose information
on a wide range of issues relating to its social,
economic, and environmental activities to all interested readers of the report who are either directly or
indirectly affected by the entitys activities. These
interested readers are usually described as the
entitys stakeholders who could be either primary
or secondary stakeholders; they might alternatively
be internal or external stakeholders. Up to the time
of compiling this entry, the author can confirm that
there is still no standard format or specified layout
for a CSR report. A typical corporate social responsibility report issued by a corporate entity could
provide information to its readers from four
perspectives, namely:
Customer
Employee
Environment
Community
Idowu and Towler (2004) note that corporate
entities in the United Kingdom and in most developed and developing nations around the world
divide the information they provide to readers in
their social reports under the following headings:
Environment
Marketplace
Workplace
Community

596

A particular global American corporation in

their 2010 CSR report calls these aforementioned
four headings their four global pillars. Companies issuing CSR reports have a choice of either
issuing a standalone CSR report or embed the
CSR report in their traditional annual report and
accounts. Most large companies have now taken
a stance in this area by issuing a standalone CSR
reports either on paper or electronically on their
corporate web sites. It must be noted that the
nonlegal compulsion on the part of corporate
entities in most countries of the world gives
senior executives of these entities to disclose
whatever information they believe would not
harm or damage their entities reputation which
perhaps limits the reliance readers could place on
such reports.
Since Idowu and Towler (2004), some companies have now improved on the abovementioned headings and extended them to
include other perspectives. For example, Tesco
Plc (a leading retailer headquartered in the UK
with operations in 14 different countries around
the world including the UK) in their 2011 CSR
report provided information to readers from the
following perspectives:
Customer
Community
Operations
People
Finance
These five dimensions are similar in contents
when compared with the previous four perspectives noted above albeit with better quality information than those used in the 2004 study by
Idowu and Towler; this of course should be the
case.
Let us now look at the sort of information
disclosed by companies under each of these four
perspectives in their CSR reports:
Environment
Companies around the world as a result of the
adverse effects of global warming or climate
change, which have resulted in a series of environment related problems, appear to be more
environmentally conscious and responsible than
they were some 50 or so years ago. As a result,

Corporate Social Responsibility Report

many of them have noted in their CSR reports

a series of actions which they are taking with
regard to the natural and physical environment.
Actions on climate change, sensible use of mans
natural resources, and waste management activities appear to be of paramount importance to
companies around the world.
These companies disclose information on the
actions they are taking in order to tackle the
problems posed by climate change and reducing
their direct carbon footprints. For example,
a particular company notes under the heading of
Environment in its 2010 CSR report that by 2050,
it will become a zero-carbon business.
A particular UK company also provided in its
2010 CSR report that it has formed professional
links with the Institute of Environmental
Management and Assessment (IEMA) and participated in some IEMA and government sponsored consultation on Guidance for Greenhouse
Gas Reporting and has initiated the commencement of a 12-month implementation plan to
achieve ISO14001 accreditation. Another company in their 2011 CSR report makes the following assertion Our planet is getting warmer
mainly because of an increase in greenhouse
gases produced by human activity with many
damaging consequences. Its a global problem
but one that were helping to address. The
company recalls that in order to help reduce
food product carbon footprints, it has launched
a series of low-carbon projects covering
everything from chocolate, alternatives to bottled
water, and healthy dairy to on-farm composting
and anaerobic digestion which can generate
energy from farm waste. Another company
notes in its 2011 CSR report that its focus
on help the environment has widen its
business activities into new areas such as home
efficiency which involves the company offering
installation and solar energy products to UK
homeowners.
Companies are now reporting on many initiatives they are taking to protect the environment
and reduce the adverse impacts of their activities
on the environment and consequently on man and
other life forms. This can only be good for the
environment and planet Earth.

Corporate Social Responsibility Report

Marketplace
The marketplace dimension of a CSR report typically looks at issues relating to the market where
raw materials are sourced and where the entitys
products or services are sold. Reporting entities
believe that they have a strong influence in ensuring responsible behavior on the part of all participants in the market, for instance, in ensuring that
human rights are respected, equitable prices are
paid to the less well-off suppliers of raw materials
from the developing parts of the world (fair trade),
prevention of child labor in the so-called sweatshops and a series of other irresponsible attitudes
from any sector of the market. With regard to the
products and services they sell in the market,
dialoguing with customers on a regular basis and
ensuring that the products and services supplied in
the market meet customers requirements are safe
for use by them and are offered to them at the right
prices. These are issues which reporting entities
would provide information on.
Companies would disclose information in
their CSR reports to the world at large in regard
to all actions they have taken or propose to take in
a forthcoming financial year which affect the
marketplace will be the focus of this perspective
of the CSR report.
Customers
A famous UK retail stores notes in their 2011
CSR report Our biggest impacts on the environment and society come through the product we
sell and the way theyre used and - so we want to
make it easier for our customers to live more
sustainably The chain stores notes in its CSR
report that it provides environmentally and
socially responsible products to its customers in
the form of fair trade organic, free-range products, sustainable wood and fish, energy efficiency, supplier excellence, and use of recycled
materials. Customers are made aware of what the
company is doing and encourage customers to
identify how they can help to realize their sustainable development objectives through some of
the modern social networking media such as
Facebook and Twitter. The company also notes
that it reduces food waste by discounting shortlife food to customers.

597

Workplace
The workplace is another perspective of the CSR
report which attracts the attention of a reporting
entity. This perspective looks at issues relating to
health and safety of both the staff and the general
public who might need to. It is typical to see
information in the section of the report with
regard to actions the entity has taken to ensure
equality of opportunities among the staff, diversity, benchmarking index on gender, disability
employment policy, actions on work-life balance,
supports provided to staff with young families,
and job-sharing and home-working issues.
This section would also disclose actions taken to
implement Government Legislations in areas
such as Health and Safety at Work Act, Disability
and Discrimination Act, Race Relations Act, and
other relevant issues which affect the workplace.

Future Directions
Several countries around the world are developing
new frameworks for implementing CSR initiatives
by companies operating within the borders of
these countries. Stock exchanges and trade associations are equally developing guidelines which
they expect their members to follow when
reporting on their social and environmental
impacts on society. International organizations
such as the United Nations (UN) and International
Labor Organization (ILO) have also championed
some conventions which they encourage countries
to adopt in this regard. It was noted above that two
countries, Indonesia and Mauritius, have mandatorily compelled countries operating with their
borders to annually report on their CSR activities
just as they do in their annual reports for their
trading or operating activities. Is this a sign of
what other countries would do? We would need
to watch this space and see what happens in this
area 10 or so years down the line!

Cross-References
ACCA
Fair Trade
UN Global Initiatives

598

Corporate Social Responsibility Reporting

References and Readings

Definition

Coca-Cola Corporate Responsibility Report. (2010).

http://www.thecoca-colacompany.com/citizenship/pdf/
sustainability_reports/2010_CCA.pdf. Accessed 25
April 2011.
Gray, R., Owen, D., & Adams, C. (1996). Accounting and
accountability: Changes and challenges in corporate
social environmental reporting. Englewood Cliff:
Prentice-Hall.
http://www.norway.org.my/News_and_events/Business/
Bedriftenes-Samfunnsansvar/. http://www.norway.
org.my/News_and_events/Business/Bedriftenes-Sam
funnsansvar/. Accessed 29 May 2011.
Idowu, S. O., & Papasolomou, I. (2007). Are the corporate
social responsibility matters based on false pretences
or good intentions? An empirical sty of the motivations
behind the issue of CSR Reports by UK companies.
Corporate Governance, 7(2), 136147.
Idowu, S. O., & Towler, B. A. (2004). A comparative
study of the contents of corporate social responsibility
of UK companies. Management of Environmental
Quality, 15(4), 420437.
Kotler, P., & Lee, N. (2005). Corporate social responsibility:
Doing the most good for your company. Hoboken: Wiley.
Marks & Spencer. (2011). http://corporate.marksand
spencer.com/documents/publications/2011/how_we-do_
business_report_2011. Accessed 10 Sept 2011.
Tesco. (2010). Corporate social responsibility report.
http://cr2010.tescoplc.com/. Accessed 25 April 2011.
Tesco. (2011). Corporate social responsibility report.
http://www.tescoplc.com/media/60113/tesco-cr-report2011.pdf. Accessed 5 Nov 2011.

CSR has been receiving increasing attention of

practitioners and academics due to changes in the
business context, especially over the last half
century. According to neoclassical view of the
firm, the only social responsibility of a firm is to
provide employment and pay taxes. Such views
are in harmony with profit-only idea of Milton
Friedman. However, complying with tax obligations is not apparently sufficient to convey the
level of corporate social responsibilities of firms.
Moreover, as a result of significant reductions in
government spending on social welfare, public
policy makers expect greater social involvement
from corporations (Bowen 1953).

Corporate Social Responsibility

Reporting
Global Reporting Initiative
Social Accounting

Corporate Social Responsibility

Strategy
Ananda Das Gupta
HRD, Indian Institute of Plantation Management,
Bangalore, Karnataka, India

Synonyms
Business policy; Changing social context; Longterm business vision

Introduction
As of late, CSR has gained notoriety as businesses
have responded to two major changes in the last
510 years: the increase of public concern over the
environment and the free flow of information
afforded by the Internet. In the last several years,
movies like An Inconvenient Truth and events
such as Live Aid and Earth Day have brought
climate change and protection of the Earths environment into the forefront of peoples minds. As
stakeholders in any organizations strategic plan,
the public represents shareholders, customers,
employees, suppliers everyone. Whatever issues
that the public sees as important, organizations
should take notice of. An organization seen as
harmful to the environment is very likely to be
seen as socially irresponsible, and therefore risks
the relationship with all of its stakeholders (Bowen
and Poer 1993).
Another trend increasing the importance of
CSR is the increased use of the Internet to access
and trade information. Whereas in the past, the
details of a companys actions may have been
restricted to newspaper clippings from the business section or academic discussions in the classrooms of business schools, these days any
company seen being socially irresponsible may
show up in mass emailings, blogs, facebook postings, or even mySpace bulletins seen by tens or

Corporate Social Responsibility Strategy

even hundreds of thousands of people in a day.

Today, more than ever, companies are under the
watchful eye of their stakeholders.

Key Issues
Over the past few decades, the notion of CSR has
been taking its form as a concrete concept. However, still it is apparent that the notion of CSR is
varied and has many dimensions. The broad
nature of the concept and the lack of precise
definition indicate that CSR is still taking its
shape as a business philosophy and a practice.
Initially, corporate donations and other philanthropic actions were identified as CSR and these
were considered out side of core business function. Organizations embraced CSR by engaging
in it more and subsequently, the scope of CSR
began to expand to cover a wider spectrum of
areas.
So what is Strategic Corporate Social Responsibility? By taking a strategic approach, companies
can determine for what CSR activities they have
the resources to incorporate CSR as an important
business function (http://mystrategicplan.com/
resources/strategic-corporate-social-responsibility/).
Another trend increasing the importance of
CSR is the increased use of the Internet to
access and devote to being socially responsible
and thus firms can choose that which will
strengthen their competitive advantage. By
including CSR as part of a companys overall
plan, organizations can ensure that profits and
increasing shareholder value do not overshadow
the need to behave ethically toward their
stakeholders.
Strategic CSR provides companies with solutions for:
Balancing the creating of economic value with
that of societal value
Managing their stakeholder relationships (especially those with competing values)
Identifying and responding to threats and opportunities facing their stakeholders
Developing sustainable business practices
Deciding the organizations capacity for philanthropic activities

599

CSR actions of firms are essential for the wellbeing of society and, therefore, it is important to
ensure firms continuous engagement in CSR.
Self-motivation or internal motivation of firms
to engage in CSR is superior to external coercive
persuasion by means of legal and other pressures.
From a rational view point, firms motivation is
dependant on the quantum of benefits that are to
be derived from CSR engagements. If a clear
relationship between CSR and profitability is
established, it is likely that firms are certain to
incorporate CSR in to the main business strategy.
Evidence from business cases corroborates this
assertion.
Some of the drivers pushing business toward
CSR include:
The shrinking role of government: In the past,
governments have relied on legislation and
regulation to deliver social and environmental
objectives in the business sector. Shrinking
government
resources,
coupled
with
a distrust of regulations, has led to the exploration of voluntary and nonregulatory initiatives instead.
Demands for greater disclosure: There is
a growing demand for corporate disclosure
from stakeholders, including customers, suppliers, employees, communities, investors,
and activist organizations.
Increased customer interest: There is evidence
that the ethical conduct of companies exerts
a growing influence on the purchasing decisions of customers.
Growing investor pressure: Investors are changing the way they assess companies performance, and are making decisions based on
criteria that include ethical concerns.
Competitive labor markets: Employees are
increasingly looking beyond salary and
benefits, and seeking out employers whose
philosophies
and
operating
practices
match their own principles. In order to
hire and retain skilled employees, companies
are being forced to improve working
conditions.
Supplier relations: As stakeholders are becoming
increasingly interested in business affairs,
many companies are taking steps to ensure

600

that their partners conduct themselves in

a socially responsible manner. Some are introducing codes of conduct for their suppliers to
ensure that other companies policies or practices do not tarnish their reputation (http://
www.iisd.org/business/issues/sr.aspx).

Future Directions
There has been considerable debate over whether
organizations have a corporate social responsibility (CSR), as well as whether socially responsible
initiatives predict subsequent financial performance. Business leaders are increasingly
concerned with how their organizations can
grow and thrive from addressing societal
challenges. Strategic CSR can benefit organizations through growth in market share and
organizational learning, as well as more
committed and engaged employees, supportive
external stakeholders, and positive investor relations. We discuss how organizations around the
world are prospering by proactively engaging
with social and environmental challenges.
CSR principles should be seen as a stimulus for
designing financially viable and prudent CSR
initiatives, given each organizations combination of mission, resources, challenges, and
opportunities.
If CSR is expected from private firms as
a voluntary altruistic commitment, it could be
said to be both unrealistic and against the principles of free market mechanism. Thus, the implementation and operationalization of CSR tend to
pose serious problems. To overcome these difficulties, firms are expected to devise their corporate strategies in such a manner that CSR action
will derive benefits for both the firm and the
society. This is a win-win situation. Friedmans
notion of self-interest of firm is win-loose and
the altruistic CSR is loose-win situation
(Brown and Dacin 1997).
The firms, consumers, shareholders, and all
the other community members belong to
one social system. All of them share limited
resources. To enhance the sustainable use of
the limited resources, all members need to

Corporate Social Responsibility Structures

agree to a social contract which is just and

fair for all. CSR is an essential condition for
such a social contract. What is good for business
should be good for society and what is good
for society should be good for business. Therefore, the conceptual correction that maximization
of self-interest and social well-being are not
mutually exclusive concepts is needed. So, the
notion of doing well by doing well is
reaffirmed.

Cross-References
Coalition of Environmentally Responsible
Economies (CERES)
Code of Best Practice
Vision and Mission

References and Readings

Bowen, H. R. (1953). Social responsibilities of the businessman. New York: Harper & Row.
Bowen, M., & Poer, F. (1993). The moral manager: Communicative ethics and Exxon Valdez disaster. Business
Ethics Quarterly, 3(2), 97115.
Brown, T. J., & Dacin, P. A. (1997). The company and
the product: Corporate associations and consumer
product responses. Journal of Marketing, 61(Jan),
6884.
http://mystrategicplan.com/resources/strategic-corporatesocial-responsibility/.
http://www.iisd.org/business/issues/sr.aspx.

Corporate Social Responsibility

Structures
CSR Frameworks

Corporate Social ResponsibilityOriented SMEs

Territorial Social Responsibility and Territorial Small and Medium-Sized Enterprises

Corporate Social Responsiveness (Carroll, Frederick, and Ackerman)

601

Introduction

Corporate Social Responsiveness

(Carroll, Frederick, and Ackerman)
Branco Manuel Castelo
Faculty of Economics, University of Porto:
OBEGEF (Observatory in Economics and
Management of Fraud), Porto, Portugal

Synonyms
Corporate response to social demands

Definition
The field of corporate social responsibility has
evolved substantially since Howard R. Bowen
marked the beginning of the modern period of
literature on this theme with his book Social
Responsibilities of the Businessman published in
1953. The concept of corporate social responsibility itself has evolved substantially, and its
meaning has become more precise. It has
been criticized as early as in the 1970s for focusing on obligations and motivation and neglecting
performance and actions. As a result of
such criticisms, related concepts, such as those
of corporate social responsiveness and corporate
social performance, have emerged. Whereas the
term social performance is mainly concerned
with accomplishments and results, the term corporate responsiveness emphasizes actions and
activities.
The concept of corporate social responsiveness emerged as a response to criticisms that
the concept of corporate social responsibility is
implying merely the assumption of an obligation.
Corporate social responsiveness was conceptualized either as an alternative for that of social
responsibility or as a different dimension of corporate social environment. Either way, the latter
is an action-oriented variant of the former and
pertains to a firms capacity of responding to
social pressures.

Nowadays, corporate social responsibility

related terms are legion. One of such terms is
that of corporate social responsiveness. It has
been one of the first to emerge during the 1970s,
and it has appeared in the form of a challenge to
the term social responsibility. Several authors,
among them a few major writers in the area, such
as Robert Wallace Ackerman, Archie B. Carroll,
William C. Frederick, Edwin M. Epstein, and S.
Prakash Sethi, proposed distinctions between
corporate social responsibility and corporate
social responsiveness.
By the 1970s, a need to shift attention from
social responsibility to social responsiveness was
felt by a number of authors. In the words of
Archie B. Carroll, the basic argument was that
the emphasis on responsibility focused explicitly
on the notion of business obligation and motivation and that action or performance were being
overlooked (Carroll 1991, p. 40). A muchneeded reorientation of thought to an emphasis
on corporate action, pro-action, and implementation of a social role was felt (p. 40).
William C. Frederick (1978/1994) has probably been the author who more accurately distinguished social responsibility from social
responsiveness when he identified two stages of
development in the thinking about corporate
social responsibility. He labeled the first stage
as CSR1. In this stage, there was a focus on
corporate social responsibility as an examination
of companies obligation to work for social betterment (Frederick 1978/1994, p. 151). He
labeled the second stage, which emerged in
the 1970s, as CSR2. This second stage meant a
shift to corporate social responsiveness, which he
defined as the capacity of a corporation
to respond to social pressures (Frederick
1978/1994, p. 154), thus distinguishing it
from corporate social responsibility. The
philosophical imponderables of the first stage
(Why? Whether? For whose benefit? According
to which moral principles?) were superseded by
a set of more answerable considerations
(How? By what means? With what
effect? According to which operational

602

Corporate Social Responsiveness (Carroll, Frederick, and Ackerman)

guidelines?) (Frederick 1978/1994, p. 156). This

reorientation of thought meant a shift from a
normative stance to a more descriptive
approach in the understanding of the process of
engagement in corporate social responsibility
activities.
The earlier proponents of the notion clearly
intended it to be a substitute for the term of
social responsibility. Robert W. Ackerman
(Ackerman 1973; Ackerman and Bauer 1976)
has been one of the first authors to propose the
concept of corporate social responsiveness. For
him, what was really important was converting
the rethoric of corporate responsibility into meaningful action (Ackerman 1973, p. 98). He clearly
preferred the term social responsiveness to the
term social responsibility. In a book he wrote
with Raymond A. Bauer (Ackerman and Bauer
1976), this preference is explained on two
grounds. The first pertained to the inappropriateness of the label social responsibility as
a description of the process involved. Regarding
this matter, they argue that the connotation of the
first term is that of the process of assuming an
obligation and that it places an emphasis on
motivation rather than on performance
(Ackerman and Bauer 1976, p. 6). In the view
of theses authors, responding to social demands
is much more than deciding what to do
(Ackerman and Bauer 1976). In effect, there
remains the management task of doing what one
has decided to do, and this task is far from trivial. The second was related to the lack of guidance of the corporate social responsibility
concept as to the content of what is to be done
(Ackerman and Bauer 1976, p. 7).
At this point, it is important to note that
Ackerman and Bauer were associated to
a research program focused on corporate social
responsiveness, launched by the Harvard Business School in 1971, of which their book from
1976 mentioned above was a notable outcome.
The focus on corporate social responsiveness
instead of on corporate social responsibility
allowed the researchers associated to this project
to link the analysis of social issues with the areas
of strategy and organization (Freeman et al.
2010).

Another early challenger of the term social

responsibility was S. Prakash Sethi (1975). Sethi
(1975) discussed the dimensions of corporate
social performance, and referred to three stages
of adaptation of corporate behavior to social
needs: social obligation, social responsibility,
and social responsiveness. In his discussion,
companies are considered as an integral part of
society and as being dependent upon acceptance
of their role and activities for their existence,
continuity, and growth. A legitimacy gap
emerges when corporate performance becomes
incongruent with social expectations for such
performance. In Sethis view, the crucial issues
in the concept of corporate social responsibility
are the search for legitimacy by companies and
the doubts by its critics about the legitimacy of
their actions. For him, corporate behavior can be
defined as social obligation, social responsibility,
or social responsiveness. He defines social obligation as corporate behavior in response to market forces or legal constraints and suggests that
such notion is proscriptive in nature. This author
sees social responsibility as implying congruence
of corporate behavior with prevailing social
norms, values, and expectations of performance,
and as a notion, which is prescriptive in nature.
Furthermore, Sethi contends that a final notion,
the notion of social responsiveness, suggests that
what is important is not how a company should
respond to social pressures, but what should be
their long-term role in a dynamic social system.
The basic idea is that business orientation in any
social dimension must be anticipatory and
preventive.
Contrary to Ackerman and Sethi, who view
the notion of social responsiveness as an alternative for that of social responsibility, Carroll views
social responsiveness as the action phase of
management responding in the social sphere
rather than an alternative to social responsibility
(Carroll 1979, p. 502).
Carroll proposed in 1979 a three-dimensional
conceptual model of corporate social performance (Carroll 1979). His contribution to the
corporate social responsibility literature was twofold (Freeman et al. 2010). First, based on previous definitions of corporate social responsibility

Corporate Social Responsiveness (Carroll, Frederick, and Ackerman)

which referred to the responsibility to make

a profit, obey the law, and go beyond these
activities, he included in his definition of corporate social responsibility four components: economic, legal, ethical, and discretionary (or
philanthropic). Economic responsibilities reflect
the belief that companies have an obligation to
produce goods and services that consumers need
and want and to be profitable in the process. Legal
responsibilities indicate that companies are
expected to pursue economic responsibilities
within the confines of written law. Ethical and
discretionary responsibilities encompass the
more general responsibilities to do what is right
and avoid harm. Ethical responsibilities indicate
a concern that companies meet societys expectations of business conduct that are not codified
into law, but rather are reflected in unwritten
standards, norms, and values implicitly derived
from society. Companies discretionary responsibilities are volitional or philanthropic in nature,
in the sense that they represent voluntary roles
assumed by companies for which societys
expectations are not as clear-cut as in the ethical
responsibilities.
Carroll (1991) argues that these four categories of corporate social responsibilities can be
depicted as a pyramid, in which economic
responsibilities are considered the foundation
upon which all other responsibilities are predicated and without which they cannot be achieved,
and discretionary responsibilities are the apex.
Notwithstanding, companies are expected to fulfill these four social responsibilities simultaneously. An important note regarding this
perspective, which needs to be made at this
stage, pertains to the view that economic responsibility is something that is as important to corporations as it is to society. This is contrary to the
more common proposition that economic responsibility pertains only to things the companies do
for themselves and the other responsibilities are
related to what they do for others.
Second, building upon the work of the earlier
promulgators of the corporate social responsiveness, Carroll noted that to respond to societal
expectations by merely assuming some kind of
responsibility would not be a satisfactory

603

attitude. He argues that: responding to social

demands is much more than deciding what to
do. There remains the management task of
doing what one has decided to do, and this task
is far from trivial (Carroll 1979, p. 498). Carroll
articulated his three-dimensional model by integrating two aspects in addition to that of social
responsibilities. A first additional aspect was the
identification of the social issues to which these
responsibilities are connected (e.g., consumerism, environment, employment discrimination,
product safety, occupational safety, and health).
The other additional was the philosophy of
responsiveness, that is, the philosophy, mode, or
strategy behind the response to social responsibility and social issues of corporations (reaction,
defense, accommodation, and proaction). For
Carroll, corporate social responsiveness could
range on a continuum from no response (do
nothing) to a proactive response (do much)
(Carroll 1979, p. 501).
This three-dimensional model developed by
Carroll has been subsequently extended and modified namely by Wartick and Cochran (1985) and
Wood (1991). These authors have integrated
a notion of corporate social responsiveness in
models of corporate social performance. Wartick
and Cochran (1985) presented a Corporate
Social Performance Model which also integrates
three areas: the principles of corporate social
responsibility (using Carrolls four categories of
social responsibilities as principles), the processes of corporate social responsiveness (reactive, defensive, accommodative, and proactive),
and the policies developed to address social
issues (social issues management). Wartick and
Cochran (1985, p. 765) hold that social responsibility and social responsiveness are equally
valid concepts and that both should be included
as separate dimensions of corporate social
involvement.
Building on the earlier attempt by Wartick and
Cochran of constructing a model of corporate
social performance, Wood (1991) proposes
a model consisting of three elements: principles
of corporate social responsibility, processes
of corporate social responsiveness, and
outcomes of corporate behavior. As Wartick and

604

Corporate Social Responsiveness (Carroll, Frederick, and Ackerman)

Cochran (1985), Wood considers that corporate

social responsiveness complements but does not
displaces responsibility. It provides an action
counterpoint to the principled reflection of social
responsibility (Wartick and Cochran 1985,
p. 703).
For Wood (1991, p. 695), the basic idea of
corporate social responsibility is that business
and society are interwoven rather than distinct
entities; therefore, society has certain expectations for appropriate business behaviour and outcomes. She used Carrolls four categories
and identified how they relate to the principles
of corporate social responsibility (the principle of
legitimacy, the principle of public responsibility,
and the principle of managerial discretion), considering that the first can be viewed as domains
within which the latter are enacted (Wood 1991).
The principle of legitimacy operates on an institutional level and is based on the overall responsibilities of a corporation to the society in which it
operates, establishing what is expected of all corporations. It implies that society has available
sanctions that can be used when these obligations
are not met, thus amounting to a proscriptive
principle (Wood 1991, p. 699). The principle of
public responsibility functions on an organizational level. It states that corporations are
responsible for solving problems they have
caused, and they are responsible for helping to
solve problems and social issues related to their
business operations and interests (Wood 1991,
p. 697). Lastly, the principle of managerial discretion functions on an individual level. It
stresses the responsibilities of managers to
behave as moral actors and make choices about
activities conceived to attain socially responsible
outcomes.
According to Wood (1991, p. 706), responsiveness contributes an action dimension, a how
to component, that is needed to complement the
normative and motivational concept of corporate
social responsibility. She suggests that companies use three main kinds of processes of corporate social responsiveness to bring principles of
corporate social responsibility into practice: environmental assessment, issues management, and
stakeholder management. She then presents the

results of bringing principles into practice within

the economic, legal, ethical, and discretionary
domains and categorizes them in terms of social
impacts (beneficial or negative), social programs
(which refer to the actions companies take to
manage their social impacts in a favorable manner), and social policies (which emerge to guide
decision making).
Another influential perspective on corporate
social responsiveness is that of Edwin M. Epstein
(1987), who wrote an important article proposing
the concept of corporate social policy process.
This new concept incorporates elements from
business ethics, corporate social responsibility,
and corporate social responsiveness concepts.
He endeavored to coordinate these terms. Epstein
(1987, p. 104) sees business ethics as concerning
systematic, value-based reflection by managers,
traditionally individually but increasingly in
collective settings, on the moral significance of
personal and organizational business action and
its consequences for societal stakeholders
(Epstein 1987). Corporate social responsibility
is conceptualized as being related primarily to
achieving outcomes from an organizations decisions concerning specific issues or problems
which (by some normative standard) have beneficial rather than adverse effects on pertinent
corporate stakeholders (Epstein 1987). Finally,
corporate social responsiveness pertains to the
development of processes whereby, consistent
with the limitations of incomplete information,
corporate decision-makers collectively anticipate, respond, and manage the total ramifications
of organizational policies and practices (Epstein
1987).
The corporate social policy process is conceived as the institutionalization within the corporation of processes facilitating value-based
individual
and
organizational
reflection
and choice regarding the moral significance
of personal and corporate action (Epstein 1987,
p. 107). Corporate social responsiveness is, thus,
a component of this process. It focuses on the
individual and organizational processes for
determining, implementing and evaluating the
firms capacity to anticipate, respond and manage
the issues and problems arising from the diverse

Corporate Social Responsiveness (Carroll, Frederick, and Ackerman)

claims and expectations of internal and external

stakeholders (Epstein 1987).
For Epstein (1987, p. 106), the nub of the
concept of corporate social policy process is
the institutionalization within business organizations of the following key elements from business
ethics, corporate social responsibility, and corporate social responsiveness:
From business ethics value-based moral
reflection and choice concerning individual
and organization action behavior.
From corporate social responsibility an
issue-oriented concern with the specific products (consequences) of corporate actions.
From corporate social responsiveness
a focus upon the individual and organizational
processes through which value-based, issueoriented moral reflection and choice occurs.

605

being responsive may not be the same as being

responsible, and it may even be at odds with it.
Thus, rather than being considered a replacement
for responsibility, responsiveness provides an
alternative, complementary research strategy.

C
Future Directions
The development of instruments to monitor the
evolving social pressures and demands relevant
to a particular corporation, as well as of instruments of responding to such pressures and
demands, is still an area in which major efforts
are being made and in which important developments are needed.

Cross-References
Key Issues
The concept of corporate social responsiveness
brings to the forefront the idea of response of
a corporation to the evolving social pressures, as
well as a set of fundamental questions, such as the
following (Frederick 1994): Can the company
respond to social pressure? Will it respond?
Does it respond? How does it do it? To what
extent? And with what effect? Nowadays, there
seems to exist a consensus around the idea that
corporate social responsibility, corporate social
performance, and corporate social responsiveness are all valid concepts and that they should
all be considered as different dimensions of corporate social involvement.
A number of reasons can be adduced as to why
the emergence of corporate social responsiveness
has not led to the displacement of corporate social
responsibility (Vallentin 2009). First, the replacement is often considered unsatisfactory since it is
not able to provide real guidance in terms of
specific values of response. Second, the social
responsiveness approach evades the issue of
defining the content and meaning of corporate
social responsibility in more exact terms. Third,
given that responding effectively may not mean
doing what is desirable for society in general,

Carroll, A.B.
Corporate Social Performance
Corporate Social Responsibility
Pyramid of CSR

References and Readings

Ackerman, R. W. (1973). How companies respond to
social demands. Harvard Business Review, 51(4),
8898.
Ackerman, R. W., & Bauer, R. A. (1976). Corporate
social responsiveness. Reston, VA: Reston Publishing.
Branco, M. C., & Rodrigues, L. L. (2007). Positioning
stakeholder theory within the debate on corporate
social responsibility. Electronic Journal of Business
Ethics and Organization Studies, 12(1), 515.
Carroll, A. B. (1979). A three-dimensional conceptual
model of corporate social performance. Academy of
Management Review, 4, 497505.
Carroll, A. B. (1991). The pyramid of corporate social
responsibility: Toward the moral management of organizational stakeholders. Business Horizons, 34(4),
3948.
Epstein, E. M. (1987). The corporate social policy
process: Beyond business ethics, corporate social
responsibility, and corporate social responsiveness.
California Management Review, 24(3), 99114.
Frederick, W. C. (1994). From CSR1 to CSR2: The maturing of business-and-society thought. Business and
Society, 33(2), 150164 (Original work published
1978).

606

Freeman, E., Harrison, J., Wicks, A., Parmar, B., &

De Colle, S. (2010). Stakeholder theory: The state of
the art. Cambridge: Cambridge University Press.
Sethi, S. P. (1975). Dimensions of corporate social performance: An analytical framework. California Management Review, 17(3), 5864.
Vallentin, S. (2009). Private management and public opinion: Corporate social responsiveness revisited.
Business & Society, 48(1), 6087.
Wartick, S. L., & Cochran, P. L. (1985). The evolution of
the corporate social performance model. Academy of
Management Review, 10(4), 758769.
Wood, D. J. (1991). Corporate social performance
revisited. Academy of Management Review, 16(4),
691718.

Corporate Social Responsiveness

and Africa
CSR and Africa

Corporate Standards
Corporate Governance

Corporate Strategy
Catalina Soriana Sitnikov
Faculty of Economics and Business
Administration, University of Craiova, Craiova,
Dolj, Romania

Corporate Social Responsiveness and Africa

of corporate strategy: Corporate strategy is the

pattern of decisions in a company that determines
and reveals its objectives, purposes, or goals,
produces the principal policies and plans for
achieving those goals, and defines the range of
business the company is to pursue, the kind of
economic and human organization it is or intends
to be, and the nature of the economic and noneconomic contribution it intends to make to its
shareholders, employees, customers, and communities. Andrews definition clearly precedes
Mintzbergs concern to pattern, plan, and perspective. Andrews also delineates a separation
between corporate strategy that settles the
activities in which a corporation will compete,
and business strategy, which clarifies the base
of competition for a certain business, in spite of
most of the times the boundary between these two
is quite unclear. Thus, he had foreseen position
as a type of strategy. According to others,
corporate strategy can be considered as a valuecreating path of activity for all stakeholders by
virtue of using and harmonizing resources in distinctive marketplaces and corporate activities.
This characteristic of multi-market performances
distinguishes a corporate strategy from a business
strategy, product strategy, or any functional strategy. Accordingly, it can be consented upon that
corporate strategy has a holistic outlook of the
whole corporation and seizes the integrated strategy of all distinctive component organizations,
functional sections, and divisions into account for
joint sustainable competitive advantage.

Introduction
Synonyms
Business strategy; Company-wide strategy;
Integrated business strategy; Overall corporate
strategy; Overarching strategy

Definition
In his book, The Concept of Corporate Strategy,
1980, Andrews gives this lengthened description

The central element in administering a corporate

initiative is an adequately founded corporate
strategy. Strategies subsist at various levels in
any company lining up from the whole business
(or group of businesses) through to people functioning in it. In this framework, corporate strategy
(CS) is focused on the comprehensive aim and
extent of the business to meet stakeholder hopes.
This is a decisive level since it is deeply affected
by investors in the business and acts to lead
strategic decision-making throughout the

Corporate Strategy

businesshence,
corporate
strategy
is
a fundamental tie between effective business mission and understanding determined portfolio of
corporate goals in the market conditions. Corporate strategy is frequently declared clearly in
a mission statement.
Including both industry portfolio creation and
definition and allotment of sources for producing
competitive benefits, the corporate strategy leads
to business act improvement as well as shareholder value added. It assists in diminishing or
removing the gap between possible and existent
performance of business actions by a suitable link
between conditions and resource opportunities of
the company. The essential of a market-oriented
company has turned out to be formulating and
accomplishing so-called well-ordered corporate
strategy, only among all divisions of a company.
Differently, it will be opened to unexpected
whims of market competition. Corporate strategy
is the system of decisions in a company that
settles and uncovers its corporate aims, presents
the main policies, and plans for completing those
aims and, as a result, sets the extent, nature, and
outcomes of activities of the company and its
divisions. The interdependency of aims, policies,
and systematized activity is critical to the individuality of a distinctive corporate strategy and
its opportunity to produce the competitive advantage. It is the consensus, consistency, and internal
steadiness of strategic decisions that place the
company in its business conditions and settle its
uniqueness, the authority to activate its strengths,
and probability of accomplishment in the marketplace. Successful corporate strategy outcomes in
synergic effects of business components mixture
with comprehensive performance that is larger
than distinctive performance of every unit.
The origin of synergism, as the capacity of two
or more components or companies to originate
bigger value functioning jointly than they could
do by operating separately, usually takes one of
the following forms: shared tangible resources
and expertise, combined negotiating authority,
harmonized strategies, vertical integration, and
setting up internal joint ventures in a company.
The accurate alternative of origin of corporate
synergy conducts to corporate benefit of both

607

components and company as a whole on their

target marketplaces.
The other approaches to change need suiting
the strategy to aims and values of a corporate
company, its resources (goods and expertise),
and its organizational structures. In that sense,
usual corporate strategy points up strategic positioning and getting or establishing useful
resources as the foundation for designing continuous competitive advantage and high, long-run
performance. Nevertheless, in active and turbulent markets, specific strategic situations are rapidly corroded and the time span of competitive
advantage is variable. Particularly, the
established corporate strategy frequently goes
wrong, and the established notion of corporate
strategy has come to be inadequate for better
corporate performance. In these marketplaces,
it is unreasonable to foresee which capabilities
or strategies will be successful and for how long.
Hence, it is more relevant to create corporatelevel strategic systems that qualify active strategic repositioning and reconfiguring corporate
resources of the company. The implication is
that the new corporate strategy concentrates on
strategic operations as a changed and more
adaptable framework of customary corporate
methods. These new corporate strategic processes are led toward various modifications for
producing economic benefit and sustaining
acquired competitive advantages by more successful mobilization and employment of corporate resources.

Exploring Corporate Strategy

Corporate strategy is a strategy created for the
comprehensive corporation. Others point out that
normally a large corporation will have
a corporate strategy, which sets the extensive
focus of the corporation as a whole. A simple
strategic inquiry that top management deals
with is in what specific industries or businesses
should
the
corporation
be
operating.
A corporation can opt for to compete in only
one business, where the corporation can bear
benefits through a specialized comprehension

608

and highest utilization of resources, concerted on

a characteristic industry, resulting in extra competence and potential economies of scale compared to competitors. It was suggested, by
Sekulic (2009), that operating inside one industry
might, nevertheless, result in sensitivity to
a perpetually dynamic business cycle, due to
modification in request or market entry or market-existed competitors can impact market attractiveness. They suggest that sensitivity, due to
uncertainties originated from existing in a single
industry, can be handled at the same time, by
diversification, having the corporate presence in
more than one industry, which can result in
a firmer industry or activity.
In addition, according to Jones and Haigh
(2007), it is probably for a corporation either to
diversify into new or connected businesses. It is
suggested that the most usual rationale for diversifying into different business, characteristically
with no equivalences or complementarities with
the present business field, is the corporations
request to assess profit opportunities. The most
common motive for diversifying into connected
businesses is the chance to capitalize on correspondences and complementarities. If top management chose to compete on a single market or
preferred to diversify into various markets, the
decision will influence extensive corporate strategy, and this settlement will finally have impact
over an analogous technology management strategy. The technology management strategy will
be founded in such a style that it helps the corporation accomplish the technological needs, originated from the corporate strategy, to help attain
the objective and mission of the corporation.
Alignment of corporate strategy and technology
management strategy is crucial to acquire and
maintain a beneficial competitive position. No
matter what general technology strategy is
selected by top management to apply, corporations have to improve and renew their technology
to be ready for the tomorrow.
In addition, it was established that founded
corporations take on various approaches for
administering their road to the future:
Varied portfolios of R&D programs and
engineering

Corporate Strategy

Fusions, acquisitions, associations, and joint

ventures
Combined strategies
Nevertheless, it was also noticed that
a portfolio approach rates the probability in relation to foreseeable revenues and, therefore, frequently results in small incremental operations
and goods enhancement due to elevated uncertainty in essential, high-risk-high-return projects.
Furthermore, fusions and acquisitions finally
have defective results. Corporations that buy
companies occasionally end up comprehending
that the real assets were the brains of the entrepreneurs and could not be bought. By combined
strategies, it is meant that a corporation concomitantly attempts to address requirements of present consumers while trying to put the
corporation into a more advantageous marketplace in the future. It determines that if
a corporation opts for using any of the approaches
aforementioned, in the end the corporation will
be confronted with treats to its lasting wealth and
survival. The efforts for survival might be combated by ceaselessly shaping, integrating, and
monitoring an R&D strategy correctly joined
with corporate strategy to assist in distinguishing
and managing technical change. Wright et al.
(1996) assert that strategic management relates
to the process that initiates with deciding the
mission and the objective of a corporation inside
the framework of its external opportunities and
threats and its internal strengths and weaknesses.
Doyle (1994) concludes that strategic management concentrates on the corporations marketplace opportunities and tries to produce change
by recognizing and utilizing strategic windows or
prototype changes. To be able to recognize and
use these strategic windows and prototype
changes, corporations require to supervise
actively technology.
According to Jones and Haigh (2007), strategy
can be, and is, designed by corporations, while
others, on the other hand, conclude that strategy
cannot be designed. Nevertheless, if one accepts
that strategy is probably to design, there were
distinguished three main types of corporate
strategy designing. The first is named strategic
planning, i.e., corporations have headquarters

Corporate Strategy

crews undertaking comprehensive designing.

Headquarter takes the initiative to create strategies to create long-run competitive benefit, to
make distinctive businesses expand, and to
recognize and improve synergies among them.
The second type is titled financial control;
headquarter is very small, compared to the
dimension of headquarter when administering
the strategic planning, and does not impede in
strategy evolution of its business components.
Alternatively, the headquarters will control revenue for every business unit, i.e., the headquarter act more or less as a holding corporation.
Such corporations without exception have no
long-time perspectives, anticipate rapid payback, and expand via acquisitions rather than
internal progress.
The third type is titled strategic control and
plunge in between the two extremes depicted
earlier. The headquarter grants strategic designing to the business units but attempts to balance
long-term effects by financial control. The preferred, if any, type of corporate strategy designing considerably influences which technology
strategy, management of technology strategy,
and R&D strategy to embark on to most effectively and productively assist corporate strategy.
The major component in administering corporate
business is an adequately founded corporate strategy. The corporate strategy is a fundamental tie
between effective business mission and
comprehending determined portfolio of corporate goals in the market environment. It assists
in diminishing or removing the gap between possible and actual performance of business actions
by a suitable link between environment and
resource opportunities of the company.
Consisting of business portfolio creation, definition, and allotment of sources for producing
competitive
advantages,
the
corporate
strategy leads to business performance improvement as well as shareholder value added. The
imperative of a market-oriented company has
grown into founding and completing so-called
disciplined corporate strategy, singular among
all parts of the company. In other respects, it
will be vulnerable to unexpected whims of market competition.

609

Corporate Strategy Regulations

Corporate strategy, according to Johnson et al.
(2008), is the system of decisions in a company
that settles and displays its corporate goals,
affects the main policies, and plans for completing those goals and, therefore, sets the extent,
nature, and outcomes of projects of a company
and its parts. The interdependency of goals, policies, and systematized action is decisive to the
uniqueness of a distinctive corporate strategy and
its chance to create competitive advantage. It is
the agreement, consistency, and internal steadiness of strategic decisions that place the company
in its business setting and decide its particularity,
the authority to activate its strengths, and probability of accomplishment in the marketplace.
Successful corporate strategy, according to
Lynch (2009), leads to synergic effects of business units mixture with comprehensive performance that are bigger than individual
performance of each unit.
Every company has its own easy regulations,
which balance it on what is called in complexity
theory the edge of chaos, providing just reasonably framework to enable the company to
catch the best quick opportunities. Consequently,
in conventional strategy, benefits come from
using resources or firm marketplaces. In strategy
as easy regulations, by contrast, corporate
advantage comes from prosperously catching
brief opportunities. This type of strategy makes
sense for all classes of companies large and
small, and old and young in fast-moving marketplaces like those in the advanced economies.
Various forms of regulations assist managers in
managing distinctive characteristics of catching
opportunities. The regulations have general
implications, containing definite changes and
adjustments to specific types of companies and
business circumstances. During researching,
a considerable number of companies and the simple regulations could plunge into five large
groups:
How-to rules establish the major characteristics of how a business system is applied.
Boundary rules delineate border setting
(center on clients, geography, or technologies)

610

that assists the managers categorizing numerous opportunities fast and effectively.
Priority rules assist managers in classifying
the approved opportunities (mainly for
resource allocation).
Timing rules determine the pulse of major
strategic practices and improve synchronize
a company with growing opportunities and
harmonize the companys different units to
catch the opportunities in an effective style.
Exit rules assist managers in choosing when
to draw out of former opportunities. The critical matter is to compose the accurate rules,
mainly founded on managerial experiences.
However, it is also significant to have the
favorable sum of rules. Little number of rules
can put aside managers from determining
opportunities and acting fast and effectively
enough to catch them. On the other hand, too
numerous rules can mix up managers about
the opportunities to catch and to overlook.
Therefore, the optimal ensemble of rules is
normally somewhere amid two and seven.
The optimal sum of rules for a specific company can be changing in time, relying on the
character of the business opportunities. When
the opportunities are anticipated and concentrated by the company, it must have additional
rules to raise competence. When the opportunities are not so foreseeable and more imprecise, it makes sense to have fewer rules to raise
adaptability in catching them. The basic idea
that strategy is about being different (Lynch
2009) persists to be regular in application of
new corporate strategy. However, the new
strategic watchwords have come to be clarity,
organization, and scheduling. Primarily,
a strategy has to be clear. Clarity means devising a strategy as clear rules, which guide
streams of strategic procedures and clarify
suitable course of action.
The idea is founded on choosing a little number of strategically important procedures and
designing several clear rules to direct them. The
central strategic processes have to place the company where the opportunities for acquiring the
competitive advantage are swiftest and biggest.
In rough markets, the opportunities for an

Corporate Strategy

advantage are found only in market disorder;

therefore, the companies investigate for opportunities and catch them, with free and successful
modification to active market conditions. Clear
rules found a strategic framework to assist managers catch quick opportunities successfully.
The organizational feature is also typical to
new corporate strategy, and new actualities need
a quite distinctive approach to this matter. Particularly, programming the strategy from the
highest and afterward thinking up an organization
to perform it might work in slow markets. Nevertheless, in active markets, strategy is carried out
by selecting an outstanding team; deciding the
accurate tasks for team members and enabling
them work.
Improving internally originated business
enlargement through pointing up human
resources as the central strategic resource has
come to be a pattern in preparation and execution
of corporate strategy in modern business setting.
Thus, valid strategy has turned out to be the
outcome of having the best employees in the
most suitable positions to help different strategic
enterprises. This means that organizational strategy for companies is the only mapping (frequently designated patching) of modular
businesses into precise market opportunities to
produce the corporate advantage.
Lastly, the new corporate strategy is dependent on time. In usual strategy, duration is not so
significant, as markets are supposed to act
steadily and predictably. In comparison, time is
decisive for active and high-speed markets. The
simplest method to imagine a temporal strategy is
by comprehending the notion of corporate factors. Particularly, a companys unique combination of factors is its integrated end products,
brand name, technology, production capacities,
geographic position, and so on. Corporate managers employing the temporal strategy run a sort
of genetic technology by a set of unique strategic
movements in which one or more factors are
adjusted (genetic evolution). They might institute
a new technology, modify a label, or go in a new
country. Valid temporal strategy is one of mix of
small, incremental modifications, midsize, and
big, fundamental modification.

Corporate Strategy

It is evident that a corporation success primarily rests on the vision declared by the top management of the corporation (Goold et al. 1994).
Functioning corporate strategy joined with the
vision performs a crucial part in improving performance of a successful company. When the
organizational structure as a whole uses dubious
practices and falls apart due to nonconformity to
conventional customs, standards, and values, it is
considered as failed corporate governance. Strategic matters dealt with by a corporation are
distinct from other kinds of business organizations. The corporation has an interactive outlook
of its acting field. By administering its portfolio
of end products, services, business, and operational activities at different organizational levels,
a corporation principally looks at the entity as
a whole. Enterprises such as internationalization,
new business drives, business enlargement,
fusions, purchases, strategic associations, acquisitions, joint ventures to involve resource,
actions, and image implications for the company
as a whole, improving shareholder value. Corporate strategy setting stage is an extremely elaborate procedure and involves continuous
knowledge drift among all components, middle
and top management. Any time a corporate
strategy is developed, examined, or investigated,
it has to encounter prerequisites of uncovering
clarity, and responsibility, delivering best attention to the interest of all stakeholders. As these
are mandatory principles of a durable corporate
governance method, in consequence, it can be
claimed that corporate governance is bedrock in
strategic matters. In a well-ruled corporate structure, prerequisites of uncovering, clarity, and
responsibility give adequate support to the
companys future path of action. Consequently,
the matured strategy is conceivable, dependable,
and value added. It justifies the trust of all main
stakeholders.
However, in Bocean (2006), there ought to be
joint complementarity among the tasks of top
management (who are primarily responsible for
corporate strategy making) and the board of
directors (who are needed to supervise the action
of the company on behalf of the stakeholders). In
their role as board members, they are

611

responsible for carrying out corporate governance in the company. This complementarity
of a role guarantees that corporate governance
process and corporate strategy process are
interdependently comprehensive of each other.
This interactive reliance has a mutual valueadded outcome on both governance and strategy
as well as on the corporation as a whole. The link
between corporate governance and corporate
strategy is that of authenticity and reliability,
which reveal the point to stakeholders that whatsoever actions and results company has obtained
in the previous years, it has realized by right
means and at an optimal degree. Any actions
the company is doing currently, it is also in
conformity with regulations, benefits, and
assumptions of all concerned. Moreover, the
value formation method that the company will
search for in the future, it will as well be realized
in the accurate way and that too in the best
interest of all stakeholders.
Any deficits or variance from an acceptable
plan will be reported accurately and well timed to
the stakeholders and suitable alterative rules will
be applied (Johnson et al. 2008). Based on this
implicit validating and validating tie, the corporation draws faith of investors, creditors, strategic
associates, and community at large to meet its
significant demands for value-creating drives.
Thus, it can be claimed that without a corporate
governance method, corporate strategy is pointless and nonsustainable. Consequently, corporate
governance can be regarded as an umbrella
a field under which all main players of the strategic system act by a process of interaction and
reliance. It defines tasks, duties, and boundaries
of power of all major sides within a company.
The duty to carry out corporate governance, i.e.,
suitable disclosures, ethical submission, and
approvals, lies with the board. As a result, corporate governance must be perceived as
a supervising, validating, confirming, and
supporting method for corporate strategy by
which investors, creditors, and other stakeholders
increase faith about corporate affairs, thereby
guaranteeing accessibility of resources and carrying out other business relations with the corporation. It brings integrity and trust in management

612

decisions, hence attracting further investment,

credit, alliances, and business. Consequently, it
is clearly connected with corporate strategy.
Without suitable corporate governance, corporate
strategy would be useless.
Durable corporate governance framework
guarantees corporate reliability in the eyes of all
stakeholders thereby enhancing the net worth of
the corporation. It can be claimed that corporate
governance and corporate strategy are two jointly
complementary notions. If profitability and value
creation are the outcomes of corporate actions,
strategy functions as the way to attain these aims.
Hence, corporate governance functions as the
frame under which strategy is matured and
assessed. It strengthens the strategy. Anyway,
successful corporate strategy enhances corporate
governance method. As there is a component of
mutuality between these two notions, in consequence, they both shape a structure of decisionmaking and impact, both inside and outside the
corporation. Therefore, it can be claimed that
there subsists in a systemic outlook of corporate
governance and corporate strategy. Seized in
cooperation, they both shape an integrated management system consisting of major players and
stakeholders. They affect the conduct of
a corporation.

Key Issues
Corporations are at present operating in demanding and highly unsure periods, facing a mixture of
increased macroeconomic need, competitive and
capital market dangers, and in many cases, the
prospect for significant technical and regulative
gap. More precisely, powered by the current new
financial crisis, corporations across areas and
geographies are facing an economic downswing
with significant connections for their positioning
and economic basics. Throughout these demanding and highly unsure times, the corporations
must embody skepticism into strategic decisionmaking. Hence, corporate strategy must be perceived and used as a function of various fields,
covers, and characters as well as a highly interactive system. Separately, from quantities and

Corporate Strategy

performance, corporate strategy is greatly determined by different elements, market strengths,

and internal course of data, absorption, action,
and behavioral characteristics of decision
makers. Strategy can thus be rated as a function
of the mixture of these forces.

Future Directions
The corporate strategy in modern times has
altered. These days, corporations should investigate a variety of possible plans to reveal new
opportunities and threats to their business and
react with winning strategies. As a result, the
formula for efficient strategy must center on single strategic practices with easy rules, on the
modular patching of units to quick market opportunities and on evolutionary scheduling for strategic movements.
Furthermore, corporations must create practical scenery of the area they compete on. This area
must combine a comprehension of possible plans,
the variety of strategic alternatives and handles
the corporation can pull, and the financial and risk
connections of each alternative under various
plans. Considering the trials and skepticism
adjoining the existing environment, the stakes
for building valid corporate strategy outcomes
are especially high.
The late years have witnessed a growing number of scientific reports directing to potential winwin schemes, where a corporation can increase
profits while at least making some movement
close to the application of sustainable business
conventions. Many experts have deduced that
corporations have to embody sustainability inside
the strategy to stay competitive.

Cross-References
Business Strategy
Code of Best Practice
Competitive Advantage
Corporate Mission, Vision and Values
Corporate Sustainability

Corporation as Psychopath

613

References and Readings

Corporate Volunteering Programs

Andrews, K. R. (1987). The concepts of corporate strategy. Homewood: Richard D Unwin.
Bocean, C. G. (2006). Corporate governance: Theories,
challenges and paradigms. In Man in the knowledge
based organization XIth International Conference,
Sibiu. Ministry of Defence Academy, November
2325, 2006.
Doyle, P. (1994). Marketing, management and strategy.
Essex: Prentice Hall.
Goold, M., Campbell, A., & Alexander, M. (1994).
Corporate-level strategy: Creating value in the
multibusiness company. New York: Wiley.
Johnson, G., Scholes, K., & Whittington, R. (2008).
Exploring corporate strategy (8th ed.). Essex: FT
Prentice Hall.
Jones, M. T., & Haigh, M. (2007). The transnational
corporation and new corporate citizenship theory:
A critical analysis. Journal of Corporate Citizenship,
27, 1829.
Lynch, R. (2009). Corporate strategy. Harlow: Pearson
Education.
Sekulic, V. (2009). Corporate strategy development and
competitive advantage of enterprise (FACTA
UNIVERSITATIS Series: Economics and organization, Vol. 6, No. 3, pp. 269279). Serbia: The Faculty
of Economics, University of Nis.
Wright, P., et al. (1996). Strategic management concepts
and cases. New Jersey: Prentice Hall.

Corporate Sustainability
Corporate Social Responsibility in Tourism
Global 100

Employee Volunteer Programmes

Corporate Volunteerism
Employee Volunteer Programmes

Corporate Water Sustainability

Water

Corporate-NGO Partnerships
Global Governance and CSR

Corporate-Sponsored Volunteering
Employee Volunteer Programmes

Corporation
Good Corporation

Corporate Tax Evasion

Tax Evasion

Corporation as Psychopath
Corporate Trust

Martin Brueckner
Institute for Social Sustainability, Murdoch
University, Murdoch, Perth, WA, Australia

Trust

Synonyms

Corporate Urban Responsibility

CSR and Regional Development

Antisocial behavior; Breach of moral standards

and norms; Corporate irresponsibility; Corporate
misconduct

614

Corporation as Psychopath

Definition

on profit maximization. It is this single-minded

pursuit of profit which is regarded as one of the
principal drivers of corporate wrongdoing and
underlying manifestations of corporate psychopathy. The blinkered pursuit of a single goal within
the human context to the exclusion of other, more
humane interests would be considered
psychopathic. Thus, the personification of the
corporation leads to comparisons between corporate and human behavior and to the conclusion
that the corporate, legally defined mandate to
pursue corporate self-interest regardless of the
consequences to others bears the hallmarks of
human psychopathy.

Corporate psychopathic behavior describes

a form of corporate conduct, which meets the
psychiatric criteria for human psychopathy, that
is, a failure to conform to social norms and the
violation of accepted ethical standards without
remorse. The parallel between corporate and
human psychopathy exists due to moral projection, whereby corporate actions are seen as analogous to human actions because of the status of
legal person or corporate personhood
granted to corporate entities under corporate law.

Introduction
Key Issues
Recent history saw an intensifying debate about
corporate conduct in light of widely publicized
corporate scandals involving companies such as
Enron, Monsanto, and WorldCom. Issues surrounding immoral, even psychopathic, corporate
conduct arise out of the conflict between legal
and socially expected standards of corporate conduct and the corporate pursuit of profit. The
quasi-personification of corporations under corporate law is coupled with the concept of moral
agency, which ascribes corporate entities the
quality of being able to act intentionally and
with independent volition. The investment of
corporations with these anthropomorphic qualities gives rise to the argument of moral projection. This suggests that corporations should be
held accountable to human moral principles,
even though they are not real people. This projection principle fuels the contemporary debate
surrounding deplorable corporate conduct, which
emerged in response to corporations violating
moral principles in the pursuit of economic return
without legal constraint. In contrast, identical
conduct perpetrated by a real legal person
would be subject to criminal law.
The corporate profit motive is at the core of the
conflict between corporate conduct and social
expectations on companies behavior, especially
in countries like the USA. In this regard, the
raison detre of Anglo-American corporations is
seen to be defined rather narrowly, focused solely

The corporate psychopathy thesis is rooted in the

legal status of the corporation. In historical terms,
the corporation has a long-standing tradition with
early references to stock trading entities dating
back to medieval European times. The expansion
of international trade across Western Europe
from the fifteenth century onward saw the establishment of the first limited liability companies
whose stock owners could not be sued for the
recovery of debt; limited liability is still one of
the key characteristics of corporations today as
under corporate law, the company, but not an
individual shareholder or employee, is solely
responsible for the companys losses. Over the
centuries, the legal status of corporations became
more refined, with corporations being granted
a suite of different rights and responsibilities.
The late nineteenth century saw the introduction
of the most profound changes in corporate law,
which granted corporations the attribute of being
a separate legal personality, also known as personhood or artificial personality. This change
occurred in English law in 1895 by the House of
Lords in Salomon v. Salomon & Co. and across
the Atlantic in 1886 in the case of Santa Clara
County v. Southern Pacific Railroad in the US
Supreme Court. Back then, US Chief Justice
Morrison R. Waite gave an obiter dictum, referring to corporations as persons and granting
them some human rights based on the 14th

Corporation as Psychopath

amendment to the US Constitution. While in the

US disunity remains among law experts about the
applicability of the 14th amendment to the legal
person status of corporations (see Noble v. Union
River Logging R. Co., 147 U.S. 165 (1893)),
corporate personhood granted under corporate
law paved the way for the contemporary debate
on corporate conduct and its comparability to
human, moral behavior.
Internationally, corporate law can vary
widely, and many forms of corporations exist.
However, private, for-profit corporations represent the majority of corporations today and can be
regarded by far the most dominant form of institution worldwide. Despite national differences in
corporate law, corporations share a set of legal
characteristics which define this type of organization; these include (a) having legal person
status, (b) having limited liability, and (c) having
the ability to transfer shares, as well as (d) sharing
ownership of resources and (e) having a centralized management under a company board. In this
sense, corporations today are granted most of the
rights usually extended to ordinary people such as
the right to own property and to enter into contracts but also some of the responsibilities such as
needing to pay taxes. While other rights such as
those relating to holding public office and the
permission to vote are generally denied, corporations have the right against self-incrimination, the
right to privacy, and the right to lobby. In addition, corporations, unlike human beings, are
immortal due to continued succession. In this
regard, body corporates enjoy a special legal status beyond the reach of ordinary people in that
they continue to exist perpetually and enjoy limited liability.
Many of the rights granted to corporations are
essential to carry out a business such as those
rights that enable a company to own and sell
resources. As such, corporations are granted the
same rights as a person acting as a sole proprietor.
Corporate personhood or having an artificial personality can also to some extent be seen as
a requirement for companies for the purposes of
conducting business. This resemblance in law
between a natural person and corporations has
led to the personification of companies, which

615

while no longer part of the legal debate provides

the platform of the corporate psychopathy thesis
popularized in the book The Corporation by
Joel Bakan and the accompanying documentary
film released the same year.
Bakans work rests on the observation that
corporations are edified to the status of ordinary
persons and possess privileges beyond the reach
of mortal individuals. In this context, he
questions what kind of person the corporation
would be, if its behavior was to be assessed
using a human psychiatric framework. To this
end, Bakan explores using a personality diagnostic checklist based on the World Health Organizations (WHO) ICD-10s Manual of Mental
Disorders DSM-IV the behavioral characteristics of the corporation when treated as a fleshand-blood human being. His analysis reveals that
the actions of a corporation resemble those of
human psychopaths when measured against
WHOs six criteria for human psychopathy listed
below:
Callous unconcern for the feelings of others
Incapacity to maintain enduring relationships
Reckless disregard for the safety of others
Deceitfulness: repeated lying and conning
others for profit
Incapacity to experience guilt
Failure to conform to social norms with
respect to lawful behaviors
Balkan explores cases and examples of
deplorable corporate behavior and applies them
to the above psychiatric criteria. Callous unconcern for the feelings of others was illustrated by
the sweatshop labor scandal that erupted in the
mid-1990s involving the sport equipment and
apparels designer Nike. Back then, the company
stood accused of allowing, and at times mandating, inhumane working conditions in the factories
of its contractors operating in the Middle East and
South-East Asia. It was revealed, inter alia, that
workers in overseas factories were being exposed
to toxic fumes well over the respective host
countrys legal limit and that children as young
as 14 years made up a large part of the workforce.
At the time, Nike defended its position claiming
not to be responsible for working conditions in
contract factories.

616

Examples highlighting the incapacity of corporations being able to maintain enduring relationships drew attention to companies relentless
search for means of reducing their costs of production, resulting in the frequent relocation of
manufacturing plants to low-cost-labor countries.
This corporate practice was found to fuel
a competition among host countries on the basis
of low labor prices, driving an international race
to the bottom to the detriment of their local
populations.
The characteristics of reckless disregard for
the safety of others and deceitfulness, with
repeated lying and conning others for profit,
were shown in the Posilac example, a bovine
growth hormone (BGH) made by the Monsanto
corporation to improve milk yields in dairy cows.
In the late 1980s, the Journalists Jane Akre and
Steve Wilson, who were working for the Fox
News television station, investigated and
reported on animal welfare concerns and potential health and safety problems, including cancer
and birth defects, associated with the use of the
synthetic hormone. The company insisted on the
safety of its product and threatened to take legal
action against the journalists who subsequently
lost their employment with Fox News after refusing to change their story and to play down the
risks. While in response to independent studies
Posilac was banned from use in most European
countries as well as Canada, Australia, and
New Zealand, the journalists whistle blower
lawsuit fought to defend the public interest was
dismissed by the US courts at the time.
Monsanto also featured as an example for the
corporate incapacity to experience guilt in connection with the use of Agent Orange, a herbicide
used to deforest land during the Vietnam war.
The chemical caused a legacy of birth defects
and cancers among the Vietnamese population
and American troops, with many hundred thousand people affected. When the company was
sued by American war veterans, Monsanto settled
the case out of court but never admitted guilt.
Lastly, the failure to conform to social norms
with respect to lawful behaviors was illustrated
by a selection of US corporations that were found
guilty of criminal conduct. One example was

Corporation as Psychopath

IBM and its infamous connection to Nazi

Germany during the Second World War retold
in Edwin Blacks book IBM and the Holocaust.
IBM was found to have provided database assistance to the Hitler regime, supplying punch card
technology used for the counting and identification of Jewish people during the Holocaust.
The corporate psychopathy thesis is being criticized for generalizing corporate conduct. Critics
allege that the thesis is based on unrepresentative,
negative examples and only applicable to the US
context due to the legally mandated maximization of stockholder wealth under the US corporate
charter. Issue is also taken with the transition
drawn between psychopathy in the human individual to psychopathy in a corporation and the
projection of human morals on company conduct.
Moral projection rejects the amorality of companies, arguing that people working for corporations are subject to the ethical standards and
mores of society which gives rise to company
accountability. Critics of the moral agency argument suggest that the corporation is a mere product of law for it does not exist in corporeal form.
It is argued that corporations are mere artificial
persons, representing nothing more than
a legally binding contract between capital providers (e.g., investors) and the management of
a company. As such, corporate personhood does
not allow for the conflation of the corporation
with the responsibilities of the individual and
maintains the distinction between a legal person
and a moral person.
The 1970s also saw growing interest among
scholars in corporate psychopathy understood in
terms of the behaviors of individuals in the workplace. The epidemic growth of corporate scandals
has been linked in recent years to what has been
coined a plague of poor leadership characterized by frequent and far-reaching misdeeds of
company managers. Corporate psychopathy,
a still emerging field in organizational psychology, in this context explains the rise of poor
managers to the helm of companies and into
positions of leadership, resulting in poor levels
of ethical decision-making within those companies. The scale, importance, and level of impact
of corporations globally magnify the risks

Corporation as Psychopath

psychopathic senior corporate managers can pose

to society as their leadership decisions affect the
social responsibility of their firm.
Corporate psychopaths, also referred to as
industrial psychopaths, organizational psychopaths, organizational sociopaths, or executive
psychopaths, are described as individuals who
have the personal and social abilities to facilitate
their rise to positions of leadership. They display
a disregard for the needs and wishes of other
employees and are prepared to bully and deceive,
ignorant of the harm caused to the welfare of
others. While criminal and violent forms of corporate psychopathy exist, successful corporate
psychopaths are believed to resort primarily to
nonviolent and legal means to further their cause,
allowing them to climb the corporate ladder without coming into conflict with the law and
remaining largely undetected by their superiors.
The skilful combination of charisma, manipulation, and remorselessness enables corporate psychopaths to move up the corporate hierarchy.
Their dedicated pursuit of success irrespective
of the cost to others and unemotional decisiveness can make them appear to be ideal leaders,
paving the way for quick promotion. Their paradoxical likability is also believed to facilitate
their steep ascent within companies, as their
interpersonal skills enable corporate psychopaths
to present themselves as well-adjusted individuals who are trustworthy and competent. In light
of their damage potential for companies and on
society at large, there is growing interest in corporate psychopathy among business scholars and
practitioners alike.

Future Directions
There is widespread lament about the growth
and influence of corporate power intensified by
the increasingly visible social, economic, and
environmental impacts of large multinational
and transnational firms. On the question of
how to moderate or curtail corporate influence,
three positions can be discerned that have
emerged in the debate. While some support

617

calls for corporate self-restraint under the banner of corporate social responsibility (CSR),
others favor regulatory intervention and
a tightening of the laws governing corporate
conduct. Again, others call for the reassertion
of the democratic rights of citizens and the
assumption of the responsibilities of consumers
and investors.
CSR as a form of corporate self-constraint is
promoted as a voluntary measure premised on the
business case for ethical corporate conduct,
which promises economic and strategic benefits
to companies in return for demonstrating civic
virtue. Critics of the voluntary approach, however, point to the irreconcilability of corporate
self-interest and the public good, which has
given rise to the corporate psychopathy phenomenon. They argue in favor of regulatory measures
to curb corporate powers and to enhance the
transparency and accountability of firms. In this
regard, recent years also saw a shift away from
the issue of corporate personhood per se toward
a series of other rights granted to corporations
such as the right to political lobbying, which has
evolved into a multibillion dollar industry that
stands accused of having subverted the democratic process. Increasingly, calls are made for
government intervention, either mandating the
curbing of corporate influence in the political
sphere or for greater scrutiny of the econopolitical entanglements of the corporate sector
with more exacting public reporting requirements. Demands for a stronger regulatory role
are linked to calls for active citizenship and
a stronger stance taken by consumers and investors alike as their passivity makes them complicit
in corporate psychopathy, being the respective
beneficiaries of cheap consumer products and
high investment returns.

Cross-References
Code of Best Practice
Corporate Social Irresponsibility
Lobbying
Profit Maximization

618

References and Readings

Achbar, M., Abbott, J., & Bakan, J. (2004). The corporation (Film). London: Metrodome Distributions.
Bakan, J. (2004). The corporation: The pathological pursuit
of profit and power. London: Constable & Robinson.
Boddy, C. R. P., Ladyshewsky, R., & Galvin, P. (2010).
Leaders without ethics in global business: Corporate
psychopaths. Journal of Public Affairs, 10(3), 121138.
Clark, J. (1976). Working with monsters: How to identify
and protect yourself from the workplace psychopath.
Milsons Point: Random House.
Goodpaster, K. E., & Matthews, J. B. (1982). Can
a corporation have a conscience? Harvard Business
Review, 60(1), 132141.
Horwitz, M. J. (1992). The transformation of American
law, 18701960: The crisis of legal orthodoxy. New
York: Oxford University Press.
Kraakman, R., Armour, J., Davies, P., Enriques, L.,
Hansmann, H. B., Hertig, G., et al. (2009). The anatomy
of corporate law: A comparative and functional
approach (2nd ed.). New York: Oxford University Press.
Mark, G. (1987). Personification of the business corporation in American law. University of Chicago Law
Review, 45, 14411470.
Mitchell, L. E. (2001). Corporate irresponsibility: Americas
newest export. New Baskerville: Yale University.
Phillips, M. (1992). Corporate moral personhood and
three conceptions of the corporation. Business Ethics
Quarterly, 2, 435459.
Reich, R. (2008). Supercapitalism. The transformation of
business, democracy and everyday life. Melbourne:
Scribe.

Corporatism
Catalina Soriana Sitnikov
Faculty of Economics and Business
Administration, University of Craiova, Craiova,
Dolj, Romania

Synonyms
Corporate
globalism;
Corporativism;
Corporatocracy; Neo-corporatism

Corporatism

associations. Gabriele DAnnunzio and Alceste

de Ambris included much of corporative ideology in their Constitution of Fiume. Adam Muller
advanced his opinions as a remedy to the risks of
the equalitarianism of the French Revolution and
the laissez-faire economics of Adam Smith. In
Germany, there was a clear aversion amid leaders
to enable unlimited capitalism, due to the feudalist and aristocratic practice of bestowing state
concessions to the rich and potent. In Italy during
Fascism, industry owners, workers, trades-people, specialists, and others were organized into
22 associations, or unions, known as corporations fitting to their trades, being given representation in a governmental organization known
as the Camera dei Fasci e delle Corporazioni.
Corporatism is a political system in which judicial authority is given to corporations that act for
economical, industrial, and professional groups. In
corporatism, specific unelected groups play
a crucial role in the decision-making process.
This initial meaning was not linked with the definite conception of an industry corporation, being
a rather more extensive reference to any included
body. Apparently, the whole society is run by
these groups decisions. Conventional corporatist
patterns are established upon the agreement of
corporate groups, such as agricultural, industry,
racial, labor, military, patronage, scientific, or religious associations, inside a common body. In
modern practice, corporatism is frequently
used as a derogatory expression against the control
of politics by the interests of industry corporations
founded on the incorrect translation of corporat
in corporatism as applying to business corporations. Corporate social interaction is usual inside
groups such as families, houses, and ethnicities as
well as in Christian religion, Muslimism, Hinduism, Buddhism, and Confucianism. Corporatism
has been used by many philosophies of the political range: absolutism, capitalism, conservatism,
fascism, liberalism, progressivism, reactionism,
social democracy, socialism, and syndicalism.

Definition
Introduction
Historically, corporatism was first advanced in
1891 by Pontiff Leo XIII in his encyclical letter
Rerum Novarum, influencing Catholic business

According to different opinions, corporatism

was an endeavor to formulate a new

Corporatism

adaptation of the feudal system by combining

the corporate concerns with those of the
nation. This utilization of the expression corporation is not definitely equivalent to the limited current meaning of the word. Some basics of
corporatism can be found yet existent now,
for example, in the ILO Convention or in the
Economic and Social Committee of the
European Union, the collective accord arrangements of the Scandinavian countries, or the
Republic of Irelands structure of Social Partnership. Principles of corporatism could also be
found in the USA, where corporations acting for
many different groups live to impact law by
campaigning. There are corporations standing
for organized labor, instructors, gun-rights
advocates, and business interests. While
these corporations have no integration in any
law-making organization, they can frequently
exercise great authority over legislators. The
impact by distinct forms of corporations, such
as those acting for organized labor, is fairly
insignificant. In this view, government decisions
are perceived as being affected powerfully by
which types of policies will conduct to larger
gains for preferred firms. In this sense of
the word, corporatism is also named
corporatocracy.
If there is considerable military-corporate
cooperation it is frequently titled militarism or
the military-industrial complex. Corporatism is
also used to depict a situation of corporatedominated globalization. Matters listed by users
of the expression in this meaning include the
extensiveness of very big, transnational corporations that openly move operations everywhere in
the world as a reply to corporate requirements.
In different contemporary usage of the expression, which has developed in the latest publications of political science and sociology, neocorporatism directs to social settings controlled
by tri-partite negotiation amid unions, the private
capital, and authorities. Such negotiation is
focused toward distributing the productivity revenues produced in the economy equitably among
the social associates and toward achieving remuneration moderation in recessive or inflationary
times. The majority of political economists

619

support that these neo-corporatist settings are

merely practicable in communities in which
work and workforce are very well regulated and
different labor unions are hierarchically arranged
in a unique labor confederation. Such broad
unions deal on behalf of all laborers, and have
a robust enticement to balance the work expense
of high retributions against the actual revenue
outcomes of small salary profits.
For Peter Katzenstein neo-corporatist settings
empower small-unclosed economies to conduct
efficiently their connection with the international
economy. The adaption to trade impacts takes
place by a negotiation process in which the
expenses of adaption are distributed evenly
among the social collaborators. It is entitled
neo-corporatism since it displays a sum of analogies with corporatism in the old sense of the
word. Ludwig von Mises depicted corporatism
as ban to the perception of capitalism. In the
kind of capitalism he supports, the governments
task in the economy is limited to protecting the
independent performance of the free market.
Nevertheless, many analysts of free market
ideas have claimed that corporatism (in the meaning of an economic system controlled by vast
corporations) is the normal consequence of free
market capitalism. In the USA, a few assert that
New Deal programs initiated by Roosevelt were
an original rise for a corporate nation. Still, this
overlooks the extended history of exclusive economic interests restraining the decision-making
process in the USA. In the last decades, the plethora of pressure groups and the rise in campaign
donations has led to popular debate and the
McCain Feingold act. US corporatism is
manifested in the close connections between
Bush Administration and various big corporations. John Ralston Saul claims that nearly all
Western societies are best depicted as corporatist
nations, led by a small expert and interest groups
that leave out political involvement from the people. Analysts of capitalism repeatedly claim that
any type of capitalism would ultimately transfer
into corporatism, due to the centering of
resources in fewer and fewer possessions.
A combination of this word is corporate
globalism.

620

Corporatism Evolution
Corporatism was, in the beginning, a nineteenthcentury principle which originated in response to
the competition and status difference of capitalist
society. In the ending half of the nineteenth century, workers in Europe started to reveal involvement in the concepts of socialism and
syndicalism. Several adherents of the intellectuals, especially the Catholic intellectuals,
decided to create an option to socialism that
would point up social justice without the drastic
resolution of the cancellation of individual ownership. The outcome was called Corporatism. The
appellation had nothing to do with the idea of
a business corporation other than that both
words are originated from the Latin word for
body, corpus. The fundamental concept of corporatism is that the community and economy of
a state have to be systematized into main interest
groups (sometimes called corporations) and representatives of those groups resolve any difficulties through the debate and common pact.
Contrasting to a market economy that functions
by way of competition corporate economic would
act through combined negotiation. The American
president Lyndon Johnson had a preferred saying
that portrayed the soul of corporatism. He would
group the sides to some dispute and state, Let us
reason together.
Under corporatism, the workforce and management in an industry link up with an industrial
system. The representatives of workers and
executives determine remuneration matters
through joint debate. While this was the assumption in practice, the corporatist nations were
mostly governed according to the decrees of the
leader.
Sylvia Ann Hewlett in her book, The Cruel
Dilemmas of Development: Twentieth Century
Brazil, says, Corporatism is based on a body of
ideas that can be traced through Aristotle,
Roman law, medieval social and legal structures,
and into contemporary Catholic social philosophy. These ideas are based on the premise that
mans nature can only be fulfilled within
a political community. The central core of the
corporatist vision is thus not the individual but

Corporatism

the political community whose perfection allows

the individual members to fulfill themselves and
find happiness. The state in the corporatist tradition is thus clearly interventionist and powerful.
The overall civilization legacy of Europe from
the medieval era was in opposition to characteristic self-interest and the independent performance of businesses. Trades and individual
ownership were adequate just as long as public
regulation got priority over such wrong incentives as rapacity.
Paired with the antimarket attitudes of the
medieval civilization there was the belief that
the leaders of the nation had a crucial part in
upgrading social justice. Hence, corporatism
was created as a structure that accented the
explicit character of the state in warranting social
justice and stopping the ethical and social anarchy of the citizens engaging in their personal
individual self-interests. Above all, as a political
economic system of beliefs, corporatism was
adaptable. It might put up with private initiative
inside boundaries and support great programs of
the state. Corporatism has occasionally been
tagged as a Third Way or a combined economy,
a blend of capitalism and socialism, but it is, in
fact, an unrelated, individual political economic
structure.
In antagonism to the tendency for popular vote
and autonomous trade unionism, corporatism
popularized a framework of operational representation everybody would be organized inside
vocational or industrial organizations merged
with the state by ways of representation and management. The disagreement was that if these
groups (particularly capital and work) could be
permeated with an understanding of reciprocal
privileges and responsibilities a firm order
founded on organic unity might be set up.
Even though the notion of industrial assemblies
was usually elevated in liberal democracies following WWI, the solely nations that clearly
adopted a corporative framework of representation were the fascist governments of Italy,
Germany, Spain, Portugal, Vichy France, and
different South American totalitarian states. In
all these situations, corporatist forms were principally an ornamental facade for dictatorial

Corporatism

ruling, state repression of free trade unionism

being the first cause and result.
Based on this knowledge, corporatist doctrines
have not been favored in Western liberal democratic societies, but no later than the 1970s it came
to being increasingly common for social
researchers to recognize that specific political settings had developed inside these structures, which
in an effective statement and institutional framework bore a little similarity to the functionalrepresentation conceptions of corporatism. This
was especially true in many West European countries, where the central trade-union and business
federations had accompanied government representatives in national economic and salary policy
design. Principal to all such arrangements was the
attempt to prevail upon unions to agree on the
national wage-restraint procedures in exchange
for representation in economic decision making.
Corporatism briefly came to be perceived by
numerous social researchers as either anew economic structure, an inheritor to capitalism, where
the state controls and leads highly compacted but
still privately owned financial resources or anew
framework of state, where the influential representation, decision making and leadership take place
not in the factions, assemblies and ministerial
administrations but in the three-party forms where
industry, work, and governments are combined; or
a new shape of interest-group policies, where
rather than the competitive, campaigning actions
of many force groups, there is a monopoly of
approach to the state by one group from every
area of society, with the state applying mutual
impact over the groups. While every scheme
caught some characteristics of contemporary corporatist evolutions, they were all too extensive and
pretentious. Corporatist frameworks could have
increased legislative types, in certain countries,
but they barely turned out to be the core of the
liberal democratic state. They were restricted
mainly to the relationships among big business,
systematized labor, and government. Above all,
corporatist organizations do not challenge
privatized industries as the economic representatives of these societies. Significant major investment decisions, even if impacted by the state, to
a certain extent, by way of corporatist structures,

621

stayed with private owned corporations. Actually,

far from rising as the new prevailing organizations,
corporatist structures demonstrated an inborn
unpredictability, portraying the imbalance of the
relative authority of capital and labor and the trend
of trade unions to take back their cooperation in
wage-restraint procedures when members demand
that their front runners speak for their requests
rather than acting as low-ranking teammates in
conducting the contemporary capitalist economy.
In turn, capitalist levels have revealed themselves
less and less enthusiastic, for their part, in looking
after such alliances, and this has directed to corporatist settings to be progressively given up alongside with the Keynesian prosperity state throughout
the last two decades of the twentieth century.

Historical Account
In spite of the fact that leaders have apparently
acted according to the rules of corporatism from
old time it was just in the early twentieth century
that governments commenced to recognize themselves as corporatist. The table below provides
several of the clearly corporatist administrations
(Table 1).
In the above table, some of the governments
were rough, authoritarian autocracies, generally
tagged fascist, but not all the administrations that
had corporatist bedrock were fascist.
In particular, the Roosevelt New Deal regardless of its numerous defects could not be depicted
as fascist. However, surely the New Deal was
corporatist. The master builder for the first New
Deal program was General Hugh Johnson. Johnson had been the administrator of the military
mobilization program for the U.S. under
Woodrow Wilson during World War I. As he
did a good work of administering the economy
throughout that period, he was provided with
great responsibility for creating an economic program to deal with the serious difficulties of the
Depression. At the same time, between the end of
World War I and 1933 Hugh Johnson had grown
into an enthusiast of Mussolinis National Corporatist organization in Italy, and he designed upon
the Italian knowledge in founding the New Deal.

622

Corporatism

Corporatism, Table 1 Corporatist regimes of the twentieth century

Name
National Corporatism
Country, Religion, Monarchy
New State
National Socialism
New State
New Deal
Third Hellenic Civilization
National Syndicalism
Justice Party

Country
Italy
Spain
Portugal
Germany
Brazil
United States
Greece
Spain
Argentina

It ought to be notable that numerous principles of

the early New Deal were next claimed as unconstitutional and given up, but several principles
such as the National Labor Relations Act that
advertised unionization of the American workforce are yet, in effect. One section of the New
Deal was the development of the Tennessee River
Valley under the state corporation titled the Tennessee Valley Authority (TVA). Several New
Dealers saw TVA as more than a state power
business. They wished to make TVA an example
for the formation of local political units, which
would come instead state governments.
The pattern for TVA was the stream evolution
designs carried out in Spain in the 1920s under
the regime of Miguel Primo de Rivera. Jose
Antonio Primo de Rivera, the son of Miguel
Primo de Rivera, was the founder of Francos
National Syndicalism.
Corporatist regime normally promotes big
governmental programs such as TVA on the
base that they are too huge to be supported by
a private company. In Brazil, the Vargas administration created numerous state companies such
as in iron and steel manufacture which it felt up
were required but private firm refused to create. It
also created a systematized labor movement that
came to control those public firms and
transformed them into over employed, uneconomic outlets on the public finances.
Nowadays, several American conservatives
will claim that corporatism of the USA during
the New Deal was never set apart. They can point

Period
19221945
19231930
19321968
19331945
19331945
19331945
19361941
19361973
19431955

Leader
Benito Mussolini
Miguel Primo de Rivera
Antonio Salazar
Adolph Hitler
Getulio Vargas
Franklin Roosevelt
Ioannis Metaxas
Francisco Franco
Juan Peron

to any sum of enterprises, from Lyndon

Johnsons Great Society to Richard Nixons salary and cost controls, as an indication of lasting
tendency. Progressives, on the contrary, will
claim that America has been administrated over
that same period by a corporatist administration
of large industry scheming with government versus the middle and lower classes so that just the
rich profit.
The realities conceal both variants. If corporations have been running American economy for
their own aims, or together with large government, they have not been doing a very good job of
guarding their benefits, considering how fast US
companies progress and plunge and how the Fortune 500 transforms. If just the wealthy are getting wealthier somebody must tell Bill Gates,
a child from a middle class upbringing with no
academic title, or Warren Buffett, who bred up
working in his grandfathers food market shop,
that they have to return their fortune, they have by
some means obtained to the Rockefellers, the
Astors, the Vanderbilts, and other once-rich
dynasties whose richness have long been on the
decay.
Nevertheless, considerable economic disruptions carry out the corporatist, which is why at
present USA has a government committee supervising General Motors, and the Treasury Department has released the first car guarantee program
in its history. This is the reason why several banks
were coerced to consent bailout funds they did
not require and have been coerced not to return it

Corporatism

to take out from under federal micro management. And it is why the federal incentive pack
incorporates such goodies as capital to increase
wideband infrastructure, which arrives with all
types of links bound by the FCC, since USA by
some means cannot depend on phone, cable, or
Internet corporations to supply consumers with
the bandwidth they request in networks that will
fit modern economy.
Corporatism is particularly attractive to members of parliament, public specialists who function as policy creators, and Nobel Laureates since
it is eventually a world administered by several
elected through the state. If people are told sufficiently times that nothing, even technical invention, is reasonable anymore without relevant
inputs and guidelines from the state, perhaps
they will come to hold it, even though the
designers of the printing press, the steam
machine, the light bulb, the phone, internal combustion motor, and other technologies might
question in what way they mastered what they
did without authority implication. Corporatism is
not about managing capitalism best as businesses
develop. It is few moves apart from. It is alternatively about those who trust in the beauty of
pushing a button to solve problems, as Paul
Krugman lately depicted his enchantment to the
social disciplines. Some individuals are
concerned about what occurs when the governors
get in charge of national or global economy.
Nevertheless, the true worry is what occurs
when the button pushers get in charge, for them
are the corporatists.

Key Issues
In spite of the fact that Corporatism is not a wellknown notion to the public, the majority world
economic systems are corporatist in character.
The sections of socialist and uncontaminated capitalist economy are more or less meaningless. There
are just corporatist economies of different tastes.
These tastes of corporatism comprise the
social democratic governments of Europe and

623

the Americas, but also the East Asian and

Islamic fundamentalist leaderships such as Taiwan, Singapore, and Iran. The Islamic socialist
countries such as Syria, Libya, and Algeria are
more corporatist than socialist, as was Iraq under
Saddam Hussain. The previously communist
governments such as Russia and China are at
this point unmistakably corporatist in the economic system of beliefs, even if not in the
appellation.
Nowadays, corporatism or neo-corporatism is
used in reference to trends in politics for lawmakers and executives to be impacted or controlled by the interests of business companies
(limited liability corporations).

Future Directions
Nowadays, specialists have forecasted for the
national structures, a deterioration of corporatism
and concentration of industrial relationships on
the track of disorganization. Three leading rationales have been followed to emphasize this tendency:
deregulating
decentralization
of
negotiation and disorganization in the restricted
comprehension, i.e., the deterioration in setting
up roles of the main interest groups. There were
anticipated productivity alliances within singular
companies to replace corporatist structures at the
macro- and mesoeconomic and organizational
levels. The significant aspects to such hypotheses
were transformations in manufacture systems and
methods and the progress of the third sector,
together with liberalization and raised competition in world businesses.
Also, in his book The Triple Helix: UniversityIndustry-Government Innovation in Action, Henry
Etzkowitz says Corporatism, the European
doctrine of cooperation between government,
industry, and labor, is superseded by a triple
helix of academic-industry-government relations.
A model of shared state authority is being
transformed into one in which new forms of authority and legitimation arise from the bottom up as
well as top down.

624

Corporativism

Cross-References
Corporate Governance
Globalization
Lobbying

References and Readings

Bramble, T., & Ollett, N. (2007). Corporatism as
a process of working-class containment and rollback: The recent experiences of South Africa and
South Korea. Journal of Industrial Relations, 49(4),
569589.
Edsforth, R. (2006). The new deal: Americans response
to the great depression (p. 145). New York: Blackwell.
ISBN 1-57718-142-5.
Encyclopdia Britannica Online. (2010). Corporatism,
http://search.eb.com/eb/article-219369. Retrieved 17
June 2011.
Etzkowitz, H. (2008). The triple helix: Universityindustry-government innovation in action (p. 72).
New York: Routledge. http://books.google.com/
books?idKC4T9-P0o_4C&dqfuture+directions+in+
corporatism&sourcegbs_navlinks_s&redir_escy.
Samuel, G. (2007). The commercial society: Foundations
and challenges in a global age, Lanham, USA (p. 109).
Plymouth: Lexington Books.
Wiarda, H. J. (1996). Corporatism and comparative
politics. Armonk: M.E. Sharpe. ISBN 978-1-56324715-6.

Corporativism
Corporatism

Corporatocracy
Corporatism

Corrupt
Bribery and Corruption

Corruption and National

Development
John O. Okpara1 and Nicholas Koumbiadis2
1
Department of Management, College of
Business, Bloomsburg University of
Pennsylvania, Bloomsburg, PA, USA
2
Department of Accounting, Finance, and
Economics, School of Business, Adelphia
University, Garden City, NY, USA

Synonyms
Bribery; Dishonesty; Embezzlement; Exploitation; Extortion; Fraud

Definition
The term corruption has generally been used in
a rather loose manner in literature as well as in
everyday context; there is no agreement on the
definition of corruption either in literature or in
practice. Corruption has been defined by different
authors in different ways. Generally, corruption
is defined as the abuse of public power for private
gains in violation of rules (Rose-Ackerman 1999;
Manion 2004). Corruption is also described as
illegal actions carried out by government officials
to enrich themselves. Denis (2001) defines corruption as giving something to someone with
power to obtain a favor. Corruption is the misuse
of public power for private gain (Youthink 2011).
Although these definitions are quite popular, they
are often seen as narrow because they do not take
into account all forms of corruption. Because of
the narrow definition of corruption found in the
literature, some scholars have proposed what is
known as the market-centered view of corruption. They believed that corruption takes place
only when a person uses his or her office as a way
to maximize his or her income (Tilman 1968).
There is yet another perspective, the public
interestcentered view of corruption. According
to this view, corruption is a violation of public
interests and it includes actions which favor
whomever provides the rewards and thereby

Corruption and National Development

does damage to public and its interests (Friedlich

1966). It is obvious from the definitions presented
above that corruption involves actions on the part
of public officials that are regarded as improper
and unlawful in which they seek to promote private benefits at the expense of the public interests.
It is seen as a deviant behavior associated with
a specific motivation, namely that of private gains
at public cost.

Introduction
Corruption has become a matter of growing concern all over the world. This is partly because of
the changing economic and political environments around the world, and partly because of
the growing consensus of both academic and
policy issues regarding the negative impact of
corruption on development. Corruption is morally wrong; it undermines good governance, distorts public policy, leads to misallocation of
resources, and hurts economic growth (Bardhan
1997; Rose-Ackerman 1999). Due to the negative
consequences of corruption, governments and
international organizations have focused their
efforts on searching for effective ways to control
and eradicate corruption. These efforts have produced a variety of strategies and institutional
innovations around the world, such as the
establishment of a strong and centralized
anticorruption agency modeled along the lines
of those in advanced industrialized countries
with clear mandates to confront the problems of
corruption. Another popular choice has been
adoption of a multiagency model to tackle corruption by many countries. The multiple agency
models involve creating anticorruption capacities
across several governmental agencies, but the
results achieved are far from uniform. While
some countries have achieved considerable success in containing corruption, others have failed
to make significant headway despite having
followed similar anticorruption reforms and strategies. Attempts to draw lessons for policy transfers have proved difficult given the differences in
the contexts and a host of other factors (Klitgaard
1988; Quah 2003). Thus, there is a general lack of

625

agreement on what approaches work and what

explains the success and failure of anticorruption
strategies. Notwithstanding this, combating corruption or promoting integrity has become
a major component of governmental reforms in
many countries. In appreciation of the significance
of good governance for sustained economic
growth and prosperity, most governments in
developing countries have renewed their commitment to fighting corruption. Anticorruption agencies are being set up with clear mandates to
effectively fight and contain corruption and all
forms of maladministration in society. Since fighting corruption has been firmly on the agenda of
most governments, a variety of new initiatives and
strategies have been devised and implemented in
many of these countries. Yet the level of corruption has remained high and the plethora of strategies and the recent campaigns appear to have
made little difference in containing and combating
corruption in most of these countries.

Causes of Corruption
Though many studies have examined the roots of
corruption, it is difficult to determine why corruption is more prevalent in one country than it is
in another (Lambsdorff 2007). Developing countries face both real and perceived problems with
corruption. The causes of corruption are numerous and include misery caused by inequality and
pervasive poverty which may encourage people
to break the rules of honesty and decency. Peoples access to or shortages of resources often
develop a self-perpetuating momentum so that
the well endowed get more and the poor get
less. Major development-related assets in this
regard are land, educational opportunities, and
access to capital. The distribution of land affects
income distribution in most developing countries
because income from land constitutes a major
share of household income in such countries.
Furthermore, land is often used as collateral for
borrowing and investing. Hence, the lack of land
among those who are poor constrains their access
to loans and other forms of financial assistance.
The income-earning potential and productivity of

626

poor people and institutions without power is

lower than that of those with capital assets. Educational inequality often translates into broader
income inequalities. Individuals earning power
is affected by their relative levels of education.
Education levels empower people to lobby government more effectively to prioritize their particular needs and requirements.
The level of economic development is associated with corruption. For instance, advanced
economies are more likely to have more robust
institutions including well-established laws
and policies to address corporate behavior,
while developing economies suffer from poorer
investigative and enforcement mechanisms
(Nwabuzor 2005; Olaya 2006). In poor countries
where wages and salaries are low, officials see
bribery as a necessary means of supplementing
their low incomes. On the other hand, wealthier
countries, characterized by higher levels of
income, education, and matured mass media,
have been found to be associated with less corruption. These characteristics of wealthy countries allow for countervailing actions by the
person faced with bribery demands. Political
rights and civil liberties are more problematic in
countries with high levels of corruption. Countries that have allowed certain rights such as
property rights, economic freedom, as well as
checks and balances in political institutions
have been reported to have less corruption.
Other factors such as opportunity, lack of
accountability, and poverty may lead to high
levels of corruption. People get involved in corruption when systems do not work well and need
a way to get things done regardless of the procedure and laws. Lack of accountability comes
when there is little transparency and weak
enforcement (law agencies that do not impose
sanctions on power holders who violate their
public duties). Certain attitudes or circumstances
make average people disregard the law. They
may try to get around laws of a government
they consider illegitimate. Poverty or scarcity of
basic necessities of life such as food, shelter,
medicine, clothing, transportation, and clean
water and sanitation may push people to live
outside the law.

Corruption and National Development

Consequences of Corruption
Although corruption has always existed, recognition of the negative impact of corruption on society has broadened greatly in recent years.
A growing body of research shows that corruption represents not just the degradation of integrity and morals, but is also a severe hindrance to
the process of economic development (Mauro
2004). Corruption adversely impacts domestic
investment and is considered to be particularly
harmful for a developing economy. This is
because bribes are given before any investment
takes place, and upon entering into negotiations
before the business is set up. More payments of
bribes usually follow in the process of setting up
the business. Obtaining leases for land, permission to engage in activities such as production,
import, and export, obtaining connections for
water, gas, electricity, telephones, access to
telex, fax, and e-mail facilities can involve payment of substantial bribes at various stages and
may require the services of agents on how to get
around complex rules and procedures to acquire
these things. Unfortunately, the services of these
agents do not come cheap. Instead, they add to the
cost and complexity of doing business under
a corrupt government. Then, when the enterprise
is finally established and up and running, corrupt
officials may demand cuts from the firms
earnings.
Corruption also discourages the flow of foreign direct investment (FDI). The benefits of FDI
to developing countries are well known. FDI
helps supplement countries with much needed
capital, and it can also bring technology, managerial, and marketing skills that will be helpful in
improving countries international competitiveness, help develop valuable market outlets
abroad, and strengthen foreign contacts and
broaden the outlook of countries business. FDI
can increase employment opportunities, assist in
improving labor skills, and can produce useful
goods and services for domestic markets. It can
also be crucial in building modern infrastructural
facilities, establishing reliable energy generating
and distributing systems, setting up high technology communication networks, providing efficient

Corruption and National Development

transport links with the rest of the world, and

developing capital markets and business and
financial services which are essential for countries to become modern, developed nations. In
short, FDI can play an important role in assisting
countries with modernization and help them to
more fully develop their productive potential.
Corruption makes it difficult for developing
countries to establish and maintain domestic and
internationally acceptable rules of the game
which are necessary for orderly and proper conduct of investment and business activities. This
deficiency is believed to be an important reason
why the least developed countries in the world
are poor; it is also believed to be a reason why
some of them will remain that way (Samanta
et al. 2010).
Corruption can have adverse effects on both
revenue and expenditure sides of government
budgets. The consequences on the revenue side,
which come in the form of paying bribes to
reduce taxes, fees, dues, custom duties, and public utility charges such as water and electricity,
are common in many developing countries.
Bribes are also used to make illegal water, electricity, gas, and telephone connections to the rich
people who would have access to these facilities
without paying for the services. All these result in
serious losses of revenue for the government.
Fraud, embezzlement, and misappropriation of
public funds add to the losses. The consequences
on the expenditure side are more insidious. Corruption adversely affects the composition of government expenditures because large benefits can
be realized from corrupt deals on expenditure
items that are expensive, whose costs are not
readily apparent, and which are considered to
serve some high national priority concern so
that they have to be undertaken in an inconspicuous and enigmatic way. For example, purchases
of military tanks, submarines, or military aircraft
ideally meet these requirements. These items are
costly, they are not something one can go to the
store and easily find out the prices of, and they are
required to safeguard national security on
which no one wants to compromise or to appear
unpatriotic by questioning its usefulness. These
expensive projects whose costs are difficult to

627

determine have huge potential for kickbacks and

are also good candidates for corrupt deals and
hence for inclusion in the national budget
(Samanta et al. 2010).
Corruption leads to unequal distribution of
income. Under a corrupt system, the privileged
and the well-connected enjoy economic rent.
Economic rent represents unusual or monopoly
profits which can bestow large benefits. As such,
there is a tendency for wealth to be concentrated
in the hands of a minority of the population.
Income distribution, therefore, becomes highly
uneven (Myint 2000). In addition, the burden of
corruption falls more heavily on the poor, since
they cannot afford to pay the required bribes to
send their children to decent schools, to obtain
proper health care, or to have adequate access to
government provided services such as domestic
water supply, electricity, sanitation, and community waste disposal facilities.
In any nation, there are laws and regulations to
serve social objectives and to protect the public
interest, such laws include building codes, environmental controls, traffic laws, banking regulations, and more. Violating these laws for
economic gain through corrupt means can cause
serious social, political, and economic damage to
the nations image at home and abroad. There are
instances of this throughout Africa, South and
Central America, and Asia and Pacific regions.
For example, there have been numerous cases
where soil erosion, resulting from illegal logging,
has led to whole villages being washed down
hillsides in flash floods or buried in mudslides,
taking a heavy toll in lives of poor villagers.
Violating building codes through the connivance
of corrupt officials and building contractors has
resulted in the collapse of apartment buildings,
department stores, and hotels in many countries.
Failure to observe proper fire prevention and
safety regulations has caused nightclubs, hotels,
and supermarkets filled with shoppers and customers to go up in flames. Paying bribes to operate un-roadworthy and poorly maintained public
vehicles has led to accidents on the highways and
buses plunging down valleys due to mechanical
failure; such incidents are common in many
countries.

628

There has also been growing concern over

corruption in large infrastructure projects such
as dams and bridges where substandard materials,
and disregard for proper design and engineering
specifications, are rampant because of corruption.
This deliberate disregard of laws, rules, and regulations because of corruption has caused bridges
to collapse and dams to burst, which has in turn
resulted in a heavy loss of life and property.
Additionally, obscure insider trading practices
and financial scams that can result from poorly
supervised financial systems have had serious
economic and social consequences (Samanta
et al. 2010). People have lost their life savings
and fortunes in financial scams, which have led to
massive street demonstrations and civil unrest in
several countries. Lack of transparency, shady
deals, and corrupt practices have also been
a contributing factor to the financial and macroeconomic crisis that has swept across the globe.
Unfortunately, corruption places severe constraints on a countrys capacity to develop, and
elimination of corruption in any society, especially in developing economies, requires strong
commitment on the part of the government,
strong regulatory and monitoring environment,
greater transparency, accountability, free and
fair competition, limiting discretionary powers,
and special privileges, all of which will reduce
opportunities for economic rent on which corruption thrives.

Key Issues
Corruption is a problem that has dire consequences for a countrys development. To be
effective, measures against corruption must
address the underlying causes that are identified
in this entry. Emphasis must thus be placed on
preventing corruption by tackling the root causes
that give rise to it through undertaking economic,
political, and institutional reforms. However,
before any credible reform can be made in terms
of eliminating corruption, two key issues about
corruption need to be addressed. Corruption is
difficult to measure because of the illegal nature
of the transaction and inexact definition of

Corruption and National Development

corruption. The extent of corruption cannot be

precisely measured because a large proportion
of it is never detected, nor reported (Caiden
et al. 2001). Thus, a key issue is how to measure
corruption, which can be exceptionally difficult.
How corruption and its prevention, detection,
investigation, and prosecution are to be measured
has been the subject of much academic and professional debate. The problems with current measures of corruption such as the Corruption
Perception Index (CPI), The Bribe Payers Index
(BPI), and World Governance Indicators (WGI)
are that official corruption statistics are less reliable partly because they focus on cross-country
analysis and data on corruption derived from
perception indices, and partly because no party
to the transaction has much incentive to report it
(Miller et al. 2001). For instance, bribes paid by
various households to access education, health
care, and other social services are correctly measured because they are made in secret. Since
corruption is carried out clandestinely, there is
still more information about corruption that is
hidden and cannot be known. For example,
many crimes like embezzlement are not reported
because they are not committed openly but
behind closed doors. Corruption is an act that is
taken seriously only when the culprit is caught.
Hence, everyone is in the dark about the real
extent of corruption. Some of the measurement
challenges generally faced by anticorruption
agencies, governments, scholars, and practitioners include the lack of corruption metrics
that are useful in day-to-day policy and programmatic work, the need for more disaggregated data
that move beyond single-country rankings to
more discrete measures within sectors, institutions, and population groups, and the need to
move beyond perceptions-based data as the
basis for corruption measurement.

Future Directions
Because corruption leads to social and political
instability and impedes economic development
of a nation particularly developing nations it
is important that more research be devoted to

Corruption and National Development

explore its causes and how to eradicate it. Therefore, academic researchers and scholars should
continue to study the primary underlying causes
of corruption. Understanding these causes can
help policy makers devise an appropriate method
to address the challenges of corruption.
Researchers should attempt to incorporate the
role of various members of civil society and
voluntary organizations in eliminating corruption. In this era of globalization, important institutions extend beyond national borders.
Fortunately, globalization has helped to expand
the intelligence and power of civil society in the
form of a variety of nongovernmental organizations and other activist stakeholder groups that
can have an impact on eliminating corruption.
Researchers should vigorously continue to search
for an accurate and reliable means to measure
corruption. An accurate measurement of corruption will be helpful in determining the degree of
corruption in a country, and a reliable reporting
process will inform governments and stakeholders about the extent to which corruption is
prevalent, and identify which sector or sectors of
the economy corruption exist.

Conclusion
A useful conclusion that has emerged from the
current discussion and ongoing debate on the
subject of corruption is that corruption has
adverse consequences to economic development.
To be effective, emphasis must be placed on
preventing and tackling the causes of corruption.
Anticorruption enforcement measures such as
oversight bodies, a strengthened police force,
and a more effective and efficient legal system
will be vital when addressing the fundamental
causes of corruption. Another observation that
may be useful to bear in mind is that corruption
is most prevalent where there are institutional
weaknesses, such as political instability, bureaucratic red tape, and weak legislative and judicial
systems. Institutional weaknesses are intertwined
and feed upon each other. For example, red tape
makes corruption possible and corrupt officials
may increase the extent of red tape so that they

629

can get more bribes. Consequently, rooting out

corruption helps a country to overcome other
institutional weaknesses, and inversely, reducing
a countrys institutional weaknesses helps to control corruption. It can be concluded that undertaking measures such as economic and political
reforms by reducing institutional weaknesses
offers the best hope for eradicating corruption.
We believe that political and economic reforms
will bring corruption under control and minimize
its adverse consequences so that countries can
proceed with their efforts to successfully achieve
their developmental goals.

Cross-References
Bribery
Embezzlement
Fraud

References and Readings

Bardhan, P. (1997). Corruption and development:
A review of issues. Journal of Economic Literature,
35(3), 13201346.
Caiden, G. E., Dwivedi, O. P., & Jabbra, J. (2001). Where
corruption lives. Bloomfield, CT: Kumarian.
Denis, O. (2001). Leadership governance and corruption.
A note for the international conference on leadership
held at Abuja.
Friedlich, C. J. (1966). Political pathology. Political
Quarterly, 37, 7085.
Idakwoji, S. P. (2010). Leadership, corruption and development. Canadian Social Science, 6(6), 173179.
Klitgaard, R. (1988). International cooperation against
corruption. Finance and Development, IMF,
Washington, DC, 35(1), 36.
Lambsdorff, J. (2007). The institutional economics of
corruption and reform: Theory, evidence and policy.
New York, NY: Cambridge University Press.
Lipset, S. M., & Gabrel, S. L. (2000). Corruption, culture,
and markets. In L. E. Harrison & S. P. Huntington
(Eds.), Culture matters. New York: Basic Books.
Manion, M. (2004). Corruption by design: Building clean
government in Mainland China and Hon Kong. Cambridge, MA: Harvard University.
Mauro, P. (1995). Corruption and growth. Quarterly Journal of Economics, 110(3), 681712.
Mauro, P. (2004). The persistence of corruption and slow
economic growth. IMF Staff Papers, 51(1), 118.
Miller, W. L., Grodeland, A. B., & Koshechkina, T. Y.
(2001). A culture of corruption? Coping with

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government in post-communist Europe. Budapest/New

York: Central European University Press.
Myint, U. (2000). Corruption: Causes, consequences, and
cures. Asia-Pacific Development Journal, 7(2), 3358.
Nwabuzor, A. (2005). Corruption and development: New
initiatives in economic openness and strengthened rule
of law. Journal of Business Ethics, 59(12), 121138.
Olaya, J. (2006). Looking under every stone: Transparency
international and the fight against corruption. In A. LopezClaros, M. E. Porter, X. Sala-i-Martin, & K. Schwab
(Eds.), The global competitiveness report 20062007
(pp. 95103). Geneva: World Economic Forum.
Quah, J. S. T. (2003). Curbing corruption in Asia:
A comparative study of six countries. London: Eastern
University, Cambridge University Press.
Rose-Ackerman, S. (1999). Corruption and government:
Causes, consequences and reform. New York:
Cambridge University Press.
Samanta, S., Pleskov, I., & Zadeh, A. H. M. (2010).
Religion as a determinant of corruption: Comparative
evidence from OPEC and OECD countries. International Journal of Management, 27(3), 728778.
Tilman, R. O. (1968). Emergence of black-market bureaucracy: Administration, development and corruption in
the new states. Public Administration Review, 28,
437443.
Youthink. (2011). Corruption. From http://youthink.
worldbank.org/issues/corruption. Accessed 18 July
2011.

Countering a Stream
Mitigation

Country Productivity
Global Competitiveness

CR Director

Countering a Stream

Cradle to Cradle
Andrew Sherratt
Broad Lane Business Centre, SPA Professional
Academy, Leeds, West Yorkshire, UK

Synonyms
Closed-loop material systems; Green chemistry;
Industrial ecology

Definition
Cradle to cradle can be defined as the design and
production of products of all types in such a way
that at the end of their life, they can be truly
recycled (upcycled), imitating natures cycle
with everything either recycled or returned to
the earth, directly or indirectly through food, as
a completely safe, nontoxic, and biodegradable
nutrient. With cradle to cradle, all the components of a product feed another product, the
earth or animal, or become fuel: products are
composed of either materials that biodegrade
and become food for biological cycles or of
technical materials that stay in closed-loop
technical cycles, continually circulating as
valuable nutrients for industry. It could be argued
that cradle to cradle is equivalent to true
sustainability through the biological or technical components used, all products become sustainable as nothing becomes waste which cannot
be reused.
The term cradle to cradle is largely attributed to William McDonough; however, it may
have originated over 25 years ago, coined by
Walter Stahel from Switzerland.

Chief Sustainability Officer

Introduction

CR Index
Corporate Responsibility Index

The industrial revolution brought with it a change

in the way man interacted with the environment.
For many years, little regard was paid, if awareness even existed, to the consequences of the way

Cradle to Cradle

631

Cradle to Cradle,
Fig. 1 The organization as
an open system

toxic materials were put into the air, oceans, and

earth on a continual basis. Typically, large
amounts of waste are created, much of which is
valuable yet put into holes in the ground through
landfill schemes; other waste is burned releasing
toxins into the atmosphere and losing forever the
potentially reusable elements. The industrial revolution created a cradle to grave system where
resources from the earth are extracted, made into
products (e.g., some of which require thousands
of different chemical components over 4,000 in
a domestic television) and after use are disposed
of in landfill or incinerators.
A typical manufacturing organization is
often likened to an open system with inputs,
a conversion process, and outputs (Fig. 1).
Within an open system such as this, the
outputs are the desirable elements which customers directly pay for; however, it is recognized
that there are externalities which are undesirable.
These elements, whether gaseous, liquid, or solid
are the direct residue of the conversion process;
some accounts report that more than 90% of
materials extracted to make durable goods in the
United States become waste almost immediately
(Ayres and Neese 1989).
In more recent years, efforts have been made
to reduce the impact of the externalities through
more efficient processes much of the effort
being centered on the principle of the 3Rs

reduce, reuse, and recycle which ranks the

methods associated with mitigating environmental impact of production or use of a product.
Applied to the production process, the reduce
element relates to the eco-efficiency movement
which was largely born from the 1992 Rio Earth
Summit involving 30,000 people from around the
world, including representatives from 167 countries. Eco-efficiency also involves the principle
elements commonly referred to as the triple bottom line, economic, environmental and ethical
concerns, often related to the 3Ps of profit, planet,
and people.
Taking the principles of industry under the
influence of the eco-efficiency movement rather
than the basic elements arising from the industrial revolution, Braungart and McDonough
state that a retrospective look at the results
might show it to be the design of a system of
industry that:
Releases fewer pounds of toxic waste into the
air, soil, and water each year
Measures prosperity by less activity
Meets the stipulations of thousands of complex regulations which reduce, without eliminating, poisoning
Produces fewer materials which can be so
dangerous that future generations are required
to maintain constant vigilance
Results in less externalities, especially waste

632

Puts smaller quantities of valuable materials

into landfill where they can never be retrieved
Essentially, they state that it makes the
destructiveness of the production process
developed through the industrial revolution
a little less so.
Braungart and McDonough state that the goal
of an eco-efficient system is zero: zero waste,
zero emissions, and zero ecological footprint,
based on the principle that human beings are
regarded as bad and that zero is a good goal
but question what it would mean to be 100%
good. These areas relate to the externalities of
the open system.
Before considering the alternative, there are
additional areas of the cradle to grave industrial
system which should be considered those
relating to the actual product produced the
desirable element of the open system. One
major element, a criticism of modern commerce
and marketing in particular, is that it creates
homogenous societies in which there is
a commonality of design in both products and
architecture which has led to a one size fits all
strategy. Braungart and McDonough state that
imposing universal design solutions on an
infinite number of local conditions and customs
is one manifestation of this principle and its
underlying assumption, that nature should be
overwhelmed. A point they make, however, is
that natures entire energy requirement comes
from the sun. Humans extract and burn fossil
fuels, incinerate waste, and use nuclear reactors
to provide energy despite thousands of times the
amount of energy needed to fuel human activities
hits the surface of the planet every day in the form
of sunlight.
In current production systems, products are
designed to appeal to customers at an affordable
price while meeting performance and life expectations and complying with legislation for the
markets they are sold in and produced according
to the regulations in place where manufactured.
A problem identified with this type of product is
that it not only meets these criteria but often
includes elements which make the production
more efficient, potentially in terms of the 3Rs.
Buyers may not know that these additional

Cradle to Cradle

elements are included, and if they did, they may

not want them as they could potentially be harmful to the user and future generations through the
emissions they create, especially when the
current practice of using low-quality materials
to produce low price goods is involved. In particular, products can include ingredients such as
benzene which is banned for certain uses in
some Western countries yet still allowed in lowcost manufacturing countries, meaning that it is
imported as part of a whole product affecting
products today and landfill for the future.
Recycling is not without its disadvantages
many products lose vital characteristics or gain
undesirable chemicals as a part of the recycling
process paper being a prime example. Paper can
only be recycled a finite number of times, at
present technology only allows for seven cycles,
and uses chlorine for bleaching it is only virgin
paper which may be chlorine free. Plastic milk
bottles are regularly recycled to produce fleece
material for clothing; however, at the end of the
life of the jacket, it is likely to be sent to landfill,
only prolonging the time taken for the plastic to
end up there rather than going directly from the
bottle. The alternative, however, for a fleece
jacket is to use virgin polyester which would
also end up in landfill so overall less polyester,
and therefore oil, is used. Clothing company
Patagonia claims to save 42 gal of oil and prevent
a half-ton of toxic air emissions for every 150
jackets made from postconsumer recycled (PCR)
polyester rather than virgin polyester (Chouinard
2006). Ultimately, unless the initial material in
a product is specifically designed to be recycled,
it can often be no better to recycle, and sometimes
worse, than it would be doing nothing.
Aluminum is a rare product which becomes
more efficient with recycling and can fit well to
a cradle to cradle system in addition to being
indefinitely recyclable, it takes only 5% of the
energy and produces only 5% of the emissions to
recycle aluminum compared with aluminum
made from virgin ore. These benefits grow incrementally each time aluminum is recycled.
In overall terms, the value of nations and organizations is measured through gross national
product (GNP) which only measures the sales

Cradle to Cradle

rather than the cost of goods sold. This can lead to

anomalies such as when a national catastrophe,
for example, an earthquake, destroys resources
yet causes GNP to increase because money is
spent on labor and materials despite the loss of
the natural resources affecting the long-term
capability of the nation.
The difference between efficiency and effectiveness is always an important distinction, often
determined as efficiency being doing things right
while being effective means doing the right
things. Eco-efficiency can be seen as doing things
right more efficiently, reducing, reusing, and
recycling, but it does not always mean doing the
right things. A basic tenant of cradle to cradle is
doing the right things being effective.
Braungart and McDonough define their concept
eco-effectiveness means working on the right
things on the right products and services and
systems instead of making the wrong things less
bad.
Contrasting this with the GNP measurement
currently used for countries and the turnover and
profit measures for organization, effectiveness
and doing the right things in organizations
means creating genuine growth taking the full
cost of production into account not just now but
for generations to come.
An example of a natural cradle to cradle
system highlighted by Braungart and
McDonough is a community of ants. They cite
Hoyt 1996 in stating that as part of the daily
activity, ants:
Safely and effectively handle their own material waste and those of other species
Grow and harvest their own food while nurturing the ecosystems of which they are a part
Construct houses, farms, dumps, cemeteries,
living quarters, and food storage facilities
from materials that can be fully recycled
Create disinfectants and medicines that are
healthy safe and biodegradable
Maintain soil health for the entire planet
Despite this parallel, cradle to cradle does not
advocate returning to a pretechnological state.
Instead, it works on the principle that it is possible
to incorporate the best of technology and culture
to reflect a new view where products are made to

633

reflect the full ability which ants display to work

with, and for, nature rather than against it.
Braungart and McDonough suggest a new
design assignment to encompass the broad ideas
of cradle to cradle. Instead of fine tuning the
existing destructive framework, why dont people and industries set out to create the following:
buildings that, like trees, produce more energy
than they consume and purify their own waste
water
factories that produce effluents that are drinking water
products that, when their useful life is over, do
not become useless waste but can be tossed
onto the ground to decompose and become
food for plants and animals and nutrients for
soil; or, alternatively that can return to industrial cycles to supply high-quality raw materials for new products
billions, even trillions, of dollars worth of
materials accrued for human and natural purposes each year
transportation that improves the quality of life
while delivering goods and services
a world of abundance, not one of limits, pollution, and waste
For millions of years, the natural cyclical,
biological system using the Earths major nutrients of carbon, hydrogen, oxygen, and nitrogen
has nourished a thriving planet with diverse abundance. The industrial revolution has changed
much of that with the extraction of a multitude
of constituents which are transformed and
merged into materials which cannot be recycled
by the Earth and therefore create problems of
waste and a reduction of resources. With growth
and success measured purely by output of products rather than the full cost and effect of inputs,
this non-cycle could continue until the resources
expire. However, the cradle to cradle principle
requires humans to learn to imitate natures
highly effective system of nutrient flow and
metabolism, in which the very concept of waste
which serves no ongoing purpose does not exist
and will allow continual, sustainable growth.
For true sustainability within the cradle to
cradle system, products are composed of materials that biodegrade and become food for

634

biological cycles or of technical materials that

stay in closed-loop technical cycles, in which
they continually circulate as valuable materials
for industry, and sometimes a combination of the
two, provided they are designed to be separable at
the end of the life of the product. The cradle to
cradle process travels full circle starting off with
the creation of products that are safe for both
human and environmental health and ending
with the easy recovery and reuse of the materials
in the products (Nahikian 2007).
In the early 1990s, DesignTex, a division of
Steelcase, set out, with the help of Braungart and
McDonough,
to
conceive
and
create
a compostable upholstery fabric, after rejecting
proposals for materials using a combination of
cotton and recycled soda bottles (PET) due to the
potential harmful effects of particles from the
PET materials eroding during use the PET
would make the end of life fabric a waste the
PET would not go back to earth safely, and the
cotton could not be separated to be used again.
The eventual material chosen was a combination
of wool and ramie. The production process for the
new materials was such that the water which
exited the factory (an externality in the open
system previously described) was as clean as or
cleaner than the water entering. As Braungart and
McDonough say, Not only did our new design
process bypass the traditional responses to environmental problems (reduce, reuse, recycle), it
also eliminated that the need for regulation,
something that any sane businessperson will
appreciate as extremely valuable.
Steelcase have now worked with cradle to
cradle concepts for nearly 20 years and find that
as consumers become more educated on issues of
sustainability and they enforce stricter environmental guidelines when purchasing products, so
much so that nearly 85% of their client proposal
requests have an environmental component
(Nahikian 2007).
While the industrial revolution has led to
a one size fits all approach, cradle to cradle
needs to take a more local approach, recognizing
that people and environments vary considerably
local materials, resources, energy requirements
and availability, and abilities to reuse elements

Cradle to Cradle

either biologically or technically can be very

different in different regions.
A current world situation is that there are
countries which do accept types of waste that
others do not. This means that waste of some
types is transported to countries where it can
legally be disposed of, even though the issue
meaning it is not allowed elsewhere still exists.
Because sustainability should be regarded as
local, national, and global, cradle to cradle recognizes that it is not viable to allow externalities
of emissions, effluents, or waste to pollute
locally; it is also wrong to ship them elsewhere
just because there is less regulation. Connecting
to natural flows allows us to rethink everything
under the sun: the very concept of power plants,
of energy, habitation, and transportation
(Braungart and McDonough 2008).
Buildings are an area where cradle to cradle
can be, and is being, applied. Buildings utilize
a large percentage of the energy, electricity, and
raw materials used in the world while producing
a significant amount of greenhouse gas emissions
and waste (Nahikian 2007) Cradle to cradle can
play a significant part in both the fabric of the
building and the environmental footprint of commercial interiors. In the USA, there is a rating
program from the Green Building Council
Leadership in Energy and Environmental Design
(LEED) which promote sustainable building
design and manufacturing processes. This is
another area in which aluminum can play a
role recycled aluminum building products,
along with other recycled materials, are routinely
used with other recycled materials to earn points
toward LEED ratings. One example of the use of
aluminum in buildings is for roof shingles; they
have many benefits over typical asphalt shingles
including the ability to reflect 95% of sunlight to
significantly reduce the requirement for air conditioning in the summer, in addition to being
100% recyclable at the end of their lives. Currently used asphalt shingles are dumped into
landfill at the rate of 20 billion pounds per year
(Sustainability Working Group, Aluminum
Association 2009).
Taking this further, working with others at
Oberline College, Braungart and McDonough

Cradle to Cradle

conceived the idea for a building and its site

modeled so the way a tree works. We imagined
ways that it could purify the air, create shade and
habitat, enrich soil, and change with the seasons,
eventually accruing more air than it needs to
operate. The building featured solar panels,
wind protection from a grove of trees on the
buildings North side, water storage for irrigation
through a pond, and a separate pond for cleaning
effluent through specially selected organisms and
plants. The building did require upgrading of the
initial solar-powered supply before it became
a net energy exporter (Sacks 2008), but the
fact it does this at all puts it ahead of most
buildings.
One large project which has embraced cradle
to cradle has been the revitalization of the Ford
Rouge Centre a US$2 billion price tag which
included the redevelopment of a 600-acre brownfield site into a 2.3 million-square foot truck
manufacturing plant. William McDonough
worked with Ford primarily on landscaping,
producing the worlds largest living roof (10.4
acres) which provides insulation and acts as
a storm water retention area. The parking lot is
porous to collect water which is used elsewhere in
the plant, and there is a fumes to fuel system
which recycles paint fumes high in volatile
organic compounds (VOCs) into fuel to supply
electricity to the paint shop (Business and the
Environment 2006). Braungart and McDonough
report that the health of the site is measured not
in terms of meeting minimum governmentimposed standards, but with respect to things
like the number of earthworms per cubic foot of
the soil, the diversity of birds and insects on the
land and of aquatic species in a nearby river and
the attractiveness of the site to local residents.
The work is governed by a compelling goal:
creating a factory site where Ford employees
own children could safely play.
Other advantages accrue to organizations
adopting cradle to cradle products and buildings.
Eliminating harmful chemicals from business
and manufacturing processes provides a cleaner,
less toxic environment within which the
employees work. This typically leads to reduced
absenteeism due to sickness green buildings

635

being reported to reduce absenteeism by 15%,

increasing overall employee productivity
(Nahikian 2007).
As durable objects buildings can be designed
to be adaptable for different uses in the future
changing from commercial use to domestic and
back again as demands and needs change.
Products can be designed with future use in
mind, when the Ford Motor company was
manufacturing the Model T Henry Ford specified
the size of the packing crates used for shipping
components from suppliers. This was done so the
crates could be dismantled and the wood they
were made from could then be utilized, without
further modification, for the floorboards of the car
(Womack and Jones 2008). In a similar way,
Maille, the French mustard producer, packages
mustard in pots which can be used as drinking
glasses once the mustard is finished a design
with future upcycling included.
The Sustainable Packaging Coalition, which
includes 190 companies Procter & Gamble,
Kraft, and Starbucks, among them is working
to develop environmentally sound packaging
practices (Sacks 2008). The coalition may help
overcome the issues such as the one in China
where Styrofoam packaging represents such
a disposal problem that people often refer to it
as white pollution (Braungart and McDonough
2008).
Braungart and McDonough state that while It
has famously been said that form follows
function, the possibilities are greater when form
follows evolution using soap as an example
they point out that manufacturers could
reconceive soap as a service based product,
designing washing machines to recover detergent
and use it again and again based on the fact that
only 5% of a standard measure of detergent is
consumed in the laundry cycle.
As the eco-effectiveness principles of cradle
to cradle should celebrate commerce, Braungart
and McDonough have created a visualization tool
which allows a proposed designs relationship to
a multiplicity of factors to be creatively examined
(Fig. 2).
This tool allows the questions from people
with different priorities to be addressed, while

636

Cradle to Cradle

100% recycled PET lining made from

recycled plastic bottles
100% organic cotton laces
Durable Green Rubber lug outsole made
from 42% recycled rubber
To close the loop, at the end of the life of the
boot, customers return them to Timberland stores
from where the company disassembles the main
part of the boot, refurbishes the leather parts,
recycles the PET lining, and recycles the soles
into new Green Rubber (Schwartz 2009 and
www.timberland.com 2011).

Ecology

Equity

Economy

Cradle to Cradle, Fig. 2 Triple top line design factors

Key Issues

balancing them with other areas required for

cradle to cradle ethos. Balancing the money
(economy) with fairness toward others (equity)
and the impact in relation to natures laws
(ecology).
The phrase triple bottom line is often used in
relation to sustainability, although often with
economic factors taking precedence with organizations giving secondary consideration to how to
maintain the profit while aiding the environment
and ethical considerations. Using the above tool
allows consideration of a triple top line moving
from the conventional design criteria of cost,
aesthetics, and performance which can be seen
with the questions:
Can we profit from it?
Will the customer find it attractive?
Will it work?
The tool allows the factors to be incorporated
in the initial design stages, gaining greater advantages than can be achieved by starting from
a purely economic perspective.
Timberland is an organization which has
introduced a product which closes the loop in
many areas in terms of the biological and technical nutrients used for manufacture. The
Earthkeepers 2.0 Boot brings Timberland closer
to a closed-loop system. The boots are
manufactured with:
Leather from a tannery-rated Silver for its
improved water, energy, and waste management practices

A key issue for cradle to cradle as terminology is that

it is potentially owned by William McDonough
through trademarking. Certification to cradle to cradle standard is through McDonough Braungart
Design Chemistry (MBDC) which to date has certified only a relatively small number of products.
Fundamentally, however, cradle to cradle can
be seen as needing a backward step not technologically as already discussed but in design terms.
Stepping backward is required to consider all of the
component parts and their material makeup, along
with the process through which those components
have been made. This is not a job which can be
undertaken lightly or quickly when Patagonia
changed to organic cotton from conventionally
grown cotton, it required a two-year process and
a reduction in the cotton product line from ninety
one styles down to sixty six (Chouinard 2006).
The issue is something which has to be
addressed at the highest strategic level in an organization, but experience from those who have
adopted the principles is that it does bring benefits economically to the organization, in addition
to all the wider social benefits accrued.

Future Directions
In the book Cradle to Cradle, Braungart and
McDonough outline the key steps organization
can take to reach implementation of cradle to
cradle:

Cradle to Cradle

637

Step 1: Get Free of Known Culprits

Eliminating the products and processes known to
be harmful and ensuring that they are not just free
of these but also that any replacements used do
not cause harm.

a positive list, an organization might be encoding

information about all the ingredients in the materials themselves, in a kind of upcycling
passport that can be read by scanners and used
productively by future generations.

Step 2: Follow Informed Personal Preferences

There are many areas in which there is no clear
right thing to do, an example being the use of
paper where recycled paper has obvious benefits
over virgin pulp in some ways but introduces
undesirable chlorine which is absent in virgin
pulp, chlorine-free paper. With choices such as
this (much as the frying pan and the fire), using
personal preferences, particularly those know to
include products which can have positive or
favorable benefits is the best way to proceed.
A study was performed by Michael Braungart
for Wella Industries, an international hair-care and
cosmetic-products manufacturer that was trying to
determine how people might be encouraged
through marketing and packaging to choose
environmentally friendly packaging for body
lotions. A small but significant number of customers chose to buy the product in a highly unattractive eco package when it was placed next to
the identical product in its regular packing on
shelves, yet the numbers choosing the eco packaging when it was placed next to an over-the-top
luxury package for the identical product
skyrocketed (Braungart and McDonough 2008).

Step 5: Reinvent
Moving forward, new systems are invented
which look for different solutions to problems
existing products meet is a car the correct
form of transport or can a different product be
conceived to solve transportation needs and, in
doing so, can it be more beneficial to the world
and create real growth, for example.
This step, the final one in transformation to an
eco-effective vision (and those preceding it),
does not happen all at once. To put in place, it
will require trial and error trial and errors which
will involve time, money, effort, and creativity to
be spent in many directions.
As a final point, Braungart and McDonough
state It is important, however, that signals of
intention be founded on healthy principles, so
that a company is sending signals not only about
the transformation of physical materials but also
about the transformation of values.
Cradle to cradle principles can be used to
create truly sustainable products and services,
recycling biological nutrients to the Earth and
reusing technical nutrients in industrial processes
sustainably.

Step 3: Create a Passive Positive List

All the possible component parts of a product are
considered in terms of their potential effects at
three stage: in manufacture, during use and end of
product life to establish alternatives which are
positive as opposed to harmful. Negative elements are omitted, substituted by positive products without fundamentally changing the
product, its design, or method of use.
Step 4: Activate the Positive List
The actual product is redesigned to include only
good elements, considering how it can be made
from biological and technical nutrients which can
be returned to the Earth or reused at the end of the
product life. It is suggested that with activation of

Cross-References
Climate Change
Eco-Efficiency
Ecological Footprint
Industrial Ecology
Organic
Sustainable Consumption

References and Readings

Aluminum Association Sustainability Working Group.
(2009, April). Cradle to cradle: Aluminums green
value proposition. Metal Center News, pp. 26

638

Ayres, R., & Neese, A. V. (1989). Externalities: Economics and thermodynamics. In F. Archibugi &
P. Nijkamp (Eds.), Economy and ecology: Towards
sustainable development. Dordrecht: Kluwer.
Braungart, M., & McDonough, W. (2008). Cradle to
cradle: Re-making the way we make things. London:
Vintage.
Business and the Environment. (2006). Focus report:
Cradle to cradle Designing beyond the three Rs,
pp. 13.
Chouinard, Y. (2006). Let my people go surfing: The
education of a reluctant businessman. New York:
Penguin.
Hoyt, E. (1996). The Earth dwellers: Adventures in the
land of ants. New York: Simon & Schuster.
Nahikian, A. (2007). Cradle to cradle: An environmental
evolution. Environmental Design & Construction,
10(7), 143144.
Sacks, D. (2008). Green guru gone wrong: William
McDonough.
Fast
Company.
http://www.
fastcompany.com/magazine/130/the-mortal-messiah.
html. Accessed 15 June 2011.
Schwartz, A. (2009). The Earthkeeper 2.0 Boot:
Timberlands attempt at closing the loop. Fast
Company. http://www.fastcompany.com/blog/arielschwartz/sustainability/earthkeeper-20-boot-timberlands-attempt-closing-loop. Accessed 16 June 2011.
Website: www.timberland.com
Womack, J. P., & Jones, D. T. (2008). The machine
that changed the World. New York: Simon &
Schuster.

Craft Union

CRI
Corporate Responsibility Index

Crises Management
Strategic Risk

Critiques of Business Social

Responsibility
Critiques of Corporate Social Responsibility

Critiques of Corporate Citizenship

Critiques of Corporate Social Responsibility

Craft Union

Critiques of Corporate Conscience

Collective Bargaining/Trade Unions

Critiques of Corporate Social Responsibility

Critiques of Corporate Ethics

Credibility

Critiques of Corporate Social Responsibility

Trust and CSR

Creed Statement

Critiques of Corporate Social

Performance

Corporate Mission, Vision and Values

Critiques of Corporate Social Responsibility

Critiques of Corporate Social Responsibility

Critiques of Corporate Social

Responsibility
Mary Godwyn
History and Society Division, Babson College,
Babson Park, MA, USA

Synonyms
Critiques of business social responsibility;
Critiques of corporate citizenship; Critiques of
corporate conscience; Critiques of corporate
social performance; Critiques of corporate ethics;
Critiques of industrial responsibility; Critiques
of socially responsible business; Critiques of
socially responsible management

Definition
Critics of Corporate Social Responsibility (CSR)
argue that CSR policies are developed and
adopted primarily to increase the profit of the
company and only secondarily to enact practices
that will benefit social good. Critics claim that
when profit and social good are in conflict, the
policies of social responsibility are subordinated
to those of profit.

Introduction
At its most basic, the idea of corporate
social responsibility (CSR) is to include public
interests reflected in laws, norms, ethics, and environmental sustainability into corporate decisionmaking. R. Edward Freeman (1984) used the term
stakeholder to designate those who are affected
by the company but not necessary shareholders.
Examples of stakeholders are employees,
consumers, communities, and the environment.
Richard Marens (2009) notes that stakeholder theory has two aspects: one prescriptive and one
pragmatic. The prescriptive aspect directs

639

managers to act ethically by recognizing and

responding to the interests of those who are substantively affected by corporate decisions. The
pragmatic aspect predicts that the ethical treatment
of stakeholders will generate superior performance
for the company.
Riane Eisler (2007) gives ample evidence that
CSR policies are indeed both socially and financially beneficial. For instance, when companies
support the family obligations of employees,
productivity increases. According to statistics
cited by Eisler, American Express had a
$40 million increase in sales productivity when
telecommuting became an option; Aetna had
a 30% increase in claim processing when
employees began working from home, and
United Postal Service found that flexible work
hours reduced employee turnover from 50% to
6% (2007: 5152). Similar benefits to productivity and cost-saving resulted when companies contributed to the health and fitness of employees.
Additionally, those companies rated by Fortune
magazine as the best places to work yielded
shareholder returns of 27.5% as compared to
Russell 3000 stocks that had average returns of
17.3% (Eisler 2007: 51).
However, the findings of other research on
CSR are more mixed. Margolis and Walsh report
that in 127 studies conducted between 1972 and
2002, only about half of the companies benefitted
financially from their CSR programs (2003). Significantly, these authors found little evidence that
CSR policies had negative financial effects on
companies (Banerjee 2008: 61).
From the 1950s to 1970s, the ethics of corporate behavior were marked by a balancing of
productivity on the one hand with unions and
state regulations overseeing public good on the
other. Corporations worked in relative cooperation with unions and labor counted on government support. Elisabeth S. Clemens argues that
during this time, corporations, like governments,
were judged in part by their degree of social
responsibility (2009). This arrangement resulted
in the sharing of prosperity (Marens 2009:
112).

640

In the 1980s, a stagnant US economy, lower

productivity, and reduced government support of
labor gave way to the relative autonomy of
management (Marens 2009: 113). The increased
managerial power, indicated in part by the greater
degree of legitimacy, authority, and remuneration
given to the Chief Executive Officer (CEO) position, provided the basis for Freemans stakeholder theory (1984). A theory that, when
perfectly implemented, mandates managers to
weigh the interests of each stakeholder together
with corporate objectives, as opposed to managers making decisions based primarily on
achieving greater profitability. Under stakeholder
theory, the corporation was thereby imbued with
moral leadership. In this economic climate,
corporate social responsibility policies became a
substitute for the roles once played by union
protections and government regulations.
However, many authors have argued that CSR
policies are largely insincere and are merely
intended to distract stakeholder attention from the
true corporate goal of profit maximization. For
instance, empirical evidence demonstrates that
since the 1980s and regardless of the benefits of
CSR, US corporations have systematically
discounted the interests of stakeholders: US corporations are less likely to share their profits with
employees and less likely to support the right to
unionize than they were in the two previous decades.
They have also vigorously rejected government regulation. Subhabrata Bobby Banerjee notes that corporations, initially recognized in the eighteenth
century as entities serving the public good, have
in the past 200 years systematically diminished the
power of state and federal governments in regulating
their activity (2008: 67). Yet, corporations are one
of the largest beneficiaries of US government protections; there are dozens of cases where the US
government has restricted foreign access to their
markets to protect US corporate interests. Banerjee
states that caring for the corporation is bigger business than the caring corporation (2008: 69).
Indeed, Robert Reich writes that even those
businesses that launch corporate responsibility
initiatives do so only to the degree that such
policies result in shareholder value and increased
profit:

Critiques of Corporate Social Responsibility

All these steps may be worthwhile but they are not
undertaken because they are socially responsible.
Theyre done to reduce costs. To credit these corporations with being socially responsible is to
stretch the term to mean anything a company
might do to increase profits if, in doing so, it also
happens to have some beneficial impact on the rest
of society. Taken to the logical extreme is the
textbook economics argument that whenever
a company increases its profits it has a positive
effect on society because it thereby utilizes assets
more efficiently, releasing those that are no longer
needed to be used more efficiently elsewhere.
In this sense, all profitable companies are socially
responsible. (Reich 2007: 171).

Accordingly, corporate social responsibility

practices are not a repositioning of business decisions within the sphere of social values or the
balancing of shareholder earnings and community considerations, but a continuation of the primacy of profit for the company, such that, as
Reich points out, taking care of private interests
is, in some ill-defined way, the same as
addressing the public good.
Like Marens, Reich also interprets the
1950s1970s as a time of relative sharing among
corporations and their stakeholders. However,
Banerjee reminds us that this 20-year period of
time was the exception. US corporations gained
the legal identity as persons in the early 1800s, and
Banerjee writes that these 19th century underhand skullduggery strategies would bring a blush
even to the crooks that ran Enron (2008: 56).
Banerjee argues that despite allusions to
morality and emancipation, current corporate
social responsibility, corporate citizenship, and
sustainable business practices are grounded in
narrow business interests and serve to curtail the
interests of external stakeholders. In fact,
Banerjee claims that discourses of CSR are used
by corporations much like nations employ the
rhetoric of colonization: to legitimize and consolidate power. He quotes William Duggar,
The corporation has evolved to serve the interests of whoever controls it at the expense of
whomever does not (Banerjee 2008: 51).
Using Michel Foucaults concept of subjectification, that managers become subjects of the
corporation and develop their sense of meaning
and reality through their identification with the

Critiques of Corporate Social Responsibility

interests of the firm, Banerjee argues that

managers are not free to make socially responsible decisions (2008: 58). Muhammad Yunus
agrees. Yunus states that because of the mandate
to maximize shareholder interests, to the degree
that CSR policies have been instituted in profitdriven companies there is little dispute that social
responsibility is a distant second to profit accumulation. Rejecting corporate social responsibility as
a way to address social problems, Yunus writes:
CSR takes two basic forms. . . weak CSR has the
credo: Do no harm to people or the planet (unless
that means sacrificing profit). . .[and] strong CSR
says: Do good for people and the planet (as long as
you can do so without sacrificing profit.) (Yunus
2007: 15, emphasis in the original). . .Occasionally,
through a happy accident, the needs of society and
opportunities for high profits happen to coincide.
But what happens when profit and CSR do not go
together? What about when the demands of the
marketplace and the long-term interests of society
conflict? What will companies do? Experience
shows that profit always wins out. (Yunus 2007:
17, emphasis in the original).

Yunus explains that the reason profit invariably triumphs over public good is because of the
fundamental logic behind business management.
In other words, the current conceptualization of
business practices dictates that when immediate,
short-term profit for a private company is at odds
with social interests (whether those interests are
long term or short term), those managers who
make the business decisions will be judged as
irresponsible if they choose public good over
private profit:
Since managers of a business are responsible to
owners or shareholders, they must give profit the
highest priority. If they were to accept reduced
profits to promote social welfare, the owners
would have reason to feel cheated and consider
corporate social responsibility as corporate financial irresponsibility. (Yunus 2007:17, emphasis in
the original).

In fact, a 1919 court case, Dodge v. Ford

Motor Company, ruled against Henry Ford
because he chose to forgo the dividend payments
to shareholders in an attempt to spread his individual system to the greatest possible number; to
help them build up their lives and their homes
(Banerjee 2008: 59). A literal extrapolation of

641

this ruling could mean that to the degree that

corporate social responsibility threatens profit
and therefore shareholder dividends, it is illegal.
One assumption of this conclusion is that there is
a rigid distinction between shareholders and
external stakeholders such that shareholders are
not affected by the social impact of the company
in which they hold stock.
Authors have also pointed out that corporate
social responsibility is voluntary and therefore
non-enforceable, and also difficult to confirm.
Joseph Stiglitz writes that even the worst polluters and those with the worst labor records,
have hired public relations firms to laud their
sense of corporate responsibility and the concern for the environment and workers rights
(2007: 199). Therefore, even as companies
evade social responsibility they are adept at
misrepresenting their practices as beneficial to
the public good.

Key Issues
Critiques of Corporate Social Responsibility can
be found in literature contributed by Critical
Management Studies, but also from prominent
economists such as Muhammad Yunus and
Joseph Stiglitz. The focus of these critiques is
that CSR is used instrumentally, if indirectly, to
advance the profits of the company, and therefore
CSR programs do not, as they claim, protect or
prioritize social good when the profits of the
company are deemed to be in conflict.

Future Directions
Corporate social responsibility initiatives have
come under scrutiny from a number of sources
that question whether public good is served by
CSR policies, whether the policies advance the
financial interests of the firm, and whether CSR is
sincere or merely an instrument used selectively
by corporations to increase profits. However, reliance on corporations to protect the public good
continues to grow. In the United States, the
strength of labor unions is waning as evidenced

642

by the small union membership among workers

in the private sector and the 2011 gubernatorial
movement to rescind collective bargaining rights
for public workers. The power of US government
regulations to protect social and environmental
interests is also declining while the might of
corporations increases, as evidenced by judicial
rulings such as Citizens United v. Federal
Election Commission (2010), which invokes the
First Amendment to give corporations unlimited
ability to contribute to independent political
broadcasts and therefore allows unprecedented
corporate influence in US elections. Given both
inevitable conflicts between the goals of social
responsibility and profit maximization and the
role of managers to maximize shareholder interests, CSR is a highly problematic public servant.
Yet, for lack of alternatives, corporate social
responsibility policies remain a source of hope
and fertile ground for advancing social good and
environmental sustainability.

Critiques of Industrial Responsibility

Foucault, M. (1980). Power/knowledge: Selected
interviews and other writings (pp. 19721977).
New York: Pantheon.
Foucault, M., et al. (1979). Governmentality. In G. Burchell
(Ed.), The foucault effect: Studies in governmentality
(pp. 87104). Chicago: University of Chicago Press.
Freeman, R. E. (1984). Strategic management:
A stakeholder approach. London: Pitman Publishing.
Marens, R. (2009). Its not just for communists anymore:
Marxian political economy and organizational theory. In
P. S. Adler (Ed.), The oxford handbook of sociology and
organizational studies. London: Oxford University Press.
Margolis, J. D., & Walsh, J. P. (2003). Misery loves
companies: Rethinking social initiatives by business.
Administrative Quarterly, 48(3), 513517.
Reich, R. B. (2007). Supercapitalism. New York: Knopf.
Stiglitz, J. (2007). Making globalization work. New York:
W. W. Norton and Company.
Yunus, M. (2007). Creating a World without poverty.
Social business and the future of capitalism.
New York: Public Affairs.

Critiques of Industrial Responsibility

Critiques of Corporate Social Responsibility

Cross-References
Business Ethics
Business in Society
Corporate Citizenship
Government (Role in Regulation, etc.)
Socially Responsible Management (SRM)
Stakeholder Theory
Stakeholders
Strategic Corporate Social Responsibility

References and Readings

Banerjee, S. B. (2008). Corporate social responsibility:
The good, the bad and the ugly. Critical Sociology,
34(1), 5179.
Clemens, E. S. (2009). The problem of the corporation:
Liberalism
and
the
large
organization.
In P. S. Adler (Ed.), The oxford handbook of sociology
and organizational studies. London: Oxford
University Press.
Duggar, W. M. (1989). Corporate hegemony. Westport:
Greenwood Press.
Eisler, R. (2007). The real wealth of nations: Creating
a caring economics. San Francisco: Berrett-Koehler
Publishers.

Critiques of Socially Responsible

Business
Critiques of Corporate Social Responsibility

Critiques of Socially Responsible

Management
Critiques of Corporate Social Responsibility

Crocidolite
Asbestos

Crookedness
Bribery and Corruption

Cross-Cultural Attitudes to CSR

Cross-Cultural Attitudes to CSR

Brigitte Planken
Department of Business Communication Studies,
Department of Communication and Information
Sciences, Radboud University, Nijmegen,
The Netherlands

Synonyms
Cross-cultural expectations of CSR; Crosscultural orientations to CSR; Cross-national
differences in government involvement in CSR

Definition
Cross-cultural attitudes to CSR relate to the notion
that the expectations and orientations of different
stakeholders such as consumers with regard to
CSR are not universal but can differ across borders, that is, from one (national) culture to the
next. How the concept of CSR is conceptualized
and regarded, and whether CSR policy is regarded
as altruistically or strategically motivated, for
example, can differ across cultures. For example,
variations have been shown to manifest themselves in stakeholders orientations to CSR with
respect to the importance assigned to different
dimensions of social responsibility (i.e., economic, legal, ethical, philanthropic). Furthermore,
cross-cultural differences in corporate orientations
to CSR are reflected in the CSR themes and activities businesses in different countries, or different
world regions, choose to implement as part of CSR
policy. Finally, in recent years, CSR has been
driven increasingly by public policy and legislation at national levels, particularly in Europe. The
fact that government approaches and involvement
in driving CSR can diverge cross-nationally also
explains some of the variation across cultures in
CSR policy and social governance.

643

complex network of different stakeholders who

can influence that organization directly or
indirectly. This stakeholder network may extend
across the globe, depending on the degree to
which a (multinational) organization operates on
an international scale. Organizations have come
to realize that responding to stakeholders
appropriately in the actions they undertake, that
is, meeting stakeholders expectations, and
specifically with respect to CSR-related issues,
is not only essential but worth their while.
Responsiveness to stakeholder concerns can
invoke positive corporate associations and
contribute to a better corporate reputation,
which, in turn, is assumed to improve corporatestakeholder relations and promote positive
stakeholder behaviors. At the same time, organizations are acutely aware that stakeholders have
developed increasingly higher CSR expectations
in recent decades and that stakeholders can
become overtly intolerant of organizations that
fail to meet their expectations, even going so far
as to generate negative publicity or to promote
a boycott. Well-known cases of boycotts with an
international scope resulting from a mismatch
between CSR-based stakeholder expectations
and corporate practices include the Nestle boycott in the United States and Europe initiated in
the late 1970s, and more recently, from 2008 to
2010, the boycott involving Ford Motor Company. Cases such as these are a clear indication
of the link between stakeholder expectations and
CSR-related issues on the one hand, and between
CSR expectations and stakeholder reactions to
corporate practices and behavior on the other.
Stakeholders can reward or punish an organizations practices and behavior, and the extent to
which they do so is partly a function of their
expectations of CSR (Creyer and Ross 1997),
which can vary across cultures.

Culture-Based Differences in CSR

Expectations and Orientations
Introduction
To maintain legitimacy nowadays, an organization needs to operate responsibly within a

In a business environment which is increasingly

international, establishing CSR policy that meets
the expectations of a potentially diverse set of

644

stakeholders from different cultures poses

a complex challenge. Culture can be regarded as
the fundamental system of meanings and beliefs,
learned over time, that members of a particular
group or society share. Different cultures can
hold different beliefs and emphasize different
cultural values, and what is important in one
culture may be less so in another. Such
differences have been confirmed in comparative
empirical research on cultural and human values.
Hofstede (1980), for example, on the basis of
a large-scale cross-cultural survey of IBM
employees, identified four dimensions or categories that distinguish different cultural traits and
with respect to which cultures can be seen to
differ: power distance (the degree to which
unequal power distributions are accepted), individualism-collectivism (the degree to which individuals goals take precedence over group goals),
high-low uncertainty avoidance (the degree to
which cultures have a tolerance for ambiguity
and uncertainty), and masculinity-femininity
(the degree to which a culture places higher
value on assertiveness, things and power than
on nurturance, people, and quality of life).
Among other things, a cultures specific belief
and value patterns can affect the role organizations and institutions take on in that particular
society and what that society, and the
stakeholders in it, expects of organizations and
institutions (e.g., Katz et al. 2001). In other
words, as cultural beliefs and values can differ
across cultures, so can stakeholders attitudes to
(the importance of) social responsibility,
their expectations with regard to corporate
involvement in (resolving) CSR-related issues,
and their attitudes to specific CSR themes and
issues (e.g., climate change, community support,
labor rights, and human rights). As a result,
different cultures may take divergent stances
and respond differently to the idea of CSR and
to the CSR initiatives undertaken by companies.
By extension, the demands of stakeholders
with regard to CSR issues and how organizations
approach these issues to meet stakeholder
expectations will partly depend on the cultural
setting in a particular country. Katz et al.
(2001), for instance, have suggested that cultures

Cross-Cultural Attitudes to CSR

that are low in terms of Hofstedes uncertainty

avoidance, masculinity and power distance indices, but high on the individualism dimension will
tend to display a high degree of consumer
activism, expecting more product information
and putting more emphasis on service,
people, and quality. Williams and Zinkin (2008)
found empirical evidence for differences between
countries with regard to the likelihood that
consumers will punish companies unethical
corporate practices. Based on a GlobeScan CSR
Monitor survey including data from 30 countries,
they found that cultures with low scores
on Hofstedes power distance and high-low
uncertainty avoidance dimensions, but with high
scores on the individualism-collectivism and
masculinity-femininity dimensions, are more
likely to punish irresponsible corporate practices.
Plausibly, differences in the likelihood to engage
in punishing behavior in different cultures, such
as Williams and Zinkins study uncovered,
could be argued to be the result, at least in part,
of different underlying attitudes to CSR across
countries.
Carroll (1991) has suggested that businesses
need to fulfill four basic societal responsibilities: economic, legal, ethical, and
philanthropic. Effectively, the different types of
social responsibility constitute domains in which
managers and organizations operate to give shape
to CSR policy, determine CSR strategy, or adopt
a CSR platform (e.g., environmental, ethical,
philanthropic, etc., or a combination). Carroll
posits that whereas the foremost responsibility
of business is economic in nature (p. 500), that
is, the responsibility to make profit, the remaining
three responsibilities are relatively less important
and can be ranked in terms of decreasing
significance, from legal to ethical to philanthropic, the latter responsibility being the least
important, with the least priority in business.
With respect to attitudes to the different social
responsibilities that make up CSR, evidence from
a number of empirical studies has provided
indications that CSR is regarded differently
across cultures. Maignans (2001) survey of
consumer attitudes to CSR in the United States,
Germany, and France showed that French

Cross-Cultural Attitudes to CSR

and German consumers regarded the economic

responsibility as significantly less important than
American consumers, who positioned the
economic and legal responsibilities as the top
two responsibilities for businesses. More surprisingly, in light of Carrolls relative ranking of the
four social responsibilities, the French and
German consumers rated the legal, ethical, and
philanthropic responsibilities as significantly
more important than the economic responsibility.
Maignan relates this finding to the fact that
German and French cultures are characterized
by a communitarian ideology, whose members
are unlikely to perceive the pursuit of objectives
aimed at self-interest as an appropriate goal
for any social agent. Instead, consumers in
communitarian cultures may feel that businesses
use their economic resources to promote
well-being in society more generally and that
reaching economic objectives is not a primary
social responsibility. Maignans study also
found that although consumers in all three
countries were willing to support responsible
organizations (i.e., businesses that engage in
CSR) by buying from them, consumers in France
and Germany were significantly more likely to do
so than consumers in the United States. Together,
these results provide an indication that as
stakeholders attitudes to CSR vary across
cultures, so might their response to CSR
initiatives and their subsequent behavior.
Crane and Matten (2007) explicitly addressed
the suggestion that culture can influence how
CSR priorities are perceived across countries.
Discussing CSR in the European context on the
basis of Carrolls framework, they conclude that
all levels of CSR in Europe play a role across
the different countries, but have different
significance, and [. . .] are interlinked in
a somewhat different manner (p. 51). Indeed,
this seems to be reflected in the CSR policy
implemented by companies in different European
countries. Maignan and Ralstons study of CSR
reporting as an indicator of CSR policy and
activities by businesses in France, the Netherlands, and the UK (and the USA) showed that
firms in the three European countries opt to
implement (partly) different CSR policy that is

645

based on potentially different CSR motivations

(i.e., value-driven, performance-driven, or stakeholder-driven), involves potentially different
CSR processes (e.g., environmental programs,
philanthropy,
sponsorship,
volunteerism,
ethics code, health and safety programs), and
addresses potentially different stakeholder issues
(e.g., employee, community, customer, or
shareholder focussed), in order to enact responsibility to society. Another comparative study of
corporations CSR communication, across 16
different nations (Hartman et al. 2007), showed
that US-based companies tended to justify CSR
policy in economic (i.e., bottom line terms)
terms, while European companies relied
relatively more on arguments relating to
citizenship, corporate accountability, and
moral commitment to support their CSR policy,
reflecting cross-national differences in CSR
orientation. Although additional research is
needed, it seems plausible that such
cross-national differences can be linked to the
traditional role played by firms in the different
societies (i.e., cultures) under study.

CSR Orientations in Developing Versus

Developed Countries
Visser (2008) has drawn similar conclusions
about cross-cultural attitudes to CSR in
developing world regions (i.e., in Asia, Africa,
and Latin America), based on descriptive
accounts and case studies in, for example, Brazil,
South Africa, India, and China. He suggests
that in a developing country context, the
relative importance assigned to Carrolls four
responsibilities is different than in developing
economies and that Carrolls original framework
is essentially biased toward CSR in the developed
world. While economic responsibility is also
regarded as most important in the developing
countries (as in Carrolls original model), it is
philanthropic responsibility (least important in
the original framework) that seems to be regarded
in developing regions as second most important,
ahead of legal and ethical responsibilities.
The relative emphasis on philanthropic

646

responsibility in developing economies is

reflected in studies of CSR policies implemented
by companies located or operating in such
countries; they tend to focus relatively more
heavily than companies in developed economies
on supporting local social community projects
aimed at bettering the quality of life of local
stakeholders, for instance, by sponsoring water
management initiatives or initiating projects
aimed at improving housing, literacy, and medical facilities. This has led Visser (2008) to
introduce an alternative framework, the CSR
Pyramid for Developing Countries, derived
from Carrolls original model of social
responsibility.

Cross-Cultural Attitudes to CSR

social governance across the three countries

follows from the different cultural and political
frameworks that governed them historically,
as well as from each countrys idiosyncratic
institutional structures and their prevalent
cultural background. What studies such as these
show is that governments differ in how they apply
public policy and legislation to drive CSR at
a national level. As a result, CSR will to a
certain extent be orchestrated and shaped
differently across nations, potentially leading to
(partly) divergent national or regional CSR
models (cf. also European vs. US approaches
to CSR that can be seen to differ partly as a result
of the extent to which governments are willing
to regulate the business environment).

Institutional Determinants of CSR

Key Issues
Over the last decade or so, and particularly in
Europe, governments have assumed a more
active role in promoting CSR, potentially making
them one of the strongest national determinants
of CSR, in addition to, for example,
culture, economy, and legislation. Increasingly,
governments are working together with
intergovernmental organizations, engaging in
public-private
sector
partnerships
and
implementing public policy aimed specifically
at promoting CSR awareness among the general
public, and at encouraging business to
adopt CSR-based values and strategies. A crosscultural study by Albareda et al. (2008),
comparing the role of government and politics
as drivers of CSR across three European
countries (Norway, Italy, and the UK), concluded
that government policy in all three countries
strives toward a similar goal, namely, to actively
promote and facilitate CSR in such a way as to
create a win-win situation between business and
social organizations and in doing so, to
effectively manage the complex set of
relationships between sectors that CSR implies
and instantiates (p. 347). At the same time,
however, the study found differences in the
extent to which governments regulate CSR and
create public policy in their efforts to drive CSR.
The authors suggest that such divergence in

In an increasingly globalized environment, it

is important for organizations operating
internationally to understand and, if possible, to
periodically gauge stakeholders attitudes to CSR
and CSR-related issues, and to monitor societal
issues that capture the publics interest and
imagination at a given moment in time. Being
aware of CSR attitudes and stakeholder concerns
in different geographical regions and different
cultural contexts is important to be able to
establish appropriate company policy and
maintain positive community relations. Only
when managers gain insight into cross-cultural
attitudes to CSR will they be able to create and
implement appropriate, dynamic, and effective
international CSR policy that shows not
only that they are behaving responsibly and
contributing positively to society but also that
they are cognizant of and responsive to different
stakeholder concerns, not only across different
stakeholder groups but also across nationalities.
In essence therefore, the complex challenge
facing internationally operating businesses and
multinational corporations with respect to CSR
policy is similar to the challenge they are faced
with in the area of international marketing and
advertising: should they opt for a standardized,
universal CSR policy, or for a localized CSR

Cross-Cultural Orientations to CSR

perspective that focuses on different stakeholder

issues and that addresses different stakeholder
concerns in the various countries they operate in?

Future Directions
Empirical research, cross-national descriptive
accounts, and comparative case studies have
provided consistent support for the link between
culture or cultural setting and companies and
stakeholders corporate social orientations.
Stakeholder attitudes to CSR and CSR-related
issues have been found to potentially differ
cross-culturally, and (companies in) different
cultures have been shown to potentially
emphasize different (corporate) social responsibilities. This would seem to be the case with
respect to countries within a specific world region
(i.e., differences in CSR attitudes between
European countries) as well as across world
regions (i.e., Europe vs. the USA and
developed vs. developing world regions).
However, to inform effective CSR policy with
a potentially global scope, more knowledge will
be needed on the link between cultural value
systems and corporate social orientations on
the one hand, and on the relationship between
companies corporate social responsiveness
(i.e., the way they address CSR stakeholder
expectations and stakeholder concerns) and
relevant stakeholder outcomes and behaviors
(e.g., purchasing behavior, brand loyalty,
employee motivation, and willingness to invest)
on the other hand.

647

References and Readings

Albareda, L., Lozano, J., Tencati, A., Midttun, A., & Perrini,
F. (2008). The changing role of governments in corporate social responsibility: Drivers and responses. Business Ethics: A European Review, 17(4), 347363.
Carroll, A. B. (1991). The pyramid of corporate social
responsibility: Toward the moral management of organizational stakeholders. Business Horizons, 34, 3948.
Crane, A., & Matten, D. (2007). Business ethics (2nd ed.).
Oxford: Oxford University Press.
Creyer, E. H., & Ross, W. T. (1997). The influence of firm
behavior on purchase intention: Do consumers really
care about business ethics? Journal of Consumer
Marketing, 14(6), 421432.
Hartman, L. P., Rubin, R. S., & Dhanda, K. K. (2007).
The communication of corporate social responsibility:
United states and European Union multinational
corporations. Journal of Busienss Ethics, 74,
373389. doi:10.1007/s10551-007-9513-2.
Hofstede, G. (1980). Cultures Consequences:
International differences in work-related values.
Newbury Park: Sage.
Katz, J. P., Swanson, D. L., & Nelson, K. L. (2001).
Culture-based expectations of corporate citizenship:
A propositional framework and comparison of four
cultures. The International Journal of Organizational
Analysis, 9(2), 149171.
Maignan, I. (2001). Consumers Perceptions of corporate
social responsibilities. Journal of Business Ethics, 30,
5772.
Maignan, I., & Ralston, D. A. (2002). Corporate social
responsibility in Europe and the US: Insights from
businesses self-presentations. Journal of International
Business Studies, 33, 497514.
Visser, W. (2008). Corporate social responsibility in
developing
countries.
In
A.
Crane,
A.
McWilliams, D. Matten, J. Moon, & D. Siegel (Eds.),
The oxford handbook of corporate social responsibility (pp. 473479). Oxford: Oxford University Press.
Williams, G. & Zimkin, J. (2008). The effect of culture on
consumers willingness to punish irresponsible corporate behaviour: applying Hofstedes typology to the
punishment aspect of corporate social responsibility.
Business Ethics: A European Review, 17(2), 210226.

Cross-References
Anglo-American Model Versus Continental
Europe model
Buddhist Ethics and CSR
Business Ethics, Japanese Approach
Christianity and CSR
CSR Europe
Cultural Differences in Values/Ethics and
Decision-Making
Engagement/Stakeholder Engagement

Cross-Cultural Expectations of CSR

Cross-Cultural Attitudes to CSR

Cross-Cultural Orientations to CSR

Cross-Cultural Attitudes to CSR

648

Cross-National Differences in Government Involvement in CSR

Cross-National Differences in
Government Involvement in CSR

CSR and Africa

Cross-Cultural Attitudes to CSR

Uwafiokun Idemudia
Department of Social Science, 307 Founders
College, York University, Toronto, ON, Canada

Cross-Sector Collaboration

Synonyms

Co-operation Between NPOs and Companies

in Germany

Corporate citizenship and Africa; Corporate

philanthropy; Corporate responsibility and Africa;
Corporate social investment in Africa; Corporate
social performance and Africa; Corporate social
responsiveness and Africa; Nongovernment
Organizations (NGOs); Sustainable development

Cross-Sector Interaction
Co-operation Between NPOs and Companies
in Germany

Cross-Sector Partnerships
Co-operation Between NPOs and Companies
in Germany
Partnership

Cross-Sector Social Partnerships

Partnerships for CSR

Cross-Transfer
Corporate Social Marketing

CSR
Coalition of Environmentally Responsible
Economies (CERES)

Definition
There is no one commonly accepted definition of
CSR and as such the concept of CSR is one of
many contested concepts. However, the idea of
CSR seems to imply that businesses have obligations to society that goes beyond profit making to
include helping to solve social and ecological
problems. The disagreements over how to define
CSR in the literature seem to stem from differences in the perceptions of nature of the corporation, its role, and its purpose in society. Similarly,
there is also disagreements about the form CSR
obligations should take (i.e., should it be voluntary or mandatory) and what should constitute the
scope of CSR obligations (i.e., should it be only
certain kind of specific issues or all aspects of
societal problems). As a result of these
unresolved tensions, the notion of CSR is often
defined differently by different actors and stakeholders in ways that reflects their interests and
views. Hence, there are multiple definitions of
CSR and these tend to emphasize one aspect of
CSR obligations over other aspects. While this
lack of a common accepted definition might be
confusing at times, proponents of the concept
argue that the lack of a consensual definition
allows for innovative thinking.These supporters
further argue that the absence of a common definition does not imply that there is lack of

CSR and Africa

a common ground, as most advocates of CSR

would agree that CSR requires business to take
on responsibility beyond that stipulated by law.

Introduction
While the ideals that seem to inform the notion of
Corporate Social Responsibility (CSR) is not
alien to Africa, the literature on CSR in Africa
is still largely embryonic, although in recent
years, the scope (i.e., geographic focus within
Africa) and scale (i.e., issues or themes covered)
in the literature has steadily widened and deepened, respectively. At any rate, the recent manifestation of the concept of CSR in business
discourses and practices in the African context
has largely been driven by the contradictions
inherent in both the process of globalization and
the impacts of business involvement in Africa as
well as changing societal expectations of the role
of business in society. For example, while the
process of globalization has opened new markets
and opportunities for businesses especially transnational corporations (TNCs) in Africa, revolution in information and communication
technology has also meant corporate misdemeanors, incidence of human rights violations,
local resistance, and conflict over TNCs activities
in the region are now often broadcasted in
real-time international news with significant consequences for these TNCs. As a result, TNCs
operating in Africa have not only had to respond
to different forms of external pressures from local
communities, civil society, and nongovernmental
organizations for them to address their social
responsibility, but also TNCs have also sorted to
shape, define, and control the emerging CSR
agenda in Africa. This dual process of seeking
to both respond and actively control the discourse
and the practice of CSR is captured by Peter
Utting in terms of business double movement,
and best characterizes the nature, dynamics, and
practice of CSR in Africa. This is also partly
because the focus and the analysis of CSR concerns within Africa still typically center around
the activities of large foreign TNCs. This is not to
suggest that indigenous firms or Small and

649

Medium Enterprises (SMEs) in the region do

not engage with CSR. Rather, it is perceived
that the activities of these types of firms at present
get only limited attention and these kinds of firms
tend to emulate the practices of the TNCs.
Indeed, Kenneth Ameashi and his colleagues
have described the practices of CSR in Africa as
largely a form of western mimicry as opposed
to being a product of indigenous influence.
Furthermore, while a combination of internal
and external factors, as suggested above, have
been the main drivers of CSR practices in Africa,
increasingly three principal arguments have
often been put forward to explain why
business operating in Africa should adopt
CSR policies and principles. The first is the
governance deficit argument. Proponents of
the governance deficit argument assert that
a combination of government failure and neoliberal policies foisted on African states have meant
that African governments have been both unable
to deliver positive political and economic goods
for their people and effectively regulate the activities of TNCs operating within their borders.
Hence, TNCs have simultaneously been victims
and benefactors of governmental failure. TNCs
are victims in the sense that governmental failure
has meant that certain responsibility previously
assumed by governments are increasingly now
being demanded of these TNCs. On the other
hand, governmental failure has also meant that
TNCs are able to exploit African governments
weak regulatory environment on issues that allow
them to externalize the cost of production and
exploit cheap labor with drastically improved
bottom lines to these TNCs, but with a much
increased social and environmental cost to local
and national communities. Hence, it is argued
that TNCs as powerful actors in the region have
an obligation to voluntarily adopt CSR principles
to ameliorate problems associated with their
operations and weak governance environment
within which they operate and pursue CSR practices to compensate for governmental failure.
The second argument for CSR in the African
context is the business case argument. The business case argument suggests that by adopting
CSR, TNCs operating in Africa will generate

650

a win-win outcome for themselves and their host

nations. This is especially the case in certain sectors, such as the extractive industries, where there
are limited opportunities for competitive advantage. For example, Jedrzej George Frynas (2005)
has pointed out that Chevron was able to acquire
new oil blocks in Angola largely because of its
pretentious attention to community development
under the umbrella of its CSR practices. The
implication is that the pursuit of CSR by business
in Africa has instrumental value adding consequences in terms of tangible (e.g., increase in
market share) and intangible benefits (e.g.,
a boost of employee morale) for the corporation
as well as developmental benefits for the society at
large.
The third is the changing societal expectations
argument. This position suggests that TNCs are
part of (and not separate from) the host society
within which they operate. As a result, TNCs
have an obligation to respond to changing societal expectations if they are to maintain their legitimacy as well as benefit from societal goodwill.
The failure on the part of TNCs to meet societal
expectations might result in a legitimacy crisis for
them as well as the loss of the social license to
operate, which will undermine their business
operations. While most TNCs in Africa initially
resisted these demands for them to be socially
responsible, most now publicly declare their commitment to CSR principles on their websites and
some include their CSR actions and activities in
their African operations in their annual sustainability reports.
Nonetheless, these different arguments for
CSR in the African context have meant that
TNCs motivation for adopting CSR principles
and practices within the region could either be
born out of genuine concerns for their African
stakeholders or out of strong CSR instrumental
value. As such, there is some disagreement in the
literature over corporate motivations for the
adoption of CSR principles in the continent.
This disagreement is partly due to the difficulty
of ascertaining corporate motivation directly and
the different ideological frame of references that
is often brought to bear on CSR analysis by
different scholars. In any case, this disagreement

CSR and Africa

is not merely a theoretical or an ideological dispute. This is because it is clear that whichever of
these motivations underpins a CSR initiative, it
determines which stakeholder gets included or
excluded from the consequential CSR benefits
and which stakeholders interest is given priority
in the design and implementation of CSR initiatives. Hence, corporate motivation is bound to
have significant ramifications for the success or
failure of such initiatives. Nevertheless, the CSR
initiatives of most business enterprises cover
a wide range of issues such as labor rights,
employee relations, human rights, environmental
performance, sustainable development, health
issues, issues of corporate governance, and transparency. Similarly, a number of different practical strategies are employed to tackle these
different challenges. Although, different businesses tend to adopt different forms of CSR practices within their CSR strategy, these different
CSR practices can also be mutually reinforcing
(see Fig. 1).
Figure 1 suggests that, while businesses might
opt to use only philanthropy and corporate social
investment as the avenue for addressing their CSR
functions, they can also simultaneously employ
stakeholder engagement and volunteerism. In
other words, these different CSR practices are not
mutually exclusive and, in fact, most companies
tend to engage their CSR initiatives through more
than one form of CSR practice. In addition, Fig. 1
suggests that volunteerism can be either employeeor corporate-driven and stakeholder engagement
can be via partnership or stakeholder dialogue.
Similarly, some businesses address their CSR obligation in terms of citizenship obligations via their
corporate citizenship practice. An example is
Exxon Mobil. However, corporate philanthropy
and corporate social investments continue to
remain the dominant form of CSR practice in
Africa. As a result, critics have argued that CSR
practices in Africa are still largely rudimentary and
yet to fully mature. This is because most TNCs
seem to conflate corporate philanthropy, that is,
charity or public given, with CSR that is really
about integrating CSR concerns into core business
operation and in its interactions with stakeholders.
For example, in his critique of CSR practices in

CSR and Africa

651

CSR and Africa,

Fig. 1 CSR practices in
Africa

Corporate social responsibility

Volunteerism

Corporate
Volunteerism

Philanthropy and
Social investment

Employee
Volunteerism

developing countries, the economist Philip

Swanson argued that CSR is not about making
money the way you want and then give a small
portion of it back to the community. Rather it is
about how you run your business, how you make
your money, and how you interact with your stakeholders. These different ways of conceptualizing
CSR is a reflection of the lack of a global consensual CSR definition and therefore businesses have
been able to appropriate the meaning of CSR,
especially in the African context with ramifications
for local population. Consequently, CSR in Africa
is a site of material and discursive contestation.
Materially, this is reflected in terms of shifting the
cost associated with CSR from one stakeholder to
another as in the case of Nigeria, where oil TNCs
continually seek to transfer the cost of CSR as
much as possible to the Nigerian government. Discursively, this is manifested in how TNCs in the
region are often quick to point out the magnitude of
their philanthropic contribution. In contrast, NGOs
point out that such philanthropic gestures are not
real CSR, as they are used to mask the fact that
TNCs do not change how they conduct their business operation even after publicly espousing support for CSR principles.

Key Issues
While there is a tacit consensus in mainstream
CSR literature that the meaning attached to CSR

Engagement

Corporate
citizenship
practice

Partnerships
Stakeholder

and therefore CSR practices will vary from

region to region and even within region, the
debate over whether or not cultural and socioeconomic factors influence CSR policies and practices in Africa remain unresolved. For example,
Judy Muthuri and Wayne Visser in their works on
CSR in Kenya and South Africa, respectively,
found evidence of cultural and socioeconomic
influence on CSR practices in these countries. In
contrast, Adam Lindgreen et al. (2010) did not
find any such influence in Botswana and Malawi.
However, the sociocultural and economic context
of Africa does shape societal expectation of the
social responsibility of business and therefore
what should ideally constitute CSR priorities of
businesses operating in the region. For instance,
in some rural areas where there is limited availability of social infrastructure and where poverty
can be endemic, especially around extractive
sites, local communities understandably tend to
expect TNCs to provide social infrastructure
and contribute to poverty reduction programs.
Unfortunately, the extent to which CSR
initiatives have met the expectation of local
communities or have had positive impact on
their livelihood remains limited and at best
marginal. There are a number of reasons attributable to this problem. These reasons range from
failure to adequately take into consideration the
concerns and priorities of the local population in
the design and implementation of CSR initiatives,
over-instrumentalization of CSR initiative to the

652

benefit of TNCs, but with limited benefit to local

population and inherent weaknesses in CSR practices. For example, corporate philanthropy, which
is the dominant form of CSR practice, has often
been criticized for failing to address the core
social and environmental issues at the heart of
business day-to-day operation. Besides, while
charitable donation are very useful for public
relations purposes, philanthropy very rarely
addresses the problem that it is supposedly
expected to solve as some of these problems are
not amenable to its quick fix nature. Similarly,
some have also argued that CSR practice in the
region has tended to inadvertently divert attention
from the real structural, political, and economic
problem facing the continent and fostered dependence on corporate given as opposed to local
empowerment. In contrast, proponents of CSR in
Africa often point to the difficult and sometimes
hostile environment within which CSR initiatives
are being implemented. They also assert that no
matter how meager, some members of the local
population have nevertheless benefited from some
CSR initiatives. Indeed, this disagreement over
the actual effectiveness and impact of CSR initiatives in Africa remains a major problem that continues to undermine ones ability to reach
a definitive conclusion about the usefulness of
CSR in Africa.
Furthermore, in recent years, national
governments in Africa have gradually begun to
play a more prominent role in both CSR discourse
and practice. At the level of discourse, in contrast
with the 1960s, African governments are often
now quick to point to the potential benefits to be
derived from collaboration and partnerships with
TNC for Africas development. As a result,
African governments have increasingly played
a key role in the discursive rebranding of TNCs
as not just part of the problem of underdevelopment but also as a part of the solution to the
problem in the region. While some have been
critical of this perspective, the concept of CSR
has therefore been a useful framework within
which business have been able to legitimize this
new role and declare their commitments to
solving developmental problems in Africa. At
the level of CSR practice, African governments

CSR and Africa

are increasingly playing different roles that range

from enacting social responsibility laws,
establishing public-private partnership, signing
up to global CSR initiatives, and facilitating
CSR initiatives. For example, the Nigerian
government attempted to pass oil and gas bill in
2004 that stipulate the social responsibility of oil
TNCs operating in the country and established
a commission that would oversee its implementation as well as ensure that other CSR concerns
are being addressed. However, the extent to
which such governmental efforts have enabled
CSR to deliver on its potentials remain an open
question. Nonetheless, a major factor that would
determine if these governmental efforts would
yield the desired outcome is the role of civil
society organizations. This is because civil
society organizations within and outside Africa
have been core drivers of CSR in Africa by
demanding for governmental reforms, exposing
corporate misdemeanor, and demanding for
governmental and corporate accountability.
Similarly, with the emergence and proliferation
of the CSR industry (i.e., consultant, CSR organization, and experts), some nongovernmental
organizations have also been known to implement CSR initiatives on behalf of TNCs. What
is still not clear is whether these CSR initiatives
that are implemented by NGOs on behalf of
TNCs are more beneficial to local population
than CSR initiatives that are implemented
directly by TNCs. In addition, the implications
of the willingness of some NGOs to emphasize
collaboration in their engagement strategy with
TNCs as opposed to the traditional confrontation
and resistant strategies favored by others raise
tensions within civil society as well as questions
about its ability to continue to effectively demand
for corporate accountability within Africa.
Unfortunately, this issue is yet to be adequately
addressed in the literature.

Future Directions
There is no doubt that CSR is now a common
buzzword for businesses operating in Africa, and
many business enterprises are now often willing

CSR and Catholic Social Thought

to highlight or boast of their social responsibility

contributions. In practice; however, we still lack
a clear understanding of the value adding perspectives that the concept and practice of CSR
have brought to bear on the different efforts to
address the myriad of challenges confronting
Africans. There is therefore a need to move
beyond the present polemic debate over whether
CSR is good or bad for Africa, as we lack sufficient systematically accumulated empirical evidence to support either positions, to more nuance
understanding and analysis of CSR contradictions in Africa. A key first step would be the
need to study and analyze CSR from the perspective of Africans whose voices are often either
neglected or ignored in mainstream CSR discourse. This might entail rich empirical studies
that are based on how sociocultural factors shape
local population expectations and perceptions of
CSR, and comparative analysis of CSR processes
and outcomes within and between regions of
Africa. Similarly, there is also the need for studies that compare and contrast the CSR initiatives
of foreign firms with that of indigenous firms. In
addition, future studies might also begin to
explore the factors and conditions under which
some CSR initiatives might achieve the desired
outcomes while others fail. In other words, how
historical, contextual, and institutional factors
drive and constrain CSR. Crucially, here is also
the need to explore how CSR might be benefiting
from a weak institutional context and thus further
weaken local institutions in ways that privilege
the interest of business but to the detriment of the
interest of local population. There is also the need
for closer examination of the impact of CSR
initiatives on local population. This is particularly important because at present we still do not
have a clear sense of how much difference CSR
initiatives are making in Africa. Addressing these
kinds of issues is necessary if CSR is to be relevant to the average African.

653

Corporate Citizenship
Corporate Philanthropy
Corporate Responsibility
Stakeholder Theory
Sustainable Development
Triple Bottom Line

References and Readings

Amaeshi, K. M., Adi, B. C., Ogbechie, C., & Amao, O. O.
(2006). Corporate social responsibility (CSR) in
Nigeria: Western mimicry or indigenous practices?
Journal of Corporate Citizenship, 24, 8399.
Frynas, J. G. (2005). The false development promise of
corporate social responsibility: evidence from multinational oil companies, International Affairs, 81(3),
581598.
Gilbert, V., & Muthuri, J. N. (2011). An institutional
analysis of corporate social responsibility in Kenya.
Journal of Business Ethics, 98, 467483.
Lindgreen, A., Swean, V., & Campbell, T. T. (2010).
Corporate social responsibility practices in developing
and transnational countries: Botswana and Malawi.
Journal of Business Ethics, 90(3), 429440.
Swanson, P. (2002). Corporate social responsibility and the
oil sector. CEPML Internet Journal, 11(1). Retrieved
online at http://www.dundee.ac.uk/cepmlp/journal/
html/vol11/article11-1.html. Accessed 25 Sept 2004.
Utting, P. (2005). Corporate responsibility and the movement of business. Development in Practice, 15(3 & 4),
375388.
Visser, W. (2006). Revisiting Carrolls CSR pyramid: An
African perspective. In E. R. Pedersen & M. Huniche
(Eds.), Corporate citizenship in developing countries:
New partnership perspective (pp. 2956). Copenhagen:
Copenhagen Business School Press.

CSR and Catholic Social Thought

Gloria Zunigay Postigo1 and
Kevin Schmiesing2
1
The University of Texas at Arlington, Arlington,
TX, USA
2
Acton Institute, Grand Rapids, MI, USA

Synonyms
Cross-References
Bottom of the Pyramid
Business and Society

Catholic personalism; Catholic social teaching;

Catholic theology; Community; Encyclicals;
Ethics of virtue; Magisterium; Natural law ethics;
Principle of solidarity; Principle of subsidiary

654

CSR and Catholic Social Thought

Definition

would alleviate the conflict generated by the

materialist assumptions that underpinned, in his
view, both communism and secular liberalism.
According to John Paul II, work distinguishes
man from all other creatures. Work is
a collaborative continuation of Gods creation
and thus work is an act of co-creatorship that
man shares with his Creator. As such, work
bears a particular mark of humanity that realizes
a unique dignity in the fruit of mans labor,
whether physical or intellectual, and not only
for wages but also for the work performed freely
for aesthetic pursuits or for the sake of giving of
oneself as a participant in different layers of
community. This would include monastic life,
which is viewed as a life of labor and above all
as the Opus Dei, that is, the labor of God.
St. Benedict, for example, viewed idleness as
the souls enemy. Since all work has value, manual labor is not of lesser value than intellectual
labor, or scientific work more important than
mundane labor. In this sense, a grandmother putting forth labor toward the care of a grandchild
left at her supervision is offering valuable work.
Similarly, a neighbor painting over grotesque
graffiti is contributing the important labor of aesthetically enhancing the environment of his community. Hence, in the Catholic tradition, labor is
not the same as remunerable labor or an economically relevant factor. Rather, labor is a human
investment, an expression of individuality as well
as of its social significance. This Catholic notion
of work is central to what John Paul calls the
social question, which is the ground for the relation that exists between CST and CSR. The social
question involves, for example, the concern for
unemployment, work-related emigration, just
remuneration, and unions.

Catholic social thought (CST) consists of the rigorous application of Catholic theology, which
includes Christian revelation and Natural Law ethical theory, to moral reflections that concern social
and economic events, issues, and themes. CST is
most authoritatively and notably articulated
through the papal writings known as encyclicals.
The modern era of CST was inaugurated by Pope
Leo XIIIs 1891 encyclical Rerum Novarum in
which the pope addressed the rise of industrial
capitalism, unionism, and socialism. Subsequent
popes have published encyclicals on social themes,
the most recent being Pope Benedict XVIs Caritas
in Veritate in 2009.
Defining the relationship between CST and
corporate social responsibility (CSR) depends, of
course, on what one views as the central themes and
claims of CSR. This entry will take a broad view of
CSR, so as to discuss as comprehensively as possible the points of contact between CST and CSR.

Introduction
The following are the main points of contact
between CST and CSR.
Notion of Work
Arising out of Judaism, Christianity from the
beginning has contained in tension two views of
labor, both rooted in the Genesis account of creation. One view sees work as dignified and as
participating with God in creation; the other
sees toil as cursed, a result of the fall (original
sin). The more positive view of work has gradually gained ascendancy. In Laborem Exercens
(1981), John Paul II solidified the positive view
of human work: the dignity of work as a means to
transform nature to socially meaningful ends, as
well as the means to achieve personal excellence
and fulfillment. He expounded the concept of
work to shed light on activities such as managing
a business and the task of intellectual work. He
proposed also a spiritual understanding of work
and recognition of moral responsibilities on the
part of owners, workers, and governments, which

Notion of Capital
The notion of work is closely tied to the notion of
capital in Catholic social thought. In Laborem
Exercens, John Paul calls labor the primary efficient cause and capital the instrumental cause of
mans co-creatorship on earth. It is an error, clarifies John Paul, to consider human labor solely
according to its economic purpose. This means
that labor is not merely a factor of production

CSR and Catholic Social Thought

distinct from capital, but that capital is only possible through labor: intellectual or physical. In
other words, capital is constituted fundamentally
by labor even if it takes forms that may conceal its
origins. Bricks and mortar are not only part of
construction capital but they are creations by
man, produced by man, and employed for ends
that only man dictates. Machinery is indeed capital but it is also a human creation that aids physical labor, and the same is the case with factories.
Even capital in the form of robotic equipment that
takes the place of human labor befits John Pauls
assertion that capital is congealed labor because
labor is capitals efficient cause.
Does this view conflict with the economic
understanding of capital? The received definition
of capital in the economic literature is that capital
is a factor of production that is used to deploy
new goods or services. However, since the 1960s,
economists have distinguished different forms of
capital other than material goods such as bricks,
equipment, and factories. Human capital and
social capital have been introduced into macroeconomic considerations of growth in the economic
literature.
This
finer
grained
understanding of capital indeed seems to recognize the human and social element in capital
development and economic growth. But it does
not grapple with the metaphysical nature of capital simpliciter. Thus it does not present a conflict
with the Catholic understanding of capital, generally speaking in technical applications of economic analysis. Nonetheless, it may raise some
disagreement when philosophical questions are
examined. The empty factory that was once
built for and operated by a company that has
moved elsewhere is still the expression of an
investment of labor of the workers that built it,
according to CST. But for an economist and the
accountant, it is merely a fully depreciated factor
of production. This difference does not present
a problem in the end however, since economics is
not equipped to address normative judgments or
philosophical problems. However, CST can shed
light on disputes that pertain to economic theory.
In this sense, we can view economic theory and
CST as complementary in their contributions to
arriving at a broader picture of the problem.

655

Consider the following matter. Although capital (broadly speaking) and labor can logically
fall under two distinct classifications of things in
the sphere of economic activity, such as are trees
and wood furniture, they are nonetheless taxonomically related in a causal continuum. This
may not seem of consequence in economics, but
CST offers a response to the oft-perceived antagonism between labor and capital because CST
can present the argument that such antagonism
has no metaphysical or logical basis. If we next
consider the claim of collectivism about the
immorality of private property and capital development, then the response from CST is also that
this claim has no basis since private property is
a moral right as the only means for facilitating
human creativity and co-creatorship. Indeed the
Churchs teaching regarding private property,
writes John Paul in Laborem Exercens, diverges
radically from the program of collectivism as
proclaimed by Marxism.
In Centesimus Annus, John Paul ponders
whether capitalism is the best model for economic progress and his answer is this:
If by capitalism is meant an economic system
which recognizes the fundamental and positive role
of business, the market, private property and the
resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the
affirmative, even though it would perhaps be more
appropriate to speak of a business economy,
market economy or simply free economy.
But if by capitalism is meant a system in which
freedom in the economic sector is not
circumscribed within a strong juridical framework
which places it at the service of human freedom in
its totality, and which sees it as a particular aspect
of that freedom, the core of which is ethical and
religious, then the reply is certainly negative.

What we can draw from this is that economics

offers valuable insight regarding the economically relevant aspect of a phenomenon in the
human social world. Nonetheless, the same phenomenon may also have a morally relevant
aspect, one which cannot legitimately be subsumed under economics or any other subject
heading. Such is the complexity of social phenomena and interwoven in this rich tapestry is the
morally relevant aspect that is known as ethics.

656

CST offers one answer among others provided by

ethical theories and positions.
The Business Vocation and the Corporation
Similarly to labor and capital, the Churchs relationship with commerce has developed in a positive
fashion. Although the Church has never officially
condemned business as such, early Church Fathers
(ca. 100500 A.D.) generally emphasized the dangers of the temptations brought about by wealth and
saw merchants as a class of men known chiefly for
their tendency to exploit the poor. In the medieval
period, however, a long and inconclusive debate
about the morality of usury emerged, which
reflected the Churchs confrontation with the growing importance of business enterprise and the role
of money and investment in the developing economies of Europe.
In question 77 of the Summa Theologiae, for
example, Thomas Aquinas examines the matter
of prices and selling for a profit independently of
business concerns. In this examination he anticipates the concept of arbitrage, which is the taking
advantage of price differentials for the same
product between two different markets. For
Thomas, what we now call arbitrage is justified
when the seller is gaining from having added an
improvement to the product, or on account of the
risk that the seller takes in transporting the product from one market to another. In question 77
Thomas also specifically examines the tradesman, whose profession is to exchange things for
profit. Thomas views profit as a form of payment
for the tradesmans labor and, as such, he does
not consider it immoral (sinful, in his words) or
contrary to virtue but indeed a virtuous act if the
end is procuring a livelihood or the assistance of
the needy. It is in this sense that Thomas views
the profession of business not only as a lawful
profession but potentially virtuous in nature. By
the time of the Protestant Reformation in the
sixteenth century, the profession of business
was widely if not universally recognized as
a legitimate calling (vocation) from God.
Catholic attitudes toward business in general
and the corporation in particular continue to vary
widely. American theologian Michael Novak,
arguably the most prominent Catholic defender of

CSR and Catholic Social Thought

the corporate form of business, contends that there

are signs of grace in the creativity, liberty, social
character, and other features of the modern corporation. In contrast, law professor William Quigley
has argued that the corporate form necessarily leads
to unethical practices and that therefore corporate
personhood should be legally abolished. Taking
a middle ground are scholars such as Helen Alford,
O.P., and Michael Naughton, who propose the
common good distinct from both shareholder
and stakeholder models as the primary end of the
corporation. The common good in the Catholic
tradition is defined as the set of conditions of
social life which allow social groups and their
individual members relatively thorough and ready
access to their own fulfillment (Vatican II, Constitution on the Church in the Modern World,
n. 26). Thus, Alford and Naughton invoke the principle of the common good to distinguish a Catholic
approach from an excessively individualistic focus
on the good of the self.
Regardless of the spectrum in views
concerning the moral status of the corporation
in CST, it is important to note that the same is
the case in secular discussions such as the examinations of CSR. In Corporations and Morality,
for example, Thomas Donaldson points out that
the corporation emerges from a confusing past,
one in which not only the guild and the great early
trading companies but also the Church, together,
contributed to the creation of what we now call
the corporation.
But it is important to address here the activities
of one particular kind of corporate enterprise that
involves banking operations, money investments,
or lending services. The reason for this is to
confront the oft-misunderstood position of usury
by the Church. It may sound surprising in fact that
the matter of usury has been the subject of an
evolutionary development in CST since the
Churchs early position. Historically, usury was
condemned by the Council of Nicaea in the fourth
century and the Second Lateran Council in the
twelfth century. Popes Alexander III, Gregory
IX, Urban III, Innocent III, and Clement
V bestowed official authority to such condemnations. Revelation indeed offered support for this
official position. Consider for example Psalm

CSR and Catholic Social Thought

14:5: He that had not put out his money to

usury. Or Ezekiel 18:8: If a man . . . hath not
lent upon money, nor taken any increase . . . he is
just. But the Church did not arrive at this position solely on the basis of revelation. Rather, its
position was also supported by a philosophical
basis. According to Thomas in question 78 of the
Summa Theologiae, usury is unjust because it is
the charging of something that does not exist.
Following Aristotle, Thomas viewed money as
a good that was consumed or sunk in exchange.
Clearly, this position preceded the discovery
and full understanding of the notion of interest as
a payment for the future value of money lent in
the present, and for the element of risk in lending,
as well as for protection against the very practical
problem of default. It is important to point out,
however, that while these matters seem obvious
to us based on our present-day knowledge of
money markets and gains in interest from savings, the idea of growing money from lending and
investing was not part of the conceptual structure
of the ancient and medieval periods and, consequently, it had not been yet realized in institutions
such as banking and currency exchange markets.
Nonetheless, Thomas recognizes that a person
could suffer a loss from money lent and in light of
this it would be justified to request compensation
by means of collateral as a condition for a loan
provided that the lender makes no profit by
receiving the collateral in place of the repayment
of the loan. If we set aside for the moment the
conceptual basis of interest that Thomas had not
reached, ceteris paribus, this position seems no
different to what we would find today as
a judgment from a court regarding a claim. In a
case of a home loan default, for example,
a bank must return to the mortgage holder in
default the balance of any monies over the mortgage loan due that result from the sale of a home.
What both Thomas and a present-day court want
to preserve is justice in a loan repayment transaction, that is, one that is free from extortion, loan
sharking, or any other abuses of power by organized lending organizations. The latter are
immoral practices and the Church has not
changed its position on this matter. On December
30, 2010, Pope Benedict XVI issued an Apostolic

657

Letter establishing the Financial Information

Authority as an agency whose role is to enforce
a new law protecting all monetary investments by
the Holy See from being employed for money
laundering or the financing of terrorism.
Although the jurisdiction of this law is limited
to Vatican institutions and those whose operations are related to the financial affairs of the
Holy See, such as the Vatican Bank, the motivation for this Apostolic Letter is to take a position
against improper uses of money and money markets. This is evidence of the evolutionary trajectory of the Churchs position on usury and what
are justified gains from monetary investments.
On the one hand, this trajectory has followed
the contributions of economics and the larger
conceptual framework for the phenomenon of
money, not only as a means for exchange but
also as a commodity and its value-relevant
machinery of present and future value calculations. On the other, the Church has continued its
moral focus on the human person, and the moral
responsibilities that we owe one another. On both
counts, the examinations of CSR and CST are on
the same path of discovery.
Ownership and Fiduciary Duty
The rise of the corporate form of business in early
modern Europe touched on another aspect of Catholic thought: private ownership of material goods.
Although evidence from Scripture suggests that
some early Christians practiced ownership in common (see Acts of the Apostles 4:2435), a strong
defense of individual ownership developed within
Catholic theology. Nonetheless, the Churchs recognition of the benefits of private property in the
proper ordering of society coexists with traditions
of monastic and consecrated religious life,
whereby men and women voluntarily take vows
of poverty and agree to communal ownership of
property within the religious community. Let us
examine how these two understandings of property are compatible.
Beginning with the Mosaic commandment,
Do not steal, Thomas Aquinas built a case for
the validity of private ownership of property as
being the most effective way to distribute the
earths goods and ensure the material sustenance

658

of all. In question 66 of the Summa Theologiae,

Thomas asserts that the possession of things as
well as the dominion over all other creatures is
natural for man. It is a matter of efficiency for
each person to procure what he needs for himself,
than to attempt to meet the needs of the community as a group. The reason that he offers is that
each person would shirk labor and leave for
others what pertains to the communitys needs.
Moreover, he observed that individuals in
a community quarreled less if they did not share
property in community. This position on property
has remained unchanged for we find, later, Leo
XIIIs Rerrum Novarum citing Thomas as
a defense of private property against the arguments of socialism.
Nonetheless, for Thomas, as for subsequent
Catholic social thought, the right to property is
not absolute. Owners have a responsibility to use
their goods for the benefit of others once individual needs are addressed. The concept of good
stewardship is crucial for understanding this balance between private ownership, on the one hand,
and community of use, on the other. Stewardship
refers to the responsibility to care for what one
owns. In a modern-day application, the concept
of stewardship applies to our productive and
humane use of resources. Arguably, this means
that having dominion over things and creatures
on earth does not amount to doing whatever we
wish because we can but, instead, to care for such
things and creatures, to give back at the very least
as much as we take. The alternative to stewardship is, unfortunately, an ends-justify-the-means
utilitarian mentality that inexorably leads to
regrettable outcomes despite high profits. Factory
farming indeed exemplifies lack of stewardship
insofar as farm animals are confined and unable
to move throughout their entire lives, thus leaving
them to stand or lie (if they are able to) on their
own feces to brew diseases. Not even food is
a comfort as they are fed not what they would
normally seek to eat by nature (grass for cattle,
for example) but grain feed because it will produce a faster rate of growth albeit to the detriment
of their health as their organ functions cannot
catch up with their unnatural mass size. After all
of this suffering, they are sacrificed in a careless

CSR and Catholic Social Thought

and inhumane fashion. Profits do not justify this

misuse of our power over other sentient beings
who cannot defend themselves.
In the terminology of business entrepreneurship,
stewardship can also be understood as fiduciary
duty. One way to understand this may be that
entrepreneurs have a duty to act in the best interests
of the company or the community, and not just for
the sake of maximizing profit for either purely selfinterested pursuits or as a duty to shareholders. This
position comes with great opposition, such as the
argument advanced by Milton Friedman in which
he argues that the sole responsibility of business is
to increase profits. However, the Catholic teaching
of stewardship does not suggest that the goal of
a business enterprise must be primarily social, or
that social ends of the immediate community
must supersede the ends of the business
enterprise. (See Community Relations entry in
this Encyclopedia.) Indeed, the efficiency of private
property that Thomas, following Aristotle, advocates would be dissolved by such collectivist ends.
Some theologians and business theorists have
underscored the complementary relation between
Natural Law theory and the understanding of
stewardship outlined above. Joseph F. Johnston,
for example, traces the history of fiduciary obligation and concludes that it derives from the
fundamental moral principles of trust, which
are inherent in certain human relationships. He
views the customary legal duties of business
managers, such as good faith, loyalty, and care,
as consistent with the Aristotelian-Thomistic virtue ethics tradition.
Catholic Understanding of Community
While CSR draws from the framework of ethical
theories to assess the fitness of collective responsibility on the part of the constituents of corporations toward the community that either houses it
or in which it does business, CST draws from the
principles of solidarity and subsidiarity. Solidarity is the virtue of love (aka charity) in its social
dimension. Thus in Sollicitudo Rei Socialis, John
Paul II affirms that it is a firm and persevering
determination to commit oneself to the common
good; that is to say, to the good of all and of each
individual, because we are all really responsible

CSR and Catholic Social Thought

for all (no. 39). Let us now turn to subsidiarity,

which is the principle that guides the means by
which the goal of the common good is accomplished. In Centesimus Annus, John Paul explains
subsidiarity as the principle according to which
a community of a higher order should not interfere in the internal life of a community of a lower
order, depriving the latter of its functions, but
rather should support it in case of need and help
to co-ordinate its activity with the activities of the
rest of society (no. 48). According to subsidiarity then, the firm or corporation has an important
role to play. On the one hand, it should not allow
any undue interference from communities of
a higher order (such as the state) but, on the
other, it cannot enjoy unencumbered freedom
either because it may be necessary to regulate it
in order to prevent actions that go against solidarity instead of promoting its realization. Without
subsidiarity, then, there can be no solidarity.
As indicated earlier, the end of solidarity is the
achievement of the common good, which is the
good of the community. It shall be important to
clarify this oft-used term common good
because it is typically assumed that it refers to
some generic plan that each member of society
shares in common with the rest. This understanding would be clearly objectionable since only
each individual knows what his or her plans are,
and there is no reason to suppose that they all fit
any particular pattern or category. Thus, the common good is not a collectivist end, but it is
achieved only in the context of community. This
relation might not seem very clear at first, so let
us take it apart and start with the notion of
community.
The most elaborate examination of the nature
and constitution of community can be found in
the work of philosopher Edith Stein (see Community Relations entry in this Encyclopedia), aka
St. Teresa Benedicta of the Cross. A community,
Stein explains, is a union of individuals who are
committed to each others well-being. Ideally,
a family is a community, but so could a firm if
its members thought of themselves as part of an
organic unity that depends on the good will, hard
work, and teamwork of its parts in order to function well. It is thus not surprising to find that

659

people who enjoy their environments at work

are more productive. Unfortunately, the stereotypical image of a firm is that in which administrators are feared or not respected, and the
employees are either disgruntled or alienated, or
are either slackers or backstabbing competitors.
This less felicitous dynamic is more akin to what
Stein describes as an association, which is a union
of people that only join together to seek their own
self-serving pursuits. A gym, for example, would
be an association since one joins a gym only to
improve ones own physical condition but not to
invest in the physical condition of anyone else.
Although one may be pleased that there are others
in the gym because their membership makes the
gym possible, it is of no personal consequence if
the other members indeed achieve their goals.
Now let us consider examples in a broader
context of community that may shed more light
on the mechanics of how the common good,
although not a collectivist end, may be achieved
only in the context of community. Any firm
belongs to a community at least in principle. It
cannot enjoy profits and continue to sustain them
in the long run if it does not consider the needs of
its society of consumers, and the quality of its
products or services. We have all witnessed how
the growth of the computer industry has come
hand in hand with our own gains in the form of
increasingly sophisticated technology at ever
more affordable prices. The workers of computer
firms, who also are part of this community, have
also gained in the form of stable employment and
increasing wages. These gains, however, can
occur only when the actions of all members of
the society, not only those of the firm, are guided
by the principle of solidarity. We can think, for
example, of employees who take pride in their
work, and employers who pay fair wages in recognition of good work, as well as the good quality
of the products offered by firms, and the good
reputations borne out of the satisfactory response
on the part of consumers. Each individual member of the community gains in ways that serve
their unique plans, so there is no collectivist end.
But the optimal realization of these unique plans
is served by the coordinated contributions of all
members of the community. It is in this context

660

that the Catholic notion of community can be

understood as the best medium for human beings
to flourish. Think of the metaphor of a busy freeway. If drivers only think of their own plans (to
get to work on time, to avoid traffic, to leave town
as soon as possible), then they might not be
mindful of other drivers and not use blinkers
when switching lanes, or at least not with sufficient time to allow other drivers to slow down in
advance instead of slamming on brakes in
response to a quick and unexpected move. The
solidarity approach will permit the development
of community even among strangers on a busy
freeway, and this will bring about the common
good. But the more we depart from solidarity, we
shall encounter more accidents, heart-stopping
brake slamming, and stress.
Arguably, the application by firms of the principles of solidarity and subsidiarity toward the
cultivation of community is not the same as
CSR. But it is quite compatible with those noncollectivist but community-focused descriptions
of CSR (with a similar sense of community as
outlined here). There are, however, some differences. In what follows, we shall address key
issues regarding such differences and these will
be examined in two sections. First, responses to
CSR in papal thought and, second, diverse positions concerning CSR by Catholics.

Key Issues
Papal Thought on CSR
Although papal thought since Leo XIII has not
often addressed corporate social responsibility by
name (indeed, the term was not commonly used
until the 1970s), the popes have on occasion
discussed the role and character of business enterprises from the perspective of the Catholic moral
tradition.
In his encyclical, Quadragesimo Anno, Pope
Pius XI recognizes the contribution of corporations to societys well-being, but he also criticizes
business executives who are not attentive to any
obligations beyond profit, and states that legal
regulation must protect society against the damage
brought about by avarice. The laws passed to

CSR and Catholic Social Thought

promote corporate business, he writes, while

dividing and limiting the risk of business, have
given occasion to the most sordid license. For
We observe that consciences are little affected by
this reduced obligation of accountability; that furthermore, by hiding under the shelter of a joint
name, the worst of injustices and frauds are penetrated; and that, too, directors of business companies, forgetful of their trust, betray the rights of
those whose savings they have undertaken to
administer. His concerns do not seem unfounded
with the light cast by the actions of the decision
makers of Enron, corporations that created the
banking and mortgage crisis, and the operations
at the Gulf of Mexico by British Petroleum, to
name a few. Additionally, Pope Pius laments the
success of those crafty men who, wholly unconcerned about any honest usefulness of their work,
do not scruple to stimulate the baser human desires
and, when they are aroused, use them for their own
profit (no. 132). In this way, he implies an obligation for businesspeople to refrain from seeking
profit by taking advantage of human vices.
In Populorum Progressio, Pope Paul VI
focuses attention on globalization and the developing world; thus his remarks on business concern multinational companies in particular. He
urges business leaders from the developed world
to treat their employees in developing nations
with dignity equal to that expected in their
home countries. Their advantaged situation,
he writes of international corporations, should
move them to become the initiators of social
progress and of human advancement in the area
where their business calls them. Their very sense
of organization should suggest to them the means
for making intelligent use of the labor of the
indigenous population, of forming qualified
workers, of training engineers and staffs, of giving scope to their initiative, of introducing them
progressively into higher positions, thus preparing them to share, in the near future, in the
responsibilities of management (no. 70).
Again, the popes exhortations imply obligations
for corporations that extend beyond increasing
profit and shareholder return.
This basic approach characterizes subsequent
papal thought as well. In Centesimus Annus, Pope

CSR and Catholic Social Thought

John Paul II affirms the validity of the modern

corporation as an institution, and of profit as
a legitimate marker of the corporations success.
When a firm makes a profit, this means that productive factors have been properly employed and
corresponding human needs have been duly satisfied (no. 35). Yet, he continues, profitability is not
the only indicator of a firms condition. John Paul
argues that the firms purpose is not exhausted in
the pursuit of profit; instead, it must consider its role
as a community of persons who in various ways
are endeavoring to satisfy their basic needs, and
who form a particular group at the service of the
whole of society. Thus, Profit is a regulator of the
life of a business, but it is not the only one; other
human and moral factors must also be considered
which, in the long term, are at least equally important for the life of a business. (See the British
Petroleum case in the Community Relations
entry in this Encyclopedia.)
Pope Benedict XVI continues in the same vein,
recognizing the legitimacy of the corporation while
insisting that shareholder value should not be the
sole concern of managers. In Caritas in Veritate,
he reiterates the need for business to recognize its
social responsibilities: Without doubt, one of the
greatest risks for businesses is that they are almost
exclusively answerable to their investors, thereby
limiting their social value (no. 40). He expresses
concern that rapid turnover among executives
threatens to undermine this recognition, and he
worries that rampant outsourcing of production
might weaken the companys sense of responsibility towards the stakeholders namely the
workers, the suppliers, the consumers, the natural
environment and broader society in favour of the
shareholders. . . (no. 40).
While praising the concept of CSR, Pope Benedict is careful not to endorse the CSR movement
as a whole. Even if the ethical considerations that
currently inform the debate on the social responsibility of the corporate world are not all acceptable
from the perspective of the Churchs social doctrine, Benedict writes, there is nevertheless
a growing conviction that business management
cannot concern itself only with the interests of the
proprietors, but must also assume responsibility for
all the other stakeholders who contribute to the life

661

of the business: the workers, the clients, the

suppliers of various elements of production, the
community of reference (no. 40).
Diverse Opinions and Approaches to CSR by
Catholics
In local and national contexts, a diverse array of
Catholics have applied their understanding of the
Churchs teaching in a variety of ways. These
approaches range from bishops trying to provide
guidance, to business managers attempting to live
in accord with the faith they profess, to activists
seeking to bring Catholic values to bear on corporate activity.
The United States Conference of Catholic
Bishops (USCCB) released a pastoral letter on
the economy in 1987 titled Economic Justice for
All, in which the conference expressed a position
similar to that already noted in papal encyclicals.
Writing of individuals in management positions,
the bishops stated, Commitment to the public
good and not simply the private good of their
firms is at the heart of what it means to call their
work a vocation and not simply a career or a job
(no. 117). The bishops went further in arguing
that public policy should promote business activity that extended beyond the goal of increasing
shareholder value. Governments must provide
regulations and a system of taxation which
encourage firms to preserve the environment,
employ disadvantaged workers, and create jobs
in depressed areas. Managers and stockholders
should not be torn between their responsibilities
to their organizations and their responsibilities
toward society as a whole (no. 118). Finally,
although not committing themselves to
a specific reform, the bishops insisted that the
dominant form of corporate organization in the
United States was inadequate: Although shareholders can and should vote on the selection of
corporate directors and on investment questions
and other policy matters, it appears that return on
investment is the governing criterion in the relation between them and management. We do not
believe that this is an adequate rationale for
shareholder decisions. The question of how to
relate the rights and responsibilities of shareholders to those of other people and communities

662

affected by corporate decisions is complex and

insufficiently understood. We therefore urge serious, long-term research and experimentation in
this area. More effective ways of dealing with
these questions are essential to enable firms to
serve the common good (no. 306).
One important avenue through which American
Catholics have participated in the CSR movement
is socially responsible investing (SRI). SRI is an
umbrella term that encompasses various methods
of making investment decisions that use criteria
other than maximizing earnings such as a ban on
purchasing shares in morally objectionable businesses despite their high return on investment.
Another method concerns investment-related activities such as filing shareholder resolutions to
achieve ends unrelated to maximizing shareholder
return. One example is to halt practices judged to be
environmentally harmful. Religious concern with
SRI was given impetus by the formation of the
Interfaith Center on Corporate Responsibility
(ICCR) in 1971. The use of shareholder resolutions
to oppose practices that activists deemed objectionable grew steadily through the end of the twentieth
century. In the 1980s, the idea of moral responsibility in investing was given a major boost by the
movement to disinvest in South African companies
and firms doing business in South Africa as a means
to pressure the government to end apartheid. Catholic congregations of consecrated religious (sisters,
brothers, and priests) have been very active in the
ICCR and in SRI more generally. These congregations control billions of dollars accumulated
through their members savings and also benefit
from media attention that follows public protests
of corporate policies or actions. Mercy Investment
Services, for example, the agency that manages
funds for the Sisters of Mercy, possesses a Social
Responsibility Committee whose tasks include
engaging, retaining and replacing socially responsible investing vendors and research providers;
establishing negative and positive investment
screens; engaging corporations by filing shareholder resolutions and participating in dialogue,
and voting proxies.
In the American context, this SRI movement
by Catholic organizations in the direction of CSR
has become primarily though not exclusively

CSR and Catholic Social Thought

identified with the political left. This identification has led to criticism from more conservative
Catholics. This criticism has taken two forms.
One group objects to the goals but not the
means used by most SRI activists. This group
shares an understanding of the social responsibility of corporations and views the use of tools such
as shareholder resolutions as legitimate, but prefers that such energies be spent to stem practices
such as abortion and pornography, rather than
environmental abuses or poor treatment of
workers. The second group of critics more fundamentally targets the activists concept of CSR,
arguing that maintaining shareholder value as
a primary aim is a surer guarantee of ethical
business activity than a commitment to social
responsibility that is vague, difficult to track,
and subject to the vicissitudes of social and political fads. Business ethicist Nicholas Capaldi, for
example, writes that the CSR field in general is
characterized by hostility to markets that is
fueled by a traditionally leftist understanding of
the world and its problems. Joseph Johnston
(cited above) argues that viewing other stakeholder interests as equivalent to the interests of
shareholders introduces confusion into the
decision-making process by managers and
thereby makes it less likely that they will behave
in a way consistent with traditional norms of
fiduciary responsibility. Although the characterization of the debate in Catholic circles
defies simple categories, all sides share one
common ground, which is the belief that corporations have responsibilities besides profit
maximizing.

Future Directions
In sum, it is safe to say that while the principle
behind the concept of corporate social responsibility is widely accepted among Catholics, significant
differences remain between CST and CSR. Perhaps the greatest difference concerns the content
of that responsibility and the appropriate method
for discharging it. Catholic social thought as
expressed in the official documents of the Church
insists that the moral obligations of corporate

CSR and Catholic Social Thought

managers are not reducible to maximizing profit or

shareholder return. However, this should not be
understood as an endorsement of collectivism
either, as we have clearly seen in the foregoing
examination of Encyclicals. The extent and
nature of these additional obligations is a subject
that continues to be debated among scholars of
Catholic social thought, and hopefully this debate
will be received as a contribution to the broader
CSR discussions, not as a religious point of view
but, rather, as a well-developed theoretical framework that emerged from the tradition of Catholic
social though and its rich philosophical
foundations.

Cross-References
Community Relations
Economic Sociology on CSR
Employee Participation
Human Resource Management
Social Accounting
Social Entrepreneurship
Social Innovation
Trust

References and Readings

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CSR and Cause-Related Marketing

Marketing Communications and CSR

CSR and Cause-Related Marketing

CSR and Corruption

Joop H. M. Remme
Maastricht School of Management, Maastricht,
The Netherlands

Synonyms
Bribery; Integrity, lack of

Definition
Corruption can best be defined as to persuade
officials to deviate from their entrusted duties,
either through bribery or through other means.
There are also other significant definitions. The
most important definitions of corruption are
arguably those offered by the Worldbank and by
Transparency International, the global anticorruption nongovernmental organization. The
Worldbank defines corruption as the use of
public office for private gain (McKoy 2009
p. 87). The disadvantage of this definition is that
it focuses on corruption in government organizations, while corruption is by no means limited to
that. And officials within governmental organizations are in most cases engaged in corrupt acts
with people from outside of the governmental
system.
Transparency International defines corruption as the abuse of entrusted power for private
gain (www.transparency.org). This definition
puts the emphasis on the motives behind corruption, which apparently usually have to do with
greed (I will refrain here from analyzing this
motive further, while realizing that greed is
usually a catchphrase for a complex of psychological issues.)
A related definition is to persuade officials to
deviate from their entrusted duties, either through
bribery or through other means. This definition
originated in the original meaning of to corrupt:
to rot. What this definition points out is that one
has to understand what it is that is rotting.

CSR and Corruption

Using the definition from deviating from

entrusted duties, corruption is the opposite of
integrity. Especially when we use this definition,
it is important to understand integrity. It has to
do with reliability, with being trustworthy, with
the commitment toward building and maintaining
relationships of trust. The integrity that we refer
to here is the reliability to honor entrusted
duties. It applies when someone can be trusted
to do his or her job as he or she is expected to do
and has promised (often even sworn) to do.

Introduction
One problem in understanding corruption is that
the meaning of the concept is often unclear, as it
is by some associated with a wide range of damaging behaviors, and by others understood in
a very limited sense and identified with bribery.
Then there is the other part of understanding
corruption: How can it be that the corruption
takes place? Several answers are possible at the
same time.
Corruption typically taking place secretly is an
indication that those involved are clear about its
illicit nature. Partly as a result of this hidden
reality and of the confusion regarding the best
definition of the term corruption, quite a few
myths have arisen around it.
An infamous myth is everyone is doing it. It
is true that this myth is often heard in countries
with a high occurrence of corruption. Many people who hold this belief are probably sincere in
doing so, as it may appear to be true. What it
means is that many or most people assume that
corruption is everywhere, and that this seriously
damaged their trust in institutions and in business
relations. Another result of this myth is that the
people who hold it find an excuse in it to condone
corruption, because otherwise they think they
would be selling themselves short. Thus, the
myth brings with it the risk of the self-fulfilling
prophecy.
Another myth points our attention to culture,
as many cases of corruption occur in an
intercultural context. We see two issues
connected with this: (1) aspects of cultures

665

which may be subject to corruption and (2) confusion between people of different cultures,
intentionally or not, about the customs in certain
cultures. When we look at the first issue, we see
certain aspects of culture play a role. Using the
model of culture developed by Trompenaars, we
see that one of the ways to compare cultures is
along the axis of universalism and particularism
(Hampden-Turner and Trompenaars 2000,
pp. 1367). This model holds that in some cultures most people probably have a tendency
toward one of the extremes on the axis, while in
some other cultures the tendency may be toward
the other extreme (it does not hold that all people
in a particular culture are like this or like
that). When we look at this axis, then we may
conclude that a particularist tendency may play
a role in convincing someone that certain rules do
not apply. However, this does not mean that people in more particularist countries are necessarily
corrupt and it is probably best to say that a certain
element of their culture can be used in corrupting
them. Let us look at the example of wasta. This
is a notion from Arab culture, expressing that
trust is primarily placed on kinship. It means
that in all sorts of transactions relatives are
treated more favorably than others. This looks
like the corruption called nepotism (favoring
relatives), but it need not necessarily be like that.
However, it can be used as an excuse for doing so.
When we look at the second issue, we see
a problem that is common where business transactions take place in an intercultural context. It
does happen that someone bribes, or otherwise
influences, someone else with the excuse this is
part of our culture. We can look at quanxi, the
culture of gift-giving that is a part of Chinese
culture. This exchange of gifts is sometimes
seen as corruption (see Steidlmeier 1999). However, this primarily works when there is ignorance of Chinese tradition. In that tradition,
quanxi is meant to strengthen relationships
through gifts meant to express mutual appreciation and respect. The gifts are usually comparable
in value and nature, rarely exorbitant, and underline the status of those involved. Corruption in the
sense of bribery is quite different. When one
party offers a nice dinner and the other returns

666

the favor with a very expensive car, for instance,

then this is not a typical case of quanxi. The
person receiving the car can be expected to
know that there is something else happening
than strengthening the relationship.
There is also the myth that holds that corruption is typical of what is regarded as the capitalist way of doing business. The idea is that the
kind of deal-making that happens within corruption is identical with making deals in the capitalist system. But the principal notion within the
capitalist system is that all human beings have
both needs to demand and value to offer, so that
an exchange of those needs and value-items will
occur, while a transparent comparison of goods
and services for exchange leads to the best outcome. However, the capitalist exchange takes
place within a market setting, which requires
transparency and transparency will almost certainly exclude illicit behaviors. Also, the result
of the corrupt exchange is not the overall most
efficient pricing, but rather a price that suits one
or two people.
Another myth is that it would be a victimless
crime. This is typically the case where corruption is equated with bribery. The idea is that
money (or favors) being exchanged between
two people does not have to affect someone
else. However, such an exchange is not the
essence of corruption; the deviation from
entrusted duties is. After all, the exchange of
money (or favors) happens for the reason to
make someone act different from what the proper
execution of duties would entail. The reason that
someone has to be persuaded to deviate from
duties and to keep it confidential is that there are
good reasons why the proper execution of
entrusted duties needs to be in force. For
instance, in most countries, building activities
have to be approved by officials before the actual
building activities can commence. The reason for
this is mainly safety (sometimes other considerations also play a role, such as aesthetic preferences, labor conditions, or, increasingly, the
environmental impact of the building activities).
The official will typically judge the building
plans with official guidelines in mind. To contractors, the work of the official could be

CSR and Corruption

a burden, as it will cost them money and time.

Quite often, the officials work will result in
expensive changes (think about the quality of
materials or the expected solidity of the building
once completed). Some contractors respond to
this by trying to influence the official. The people
who later use the building may not know this. The
corrupt deal was not victimless, because in many
cases the building collapses, resulting in loss of
lives and property, and if it does not collapse, the
people using the building will be exposed to risk.
One example can be found in earthquakes, which
in more corrupt countries typically result in much
more damage. What about corruption with police
and security officers? If a criminal bribes
a security officer at an airport to let a particular
piece of luggage pass, this appears to not affect
others. The luggage may contain drugs or diamonds, and why would other people at the airport
care? But the luggage may also contain a bomb or
a virus, which means that the safety of other
people is jeopardized. What is also jeopardized
is trust in security forces. The resulting low feeling of safety has all sorts of damaging effects,
ranging from crime to the discouraging of
business.

Key Issues
It is hard to determine the causes of corruption,
due to its complex nature and the national and
organizational contexts in which it is found. On
the website of Transparency International (www.
transparency.org), one can find several documents on the causes of corruption, specified to
particular industries, such as healthcare, justice
systems, etc. There is not one single cause. One
cause is poor governance, both in business
organizations as well as in not-for-profit and
governmental organizations. Another cause is
demotivation, as lower motivation brings less of
a hesitation to engage in corrupt practices.
Another factor is in conflicting laws and regulations; for example, if a restaurant holder has to
place the fire-extinguisher on the floor at the
instigation of the fire department and at shoulder-height at the instigation of the labor

CSR and Corruption

inspection, then this entrepreneur may be

tempted to bribe one of the inspectors.
A distinction is often made between petty corruption and grand corruption: On the one hand
badly paid officials seeking to supplement their
modest incomes and on the other hand wealthy
entrepreneurs, influencing decisions with a farreaching impact. This distinction is relevant
when it comes to understanding the causes of
corruption.
As is made clear in TIs sector tables, certain
industries are worldwide more vulnerable to corruption than others (http://www.transparency.org/
policy_research/surveys_indices/bpi/bpi_2008).
Apparently, one of the industries most mentioned is the construction industry, while another
industry in this regard is the hospitality industry.
Suffice it to say that in preventing and fighting
corruption those industries require special
attention.
One special issue concerns corruption in academia. In both research and education, texts are
created, as research reporting and as part of educational programs. When we look at students, the
entrusted duties are about following the educational program in which the student enrolled,
including the writing of texts, and for researchers
this is about truthful reporting. This means that
those texts have to be the work of that particular
student or researcher. In recent years, plagiarism
is increasingly a concern within universities, governments, and accreditation bodies worldwide.
Several developments appear to be behind this
increase. The most obvious development would
be the spread of the use of Internet on all sorts of
devices.
One contributing factor could also be culture
or national tradition. In cultures in which expertise is highly valued, sometimes students may
feel inclined to copy the words of an authority.
It also happens that in some countries, education
is not much more than memorizing what the
teacher expresses, and students from those
countries may feel inclined to write texts in the
same vein.
The damage caused by academic corruption is
considerable. It ranges from individual students
not receiving the right education to whole

667

countries experiencing a loss in academic/scientific progress. Again, most of the damage is

caused by perceptions. If in a university one of
the faculty members has been found guilty of
accepting bribes in order to give students a free
pass in exams, then the perception becomes that
exams and diplomas at that university are in
general untrustworthy. The students who did not
pass their exams fraudulently and the faculty
members who did not accept bribes will bear the
consequences.
Finally, what may arouse suspicions of corruption in academia is the influence of companies
on curricula. This does not mean that all funding
from the business community is suspicious, but it
does mean that such funding must have transparent accountability to protect the proper focus of
the university.

Future Directions
Fighting corruption is a bit like fighting evil; it
is called for, but it is hard to imagine that it will
ever be completed. Still, there are good reasons to
take steps toward that goal and, fortunately, there
are also some ways to make that feasible.
One way to limit corruption is information on
the causes and consequences of corruption.
Discussing the myths is part of that. When we
look at the type of corruption mentioned last,
academic corruption, then much can be achieved
through educating researchers and students (in
some cases, students are poorly informed about
academic writing and are not aware of the proper
ways to quote and to use references).
It has to be understood that much of the damage of corruption already takes place when corruption is just rumored. Let us look into the
example of the building inspector and the contractor. If they are rumored to be corrupt, also
other inspectors and contractors may suffer from
less trust.
Another way to limit corruption is about how
companies and government structures are organized, as insufficient governance and conflicting
rules play a role in causing corruption. In
preventing and fighting corruption it makes

668

sense to have the proper bureaucracy. For

instance, if important decisions depend on the
approval of one particular individual, then it
may be tempting to certain people to try to influence him or her. Then it might make sense to
change procedures and structures, making certain
other officials check the decisions of their colleague or making certain decisions the responsibility of a team, not a single individual.
Also, demotivation has been mentioned as
a factor contributing to corruption. Should there
be signs of increasing demotivation, then one
would at least have to realize the increased risk
of corruption-induced damaging behaviors and
act accordingly.
Another concern is about hiring. Is there
a reason to think that the applicant is trustworthy
and will act with the interests of the organization
in mind? Connected with that are the decisions
regarding promotions. Does the person who is
promoted to an authoritative position show the
right kind of behavior, acting from integrity?
It may be best to look into the behaviors in the
organizational culture. It is unlikely that corrupt
behaviors will be collectively considered acceptable, but it is possible that one cultivates certain
behaviors which may be more easily corrupted
than others and then it is important that the social
group which is the company is able to fight off the
subversion of corrupt behavior.
Connected to legislation and corporate culture
is the use of codes of conduct within organizations and industries. The contents of the codes
typically reflect the issues that professionals in
the respective organizations are facing. Corrupt
practices are among those issues. In many cases,
the codes limit bribery by clarifying what is
acceptable as a gift, often mentioning a maximal
value for gifts and proscribing reporting on the
reception of gifts. Many codes also contain rules
about the involvement of relatives, limiting nepotism. The codes need to be implemented in the
various HRM decisions and the behavior of
employees also needs to be inspected in terms
of the codes. Increasingly organizations show
success in this use of codes.
Special attention should go to leadership.
Governance is not only a matter of controlling

CSR and Corruption

and setting rules, but it is also, and even increasingly, a matter of setting examples. It is important
that leaders show integrity and are aware of their
own behaviors. For instance, a leader who was
known for his integrity can have a damaging
impact on the organization by appearing to have
lost his integrity through some unfortunate
behavior. Should that be the case, others in the
organization may be less inclined to avoid
corrupt behaviors.
The lesson we can draw here is that preventing
and fighting corruption requires a systematical
approach. The signals given through governance
and leadership and from HRM, the company culture and the Code of Conduct have to be consistent. In general, it can be said that unclarity
regarding what is expected of the members of
an organization can give room to undesired,
even damaging, behaviors.
One promising direction for future research
would be toward the responsibilities for business
organizations in preventing and fighting corruption. The question could then become: How
does preventing and fighting corruption tie in
with honoring the responsibilities toward
stakeholders?
Another future direction for research would be
focused on possible opportunities for business
organizations in terms of strategy and marketing.
This direction should be seen in connection with
honoring stakeholders.

Cross-References
Fraud Prevention, Detection, and Reporting
Government
Responsible Leadership
Transparency International

References and Readings

Hampden-Turner, C., & Trompenaars, F. (2000). Building
cross cultural competence How to create wealth
from conflicting values. New Haven/London: Yale
University Press.
Hess, D., & Dunfee, T. W. (2000). Fighting corruption:
A principled approach; The C2 principles (combating

CSR and Poverty

corruption). Cornell International Law Journal, 33,
593626.
Hutching, K., & Weis, D. (2005). Quanxi and Wasta:
A comparison. International Business Review, 48(1),
141156. 12 December 2005 (online).
McKoy, D. V. (2009). Defining corruption. In
A. Stachowicz-Stamusch (Ed.), Organizational immunity to corruption Building theoretical and research
foundations. Katowice: Information Age publishing.
Steidlmeier, P. (1999). Gift giving, bribery and corruption: Ethical management of business. Journal of
Business Ethics, 20(2), 121132.
www.transparency.org, Accessed 15 April 2011.

CSR and Poverty

Uwafiokun Idemudia
Department of Social Sciences, 307 Founders
College, York University, Toronto, ON, Canada

Synonyms
Bottom of the pyramid; Corporate accountability;
Corporate citizenship and poverty; Corporatecommunity involvement and poverty; Corporate
philanthropy; Corporate social development;
Corporate social investment and poverty; Corporate social performance; Sustainable development;
Triple bottom line

Definition
The concepts of corporate social responsibility
(CSR) and poverty do not have a consensual definition. However, the relationship between CSR
and poverty presupposes that besides making
profit, business has an obligation to contribute
to poverty alleviation either through specific
discreet activities or by integrating poverty
reduction concerns into its day-to-day decision
making as well as in its interaction with stakeholders. At any rate, while there is some consensus that poverty reduction cannot be or should not
be the sole responsibility of business, disagreements continue to persist with regard to the scale
and scope of business social responsibility for

669

poverty reduction. Similarly, there are also

differences about the extent to which businesses
through CSR are able to address the multicausal
factors of poverty and its multidimensional
nature, and whether businesses should be held
accountable for their poverty alleviation efforts.
In addition, while in principle, business involvement in poverty reduction via CSR is often said to
offer enormous opportunity; in practice, such
involvement can often be marred in contradictions, and the outcomes fragmented. As such,
the strongest criticism of the CSR-poverty
nexus lies in the suggestion that there continue
to remain a significant gap between corporate
rhetoric on poverty reduction and their actual
efforts on the ground.

Introduction
Over time, the issues of economic development,
poverty reduction, the provision of social infrastructure, and the pursuit of equality via redistribution of wealth have come to be understood as
the primary responsibilities of the state.
However, the failures of the developmental
state, the rise and subsequent societal disenchantment with the neoliberal agenda in the form of the
so-called Washington consensus, meant that
the traditional division of responsibilities among
the state, business, and civil society was seen to
be no longer particularly adequate for organizing
societal governance. Indeed, this is demonstrated
in the failure of traditional efforts to eliminate
poverty, and the persistence of poverty in both
developed and developing countries. Consequently, like other CSR commentators, Professor
Joseph Monsen points out that the call for
business involvement in poverty reduction is
borne out of the idea that in a pluralistic society
like ours, it is appropriate for society to expect
another powerful institution to help solve problems, which government has failed to handle or
handles badly. Underpinning this position is the
idea that if wicked problems like poverty are to
be genuinely addressed in a sustainable manner,
then there would need to be a constructive input
from government, civil society, and businesses.

670

As such, the confrontational nature of the politics

of development in the 1960s and 1970s had to
give way to a new approach to development that
emphasizes collaboration and partnership and
avoids/limits spaces for confrontation and
contestation. This new approach to societal governances has been referred to as the emerging
embedded relational governance era by Professor
Alte Midttun. It is against this background that
business has in the last few years turned to the
concept of corporate social responsibility (CSR)
as a framework to get involved in poverty alleviation and legitimize their new role. However,
critical voices continue to question such business
involvement given its profit-oriented nature and
the fact that the implications of such involvement
for business, society, and the poor is yet to be
fully understood. Nevertheless, the combination
of a shift in emphasis toward embedded relational
societal governance and the idea of business case
logic has not only shaped how business has
responded to the issue of poverty, but also how
business understands poverty and sees its role in
the poverty alleviation project.
The focus on the relationship between CSR
and poverty is a relatively nascent phenomenon.
The earliest indirect manifestation of the CSRpoverty nexus was driven in part by both voluntarism and individualist philanthropic initiatives.
For example, Sir Titus Salt founded Saltaire town
outside of Bradford in the UK with a view to
enhance the quality of the life of his workforce
and meet his social responsibility to society.
These kind of efforts via which business
attempted to address questions of poverty
indirectly was partly due to the fact that the
notion of social responsibility was at that time
still largely interpreted in terms of the social
responsibility of the businessman and not the
social responsibility of business per se. Hence,
criticism of such gestures that they amounted to
voluntary reduction of profit and were unnecessarily competing with other corporate expenditure and stockholder dividend essentially ensured
that ambivalent attitude toward such social
responsibility practice ensued. According to
Dr Nicholas Eberstadt, the advent of the industrial revolution contributed to a new ethic that

CSR and Poverty

glorified wealth as an absolute value,

apotheosized business, and inevitably disavowed
the social obligation previously assumed by
business. In addition, the free enterprise
economic system did not only legitimize selfinterest but also provided no means or rationale
to internalize the social cost that accrues from
production. This task was left to governmental
regulations that were often inefficient. The foregoing situations in combination with market inefficiency and irresponsible corporate behavior
eventually incited public dissatisfaction with
laissez-faire as an economic order and its
supporting institutions. The consequence was
the reinvigoration of the demand for more government regulation of corporate activities and,
thus, the second phase of corporate social responsibility in which businesses began to adopt CSR
policies as a way to ward off government regulation and social criticisms. While poverty was
often not the direct target of the CSR initiatives
adopted at this time, efforts to address issues of
workers health and safety and the recognition of
workers rights indirectly contributed to poverty
alleviation.
The realization that CSR has become an
indispensable part of doing business in todays
competitive environment, coupled with efforts by
CSR proponents to debunk the criticism that CSR
is a costly initiative that reduces corporate profit
without reasonable returns, instigated the move
toward the third phase of business social responsibility. This phase in contemporary parlance
might be referred to as the era of the business
case or the win-win era. The win-win era has its
roots in the writing of Professor Peter Druker who
argued in 1984 that in the next decade it will
become increasingly important to stress that business can discharge its social responsibilities,
only if it converts them into self-interest, that
is into business opportunities. The third phase of
business social responsibility is thus underpinned
by the idea that by being socially responsible, the
corporation is securing its interest and that of
society. This particular conception of the social
responsibility of business essentially settled the
unspoken tension that divided CSR proponents,
as this interpretation of CSR was largely

CSR and Poverty

consistent with Andrew Carnegies conception of

CSR but at odd with that proposed by Julius
Rosenwald. In contrast to Julius Rosenwald,
who argued for the social responsibility of business by stating that You have to do good to do
well, Andrew Carnegie suggested instead that
GOD wants us to do well so we can do Good. It
is within this third phase that the issue of poverty
has emerged as an item on mainstream CSR
agenda, and therefore, this phase provides the
underpinning logic that informs how most
businesses conceptualize their relationship with
poverty, and the kind of solutions for poverty
often proposed from a business perspective.
The relationship between CSR and poverty is
complex, uneven, multidimensional, and highly
contested. This partly explains why poverty has
only just recently emerged as a major issue of
concern within mainstream CSR agenda. Indeed,
while most businesses now claim they contribute
to poverty reduction either directly or indirectly
via a diversity of their CSR initiatives, only
a minority of businesses explicitly set
poverty reduction as a CSR objective. The complexity of the relationship between CSR and poverty reduction can be attributed to the lack of
a consensual definition for both CSR and poverty,
and the fact that poverty manifests in a diversity
of forms (e.g., lack of income, lack of capacity,
exclusion, and voicelessness). Similarly, the
unevenness and the contested nature of the
relationship between CSR and poverty are also
due to the multicausal nature of the factors
responsible for poverty and the lack of
well-established methodology to adequately
capture or assess systematically the impact of
business on poverty reduction. The combination
of these factors has meant that different businesses are not only able to define CSR and poverty differently (i.e., how business sees fit), but
also legitimately claim they contribute to poverty
reduction (as most businesses tend to use different yardsticks to measure their contributions to
poverty reduction). Consequently, the debate
over the relationship between CSR and poverty
is fraught with claims and counterclaims that
often do not proceed from similar grounds or
assumptions. On one hand, proponents of CSR

671

argue that businesses via their CSR initiatives are

able to contribute to poverty reduction through
contribution to community development, provision of social infrastructure, support for microcredit schemes, delivery of HIV/AIDS medicine,
creation of employment, and support for capacity
building initiatives. For these CSR proponents,
the issue is no longer whether CSR can or cannot
make a difference in poverty reduction; rather,
the core challenge is how to systematically harness the capacities of businesses and their CSR
efforts in a systematic and sustainable manner
that can then potentially make a significant
difference in the race to reduce poverty. On the
other hand, critics argue that the idea that CSR
initiatives contribute to poverty reduction is
a facade, and at best, CSR initiatives are only
able to make piecemeal contribution to poverty
alleviation. This is attributed to the nature of CSR
that has essentially allowed business to use
claims of social responsibility to ward off
regulatory treat, accommodate some oppositional
concerns, neutralize call for structural reform
necessary for poverty reduction, and appropriate
the meaning of poverty and how to reduce it.
For these critics, then, the core challenge is the
need to move beyond just a focus on CSR contribution to poverty reduction, as we need to begin
to examine the different contradictory relationships and tensions that might exist between business and poverty reduction. The debate between
the proponents of CSR is good for poverty reduction and CSR is bad for poverty reduction has
been particularly insightful and useful for
highlighting the complexity of the relationship.
However, the failure to sufficiently historicize
and contextualize the multidimensionality of the
linkage between business and poverty, make
explicit the unstated assumptions that underpin
each perspective and consider the voices and
lived experiences of the poor who are supposedly
the beneficiary of CSR, means that we still do not
adequately know how (i.e., the process), when
(i.e., under what conditions), and where (i.e.,
what forms of poverty) CSR initiatives
contribute to poverty reduction. Similarly, the
impact of CSR initiatives on the poor and the
implications of poverty reduction strategies

672

based on a CSR framework for society at large

are still poorly understood.
The issues of how businesses understand
poverty and see its role in poverty reduction were
recently addressed by Dr Michael Blowfield, who
stated that understanding the specific relationship
between business and poverty is necessary if we are
to better understand business behaviors as developmental actors. He argued that to see business simply
as either the cause or the solution of poverty is
inadequate as it does not capture the variety of
ways that business affects, or is affected by, poverty. Hence, he suggested that the relationship
between business and poverty is best conceptualized along three dimensions (i.e., business as
a cause of poverty, its victim, and a solution). The
conception of business as a cause of poverty, he
attributes largely to power asymmetries that favor
business and thus allow it to externalize the cost of
production in ways that might often engender poverty. In other instances, business is also known to
cause poverty by ignoring the gendered nature of
production and the process dimension of poverty
such as empowerment. Similarly, he argued that
business can also be a victim of poverty because
poverty can negatively affect the business sector.
According to him, one only needs to look at the
facets of poverty as set out in the Millennium
Development Goals (MDGs) which are indicators
of human development to see how business can be
victim of poverty. Dr Blowfield goes on to state that
the fact that half the world lives on less than two
dollars a day shows how much greater the market
for goods and services could be if only people had
more income, In other words, the incidence of
poverty potentially reduces the size of available
market for business and, thus, makes business
a victim of poverty. In addition, he suggested that
the idea of business as a solution to poverty goes
beyond its traditional role in the capitalist economy
of creating jobs, providing goods and services, and
generating wealth. Rather it is the belief that business can consciously invest in ways that are simultaneously profitable and beneficial to the poor. The
idea that business is both a cause and a solution of
poverty is not novel and in fact well established in
the literature, and it is often the subject of polemic
debates. However, Dr Blowfields conception of

CSR and Poverty

business as victim of poverty is both problematic

and disingenuous. The idea that business is a victim
of poverty is problematic as what he conceptualizes
in terms of victimhood is what others have also
referred to as the fortune at the Bottom of the
Pyramid (BOP). Besides, neither the market nor
its size is a naturally occurring state of affairs within
all human societies. Furthermore, it is misleading to
see business as victims of poverty because it
presupposes that the involvement of business in
any context can be neutral. Unfortunately, such
a situation is often never the case. Similarly, given
the significant power disparity that often exists
between business and the poor and the fact that
business can choose to freely invest and disinvest
whenever and wherever it chooses means
suggesting that businesses are victim of poverty is
a classical case of what Dr Kenneth Amaeshi has
called intellectual gymnastic that offers nothing
more than intellectual simulation. The point here
is not that businesses are not sometimes affected
negatively by incidence of poverty; rather, it is that
poverty is often a function of governance failure to
which business might have directly or indirectly
contributed to. Hence, while business might be
victim of governance failure, it is almost never the
victim of the poor.
Nonetheless, the ways in which business
especially Transnational Corporations (TNCs)
have caused poverty is well documented in the
various variant of the modernization versus
dependency theories debate of the 1960s and
1970s within development studies. A more recent
debate has shown how the competition among
developing countries to secure Foreign Direct
Investment (FDI) (that is supposedly meant to
stimulate economic growth that can reduce
poverty) tends to engineer the race to the bottom,
a process that creates an enabling environment
for poverty to fester. Specifically with regard to
CSR, TNCs are often able to pass on cost associated with the adoption to CSR principles to
smaller suppliers in their supply chains. These
small suppliers are often likely to compensate
for such additional CSR cost by cutting labor
cost and paying low wages that generate precarious working condition and push some workers
into poverty. A good example will be the

CSR and Poverty

so-called Wal-Mart effect. In contrast to the idea

of business as the cause of poverty, Dr Boyle and
co have identified three ways via which business
can act as solution to the problem of poverty. The
first is the economic approach that sees the poor
as either consumers or producers. As consumers,
the poor becomes a potential market to be
targeted and grown through new products and
services innovations developed by businesses.
The poor as producers implies turning the poor
into producers so as to build their assets wealth,
generate economic wealth, and thus get out of
poverty. The second is the CSR approach,
which according to them differs from the economic approach in the sense that profit is not
necessarily the primary goal, when companies
take on issues of poverty alleviation. However,
the concern for profit-making is never completely
ignored altogether. The third is the activist/advocate approach that requires businesses to engage
in the policy process rather than try to solve the
problem of poverty themselves. It is therefore
clear that business can play a number of roles as
a solution to poverty. These roles range from its
traditional indirect role (i.e., by focusing on generating economic value for its owners), semidirectly (i.e., by using CSR to meet both profitability and poverty alleviation goal), or directly
(i.e., by actively lobbying for pro-poor social,
economic, and political policies). However,
since, in practice, businesses are less likely to
advocate for any kind of policy that might constrain capital accumulation even though such
a policy will facilitate poverty reduction, most
businesses largely engage with poverty issues
either indirectly or semi-directly. Hence, poverty
tends to enter business decision making either in
terms of risk to its operation or in the form of
negative CSR. Dr Rhy Jenkins describes negative
CSR as tendency to emphasize what a company
should not do such as employing child labor or
violating human rights as opposed to setting positive development outcomes as CSR target such
as helping to reduce poverty. This manner in
which poverty enters managerial decision making has significantly shaped the nature of business-poverty relationship and raises a number of
key issues for poverty alleviation efforts.

673

Key Issues
The first key issue is the disagreement over
whether business indirect and semi-direct
approaches to poverty reduction can be an effective means for reducing poverty or if such efforts
by business are simply another form of a band-aid
solution to the problem of poverty. For example,
critics argue that given business emphasis on
either indirect or semi-direct approach to poverty
reduction, business is only able to address symptoms of poverty in a piecemeal fashion as the root
causes of poverty are frequently ignored. In other
words, the inability to actively pursue a direct
approach to poverty reduction often means that
the structural factors that keep people poor are
often left unchallenged or unchanged by CSR
initiatives. Another core concern is the material
and discursive consequences for both the poor
and the field of development in terms of basing
poverty reduction effort on a CSR framework.
For instance, Dr Boyle and co have argued that
basing poverty reduction efforts on a CSR framework is problematic as the core theory that
informs CSR (i.e., stakeholder theory) ignores
poverty. Hence, the poor are often not recognized
as stakeholders and they are always likely to lack
sufficient power to be able to influence managerial decision making in a manner that protects
their interest. The material implication thus for
the poor is that they are less likely to directly
benefit from corporate intervention since
such interventions are not necessarily geared
toward meeting their real needs. Similarly, critics
also argue that if business efforts to address
poverty are predicated solely on the business
case logic, what happens when issues of poverty
cannot be converted into business opportunities.
Put differently, the emphasis on the business case
logic means that certain aspects of poverty are
likely to go unaddressed, and therefore, the scope
for business engagement with poverty is always
going to be narrow and its efforts fragmented.
In addition, some scholars like Dr Dinah Rajak
have also argued that besides its material implications for the poor, a more disconcerting issue is the
discursive capacity of CSR to reshape development agendas according to corporate values and

674

interest. The problem here is that business is not

just able to pick the winners and losers in its CSR
initiative, but it is also beginning to be able to
appropriate the meaning of poverty, legitimize
certain forms of solution for poverty reduction,
and marginalize other solutions to poverty that
are inconsistent with corporate values and interest.
However, Dr Blowfield points out that some
elements of business response to poverty such as
adaptation of conventional management tools and
concepts for development purposes, depoliticization of economic opportunities, and the reduction
of development visions to just targets and development process to techniques are strategies that
are characteristics of contemporary development
itself. Hence, it is much more difficult to suggest
that business might co-opt development than to
make the case that business is just coping
established norms of the predominate development discourse. Finally, the question of the impact
of CSR initiatives on poverty remains an
unresolved issue. As such, proponents and critics
of CSR are able to make assertions about the
impact of CSR on poverty reductions without systematically accumulated empirical evidence to
substantially support their positions. For instance,
proponents of CSR is good for poverty reduction
and its critics are able to use anecdotal evidence,
point to shift in corporate policy or adoption of
international codes of conducts like the United
Nations Global Compact as evidence that CSR is
either contributing or failing to contribute to
poverty reduction. Thus, we are still not able to
ascertain in clear terms whether business has been
good or bad for poverty reduction. This problem is
further complicated by the tendency to marginalize the voices of the poor in theoretical and
practical debates about CSR and poverty.

CSR and Poverty

empirically analyze how different aspects of

CSR might affect different dimensions of poverty.
This would offer us a more nuanced insight into
the relationship between business and poverty
beyond the more narrow focus on whether CSR
has contributed or failed to contribute to poverty
reduction. The works of Boyle and co and
Dr Peter Utting though largely theoretical are
good examples of efforts that have tried to
address this issue. Theoretically, analysis of the
CSR-poverty linkages also need to begin to
explore how CSR processes matter for poverty
alleviation and under what circumstances has
CSR contributed to poverty alleviation. It is also
important to disaggregate business and to
consider how different businesses might affect
poverty differently. Finally, concerted effort
should also be made toward capturing or measuring the impact of CSR initiatives on the poor.
Such an effort should seek to privilege the voices
and experiences of the poor that are supposed to
be the beneficiary of CSR initiatives. A major
part of this process requires studying the usefulness and relevance of CSR for poverty reduction
from the perspective of vulnerable groups,
especially women, children, and indigenous
communities.

Cross-References
Bottom of the Pyramid
Business and Society
Corporate Citizenship
Corporate Codes of Conduct
Corporate Philanthropy
Corporate Responsibility
Stakeholder Theory
Sustainable Development
Triple Bottom Line

Future Directions
The examination of the relationship between
CSR and poverty needs to be strengthened by
a clearer conception of how CSR and poverty
are defined and interrogated. Key to this process
would be efforts that make explicit unstated
assumptions. Future works need to begin to

References and Readings

Amaeshi, K. (2009). Corporation as citizen: Book review.
Journal of International Management, 15, 457477.
Blowfield, M. (2010). Business, corporate responsibility
and poverty reduction. In P. Utting & J. C. Margues
(Eds.), Corporate social responsibility and regulatory

CSR and Regional Development

governance; towards inclusive development?
(pp. 124150). New York: Palgrave Macmillan.
Boyle, M. E., & Boguslaw, J. (2007). Business, poverty
and corporate citizenship: Naming the issue and framing the solution. Journal of Corporate Citizenship, 26,
101120.
Dinah, R. (2011). Theatres of virtue: Collaboration,
consensus and the social life of corporate social
responsibility. Focaal-Journal of Global Historical
Anthropology, 60, 920.
Drucker, P. (1984). The new meaning of corporate social
responsibility. California Management Review, 26,
5363.
Eberstadt, N. (1973). What history tells us about corporate
social responsibilities. Business and Society Review, 7,
7681.
Jenkins, R. (2005). Globalization, corporate social
responsibility and poverty. International Affairs, 81,
525540.
Midttun, A. (2005). Policy making and the role of government realiging business, government and civil society:
Emerging embedded relational governance beyond the
(neo) liberal and welfare state models. Corporate
Governance, 5, 159174.
Monsen, J. R. (1972). Social responsibility and the
corporation: Alternatives for the future of capitalism.
Journal of Economic Issues, 6(1), 125141.
Utting, P. (2007). CSR and equality. Third World
Quarterly, 28, 697712.

CSR and Regional Development

Rene Schmidpeter1,3 and
Christiane Kleine-Konig2
1
Corporate Social Responsibility, Ingolstadt
University of Applied Sciences,
Ingolstadt, Germany
2
Urban and Metropolitan Studies, Department of
Geography, Ruhr University Bochum,
Bochum, Germany
3
Center for Humane Market Economy,
Salzburg, Austria

Synonyms
Actor-centered
development;
Cooperative
development; Corporate local responsibility;
Corporate regional responsibility; Corporate
urban responsibility; Public-private-partnerships;
Regional governance; Regional philanthropy

675

Definition
In different parts of the world and in different
scientific disciplines, the term region is defined
in various ways. Generally speaking, a region is
an area defined by specific, similar characteristics
that can be based, for example, on political,
historical, cultural, or linguistic grounds.
This area is differentiated from its surrounding
or adjacent parts and is identified as a more or less
clearly determinable subarea within a greater
area. A regions size may vary from multinational
to subnational regions depending on the subject
of matter.
In this context, from a spatial planning
perspective, the term region implies more
than a mere geographic area. It rather refers to
this geographic area as a multidimensional system of various economic, social, political, and
cultural dynamics, interactions, and processes.
In terms of size, regional means a spatial level
that is located above the local and below the
national administrative units. It usually has no
formal boundaries or official government.
Again, the spatial definition of a region depends
on a variety of aspects, for example, similar characteristics, administrative or statistical units,
political or economic interests, and the purpose
of this region-making.
Regional development can generally be
understood as a regions economic, social, and
ecological development. More specifically, from
a spatial planning perspective, regional development serves as an umbrella term for all concepts, processes, and measures undertaken by
local or regional, public or private institutions
and authorities with the intention of improving
a regions current stage of development.
Contentwise, regional development activities
may differ from region to region, depending on
the regions specific historic background and its
economic, socioeconomic, and ecological
characteristics. Three different fields or interpretations of regional development can be
addressed:
1. In the field hardware, the region is referred
to as a built environment that consists of
specific constructed elements. Thus, regional

676

development means addressing material and

capital investment measures such as technical
infrastructure.
2. In the field software, regional development
means dealing with the various immaterial
social and economic processes and
nonphysical aspects that determine a regions
attractiveness for people and businesses.
Among others, this includes developing social
practices, nonmonetary support for individuals and businesses as well as increasing
cultural activities and education or leisure
options.
3. In the field orgware, the region is referred to
as a political and administrative unit. In this
context, regional development addresses
changes in organizational and institutional
structures and political programs. This also
includes measures to empower and activate
residents, to enhance participation, and to
establish self-help or bottom-up networks
between public and private actors.
In the process of steering regional development, a regions current strengths and weaknesses are identified and prospective
opportunities and threats are addressed in order
to create, maintain, or improve a regions future
development. Based on this analysis, programs
and projects are designed and instruments developed that can be either formal, for example, a new
law, or informal, for example, a regional master
plan or a regional development concept. Against
the background of changing political regulations
as can be seen in the turn from a welfare to an
enabling or activating state regional development is increasingly characterized by multistakeholder approaches that include public vs.
private actors and institutionalized vs. individually organized groups.

Introduction
As studies have shown, the majority of businesspeople understand their company as part of
a local and regional network between public and
private actors from the economic, the public,
and the civil sector. They know that their

CSR and Regional Development

company is deeply embedded in its local and

regional environment and that there is a strong
link of interdependencies and interrelations
between the company, its business activities,
and its external environment. In many cases, the
companys location matches the place of residence of its employees, the location of its subcontractors,
and
its
business
market.
Consequently, those business activities and decisions directly affect the economic, ecological,
and social development of the surrounding area.
Hence, it is hardly possible to focus on companies
without taking the surrounding areas and its societal, institutional, and regulative actors into
consideration.
Most types of CSR-related commitment take
place at the companys location or rather its
community and often have a long tradition. However, most of them lack a long-term basis,
a certain degree of continuity, and pro-activeness,
or a strategy in general. Moreover, philanthropic
activities such as sponsorship and donations are
predominant. In local and regional commitment,
especially small- and medium-sized enterprises
play an important role. On the one hand, their
engagement might be personally or ethically
motivated, but on the other hand, it might represent a specific type of economically or politically
oriented CSR understanding. According to this
rationale, CSR is not just a singular piece of
a broader business model, but a strategic element
of doing business and of connecting the
companys resources with those of other actors
in the region in order to further invest into and
develop the companys location respectively its
business environment.
Against this background, it is reasonable to
conduct further research on businesses, their
social commitment, and their contribution to
regional development. However, this focus has
hardly been addressed in regional sciences so far.
Whereas much of the CSR literature has explored
both the social and the business case of social
activities, there is little empirical knowledge
about local and regional CSR networks as well
as about the effect of cooperations between companies and nonprofit organizations on regional
development.

CSR and Regional Development

Key Issues
In the following, a number of key issues that
intend to point out some conceptual and theoretical approaches to build the bridge between CSR
and regional development are identified. It
remains to be stated that these approaches derive
from a mid-European, welfare state perspective
and are based on CSR activities in industrialized
countries.
Growing Importance of Regions
Against the background of globalization, worldwide interconnections in politics and economics
but also in personal life are intensifying and are
growing in number, while traditional, local relations are often fading. However, at the same time,
there is an opposite pole to this: Under the
umbrella term regionalization, a number of
economic, socioeconomic, and political developments stressing the regional level can be identified. By forming business clusters and by
strengthening regional networks, businesses
intend to unite their own specialized knowledge
and resources with their neighboring partners in
order to increase their visibility and competitiveness on a global market. In a similar way, municipal administrations and politics form regional
alliances to share resources and cut, on the one
hand, and to promote certain issues such as tourism or economy in order to attract more residents,
customers, or investors, on the other hand.
All things considered, new models of
coopetition meaning of cooperation and competition at the same time are considered a key to
heighten collective and regional strengths. In the
course of local or regional CSR activities,
business can contribute to foster these kinds of
networks and efforts with the aim of promoting
the region.
Regional Development Through Endogenous
Potentials
Theory in regional sciences and economic geography stresses the importance of endogenous
potentials for a regions development. According
to that, regional development does not only
depend on exogenous growth impulses but to

677

a great part of it on the availability of

intraregional resources and the actors ability to
activate, share, and make use of them. It is
referred to positive impulses resulting from various regional factors, such as financial power,
work forces, infrastructure, market, or institutions. Endogenous resources also include immaterial ones such as human capital and social
capital deriving from trust and cooperative
relations between regional actors from different
spheres.
From the beginning of the 1980s on, sociocultural aspects or a companys social
embeddedness have become important locational factors. In addition to spatial proximity
between companies and their partners, this also
implies the degree of institutional and organizational closeness between business representatives
and local or regional institutions. These publicprivate networks foster mutual learning
processes, exchange of knowledge, and fruitful
cooperation, which gives way to innovation and
can enhance a regions problem-solving capacities. Hence, social capital generated in these
networks can develop a positive impact both on
the groups members and the social and regional
context they are embedded in.
After all, businesses engaged in these multisectoral networks have the opportunity to directly
and indirectly invest into their surrounding
location and its endogenous potentials.
From an economic perspective, endogenous
potentials represent locational factors that determine a regions attractiveness to investors as well
as residents. These locational factors can have
either direct or indirect positive influence
on businesses: A local administrations openmindedness or its pro-business politics might
open up new ways of doing business; good living
conditions, broad choices in education, culture,
and leisure activities might attract more inhabitants, thereby generating a higher number of
well-educated employees.
As a result, improving living and working
conditions or supporting education matters
through regional CSR activities might
eventually turn out as a profitable investment
for businesses.

678

New Forms of Government and the Provision

of Public Goods
Under the paradigm of an activating and enabling
state, the public sector still guarantees the provision of general public services even though it
does not provide all of them itself. Instead,
a number of services are being outsourced or
taken care of by private actors; responsibilities
are being delegated. In this context, the government or the respective administration needs to
come up with new organizational practices and
forms of government as it is expressed with the
term governance. This means that societal matters are governed and regulated collectively;
informal and bottom-up strategies are being
focused. Just like politics in general, regional
development strategies are characterized by
a more participatory and multi-stakeholder
approach, too. There is an either subject-centered
or a territory-centered approach to regional governance. The former implies a network that generates itself based on a specific issue or problem
that each member has in common; the latter
implies a network that includes all members in
a specific region or area.
A great number of CSR projects are launched
in originally state-governed areas such as education, childcare, or environmental protection.
By engaging in these fields, businesses create
privately
organized
services,
thereby
supplementing general public services and creating public goods.
Against this background, CSR programs
might open up new ways and opportunities for
governments to delegate responsibilities and for
companies to address and support regional needs.

Future Directions
Against the background of globalization and an
overall structural change, regions today face
a strong competition pressure as well as a great
number of social, economic, and ecological
challenges. Current trends in regional development indicate an institutional and organizational
change that calls for innovative solutions in
government, participation of private actors as

CSR and Regional Development

well as intensive cooperation between the public

and private sector in order to enhance problemsolving capacities and to foster future development. In this context, Corporate Social
Responsibility can offer a conceptual and organizational framework for action in order to
establish new forms of cooperative and
communicate structures that allow businesses
to take on responsibility for regional development matters.
A great number of companies already commit
themselves to issues and projects in their external
environment. However, these efforts can be
improved in continuity, pro-activeness, and
strategy. Examples from practice show that CSR
activities in network structures with members
from the public, private, and civil sector work
well. In a network, each members resources
can be shared and combined, which allows
the participants to collectively address
certain regional issues or problems of the same
interest.
It can be assumed that local and regional activities will become more professional in the future
since
awareness
for
multi-stakeholder
approaches to fight collective problems is rising.
In its renewed EU strategy 201114 for
Corporate Social Responsibility, the European
Commission stresses the importance of CSR
strategies on a national and subnational level.
It requests local and regional authorities to further support businesses especially small- and
medium-sized enterprises in their CSR activities. According to the European Commission,
it needs cooperation and partnerships between
public and private actors to fight poverty and
problems of social inclusion.
It remains to be stated that there is still little
empirical knowledge about local and regional
CSR networks as well as about cooperation
between companies and nonprofit organizations
and their actual effects on regional development. It is necessary to conduct further research
on businesses, their social commitment, and
their contribution to regional development,
which is also a question of how to measure
CSR activities and their outcome as well as
their impact.

CSR and Spirituality

679

Cross-References

CSR and Spirituality

Corporate Citizenship
Lobbying
Networks
New Governance and CSR
Partnership

References and Readings

Business in the Community, (2003). Engaging SMEs in
community and social issues. http://www.bitc.org.uk/
resources/publications/engaging_smes.html. Accessed
20 Apr 2012.
Business in the Community, (2009). Building Stronger Communities, business and the third sector: Innovation in
tough times. http://www.bitc.org.uk/resources/publications/building_stronger_co.html. Accessed 20 Apr 2012.
European Commission (Ed.), (2011). A renewed EU
strategy 201114 for Corporate Social Responsibility.
Communication from the Commission to the European
Parliament, the Council, the European Economic
and Social Committee and the Committee of the
Regions No. 681. http://ec.europa.eu/enterprise/policies/sustainable-business/files/csr/new-csr/act_en.pdf.
Accessed 20 Apr 2012.
Gartner, S. (2011). Corporations and regions: Capturing
multiple vicinity spaces in European regions.
European Planning Studies, 19(11), 19311950.
Kleine-Konig, C., & Schmidpeter, R. (2012).
Gesellschaftliches Engagement von Unternehmen als
Beitrag zur Regionalentwicklung. In A. Schneider &
R. Schmidpeter (Eds.), Corporate Social Responsibility. Verantwortungsvolle Unternehmensf
uhrung in
Theorie und Praxis (pp. 681700). Berlin/Heidelberg:
Springer Gabler.
OECD, (2009). Creating a better future together. http://
www.oecd.org/document/31/0,3343,en_2649_34417_
43882783_1_1_1_1,00.html. Accessed 20 Apr 2012.
Schmidpeter, R., (2010). Case study partners in responsibility. Include pathways to community
invest.
http://www.upj.de/fileadmin/user_upload/
MAIN-dateien/Projekte/INCLUDE_Partners-in-Respon
sibility_Germany.pdf. Accessed 20 Apr 2012.
UPJ, (2010). Include pathways to community invest.
Engaging business to invest locally and regionally in the
community. http://www.upj.de/fileadmin/user_upload/
MAIN-dateien/Projekte/include_guide_en.pdf. Accessed
20 Apr 2012.

CSR and SMEs

Sustainable Development in SMEs

Cecile Rozuel
Institute for Socio-Management, Stirling
Management School, University of Stirling,
Stirling, UK

Synonyms
Applied spirituality; Organizational spirituality;
Spirit at work; Spirituality in the workplace;
Transcendence; Workplace spirituality

Definition
Ethics and spirituality are fundamental qualities
of what it means to be human. The practice of
each however differs strongly from one individual to another, informed by their respective social
and cultural environment. Spirituality extends
beyond ethics to provide a framework for
human development. Spirituality traditionally
includes, but is not restricted to, religious beliefs
and practices. It is defined as a belief in a higher
spirit or energy (God, gods, or undefined universal entities) and involves a greater consciousness
of self and of the interconnectedness of humankind with other life forms. This awareness shapes
ones relationship to ones social and natural
environment.
The interest in spirituality in relation to ethics
and management has grown significantly over the
past few decades. The emerging field of workplace spirituality has hardly discussed CSR as
such, but the values and necessary organizational
changes brought by a greater awareness at work
contribute to redefining the CSR agenda. In particular, questions are raised about the suitability
of the existing neoliberal paradigm to address
employees increasing needs for meaningfulness
and social contribution. A spirituality-based
paradigm may offer a viable alternative which
promotes holistic responsibility for all social
actors.

680

Introduction
Spirituality and Religion
Almost all papers discussing spirituality start
with addressing the difference or similarity of
spirituality with religion. This need is understandable in so far as the idea of spirituality
remains loosely defined. Some equal spirituality
with religion, while others are adamant that the
two concepts are radically different. In fact, religion is traditionally viewed as an institutionalized form of spirituality, which itself
encompasses a great variety of beliefs and traditions. To a large extent, spirituality is perceived
as deeply personal, informal, and unbounded,
which explains the multiplicity of definitions proposed. By contrast, religion appears to be more
formal and dogmatic. Others argue that religion
and spirituality differ on the basis of their nature:
While spirituality involves a way of being and
coping with life experiences, religion depicts
how organized belief systems are incorporated
and implemented by the individual or the group
(Guillory 2001).
Religion and spirituality thus share some core
elements: the belief in a higher, universal source
(in whichever form or forms, either personified or
undesignated); faith that life has meaning on
more than one level (i.e., life encompasses more
than just what is directly accessible to consciousness); the aspiration (or duty) to expand or transcend ones consciousness to perceive the
enlarged meaning of life and of ones life. On
the whole, though, spirituality tends to provide
a more open, more liberal, and more comfortable
framework than religion for many, including
agnostics and atheists.
Values in Spirituality
Spirituality traditionally features a belief in basic
universal human values, a relationship with
a transcendent force or being (the spirit), and an
element of inner consciousness (referred to as the
self) which informs our senses, our behavior, and
our development as individuals (Guillory 2001;
Forman 2004; Zsolnai 2004). It deals with an
ultimate essence that is in everything but also
transcends everything. Life under a spiritual

CSR and Spirituality

lens has a purpose, and its purpose is attached to

the notion of good or an ultimate concern.
A comprehensive definition of spirituality is proposed by Forman (2004): Spirituality involves
a vaguely panentheistic ultimate that is indwelling, sometimes bodily, as the deepest self and
accessed through not-strictly-rational means of
self transformation and group process that
becomes the holistic organization for all of life.
The spiritual journey consists in connecting to
ones inner self, the spiritual core of human
beings, beyond the use of logical and rational
thinking. It is a very personal process that nevertheless does not exclude joining or forming
a community that fosters each members selfdevelopment. One of the major changes that spirituality brings to ones consciousness is a more
holistic perception of the external world: Spirituality assumes a high degree of interconnectedness
of all living organisms and possibly beyond.
The essence of life is the spirit, so that everything
is related to everything and everyone is related to
everyone. In that purview, the Golden Rule has
a deeper meaning: From a spiritual perspective,
one shall treat others as one would like to be
treated because others are indeed just like one
and deeply connected to one. Importantly, nonrational functions such as emotions and intuition
are critical in spiritual life. As with ethics, spirituality is a complex concept which loses most of
its value if it is only apprehended intellectually.
Values attached to spirituality include a sense
of balance (both inner and with the external environment), empathy and compassion, wholeness,
wisdom (which comes from and increases knowledge), humility, and love. Personal growth is
considered an ineluctable process for human
beings that can be either embraced which will
ease the process or rejected, which will only
make the process longer and harder. Human
nature aspires to a state of completeness, and
the spiritual task is to become aware of it. Personal growth portrays a gradual connection with
the inner self and/or the higher spirit, by identifying and letting go of destructive patterns of
behavior through self-reflection and various practices (Guillory 2001). Furthermore, as our awareness of the inner self grows, we become

CSR and Spirituality

increasingly selfless that is, we sense that our

egotistical desires should be overcome if we are
to connect with others and with our own essence
more authentically.
Background to the Spirituality Movement in
the West
Spirituality, as we now experience it in the West,
has been influenced by several traditions and
practices, including:
Eco-spirituality (return to ancient knowledge,
intuition, and connection to Mother Earth,
awareness of what Carl G. Jung calls the
collective unconscious)
The revival of ancient Greek philosophers,
including Virtue-based Ethics
Feminist spirituality (emphasis on care and
empathy, more compassionate approach to
the management of society and human affairs)
The integration of Eastern traditions into
Western cultures (notably in medicine with
the introduction of Tai Chi, Chi Kung, and
Feng Shui practices alongside Buddhism,
Taoism, and Zen philosophies, as well as the
practice of meditation)
A redefinition of the limits of perception, consciousness, and beingness, with greater focus
on the inner self, notably in psychology
(Dawes et al. 2005)
Abraham H. Maslows hierarchy of needs
would count as an early influence on the spirituality movement. The idea of self-actualization
contends that once more basic needs are fulfilled,
human beings will aspire to be who they really
are and achieve their true potential not in terms
of economic or social performance, but rather in
terms of personal greatness. Although humanistic
psychology distances itself from spiritual traditions by asserting the uniqueness of being human
here and now, it shares many ideals with spirituality in a broad sense. Carl G. Jungs analytical
psychology, especially the process of individuation and the role of the archetypal self in ones
growth as a person, has also influenced the current understanding of spirituality. More recent
contributions include Peter Senges holistic picture of the learning organization; Daniel
Golemans work on emotional intelligence and

681

its implications for self- and soul-development;

Ken Wilbers integral psychology, whose quadrant models can be used to assess individual or
organizational state of spiritual development;
Martin Seligmans positive psychology aiming
at preventing psychopathologies by reinforcing
individual strengths; and Mihaly Csikszentmihalyis notion of flow to interpret the process
of growing consciousness.
Spirituality in Organizational Life
The spiritual trends listed above are acknowledged in society, but few have stepped into the
corporate world. Meditation is welcomed in some
workplaces, in the form of occasional seminars or
more regular activities in dedicated spaces;
values attached to an ethic of care are acknowledged as a driver in transforming organizational
culture, while some companies environmental
ethos echoes a belief in our connection and
responsibility to the mother planet. Nonetheless,
such examples are rare in Western economies.
Indeed, spirituality as a concept usually raises at
least as much skepticism as curiosity among
scholars and business practitioners. It is viewed
as a vague buzzword of little utility because it is
either so mysterious that you cannot find words to
define it or so personal that everyone has their
own definition.
To those who are uncomfortable with letting
spirituality step into the organization, positive
thinking seems to offer similar benefits without
the need to believe in a higher spirit. Yet both
approaches differ significantly: Spirituality does
not aim to turn everyone into positive thinkers,
guarding them from lifes painful hardships.
Rather, a spiritual inquiry implies that one
becomes more familiar with the actual content
of ones life and ones self, learns to appreciate
the good and the bad for what they are, and
establishes a healthy state of balance between
opposing forces. Happiness lies in ones personal
capacity to achieve and sustain this balance of
opposites, rather than deny that life is inevitably
hard and dark at times. How one achieves this is
up to each individual since self-realization does
not follow a tightly defined framework. The process purports to bring enlightenment, wisdom,

682

and a better knowledge of the good. These traits

transform the persons character according to the
uniqueness of each. A spiritual person is not
necessarily a moral exemplar, but it is expected
that possession of spiritual virtues strongly contributes to an ethically mature attitude.
The past 15 years have nonetheless witnessed
an increased interest in the benefits spirituality
could bring to organizations. The phenomenon
has been labeled workplace spirituality, organizational spirituality, or spirit at work. These
developments can be viewed as instances of
applied spirituality. In contrast to pure spirituality which defines the personal, lived
experience of spiritual connection bringing
inner peace, harmony, or a feeling of completeness applied spirituality refers to how an
individual joins this personal experience with
his or her external environment (Ashar and
Lane-Maher 2004). In other words, applied
spirituality captures how greater spiritual awareness affects our behavior. Most commonly, it is
believed that applied spirituality enhances moral
reflection and moral sensitivity, so that spiritually
aware individuals are more caring, more
respectful, and more emotionally open toward
others. Applied spirituality also invites reflection
in ones relationship to ones work. As the
individual gets to know his or her inner self, he
or she may move away from a self-serving,
instrumental view of work as a career, and aspire
to work with a sense of vocation (Ashar and
Lane-Maher 2004).
Only a few large-scale empirical studies have
explored spirituality in work organizations, but
this is rapidly changing in both Western and
Eastern economies. In 1999, Ian Mitroff and
Elizabeth Denton published the results of their
seminal study in the book A Spiritual Audit of
Corporate America: A Hard Look at Spirituality,
Religion and Values in the Workplace (Mitroff
and Denton 1999). They argued that organizational members yearn for self-expression at
work while the prevalent organizational culture
requires that they leave parts of themselves at
home. This, they believe, is detrimental to both
the employees who cannot develop as much as
they could and the organization that fails to tap

CSR and Spirituality

into its employees creativity to sustain

a competitive advantage. Further studies, both
conceptual and empirical, have followed,
although many researchers in that field are
based in Asia, especially India. Indeed, while
Asian countries seem more open to an integrated
model of spiritual management (even though the
Eastern interpretation of spiritual management
may differ significantly from that of the West),
secular Western economies still bristle at the
mention of self-development and spiritual
well-being in the workplace. Yet, in continental
Europe or Australasia, research is timid but
growing. In North America, the field received
significant support when the Academy of Management endorsed a research group focused on
management, spirituality, and religion.
Generally speaking, spirituality in the
workplace involves a notion of meaningful or
purposeful work, the ability to express oneself
fully in ones work, and a connection with the
community in and through ones occupation.
A spiritual workplace enables its employees to
participate in serving a greater good. The aspiration to a greater good involves high moral values
embodied and practiced at all levels of the
organization. These often include love, respect,
honesty, authenticity, trust, and a sense of balance. A spiritual workplace further acknowledges
that employees are human beings, complex and
spiritual, rather than mere resources or human
capital. It understands that workers seek meaning
in what they do, both in and outside the workplace, and that there is a need to integrate,
whenever possible, this quest for meaning in
their activities both inside and outside the workplace. People grow in organizations, thus the
workplace must accommodate individual
changes, diverse expectations, and different spiritual expressions.
Spirituality and Leadership
Although a spiritual workplace influences all
employees, most research studies to this date
have focused on spirituality in relation to leadership and to its effect on workplace morale and
efficiency. Leaders indeed play a significant role
in setting the tone for the organizational and

CSR and Spirituality

ethical climate. Spirituality arguably enhances

leaders ability to inspire and learn from experience, their reactivity to change and needs, and
their commitment to a long-term vision. In this
purview, research suggests that spiritual leaders
possess traits such as wisdom, honesty, commitment to the greater good, as well as humility.
Louis W. Fry (2005) has developed over the
years a model of spiritual leadership which he
argues is necessary to sustain CSR. Frys model
of spiritual leadership relies on the leaders
vision, hope/faith, and altruistic love which in
turn inspire a sense of calling and membership
among the followers, resulting in organizational
commitment, effectiveness, as well as ethical and
spiritual well-being for all organizational members (Fry 2005). Fry insists that efforts must be
made to foster congruence among organizational
and individual values, so that spiritual leadership
can prove effective in instilling workplace spirituality and effective CSR. A lone spiritual individual can feel at loss if the values of the team or
of the organization fail to resonate with his or her
own. Fry (2005) thus argues that the organization
as a whole must undergo a transformational process which will be initiated or driven by the
spiritual leader. Through that process, employees
are empowered and the leader is free to concentrate on aligning organizational values with those
of key stakeholders with a view to achieving an
even greater congruence between internal and
external environment.
Rationale for Spirituality at Work
Workplace spirituality follows radically different
assumptions from traditional management theories. The most oft-quoted benefits of a spiritual
outlook at work include heightened intuition and
creativity, honesty and trust, personal fulfillment,
and greater organizational commitment and performance. It is argued that efficient workers are
integrated people: their body, mind, and spirit are
interconnected, aligned in the pursuit of
a fulfilling life task (Guillory 2001). In other
words, when heart and mind are on the same
track, they support the physical endeavor
required to achieve what the person is set to
achieve. The commitment is not forced but

683

natural, not superficial but essential to the authenticity of the person.

However, the rationale for integrating spirituality into management should not be merely instrumental, else it risks becoming another management
fad. Surprisingly, some of the harshest critics of the
burgeoning literature on spirituality in the workplace are found among supporters of the phenomenon wary of possible managerial hijacking but
skeptics have also raised concerns. Issues can be
classified under three headings: the content of workplace spirituality, the added value of a spiritual
organization, and the legitimacy of a spirituality
tailored for the workplace.
Given that spirituality is such a personal matter, it seems a priori challenging to integrate
spirituality in the workplace in a way that suits
everybody. Not everyone feels the same needs for
spiritual development and expression; similarly,
not everyone will express his or her spirituality in
the same manner, especially when spirituality is
closely linked with religious practices. Another
objection follows: It is not the role of work organizations to be responsible for their members
self-development. Developing structures to
encourage spiritual expressions could be perceived as the organization invading a very private
sphere of life, which poses serious moral problems. Inasmuch as organizations are social entities, it is however natural to expect that they
contribute to societys well-being. Allowing
employees to self-develop and achieve greater
levels of consciousness, happiness and goodness
in all aspects of their lives, including their workplace, thus becomes part of an organizations
social duty. By all means, organizations should
foster but not impose spirituality, which calls for
a necessarily collaborative process between the
many organizational actors.
Another issue concerns the value spirituality
adds to an organization. Studies that examine
how organizations benefit from more spiritually
aware managers or employees often conclude
that spirituality increases workers overall performance, creativity, and productivity and sustains
the organizations bottom line. This line of argument is controversial because it reduces spirituality to a mere instrument toward financial

684

success. In that view, spirituality is valuable

because and as long as it generates substantial
and measurable benefits for the organization. If it
ceases to be profitable, or if being spiritual no
longer provides a clear competitive advantage,
then the idea is abandoned. Spirituality risks sharing the fate of CSR or sustainability concepts
that some corporations embrace only to the extent
they serve the bottom line. Many contributors to
the field of workplace spirituality have unwittingly supported this trend by consistently linking
spirituality with organizational performance,
productivity, and long-term profitability
(e.g., Giacalone and Jurkiewicz 2003). Fry
(2005) himself stresses how spiritual leadership
improves not only organizational and personal
well-being but also productivity. Yet, advantages
attached to a greater spiritual awareness cancel
themselves out if spirituality is not promoted for
its own sake. Some corporate leaders fancy for
shared spiritual practices within their organization feel forced onto the employees or hide selfserving maneuvers to increase productivity in the
short-to-medium term. A spiritual organization
seems to offer many positive outcomes, such as
employees well-being and commitment, or
stakeholders trust and benevolence. Some of
these outcomes might have a positive effect on
organizational profitability, but this cannot be the
only or primary motivation for endorsing spiritual values in the workplace.
Furthermore, critics have argued that it is
simply not possible to translate the benefits of
spirituality into business terms because the spiritual purpose is then lost. Rather, they state that
spirituality calls for a change of paradigm, which
means that we should not expect to assess success
in economic terms; instead, a successful company would holistically care for its stakeholders
in a large sense and would exist for a higher
purpose than making profits. This is probably
the greatest hurdle of the spirituality-at-work
movement: can spirituality exist in a neoliberal,
materialistic, short-term oriented economy?
Spirituality and CSR
Lips-Wiersma and Nilakant (2008) argue that
workplace
spirituality
transcends
the

CSR and Spirituality

shortcomings of the predominant economic paradigm. In their view, CSR aims to mitigate the
negative consequences of economic theories of
organizations predominant in a neoliberal
framework; however, it is not sufficient to challenge the underlying assumptions derived from
self-interest and shareholder value maximization,
which have led to serious economic, social, and
environmental dysfunctions (Lips-Wiersma and
Nilakant 2008). In other words, CSR remains
prisoner of a narrow view of enlightened selfinterest in which ethics depends upon its economic returns. Spirituality, in contrast, seems to
offer a viable alternative to the neoliberal ideology. The authors propose a model of practical
compassion, which encapsulates the spiritual purpose of self-development through transcending
ego-centeredness, with the ability to practice
spiritual values in daily organizational life.
They also replace CSR with holistic responsibility and explain that:
Whilst commitment to goals that benefit humanity
will lie at the foundation of organizations developing on a spiritual basis, an organization that focuses
on leaving a legacy without ensuring the mental,
emotional, and spiritual welfare of its own
employees does not live up to its spiritual purpose.
Similarly, an organization that only focuses on
reflective spiritual practices, such as mindfulness,
but does not pay attention to the needs of the world,
does not fully live up to its spiritual purpose either.
(Lips-Wiersma and Nilakant 2008)

Ten years earlier, William C. Frederick had

attempted to bridge social responsibility with the
newly emerging literature on spirituality through
the integrative approach of CSR4. Building upon
his previous work on CSR CSR1 as Corporate
Social Responsibility, CSR2 as Corporate Social
Responsiveness, and CSR3 as Corporate Social
Rectitude Frederick (1998) introduced a new
framework where business is not the center but
just one part of the whole. CSR4 stands for cosmos, science, and religion and purports to shift
the traditionally business-centered worldview
toward a more realistic, holistic approach.
According to Frederick, the CSR research field
cannot progress further if it remains attached to
the view that everything revolves around the corporation. Rather, practitioners and researchers

CSR and Spirituality

must see that the world encompasses many more

things and that corporations are just entities in
a larger cosmos. Besides, knowledge grows
through interdisciplinary exchanges, and the
business-society relationships are shaped not
only by management gurus but also by scientific
progress (for a better understanding of human
society and the natural environment) and spiritual
schools of thoughts (for an increased well-being
of individuals both inside and outside work).
Frederick (1998) argues that whether we like it
or not, irrelevant of what each person believes,
the workplace is already pervaded by spiritual
beliefs including the belief in money or profitability as an end in itself. It seems therefore
important to lift the veil and discuss more openly
the scope and influence of spiritual beliefs inside
and outside the workplace.
Few other papers to date have directly
addressed the links between spirituality and
CSR. Most research studies assume that applied
spirituality significantly improves the moral climate and moral behavior of organizational members and sometimes offer conclusions on how this
sustains social responsibility. Yet, the link
between the two is not always valid. It is possible
that the pragmatic aspect of CSR conflicts with
the inspirational dimension of spirituality. Both
concepts at times also pursue very different purposes. Spirituality consists in an inner, personal
process of self-enquiry and development; CSR
involves managing an organization in accordance
with the needs and rights of all stakeholders,
taking into account the long-term implications
of organizational activity on the social and natural environment. Thus, spirituality is primarily
inward looking and personal, while CSR is
outward-looking
and
organizational
or
communitarian.
It nonetheless appears possible to combine the
inner benefits of spiritual development with the
social goal of CSR captured as holistic responsibility. As a key constituent of moral decisionmaking hence of CSR moral imagination
helps transcend the perceived reality shaped by
mental models to envision new solutions to
dilemmas. In many ways, spirituality expands
moral imagination through the growing

685

awareness of the individuals needs and abilities.

In practical terms, spiritual awareness likely
improves the competencies of organizational
actors; this is so not because spirituality is
a miraculous cure but because a spiritual quest
enables the individual to connect with his or her
inner self, thereby engaging with other people in
a more challenging and more enriching manner
(Lozano and Ribera in Zsolnai 2004). What matters is what spirituality allows people to become,
and if developed in an open and honest way
(which is what true spirituality is about), there is
little risk that the whole society does not benefit
from it.
Figure 1 summarizes the links between spirituality and CSR. Individual consciousness of self
contributes (and benefits from) spirituality at
work, which in turn informs (and evolves with)
a holistic approach to CSR. The traits of spiritual
practice are influenced by the external environment and the characteristics of the organization
itself. Spiritual awareness at work can either be
welcomed and supported, or instrumentalized
and restricted. Besides, organizations holding
high spiritual values and acting upon them can
change the prevailing values in the economy and
society. The model is dynamic, as is spiritual
practice.

Key Issues
Spirituality transcends the quarrels of religious
doctrines to offer a more open perspective to seek
meaning in oneself, ones life, and ones work.
Embracing a spiritual view requires a profound
change in our understanding of the social and
economic world, a reformulation of the ontological and epistemological assumptions on which
we have based our worldview and built the institutions that shape society. As such, spirituality
redefines moral expectations by highlighting the
interrelatedness of all living forms. A spiritual
organization faces many challenges, ranging
from fostering a supportive organizational culture and providing meaningful work, to adopting
a holistic perspective on its responsibilities
within the cosmological order. Most importantly,

686

CSR and Spirituality

CSR and Spirituality,

Fig. 1 Integrated model of
spirituality and CSR
(Source: compiled by
author)

Holistic CSR
Contribution to
Greater Good and Care
for all Stakeholders

External Environment
(e.g. economic
paradigm, societal
values)

Spirituality at Work
Ethical Values and
Care for Others

Organizational
Environment
(e.g. organizational
purpose and objectives,
culture and values)

Individual
Spirituality
Self-consciousness

organizations within the spirituality paradigm

demonstrate great humility, while spiritual
leaders embrace their personal and organizational
responsibility with the utmost integrity.
The central concern when examining spirituality is usually the following: Does spirituality in
the workplace really make a difference? We
should not expect to answer this question in
a demonstrative and quantitative manner because
it is neither possible nor sensible to measure
spirituality and compare it with organizational
efficiency. To truly add value, spirituality should
not be restricted to being a new tool to improve
workers productivity in the existing economic
system. Else, such corrupted spirituality only perpetuates classical models of exploitation and
alienation. Rather, true spirituality enhances
moral imagination and human potential. It invites
a quest for well-being, a sense of calling, virtuousness, and exemplarity. A spiritual life is an
integral life and a life of integrity. Yet,
a paradigm shift is needed before such motto
can fully apply to organizations.

the values and assumptions of a spiritualitybased paradigm. Management practitioners are

primarily concerned with the direct implications
spirituality has on the raison detre of their
organizations. They ask for clear answers on the
viability and sustainability of a socioeconomic
framework where profit and competition are
replaced by love and compassion. So far,
a handful of corporations or public organizations
have integrated spiritual concerns into the workplace, and these need to be looked at more
closely.
Models mixing Eastern traditions with Western ways of life may emerge, but as the paradigm
shifts the tensions may evolve as well. The field
of workplace spirituality is not alien to research
on religion, ethics, and business; future studies
may draw upon these while establishing spirituality as a concept clearly distinct from religion.
More importantly, researchers and practitioners
will have to drive and support the necessary
change of paradigm if they want authentic spiritual workplaces that are holistically responsible.
This alone is a major challenge.

Future Directions

Cross-References

Calls for future research range from developing

comprehensive models of spiritual management
or spiritual leadership, to providing accounts of
successful spiritual organizations, to redefining

Buddhist Ethics and CSR

Christianity and CSR
Islamic Ethics and CSR
Virtue Ethics and CSR

CSR Butterfly Effect

References and Readings

Ashar, H., & Lane-Maher, M. (2004). Success and spirituality in the new business paradigm. Journal of Management Inquiry, 13(3), 249260.
Dawes, J., Dolley, J., & Isaksen, I. (2005). The quest:
Exploring a sense of soul. Ropley: O-Books.
Forman, R. (2004). Grassroots spirituality: What it is, why
it is there, where it is going. Exeter: Imprint Academic.
Frederick, W. C. (1998). Moving to CSR4: What to pack
for the trip. Business & Society, 37(1), 4059.
Fry, L. W. (2005). Toward a theory of ethical and spiritual
well-being, and corporate social responsibility
through spiritual leadership. In R. A. Giacalone,
C. L. Jurkiewicz, & C. Dunn (Eds.), Positive psychology in business ethics and corporate responsibility
(pp. 4783). Greenwich: IAP.
Giacalone, R. A., & Jurkiewicz, C. L. (Eds.). (2003).
Handbook of workplace spirituality and organizational performance. Armonk: M.E. Sharpe.
Guillory, W. A. (2001). The living organization: Spirituality in the workplace (2nd ed.). Salt Lake City:
Innovations International.
Lips-Wiersma, M., & Nilakant, V. (2008). Practical compassion: Toward a critical spiritual foundation for corporate
responsibility. In J. Biberman & L. Tischler (Eds.), Spirituality in business: Theory, practice, and future directions (pp. 5172). New York: Palgrave Macmillan.
Mitroff, I. I., & Denton, E. A. (1999). A spiritual audit of
corporate America: A hard look at spirituality, religion and values in the workplace. San Francisco:
Jossey-Bass.
Zsolnai, L. (Ed.). (2004). Spirituality and ethics in management. Dordrecht: Kluwer.

CSR Butterfly Effect

Liangrong Zu
Enterprise, Microfinance and Local Development
Program, International Training Centre of the
ILO, Turin, Italy

687

initial conditions in chaos theory; namely, that

small differences in the initial condition of
a dynamical system may produce large variations
in the long-term behavior of the system. It is
a term that commonly interpreted to mean that
small disturbances in the atmosphere may
become amplified to give rise to large (or even
catastrophic) effects, as might be suggested by
chaos theory. The phrase butterfly effect was
coined by Edward Lorenz, an American mathematician and meteorologist and a pioneer of
chaos theory in 1972 in his paper, Predictability:
Does the Flap of a Butterflys Wings in Brazil Set
off a Tornado in Texas?
In the field of corporate social responsibility
(CSR), the butterfly effect has become
a metaphor for the seemingly insignificant events
that can have large, widespread social and environmental
consequences.
Growing
interdependence and interconnectedness have
amplified risks and opportunities for consumers,
employees, businesses, and governments, particularly civil society organizations. As a result,
issues that were once peripheral or local now
have global impact. CSR butterfly effect
describes how a slight change in initial social
and environmental conditions can lead to drastically different outcomes in the worldwide. For
example, the flap of a butterflys wings in the
scandal of sweatshops in Nike in the middle of
1990s was responsible for the boycott and bad
reputation all over the world.
The butterfly effect occurs under two conditions: the system is nonlinear and each state of the
system is determined by the previous state. In
other words, the output at each moment is repeatedly entered back into the system for another
cycle through the mathematical functions that
determine the system.

Synonyms
Butterfly effect; Chain of event; Random events

Definition
The butterfly effect is a metaphor that encapsulates the concept of sensitive dependence on

Introduction
Chaos Theory and Butterfly Effect
The term butterfly effect itself is originally
related to the work of Edward Lorenz, based on
chaos theory. It was first described in the literature by Jacques Hadamard in 1890 and

688

popularized by Pierre Duhems 1906 book. The

idea that one butterfly could have a far-reaching
ripple effect on subsequent events seems first to
have appeared in a 1952 short story by Ray Bradbury about time travel, although Lorenz made
popular the term. In 1961, Lorenz was using
a numerical computer model to rerun a weather
prediction, when, as a shortcut on a number in the
sequence, he entered the decimal. 506 instead of
entering the full. 506127 the computer would
hold. The result was a completely different
weather scenario. Lorenz published his findings
in a 1963 paper for the New York Academy of
Sciences noting that One meteorologist
remarked that if the theory were correct, one
flap of a seagulls wings could change the course
of weather forever. Later speeches and papers
by Lorenz used the more poetic butterfly.
According to Lorenz, upon failing to provide
a title for a talk he was to present at the 139th
meeting of the American Association for the
Advancement of Science in 1972, Philip Merilees
concocted Does the flap of a butterflys wings in
Brazil set off a tornado in Texas as a title.
Chaos theory is the study of nonlinear dynamics, where seemingly random events are actually
predictable from simple deterministic equations.
In a scientific context, the word chaos has
a slightly different meaning than it does in its
general usage as a state of confusion, lacking
any order. Chaos, with reference to chaos theory,
refers to an apparent lack of order in a system that
nevertheless obeys particular laws or rules; this
understanding of chaos is synonymous with
dynamical instability, a condition discovered by
the physicist Henri Poincare in the early twentieth century that refers to an inherent lack of
predictability in some physical systems. The
two main components of chaos theory are the
ideas that systems no matter how complex
they may be rely upon an underlying order
and that very simple or small systems and events
can cause very complex behaviors or events. This
latter idea is known as sensitive dependence on
initial conditions, a circumstance discovered by
Edward Lorenz (who is generally credited as the
first experimenter in the area of chaos) in the
early 1960s.

CSR Butterfly Effect

Lorenz in his book The Essence of Chaos

describes chaos as behavior that is deterministic,
or is nearly so if it occurs in a tangible system that
possesses a slight amount of randomness, but does
not look deterministic. This means that the present
state completely or almost completely determines
the future but does not appear to do so.
How can deterministic behavior look random?
If truly identical states do occur on two or more
occasions, it is unlikely that the identical states that
will necessarily follow will be perceived as being
appreciably different. What can readily happen
instead is that almost, but not quite, identical states
occurring on two occasions will appear to be just
alike, while the states that follow, which need not
be even nearly alike, will be observably different.
In fact, in some dynamical systems, it is normal for
two almost identical states to be followed, after
a sufficient time lapse, by two states bearing no
more resemblance than two states chosen at random from a long sequence. Systems in which this
is the case are said to be sensitively dependent on
initial conditions. With a few more qualifications,
to be considered presently, sensitive dependence
can serve as an acceptable definition of chaos, and
it is the one that we shall choose. Initial conditions need not be the ones that existed when
a system was created. Often they are the conditions
at the beginning of an experiment or
a computation, but they may also be the ones at
the beginning of any stretch of time that interests
an investigator so that one persons initial conditions may be anothers midstream or final conditions. Sensitive dependence implies more than
a mere increase in the difference between two
states as each evolves with time. For example,
there are deterministic systems in which an initial
difference of one unit between two states will
eventually increase to a 100 units, while an initial
difference of a hundredth of a unit, or even
a millionth of a unit, will eventually increase to
a 100 units also, even though the latter increase
will inevitably consume more time. There are
other deterministic systems in which an
initial difference of one unit will increase to
a 100 units, but an initial difference of
a hundredth of a unit will increase only to one
unit. Systems of the former sort are regarded as

CSR Butterfly Effect

chaotic, while those of the latter sort are not considered to constitute chaos, even though they share
some of its properties. Because chaos is deterministic, or nearly so, games of chance should not be
expected to provide us with simple examples, but
games that appear to involve chance ought to be
able to take their place. Among the devices that
can produce chaos, the one that is nearest of kin to
the coin or the deck of cards may well be the
pinball machine. It should be an old-fashioned
one, with no flippers or flashing lights, and with
nothing but simple pins to disturb the free roll of
the ball until it scores or becomes dead.
Chaos surrounds us. Seemingly random
events the flapping of a flag, a storm-driven
wave striking the shore, a pinballs path often
appear to have no order, no rational pattern.
Explicating the theory of chaos and the consequences of its principal findings that actual, precise rules may govern such apparently random
behavior has been a major part of the work of
Edward N. Lorenz. In The Essence of Chaos,
Lorenz presents to the general reader the features
of this new science, with its far-reaching implications for much of modern life, from weather
prediction to philosophy, and he describes its
considerable impact on emerging scientific
fields.
The butterfly effect stated that a butterfly
could flap its wings and set air molecules in
motion that in turn would move other air molecules which would then move additional air
molecules eventually becoming able to influence weather patterns on the other side of the
planet. For years, this theory remained an interesting myth. In the mid-1990s, however, the butterfly effect was proved to be accurate, viable and
worked every time.
The Butterfly Effect in Corporate Social
Responsibility
Lorenzs early insights marked the beginning of
a new field of study that impacted not just the
field of mathematics but virtually every branch of
science biological, physical, and social. For
example, in environment, CO2 emission of each
car and greenhouse gas emission of each factory
lead to global climate change; in the financial

689

market, the butterfly effect was certainly evident

throughout the financial world during the autumn
of 2007 and beyond, as the meltdown of
a relatively minor part of the US mortgage market
brought global money and capital markets to their
knees, while the demise of Lehman Brothers on
September 15, 2008, pushed the entire system to
the edge of collapse; in biology, a small change in
a virus in monkeys in Africa creates
a thunderstorm of an effect on the human population around the world with the appearance of
the AIDs virus, local livestock contaminations
(e.g., mad cow disease, avian flu) that threaten
stability of global health and global food supply
chains; in evolution, small changes in the chemistry of the early Earth gives rise to life; and in
psychology, thought patterns and consciousness
altered by small changes in brain chemistry or
small changes in physical environmental stimuli.
The butterfly effect is also a common trope in
fiction when presenting scenarios involving time
travel and with what if scenarios where one
storyline diverges at the moment of a seemingly
minor event resulting in two significantly different outcomes.
In social and environmental science, the late
twentieth century has shown that any human and
business activity can have very many consequences
on society and natural environment foreseen and
unforeseen, intended and unintended, beneficial
and catastrophic. The CSR butterfly effect has
been amplified by the increasing globalization,
new technologies, and a rising tide of expectations
among stakeholders about the social and environmental role of business over the past years. The
evermore powerful stakeholders, particularly, civil
society organizations, wield wide influence. For
example, since 1990, more than 100,000 new citizens groups have been established around the
world. The balance of power has shifted in favor
of individuals and small single-issue groups
increasingly armed with tools and tactics that can
easily be deployed through the Internet. Trust in
nongovernmental organizations (NGOs), citizens
groups, and online information sources has risen as
inexorably as faith in business Enron, WorldCom
has declined. In 1996, Nike found itself at the
center of a fury after a New York Times column

690

accused the company of profiting from sweatshops of wretched origin to create its athletic
apparel. Soon Nike was at the center of an international controversy. International labor groups were
united, and over 40 demonstrations occurred at
Nike towns and universities across the United
States.
The companies as they go global have increasingly encountered social and environmental risk.
Globalization offers many opportunities to companies but also poses novel sources of uncertainty
and risks. Multiple business indicators show that
the level of uncertainty for corporate leaders has
increased due in large part to
Large extended enterprises made up of independent organizations but with tremendous
pressures to grow and perform as a unit
Rapid rates of change in technology, connections, and information flows as a result of
globalization
Problems in managing scale using methods
rooted in controlling all decisions across the
entire extended enterprise
The result of the greater interdependencies and
hidden vulnerabilities that businesses now face is
an increased number of uncertainties in corporate
decision making. Current network-based operating models highlight the growing importance of
the extended enterprise by establishing greater
connectivity among and between stakeholders
across the globe. This connectivity has also created entirely new stakeholders and requires innovative forms of risk management.
These changes in the operating model have led
to a significant shift in market power not just to
customers and traditional investors but also, and
more importantly, toward stakeholders: communities, employees, regulators, politicians, suppliers, NGOs, and even the media. As a result of
this shift in market power, social risk is a rising
area of concern for global corporations. From
a company perspective, social risk, like any
other risk, arises when its own behavior or the
action of others in its operating environment creates vulnerabilities. In the case of social risk,
stakeholders may identify those vulnerabilities
and apply pressure on the corporation for behavioral changes. As the ability to listen to corporate

CSR Butterfly Effect

stakeholders perspectives on social issues

becomes a competitive necessity, managing
social risks will need to become more fully
embedded in corporate strategy.
Globalization entails a paradox: the more
interdependent we become, the more we seem to
require order and yet foment change.
Interdependence (through complexity) brings
greater efficiency and effectiveness but with it
comes greater vulnerability. Corporations operating in the global economy are key players in
a dynamic system. The higher the number of interactions, both implicit and explicit, that entities have
with one another the more factors are introduced
that influence the overall relationship. The dynamic
system effectively has more levers and pressure
points than existed in the past, many of them critical to smooth operations and playing a role in the
optimization of the whole. Those pressure points
on business, most notably those pressures by civil
society and stakeholders more broadly, constitute
social and environmental risk. From a companys
perspective, social risk occurs when an empowered
stakeholder takes up a social issue area and applies
pressure
on
a
corporation
(exploiting
a vulnerability in the earning drivers e.g., reputation, corporate image) so that the company will
change policies or approaches in the marketplace.
From a civil society perspective, a company
may well deserve criticism for its social practices.
Think of Shell in Nigeria, Nike in Indonesia, oil
spills such as the Exxon Valdez, upscale apparel
retailers purchasing from sweatshop suppliers,
unsustainable forestry practices by the timber
industry, or big pharmaceutical companies
going into South African courts to keep imported
generic AIDS treatment drugs out of that country,
suffering one of the worlds highest HIV prevalence rates. Even where companies break no local
laws, they may stand in violation of their own
self-proclaimed standards or be accused of
breaching international community norms.

Key Issues
Companies that operate in the new global environment need to devise systematic means for

CSR Butterfly Effect

dealing with the challenges it poses. One of these

challenges as social risk could be brought about
by the butterfly effect. Civil society organizations, in particular, can campaign for changes in
corporate behavior through protests, boycotts,
trying to change purchasing patterns or increasingly partnering with companies to achieve joint
aims. The push and pull of these sectors constitutes a butterfly effect, posing both new risks but
also opportunities.
A social risk may initially be picked up by
the CSR antennae; there is no guarantee that is
where it will remain. A host of social risks have
begun as issues that were primarily understood
and addressed by CSR departments. However, as
those social risks continued to gain attention with
civil society, public policy, and media outlets
over time, senior managers were also forced to
pay attention, as core business operation became
impacted. The challenge faced by Nike as a result
of conditions in its global supply chain is an
example. The case of Nike illustrates more specific dangers of not linking CSR and stakeholder
intelligence to core business processes, but also
how one company fixed this disconnect to create
a win-win outcome.
Therefore,
companies
should
link
a comprehensive CSR program (stakeholder
engagement) with core business processes (risk
management) as part of its overall approach to
business performance. As Nikes experience
shows, not linking CSR and related stakeholder
intelligence to core business processes can leave
a company vulnerable, with no appropriate controls or countermeasures.

Future Directions
The emergence of a social risk brought about by
the butterfly effect can have wide-ranging impacts
on various aspects of business (from global operations to sourcing to public relations). Any number
of stakeholders may transmit a social risk to various divisions in a company. Investors may create
shareholder resolutions to change/evolve company policies. Customers may request changes in
a companys environmental policies. Employees

691

may raise concerns about outsourcing of jobs overseas. Suppliers may request coverage in
a companys health-care plan. While many of
these feedback channels may be familiar to most
large public companies, it is emergence of civil
society scrutiny, and its resulting social risks, with
which many companies are the least familiar and
least equipped to manage.
Global companies face a new reality that has
changed the nature of risk and risk management:
networked operations and global value chains,
empowered stakeholders, and the dynamic tension among sectors. The emergence of the new
forms of social risk cannot be mitigated through
traditional means. The new environment requires
innovation by companies in both sensing and
understanding these risks, and in adapting risk
management systems to include new tools and
network-based models of information sharing.
Corporate social responsibility programs are
an effective means to provide strategic intelligence for managing social risks. Risk management by global companies should be adapted to
include corporate social responsibility programs.
CSR provides the framework and principles for
stakeholder engagement, supplies a wealth of
intelligence on emerging and current social
issues/groups to support the corporate risk
agenda, and ultimately serves as a countermeasure for social risk. Granted, effectively integrating CSR into core business functions can be
difficult, as the experience of Nike illustrates.

Cross-References
Corporate Social Responsibility
Stakeholder Management
Sustainability Risk Management

References and Readings

Anderson, D. R. (2005). Corporate survival: The critical
importance of sustainability risk management.
Lincoln: Universe.
Bonini, S. M., Mendonca, L. T., & Oppenheim, J. M.
(2006). When Social Issues Become Strategic? The
McKinsey Quarterly, 2, 2031.

692

Dylan, K. (2010). Butterfly effect could cause financial

chaos. Irish Times.
Kytle, B., & Ruggie, J. G. (2005). Corporate social
responsibility as risk management. Boston: John F.
Kendedy School of Government, Harvard University.
Linda Spedding, A. R. (2007). Business risk management
handbook: A sustainable approach. Oxford: CIMA.
Lorenz, E. N. (1996). The essence of Chaos.zip. Seattle:
University of Washington Press.
Ott, E. (2008). Edward N. Lorenz (19172008). Nature,
453, 300.
Reynolds, M., Blackmore, C., & Smith, M. J. (Eds.).
(2009). The environmental responsibility reader.
London: Zed Books.
Smith, L. A. (2008). Obituary of Professor Edward Lorenz
Meteorologist whose description of the butterfly
effect helped to popularise chaos theory. The Daily
Telegraph.
Sneller, R. (2009). Butterfly effect the perfect chaos to put
markets back into flight. Investment Week, 40.
Wheatley, M. J. (2006). Leadership and the new science:
Discovering order in a chaotic World. San Francisco:
Berrett-Koehler.

CSR Communication
Anne Ellerup Nielsen
Department of Language and Business
Communication, Centre for Corporate
Communication, Aarhus, Denmark

Synonyms
CSR conversation; CSR dialogue; CSR interaction

Definition
CSR communication is as a multidisciplinary field
covering both strategic and operational issues.
According to K. Podnar (2008), CSR communication may be defined as a process of anticipating
stakeholder expectations, articulation of CSR
policy and managing of different organization
communication tools designed to provide true and
transparent information about a companys or
brands integration of its business operations, social
and environmental concerns, and interactions with
stakeholders (Podnar 2008, 75).

CSR Communication

Introduction
CSR communication is an emergent field of study,
which along with the glow of CSR during the 1980s
and 1990s and up till today requires corporations to
increasingly disclose and to document how they
perform socially in order to earn their license to
operate. CSR communication is best understood as
belonging to the field of corporate communication,
which deals with the coordination of internal and
external communication from the strategic to the
operational level. Corporate communication is
a management discipline anchored in the overall
strategy and vision of an organization. The aim of
corporate communication is to build and maintain
a good corporate reputation in the eyes of stakeholders through identity, image, and stakeholder
management (Cornelissen 2011). Accordingly,
from a strategic point of view, CSR communication
is anchored in the overall corporate strategy of an
organization and may be seen as a driver for
gaining corporate legitimacy. At the operational
level, CSR communication holds a tool function
referring to the set of communication tasks and
activities that are relevant to spread CSR messages,
such as editing CSR sections of corporate websites,
CSR reports, advertisements, writing CSR newsletters, etc. In this conceptualization, the focus is on
the media, channels, and rhetorical arsenal used for
CSR messaging. However, both the strategic
approach and the operational approach to CSR
communication involve reflections on how to use
formal and informal communication strategies for
implementing CSR within the organization and
engaging in dialogue with important stakeholders
groups about CSR, for example, journalists, consumers, NGOs, etc.
As an interdisciplinary field, CSR communication is approached from many different perspectives. Some researchers focus on the drivers
considering CSR as paths to values to be achieved
through risk management, marketing, corporate
citizenship, organizational development, or ethical
behaviors as, for example, Paine (2003). Others
address CSR from an organizational function
perspective focusing on CSR as management,
marketing, public relations, and stakeholder
relations inspired by the subdivisions of

CSR Communication

communication areas within corporate communication as, for example, Cees van Riel (1992). Furthermore, CSR communication may be approached
from a dissemination perspective focusing on specific channels, for example, one-way, two-way
channels and related communication strategies:
sense-giving versus sense-making strategies
(Morsing et al. 2008). Or more concrete media
and genres may constitute the main criteria from
which CSR communication is addressed: CSR
websites, reporting, advertising, etc. However,
there is no consensus of what is exactly behind
the concept of CSR communication, but no one
seems to deny that it is a broad and rather fluid
issue (Podnar 2008).

Key Issues
The stakeholder approach to CSR
communication
The CSR communication dilemma
CSR communication strategies (content,
channels, media including rhetoric and genres)
The Stakeholder Approach to CSR
Communication
The stakeholder approach has gained increasing
importance in CSR research with globalization
and the following pressure on corporations to
contribute to society. Being a good corporate
citizen is crucial to maintaining good stakeholder
relations with investors, suppliers, employees,
consumers, the media, and nongovernmental
organizations (NGOs) who pay growing attention
to ethics and CSR (Crane and Matten 2007).
Organizations that practice CSR will generally
appear more trustworthy to stakeholders than
those who do not. Employees seem to support
CSR-oriented work places and to engage themselves in CSR activities and policies. Consumers
have become more engaged in the issue, and
NGOs have the power to act as social control of
business. With the deregulation of markets, CSR
is not only forcing organizations to take CSR
initiatives, CSR is also increasingly approached
as a joint project to be addressed in collaboration
by public institutions and private businesses

693

through partnering and networking with NGOs,

consumers, citizens, etc. (Waddock 2009). For
consumers, their alertness to ethical business
practice is accompanied by their own interest in
shared responsible actions in that they need
socially committed organizations in support of
their own self-understanding and consumption
patterns. They search for legitimacy in positioning themselves as socially conscious individuals
and gaining recognition by their peers
(Arviddsson 2008) rejecting to some extent and
all things being equal organizations and brands
that do not live up to their own ethical principles
(Bechmann 2006). Purchases are votes and
ethical consumers therefore play a significant
role in making businesses sensitive to more ethical products, production methods, and adopting
an ethical approach to business in general (Crane
and Matten 2007). Adopting a stakeholder
approach to CSR communication is crucial but
at the same time an issue in itself in that it
requires that organizations establish appropriate
and well-defined strategies for stakeholders to
address, what to say, how to say it, and through
which media, channels, and rhetorical arsenal.
Before going into these subjects, we need to
take a closer look at the challenges and dilemmas
embedded in CSR communication.
The CSR Communication Dilemma
Communicating about corporate activities via
corporate websites, annual reports, and advertisements, not to mention the corporate appearance in
social media, is part of the professionalization of
the communication industry and the introduction
of corporate branding since the early 1990s. From
a reputation management perspective, CSR communication is no exception. However, because of
the ethical dilemma embedded in CSR
concerning the bridging of moral versus financial motives, CSR communication is a delicate
issue. Some researchers even suggest that the
more companies expose their CSR commitment
and ambitions the more likely they are to attract
critical stakeholder attention (Morsing and
Schultz 2006). Several corporations who communicate their good deeds to the public are thus
accused by consumer activists and the media of

694

having hidden motives and hence of

practicing greenwashing, blue-washing, or
windowdressing by trying to stand out more
glossy than they actually are (Morsing et al.
2008). The reason for this skepticism evoked
by consumers and other publics who are exposed
to CSR messages is that corporations who may
earn legitimacy through disclosing their CSR
policies and activities are expected to have
a long and clean CSR record. Since it is rather
exceptional that businesses can go through history without having to some degree offended
some of their stakeholders or even being
engaged in a corporate scandal at some point in
time, one of the most important challenges is to
balance the transmission of good deeds with less
successful deeds. For companies who are not
able to establish this balance, CSR communication may result in lost credibility and reduced
legitimacy. As pointed out by the French CSR
researcher, Maud Tixier (2003), effective CSR
communication is about how to balance the
walking and the talking. Saying too much
about CSR may indicate that organizations
promise more than they can live up to, while
saying too little may indicate that they have
something to hide. The question, however, is
not only how organizations manage to create
this balance. It is also crucial for them to find
out whether and who among their stakeholders
are interested in CSR communication and if so,
how this communication should be approached.
CSR Communication Strategies
Communicating with stakeholders about CSR
represent challenges at different levels including,
which issues to communicate, with whom and
how? Strategies concerning content, channels of
communication, and media have therefore to be
established.
Content Strategies

The stakeholder approach to CSR communication

has important implications for what issues corporations should target to which stakeholders. Following Bhattacharya et al. (2008) and Du et al. (2010),
stakeholder awareness is a key prerequisite for
reaping CSRs strategic benefits (Du et al. 9).

CSR Communication

The findings resulting from Bhattacharya and his

colleagues research on how CSR communication
is perceived by stakeholders are noteworthy. Some
of their findings seem to indicate that, in order to
create favorable stakeholder attitudes, corporations
must make efforts to meet different sets of conduct
including (a) establishing a fit between the company and their CSR activities and (b) communicating stakeholder benefits rather than own benefits.
Supporting social causes that have nothing to do
with the companys own business (e.g., Johnson &
Johnson saving endangered species by sponsoring
the World Wildlife Fund versus donating 10% on
every purchase of baby shampoo to the World
Wildlife Fund) generate suspicion among consumers concerning the CSR motives of the company. In framing the communication about CSR
initiatives, focusing on the impact for the stakeholders rather than on the deeds of the company is
likely to enhance its CSR credibility. Turning the
perspective around by communicating explicitly
what the specific functional, psychological benefits,
and more fundamental values of a CSR initiative
are to specific stakeholder groups may contribute to
improve the understanding and perception of CSR
communication. Making explicit the returns of an
oral health initiative to stakeholders Bhattacharya
et al. (2008) established the following table
(Table 1).
The point of this content strategy is that a more
articulated CSR communication that takes into
account stakeholders interests and stakes in specific social issues that are closely linked to
a companys business strategy and mission is
likely to result in increased CSR credibility and
reputation for the company. Bhattacharya and his
colleagues take this a step further having data
demonstrating that explicit messaging of intrinsic
(altruistic) motives of a company prove to be
problematic and cause skepticism unless it is
paired with extrinsic (business related) motives,
which again supports the balanced approach to
CSR communication. Moreover, CSR studies
and practices confirm that it has generally
become more acceptable in recent years to communicate CSR as a business case (e.g., Porter and
Kramer 2006). The stakeholder approach to CSR
communication is also a relevant framework of

CSR Communication

695

CSR Communication, Table 1 Returns to stakeholders resulting from an oral health initiative (Bhattacharya et al.
2008, 262)
Returns to
stakeholders
Functional benefits

Beneficiaries

Consumers

Investors

Employees

Healthy teeth

Psychosocial
benefits
Values

Social
acceptance
Self-esteem

Altruism

Stock returns, lower

risk
Financial success

Use professional skills to aid personal

causes
Work-life integration

Well-being

Accomplishment

Harmony

reference in studies on appropriate communication channels to be used for CSR communication.

Communication Channels

Most research on CSR communication is based

on company controlled communication such as
self-portraits on the web or in CSR reports, codes
of conduct, or advertisements with CSR content.
However, CSR communication through more
indirect and informal channels of communication
is at least as important if not more important than
direct self-controlled communication. Morsing
et al. 2008 thus distinguish between one-way
and two-way communication channels in terms
of the type of communication that these channels
are likely to transmit. They thus argue that
while one-way communication is appropriate
for giving sense (giving information) to stakeholders, two-way communication channels serve
a more sense-making purpose owing to its dialogical nature. Two-way channels may both
include asymmetrical (seeking response from
stakeholders) and symmetrical communication
(involving stakeholders). Asymmetrical communication is typically formalized through request
and response formula as in surveys where organizations seek feedback from stakeholders on
specific issues, while symmetrical communication is based on genuine dialogical stakeholder
conversation.
The sense-making strategy
In order to make sense within the organization CSR should be implemented from an
inside-out perspective, allowing employees
to be part of cocreating an ethical organizational culture. Furthermore, only a sensemaking approach to implementing CSR

enables employees to act as good corporate

ambassadors for their organizations to external stakeholders. Only this way can a CSR
process succeed and CSR communication
result in legitimacy and enhanced reputation
for the organization. In other words, the value
gained from disclosing an organizations CSR
initiatives via employees is much higher than
when managers promote themselves and their
companies on CSR. Furthermore, seeking and
enhancing their identity through their working
life, a strong cocreational engagement in CSR
at the workplace may strengthen employees
own ethical stance and good feeling. The
channels of communication used for communicating CSR with employees thus call for
a mix of one-way and two-way channels of
communication including informal communication through conversational dialogue.
The sense-giving strategy
As pointed out above, one-way channels
are frequently used in self-controlled communication (mass communication) and are particularly appropriate for corporate selfportraying in situations where organizations
give new information about issues that stakeholders are supposed to be interested in, such
as, corporate portraits for potential job candidates, the announcement of the annual
accounts to investors and financial journalists,
or the launch of new CSR projects and activities to corporate partners, at the corporate
website, or newsletters, etc.
In communicating about CSR, an organization thus needs both one-way and two-way
channels communication including asymmetrical and symmetrical communication, but it is

696

important for communication officers to

acknowledge that the channels have specific
properties and that some are more appropriate
for some types of communication than others.
CSR Media, Genres, and Rhetoric

With the advent of electronic communication, corporate websites have more or less replaced print
brochure material and are consequently recognized
as one of the most important media genre for CSR
communication (Esrock and Leichty 1998).
Corporate websites
CSR profiles and projects together with CSR
strategies, reports, codes of ethics, etc., are
either placed in hypertext format or as downloadable pdf. files at organizations corporate
website. CSR documents at the corporate
website are part of the corporate communication
of an organization and serve multiple and integrated functions: advertising, marketing and
public relations/corporate branding, employee
branding, etc. The advantage of using corporate
websites for CSR is obvious. Not only do they
have global reach, they also allow organizations
to persuade, inform, educate, and interact with
stakeholders via blogs and links to social media
sites. On the other hand, the explosive use of
CSR communication via corporate websites
have caused many researchers and experts to
conclude that a growing skepticism to CSR
communication is particularly due to the exaggerated use of the web for lofty and glossy profiles and reports (Cornelissen 2011). Therefore,
stakeholders positive perception of CSR web
communication depends on specific variables
such as source credibility, honesty of the CSR
issues, company fit, beneficial contribution,
etc. (Schlegelmilch and Pollach 2005; Du et al.
2010). Some subgenres such as CSR reports in
particular are linked to high credibility in spite
of their promotional preparation in that the accuracy of the financial data are often certified by
third parties (Schlegelmilch and Pollach 2005).
Advertising
CSR advertising in the form of printed or
electronic ads is particularly used for causerelated marketing or social sponsorships.

CSR Communication

However, a part from nonprofit organizations,

for which the good cause is their mission,
advertising campaigns for CSR are generally
considered suspicious (Schlegelmilch and
Pollach 2005). The reason for this is that
advertising in general is low on credibility.
Furthermore, if the amount of money spent
on advertising for a social cause exceeds the
amount attributed to the cause itself, it is often
received as a contradiction in terms by critical
stakeholders. The reasoning behind this is the
embedded conflict between raising money for
a cause and what is considered a waste of
money on promoting the donor instead of
benefiting directly the social cause. An example of this is when Bono and Rob Geldorf
launched the cause-related marketing campaign (RED) in 2006 aimed at helping HIV
infected Africans with medicine through the
purchase of icon brands such as Armani, Dell,
Cap, etc. As a result of this campaign consumer activists established the web community: Buy less crap to demonstrate their
resistance to support the over consumption of
luxury brands as a means to support a social
cause. However, there are also widely
supported cause-related marketing campaigns
such as the international pink ribbon breast
cancer campaign raising money for breast cancer research through the purchase of pink ribbon gadgets (e.g., bracelets).
Social media
In order to meet the increasing stakeholder
demand for corporate responsiveness, many
organizations have created a Facebook and/or
Twitter profile. Contrary to corporate websites,
blogs allow companies to establish relationships with stakeholders in the blogosphere and
to analyze how these relationships affect corporate communication and stakeholder management (Fiseler et al. 602). Having studied
McDonalds CSR blog, Fiseler et al. point out
that blogs are particularly appropriate for
microdialogues with highly engaged audiences
about very specific issues. A comment posted at
the Business Earth profit Responsibility blog
thus says: Communicating your CSR work

CSR Communication

effectively requires more than a static website

or an annual press release. Blogs, message
boards, and social media tools like Twitter and
Facebook are the best tools for ongoing discussions about your company. By engaging your
community with these tools, you offer them
a sense of ownership in the good work youre
doing.* Even though weblogs do not have
a direct impact on a large public sphere like
mass media they allow organizations to reach
indirectly a larger public through opinion
leaders without having to pass through gatekeepers (Fiseler et al. 610). Exchanging knowledge and discussing CSR issues with engaged
and critical audiences can thus create a closer tie
between the organization and its stakeholders
together with providing insights into their
behaviors. Yet, many organizations hesitate to
use social media and still have a long way to go
in order to learn how to navigate them and
exploit the potential of social media for CSR
communication.
CSR rhetoric
CSR rhetoric is rather scarce and the issue
only sporadically addressed in the research on
CSR communication. Most contributions concern the use of discourse types related to specific topics, for example, reporting, web
presentation (Nielsen and Thomsen 2007;
Coupland 2005) However, considering the
skepticism above, understanding how to understand and use appropriate rhetoric for specific
CSR purposes in specific genres (reporting,
newsletters, self-portraying, codes of ethics,
etc.) is highly relevant. While CSR reporting
is a documenting and audited genre, that is, an
annual account of what an organization has
actually performed during a year and whether
it has accomplished the goals set within this
year, CSR profiles on the web is a more loosely
composed genre based on self-promotion and
portraying. Although the reporting genre has
been criticized for drawing a promotional
rather than reliable picture of a companys
annual performances, CSR reports are still
a much more regulated genre than other corporate communication genres. The same can be

697

said of codes of ethics that stipulate ethical

guidelines of behaviors to employees and subsuppliers. Consequently, one of the challenges
of practicing nonhypocritical, fair, and honest
CSR communication is to understand how to
navigate the rhetoric arsenal and to know what
goes with which type of CSR genre. In order to
avoid critical voices, organizations can pay
much more attention than they do to using
appropriate rhetoric when they communicate
CSR to and with stakeholders. An example of
this would be organizations that instead of
exaggerating or flaunting their CSR performances focus on the dynamic aspects of CSR,
for example, by stating where they find themselves in the long and complex process of integrating CSR into their business. Rhetorically,
the use of statements of intent by using the
future tense (e.g., we shall) rather than the
present tense (we are/do) support this continuous and dynamic process approach to CSR
communication presenting an organization in
a more humble position. Being more aware of
rhetorical and discourse devices and their
impact on different stakeholders might contribute to leave a more credible and authentic
impression of organization who communicate
about their CSR.

Future Directions
As pointed out in this entry, CSR is an interdisciplinary emergent field. This implies that so far there
is no established understanding, no one-fits all definition, and no explicit guidelines of how to communicate CSR. The problems and challenges
pointed out above in relation to the embedded
dilemmas and public skepticism toward CSR communication seem to clash against the growing
claim for transparency and accountability of CSR
and CSR-related activities. The problem is not least
that, in order to acquire a growing understanding of
how to navigate the numerous way of handling
CSR, communication and dialogue about it is
a necessary step forward. One way of overcoming
these embedded challenges may be to address CSR

698

communication from a more explicit learning perspective. Based on processes of mutual understanding, a learning approach is unthinkable without
dialogue and two-way symmetrical communication, which is best instantiated through social interaction through networking and dialoguing with
stakeholders. Social media may be a step forward
toward enhancing this. However, organizations are
still leaved in a limbo concerning how to use social
media to interact with their stakeholders and must
first learn how to manage these media and scrutinize their potential before they can use this potential as a way to enhance the value of CSR
communication.

Cross-References
Communicating with Stakeholders
License to Operate

CSR Conversation
a Danish study. Journal of Marketing Communications, 14(2), 97111.
Nielsen, A. E., & Thomsen, C. (2007). What they say and
how they say it. Corporate Communications: An International Journal, 12(1), 2540.
Paine, L. S. (2003). Value shift. Why companies must
merge social and financial imperatives to achieve
superior performance. New York: McGraw-Hill.
Podnar, K. (2008). Communicating corporate social
responsibility. Journal of Marketing Communication,
14(2), 7581.
Porter, M. E., & Kramer, M. R. (2006). Strategy and
society: The link between competitive advantage and
corporate social responsibility. Harvard Business
Review, 84(12), 7892.
Schlegelmilch, B. B., & Pollach, I. (2005). The Perils and
opportunities of communicating corporate ethics.
Journal of Marketing Management, 21, 267290.
Tixier, M. (2003). Soft vs. hard approach in communicating on corporate social responsibility. Thunderbird
International Business Review, 45(1), 7191.
van Riel, C. B. M. (1995). Principles of corporate communication. London: Prentice Hall.
Waddock, S. (2009). Making a difference: Corporate
responsibility as a social movement. Journal of Corporate Citizenship, 33, 3546.

References and Readings

Arviddsson, A. (2008). The ethical economy of customer
coproduction. Journal of Macromarketing, 28(4),
326338.
Cornelissen, J. (2011). Corporate communication:
A guide to theory and practice. London: Sage.
Coupland, C. (2005). Corporate social responsibility as
argument on the web. Journal of Business Ethics,
62(4), 355366.
Crane, A., & Matten, D. (2007). Business ethic: Managing
corporate citizenship and sustainability in the age of
globalization (2nd ed.). Oxford: Oxford University
Press.
Du, S., Bhattacharya, C. B., & Sen, S. (2010). Maximizing
business returns to corporate social responsibility
(CSR): The role of CSR communication. International
Journal of Management Reviews, 12(1), 819.
Esrock, S. L., & Leichty, G. B. (1998). Social responsibility
and corporate webpages: Self presentation or agenda
setting? Public Relations Review, 24(3), 305315.
Fieseler, C., Fleck, M., & Meckel, M. (2010). Corporate
social responsibility in the blogosphere. Journal of
Business Ethics, 91(4), 599614.
Matten, D., & Moon, J. (2008). Implicit and explicit CSR:
A conceptual framework for a comparative understanding of corporate social responsibility. Academy
of Management Review, 33(2), 404424.
Morsing, M., & Beckmann, S. C. (2006). Strategic CSR
communication. Copenhagen: Djf.
Morsing, M., Schultz, M., & Nielsen, K. (2008). The
Catch 22 of communicating CSR: Findings from

CSR Conversation
CSR Communication

CSR Dialogue
CSR Communication

CSR Director
Chief Sustainability Officer

CSR Doppelganger
Irresponsibility

CSR Europe

CSR Europe
Samuel O. Idowu
London Metropolitan Business School, London
Metropolitan University, London, UK

Address with Web Link

CSR Europe
Rue Victor Oudart 7
1030 Brussels
Belgium
http://www.csreurope.org

Introduction
CSR Europe is the leading European business
network for corporate social responsibility,
with around 75 multinational corporate
members [CSR Europes members, multinational
companies: http://www.csreurope.org/members.
php] and 27 national partner organizations
[First European Marketplace on CSR:
http://www.csreurope.org/pages/en/marketplace
2005.html] across Europe. The organization
was founded in 1995 by senior European
business leaders in response to an appeal by the
then European Commission President Jacques
Delors.

Brief History
Since 1995, businesses and European policy
makers have been engaged in a dynamic
drive of reinforcing each others efforts to
develop initiatives on CSR and sustainable
development.
1993: The Appeal of President Jacques
Delors to business on CSR. In June 1993, the
then President of the European Commission
Jacques Delors made an appeal to businesses

699

talents to find solutions which address Europes

structural
problems
of
unemployment,
restructuring and social exclusion.
1995: European Business Declaration
against Social Exclusion. In January 1995, 20
business leaders and the European Commission
President Jacques Delors adopted and announced
the European Business Declaration against Social
Exclusion. In 1996, the initial group of company
signatories to the Declaration set up a business
network which was later to become CSR Europe.
2000: The ENBSC becomes CSR Europe.
The European Business Network for Social
Cohesion was renamed CSR Europe to reflect
the broad scope of issues covered by the network.
2002: Launch of the European Academy
of Business in Society. CSR Europe and
The Copenhagen Centre teamed up with universities and business schools to found EABIS, the
Academy of Business in Society (also listed in
this ECSR). Its mission is to be a world-class
reference point for the integration of CSR into
the mainstream of business practice, theory and
education, and to enhance models for sustainable
business success.
2005: The first European MarketPlace
[First European Marketplace on CSR: http://
www.csreurope.org/pages/en/marketplace2005.
html] and the Roadmap on CSR. CSR Europe
celebrated its tenth anniversary with the first
European MarketPlace on CSR, where 400 business and stakeholder practitioners came together
to share practical CSR solutions, and presents the
European Roadmap for Businesses Towards
a Competitive and Sustainable Enterprise.
2006: European Alliance for CSR [The
European Alliance for CSR: http://www.
csreurope.org/pages/en/alliance.html]. The European Commission renewed its policy on CSR
through communication with the European
Parliament, the Council, and the European
Economic and Social Committee. The communication entailed key elements including the
European Alliance for CSR, an open alliance for
enterprises, and their stakeholders to promote and
advance CSR.
2008:
The
European
Toolbox
for a Competitive and Responsible Europe

700

[European Toolbox for a Competitive and

Responsible Europe: http://www.csreurope.org/
toolbox]. CSR Europe launched the European
Toolbox for a Competitive and Responsible
Europe based on the first results of the CSR
Laboratories [CSR Laboratories: http://www.
csreurope.org/pages/en/laboratories_quickguide.
html],
cross-sectoral
business-stakeholder
cooperation projects under the umbrella of
the European Alliance for CSR [European
Alliance for CSR: http://www.csreurope.org/alliance]. Together with its national partner organizations, CSR Europe organized a Roadshow of
events to present the CSR tools to companies and
stakeholders across Europe.
2010: Enterprise 2020. In October 2010, CSR
Europe launched Enterprise 2020, a new strategic
initiative aimed at supporting companies in building sustainable competitiveness by providing
a platform for exchange and innovation, fostering
close cooperation between companies and their
stakeholders by exploring new ways of working
together toward a sustainable future, and strengthening Europes global leadership on CSR by engaging with EU institutions and other stakeholders.

Mission/Objectives/Focus Areas
CSR Europe is a platform for connecting
companies to share and further develop best
practice on CSR; innovating new projects
between business and stakeholders; and shaping
the business and political agenda on sustainability
and competitiveness.

Structure of Governance
CSR Europe is a business-driven membership
network with two types of members: corporate
members representing a diverse array of industries, and national partner organizations aiming to
promote and facilitate CSR in different European
countries.
General Assembly: Every corporate member
and national partner organization has a representative in the General Assembly of the network.

CSR Europe

Board of Directors: The Board of Directors,

elected every 2 years, determines the networks
strategic direction and appoints an Executive
Director for the secretariat.
President: The President provides advice
in relation to the overall strategy of the
organization and its high-level representation.
The current president, Viscount Etienne
Davignon [Viscount Etienne Davignon: http://
www.csreurope.org/pages/en/davignon.html],
has been involved with CSR Europe since its
inception.
Secretariat: Based in Brussels, the secretariat
is responsible for the day-to-day management
and implementation of the organizations
strategy.

Activities/Major Accomplishments/
Contributions
Expertise and information services: CSR
Europe offers tailored support and information
services to provide members with practical tools
and updates on the latest European and international CSR developments. CSR Europes website
also offers a wide range of publicly available
resources, e.g., publications and a database of
CSR case examples.
Best practice exchange: CSR Europes
secretariat connects member companies and
national partners for the sharing and
further development of CSR best practices
through events, working groups, and other
activities.
Collaborative projects with stakeholders:
CSR Europe and its national partner organizations connect member companies with
relevant stakeholders to seek innovative solutions
to socioeconomic challenges through joint
projects.
European stakeholder dialogue: CSR
Europe has since its inception played an
important role in providing input to the
European CSR policy debate and acting as
a platform for dialogue between companies,
policy makers, and other stakeholders at the
European level.

CSR Frameworks

Cross-References
Canadian Business for Corporate Social
Responsibility
Club of Rome
Corporate Social Responsibility
Corporate Social Responsibility Strategy
EABIS (European Academy of Business in
Society)
WBCSD

CSR Frameworks
Suzanne Young
La Trobe Business School, La Trobe University,
Melbourne, VIC, Australia

Synonyms
Corporate social responsibility framework; Corporate social responsibility model; Corporate
social responsibility structures; Social responsibility framework; Social responsibility model;
Social responsibility structures

Definition
Corporate social responsibility frameworks refer
to models and conceptual structures that frame
the corporate responsibility philosophy and
application in a business setting.

Introduction
This entry will not deal with definitions of corporate social responsibility as these will be
looked at elsewhere. What it attempts to do is
discuss different types of frameworks or conceptual structures that over the years have been useful in framing the philosophy of corporate social
responsibility and its application in the business
environment. These may also be discussed elsewhere in this encyclopedia.

701

Carrolls (1991) Pyramid of Responsibility

has often been used as a framework to understand
and apply CSR. It categorizes responsibility
along four dimensions: economic, legal, ethical,
and philanthropic. When this was first presented,
it was read as a progression from lower levels of
the pyramid to higher levels. Now it is seen as
more holistic with each category interrelated.
Other frameworks that are useful are the view
of CSR along a continuum from economic to
strategic (Thorne et al. 2011) where the former
could be regarded as minimal economic and legal
considerations focusing on contractual stakeholders with the latter more strategic in that it
broadly integrates economic, legal, ethical, and
philanthropic considerations focusing on all
stakeholders. Thorne et al. 2011, p. 14) state
that firms that focus only on the expectations
required by laws and contracts demonstrate minimal responsibility or a compliance orientation
and see these activities as a cost of doing business. Whereas those taking a more strategic
approach integrate a range of expectations,
desires, and constituencies into its strategic direction and planning processes.
Other useful ways of viewing CSR is according
to three categories: social obligation, social
responsiveness, and social responsibility. The
first category is social obligation, which is meeting the requirements established by law. This
includes taxation, product safety, employee
working conditions, antipollution legislation, and
antidiscrimination legislation. The second is social
responsiveness or the willingness of a firm to adapt
to changing societal expectations such as the provision of childcare facilities, payment of extensive
maternity/paternity leave provisions, recycled
packaging, and environmentally sensitive production processes. The emphasis is on meeting community expectations, incorporating an awareness
of changing societal conditions in business activities, and reflecting demands for ethical qualities in
product attribute, e.g., dolphin-friendly tinned
fish products. The third is social responsibility,
which refers to the pursuit of long-term goals
that are good for society and implies an ethical
basis for business decisions, i.e., judgments about
what is good and bad for society.

702

Another useful model is Galbreaths (2006)

Strategic CSR framework where he categorizes
CSR along four dimensions:
Shareholder strategy where the objective is
to maximize shareholder returns
Altruistic strategy which relates to philanthropic activities paid from firm surpluses.
This refers to acts of goodwill with no expectation of receiving anything in return.
Reciprocal strategy which can be called
enlightened self interest. These are actions
to benefit society while producing economic
benefit to the firm.
Citizenship strategy integrates more fully
the stakeholder perspective. It recognizes the
firms responsibilities to external and internal
constituents and operates from a long-term
focus.
Another oft-used framework is viewing CSR
as a reactionary activity to a crisis or external
events as opposed to it being strategic or
a business-level product differentiation strategy.
As such, additional social attributes or features
are added to a product which is valued by some
consumers or other stakeholders. Other companies use socially responsible production processes such as the use of organic raw materials
or the prohibition of the use of child labor in
developing economies. In this case, CSR is seen
as a form of strategic investment (McWilliams
et al. 2006).
As opposed to the business case, others argue
for CSR from a moral case of particular relevance
for multinational corporations operating in
a global community whereby they are expected
to contribute financial and human resources and
to give back so that quality of life is enhanced
and sustained (Carroll 2004). Stewardship theory
(Davis et al. 1997) argues for the moral perspective of behavior based on doing the right thing
no matter how it effects financial performance.
Idealized citizenship emphasizes voluntary selfrestraint and altruism concerning realization of
universal human rights. Moreover, Carroll (2004,
p. 117) pointed to the link between ethical
responsibilities and cultural norms and discussed
the problematic nature of moral relativism for
global companies as they adapt to local norms

CSR Frameworks

that may not reflect global or home country standards. In linking morals and strategy, corporations may choose to invest in what Carroll
(2004, p. 118) called philanthropy, which is
more often than not strategic in nature, based
on the view that businesses are expected to play
an active role in global corporate citizenship.
In this vein, Thorne et al. (2011) present
another framework that is useful in thinking
about managing CSR in home and host markets.
They present Gardberg and Fombums
(2006) matrix that categorizes citizenship expectations in home and host markets:
Minimalists are companies that adopt citizenship profiles that are minimum at home and
abroad.
Expansionists that adopt citizenship profiles
that are greater in their host market then their
home market.
Activists adopt citizenship profiles that are
active both at home and abroad.
Reductionists adopt citizenship profiles that
are lower in their host market than their
home market.
As more research is conducted and articles
written, other frameworks come to the fore. All
are useful as a way of framing the discussion
around CSR philosophies and practices.

Key Issues
There is a strong but axiomatic argument and
significant assumption that an organizations
CSR strategy should balance meeting its stakeholder needs with a strong business case for
achieving them. There seems to be currently
a variety of CSR approaches to meet standards
in reporting, disclosure, and measurement, with
companies at liberty to tailor their CSR strategy
to meet their unique stakeholder needs. And the
lack of CSR at the governance/strategic level in
many companies may mean that CSR is simply
greenwashing and viewed as a marketing
tool only. Adopting CSR as a business
approach, rather than as a moral imperative, still
entails integration from the executive level and
across business units, which is not always

CSR in Africa

evident. Adopting a CSR framework may be

a useful way to make it clear to all within the
company and stakeholders what type of CSR is
being adopted.

703

responsibility: Strategic implications. Journal of Management Studies, 43(1), 118.

Thorne, D., Ferrell, O. C., & Ferrell, L. (2011). Business &
society: A strategic approach to social responsibility
& ethics (4th ed.). Australia: Southwestern Cengage
Learning.

Future Directions
The opportunity for customization of CSR to firm
values and strategies is seen as a critical requirement for improving the impact of CSR activities.
However, given the expectation of heightened
levels of regulation as a result of recent corporate
governance failures, there appears to be a threat
to this independence. With greater calls for regulation, there is a perceived threat of CSR being
driven by risk-minimizing rather than opportunity maximizing approach. There is an opportunity to better align the business rationale for CSR
with meeting stakeholder expectations which
requires proactive steps to eliminate a tick
box mentality in reporting if innovation and
impact are to be created.

CSR in Africa
Stephen Vertigans
School of Applied Social Studies, Faculty of
Health and Social Care, Institute Robert Gordon
University, Aberdeen, Scotland, UK

Synonyms
Corporate
social
responsibility
(CSR);
Nongovernment organizations (NGOs); Transnational corporations (TNCs)

Definition
Cross-References
Altruism
Corporate Social Obligation & CSR
Corporate Social Responsibility
Enlightened Self-interest
Stewardship Theory

References and Readings

Carroll, A. (1991). The pyramid of corporate social
responsibility: Toward the moral management of organizational stakeholders. Business Horizons, 34, 42.
Carroll, A. B. (2004). Managing ethically with global
stakeholders: A present and future challenge. Academy
of Management Executive, 18(2), 11420.
Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997).
Toward a stewardship theory of management. The
Academy of Management Review, 22(1), 2047.
Galbreath, J. (2006). Corporate social responsibility strategy: Strategic options, global considerations. Corporate Governance, 6(2), 175187.
McWilliams, A., Siegel, D. S., & Wright, P. M. (2006).
Guest editors introduction corporate social

Corporate Social Responsibility is being applied

as an umbrella concept incorporating business
responsibilities and social, economic, and environmental impacts.

Introduction
Corporate approaches to social responsibility in
Africa have to some extent been playing catchup. Colonial history, complicity in corruption,
environmental destruction, labor exploitation,
discriminatory practice in terms of gender, race,
and tribe and the neglect of health and safety have
contributed to negative impressions of northern
hemisphere and South African apartheid rooted
companies. Consequently there has been considerable scope for Transnational corporations
(TNCs) to improve the social impacts of their
activities and concomitantly their reputations
while according with multiple global standards.
Similarly many African companies operating
within particular nation-states have, until

704

recently, tended to award social responsibility

little or no consideration within their operations.
Today, CSR policies within national and global
firms are better focused in terms of investment
and engagement, infrastructural development,
job creation, environmental protection, and
knowledge and skills transfer. International standards and aims are incorporated within corporate
performance frameworks. One prominent
example is the United Nations Millennium Project which provides the goals around which many
CSR policies are seen to coalesce. Across and
within sectors and regions, there is considerable
variation in investment, commitment, and
intentions.
The most prominent corporate social responsibility approaches in Africa are associated with
the most prominent industries, namely, oil, gas,
gold, diamond, and copper. With extraction often
occurring in locations with limited national social
welfare policies for health, education, infrastructure, and poverty, TNCs operating in Africa are
increasingly expected in step into the breach.
Hence in many parts of sub-Saharan Africa,
there are high expectations and demands that
TNCs will provide learning opportunities, health
facilities, housing, employment, business programs, financial assistance, and sanitation. Conversely, TNCs are also associated with human
right infringements whether committed by
national governments, within corporate sites or
surrounding neighborhoods, environmental
disasters, vast inequalities, corruption, and abject
living conditions. By comparison, in societies
with a state welfare framework, such as Libya
under the control of Colonel Gaddafi, there are
often limited expectations, or indeed opportunities, for foreign driven CSR. It is therefore somewhat ironic that following the popular uprising
and demand for political and social representation, there is a greater likelihood that TNCs will
be expected to undertake a more extensive role
within the turmoil and damaged social networks
of post-Gaddafi Libya.
Across large swathes of Africa, industry continues to be dominated by the extractive
subsector and in particular, mining of minerals
and oil and natural gas production. Oil and gas

CSR in Africa

have grown in prominence, helping the industrial

sector rise to 41.5% of Africas GDP in 2006,
compared with 36.5% between 2000 and 2005.
The increase can be explained by rising global
prices and new discoveries of reserves. Hence,
African countries have reported rapid rates in
economic growth. Yet as Binns et al. (2012)
explain, in some countries such as Equatorial
Guinea, the sudden rise does not extend to other
sectors of the economy. Improvements in living
standards have largely been restricted to political
elites and those directly connected to the energy
sector. In other locations, diamond mining is
fundamental to national economies and is often
dominated by indigenous firms. Binns et al. refer
to Botswanas high per capita GDP which they
largely attribute to the mining and export of high
quality diamonds, with the South African company De Beers prominent. Unlike the highly
mechanized Botswana mines, in Sierra Leone
diamond locations are dispersed which when
allied to political turmoil and weak government
controls, has meant that it is much more difficult
to regulate. Consequently, looting and smuggling
has been prevalent with groups willing to use
violence to secure and protect the minerals
which have been known as blood or conflict
diamonds. In order to reduce the interconnections
between political instability, diamonds and violence, certification schemes have been introduced
to prevent trade. Lacking universal international
rigor the impact is varied and greater onus has
been placed upon companies to prohibit the
export of blood diamonds within socially
responsible programs that extend beyond certification agreements.
The surge in energy related revenues, pervasive international boundaries, allied to electronic
empowerment and extensive NGO networks
have contributed to national mining companies
and oil and gas TNC actions and consequences
being placed under closer scrutiny. Royal Dutch
Shell involvement in Nigeria has probably
attained most notoriety, notably over environmental devastation and implicit collusion over
the arrest and execution of Ken Saro-Wiwa and
eight other Ogoni leaders. Such involvement is
a prime example of the long-lasting damage of

CSR in Africa

social and environmental impacts to corporate

brands. In the case of Shell, this has meant that
the companys close relationship with the Nigerian government led to political and commercial
boundaries being blurred. The diminution of distinctions contributed to perceptions of responsibilities and consequences being shared and
violent attacks have been committed against
Shell partly because the acts are considered to
also be attacks against the government. Moreover, the proximity of Shell to local communities
in oil producing regions where government
controls are weak and national welfare provision
is absent, has resulted in the TNC being held
accountable for problems and demands. Conversely as Frynas (2009) observes, and while
acknowledging his own criticism, Shell (and
BP) is widely recognized as being global leaders
in corporate citizenship. For Shell, numerous
self-inflicted PR disasters during the 1990s,
including the death of Saro-Wiwa, led to extensive reforms and a more engaged and participatory CSR approach. The spectrum of opinion is
probably indicative of the differing impacts of
CSR policies in Africa more generally. In short
some people benefit, many people do not.
International civil inspection also crosses over
into trade and legalities. Numerous campaigns
have been instigated which aim to encourage
northern hemisphere pharmaceuticals TNCs to be
more accommodating when dealing with countries and peoples facing tremendous challenges
and limited financial resources. Against
a backdrop of high levels of HIV/AIDS and
malaria in Africa, drug companies have been
strongly encouraged to become more socially
responsible by allowing the manufacturing and
importation of affordable versions of their patented drugs.
Although arguably of lower international
profile, agriculture is another important sector
within Africa. Significance varies, with contributions varying between northern Africa and
sub-Saharan Africa. For instance, agriculture
contributes to between 2% and 13% GDP in
Libya and Egypt and over 50% in places like
Central African Republic, Liberia, and Somalia.
In countries such as Angola, Burundi, Ethiopia,

705

Niger, and Rwanda, the figures of the working

population who are engaged in agriculture can
exceed 80% (Binns et al. 2012). By comparison,
in neighboring Nigeria, the figure is under 5%. In
part this is because of developed industrial and
service sectors. However, the figure is also indicative of Nigerias descent into rentier state status
and the overreliance on the capital intensive
energy industry.
Small family farms still proliferate, especially
in sub-Saharan Africa with many literally at the
frontline of the debate over the impact of global
warming and the pervasive spread of arid land.
Increasingly larger operations are growing in
prominence with greater emphasis on productivity and imported techniques, technology, and
chemicals. Larger farms tend to employ paid
workers, and not family members, and encounter
different worker related issues. Moreover unlike
smaller farms which tend to concentrate on
meeting familial and local community needs,
larger farms are growing crops for national consumption and international market. The rising
involvement of Northern hemisphere supermarkets and retailers in the region is indicative of
changing patterns of food and drink production
and distribution. Northern companies have
introduced codes of social accountability, most
notably over labor practices within their global
production networks and to some extent across
supply chain management. Yet impacts for
workers have been limited and conditions have
not improved for the largely casual, migrant
workforce. The extent to which reform is
required was emphasized in 2001 when international chocolate manufacturers were reported as
being unable to guarantee that child slaves had
not been involved in the production of the TNCs
cocoa (McEwen 2009). Nevertheless there were
signs of progress through the introduction of
multi-stakeholder initiatives that are directed at
addressing issues of labor abuse among supermarket suppliers. Parallel to these shifts have
been the emergence of fair trade agreements
which aim to ensure that smaller farmers in
parts of the world like Africa receive a fair price
for crops and merchandise, principally by cutting
out exploitative sectors within the supply chain.

706

Typically, such products are more expensive than

equivalent items and there are concerns outlined
by Harford (2006) that much of the additional
cost is not paid to the producer but becomes profit
to retailers. Consequently, what may well be
socially responsible behavior, as suppliers
receive a fairer share, is also an opportunity for
new forms of income generation for northern
hemisphere retailers. Ultimately, the onus is
placed onto the consumer to balance ethics and
cost; the extent to which they would be willing to
pay more if they knew of the extent to which
TNCs were benefitting is debatable.
Shifts in globalization, production, and consumption patterns are also reproduced within
Africa. The postapartheid emergence of South
Africa to become arguably the dominant nation
in the continent is reflected by high levels of
service sector employment and industrial production. South Africas large reserves of gold, platinum, and palladium account for approximately
one third of total activity in sub-Saharan Africa.
In addition, the country has established a network
of trade missions across Africa and has considerably increased trade across the Southern African
Development Community (SADC). Binns et al.
(2012) report that trade with countries in SADC
now constitutes 16% of South Africas total.
Within the range of companies, Binns et al.
(2012) draw upon three very different examples
which are indicative of the scope of the countrys
expansion: mining operations; beer and soft drink
production; and hotels. As such, considerable
attention is being placed upon South African
companies at a business level by those eager to
apply similar approaches within neighboring
nation-states and at a social level as corporate
impacts are analyzed. For example, the 72%
decline between 1987 and 2006 in gold mining
employment severely affected the gold producing
regions. Partnerships between public and private
sectors, ostensibly led by local authorities,
resulted in numerous initiatives that successfully
attracted new investors, industries, and activities
to the affected regions (Binns et al. 2012). Within
other African nation-states, national companies
actions, most notably within the mining sector,
are also being increasingly scrutinized and

CSR in Africa

subjected to agreements and pressure groups

which demand greater consideration on economic, environmental, and social impacts and
how these can be addressed through sustainable
development and local empowerment.
Wider afield, the emergence of the BRIC
(Brazil, Russia, India, and China) countries is
notable with all four countries seeking to gain
African raw materials and markets. Although
lacking the strong (post) colonial ties of Northern
hemisphere countries such as UK, France, and
Portugal, China has been able to build upon
long-standing diplomatic links, a history of
anticolonial support, and the provision of aid,
technical support, and infrastructural development. The Tanzania-Zambia railway is probably
the best example of earlier Chinese support
(Williams et al. 2009). Today, unlike international institutions such as United Nations and
World Bank, Chinese loans and infrastructural
projects are not tied to demands for changes to
national politics nor economic liberalization.
Sens (1999) criticism of the IMFs emphasis on
market relations rather than improving social
opportunities for millions of people is indicative
of a wider body of literature regarding international institutions. By comparison, China has
been willing to invest in countries such as
Sudan, whose human rights violations deterred
Western commitment. Although Chinese corporations rarely have a fully fledged CSR approach,
there are components that would be claimed as
such by Northern TNCs. For instance, professional training is provided, malaria prevention
programs introduced, trade and economic cooperation zones are set up and travel and communication networks have been improved in places
such as Angola, Democratic Republic of the
Congo, Ghana, and Nigeria. A cynic could
argue that this is to the benefit of Chinese companies operating, or wanting to do so, in the
regions. Nevertheless communities also benefit.
Inevitably this is at a cost to the host countries.
Although the economic and political costs of
loans may be lower than international institutions, the money must often be used for contracts
with Chinese companies who overwhelmingly
employ Chinese workers. Moreover, the new

CSR in Africa

arrangements provide import avenues in sectors

such as textiles which can decimate local industry
and manufacturing.
Against the rise of new forms of competition
for African markets and supplies are many TNCs
and South African companies with roots in colonialism and apartheid. Understandably, companies do not highlight these links. Yet there are
concerns that TNCs inadvertently, or otherwise,
repeat approaches which are associated with
colonialism and apartheid. With historical memories still embodied within social relationships,
TNC actions are frequently viewed through the
lens of history, often resulting in a critical positioning of CSR policies along a trajectory from
colonialism. Consequently, policies of resource
allocation to some communities along the oil
production and distribution networks can exacerbate local tensions and become locations of
anger, resentment and even conflict. To this
extent, parallels can be drawn with the colonial
divide and conquer approach (Vertigans 2012).
Problems of perception are compounded with the
restricted incorporation of southern hemisphere
perspectives and influences. In this regard, CSR
approaches can be located within wider development philosophy. There was a noticeable
post-1945 shift from the notion of trusteeship of
childlike peoples who required supervision and
guidance to welfare and advancement to partnership. Yet subsequent partnership strategies
continue to be the responsibility of northern
trustees and it is the north where the solutions
are to be found for southern problems. Similar
imbalanced relationships and diagnosis permeate
through CSR thinking. For instance, as Frynas
(2009) notes, there continues to be a tendency
within Northern CSR approaches to impose
notions upon African societies which neglect
localized norms and values.
Despite the rising profile of African
economies, research into CSR, national and international companies related activities remains
limited. Vissers (2006) study of CSR literature
discovered that only 12 out of the continents 53
countries had any research published in core CSR
journals. Moreover 57% of articles featured on
South Africa and 16% focused on Nigeria. Hence

707

51 (or 96% of) African countries were either

incorporated within the remaining 27% of the
literature or ignored altogether. Since 2005,
there is evidence that the range of studies is
expanding as more minerals are discovered in
African countries, the profile of CSR and perceptions of the roles of national and TNCs shifts.
In light of the growing amount of interest and
investment in CSR in Africa, the extent of substantive evaluation is at first glance surprising
sparse. However, this observation needs to be
located within the general evaluative issue across
CSR, namely, measuring the success or otherwise
of policies is typically difficult. Local companies
and TNCs refer to measures such as amount
invested, number of new buildings, health facilities, schooling opportunities, business startup
programs, and environmental controls. In other
words, TNCs tend to report upon easily measured
outputs. That the measures are frequently accompanied by photo opportunities does little to overcome the widely held perception that many CSR
approaches tend to be a public relations exercise.
Such an impression is compounded by the lack of
broader and longer term social impacts and verifiable quantification. Of course, this is not unique
to Africa. What is different is that the (lack of)
consequences may be more severe than illconsidered approaches within the Northern hemisphere where TNCs continue to operate around
the fringes of societies, although there are signs
this is changing as northern hemisphere national
governments social welfare programs continue to
contract.
Alongside promoted success, if often
unsubstantiated, stories, numerous problems are
also associated with CSR approaches. One of the
main reported problems across the extraction
industries is the lack of engagement with affected
communities or targeting of particular leaders
and compliant individuals by indigenous and
international companies. Moreover existing community support mechanisms are frequently
ignored, with little or no attempt made to incorporate established processes or to learn from
them. In this regard, TNC CSR approaches are
now intertwined, often unintentionally, with
international development and poverty reduction.

708

Hence, and building upon the preceding section,

it can be argued that CSR approaches are often
typical to mainstream development thinking
which McEwen (2009) and Williams et al.
(2009) argue is based upon negative thinking
about local communities and reluctance to
acknowledge the value of local cultures and systems which are frequently viewed as barriers to
corporate initiatives. The top-down approach is
therefore doomed to failure unless communities
are engaged. Conversely bottom-up strategies
are usually short lived with limited impact. This
is usually because NGOs are dominated by northern hemisphere discourse. And even allowing for
greater southern hemisphere influence, outcomes
are severely constrained as many of the issues
facing communities stem from both local and
national social, political, and economic
processes. Hence building a school for
a community will only be successful if resources
are available over the long term for staff and
teaching materials and education leads to
employment. Instead TNC commitment tends
to be short term, with responsibility shifted to
empowered communities thereby raising serious questions about sustainability. Moreover the
prospect of numerous, long-term jobs is beyond
the scope of the community and to some extent
TNCs. Employment prospects in these locations
are like elsewhere, influenced by global and
national structures of markets and power.

Key Issues
In the twenty-first century, there is still
widespread poverty, high levels of childhood
mortality and low life expectancy across large
parts of Africa. Hence there is considerable
scope for CSR policies to make fundamental
improvements to many peoples. However, there
are a number of key issues which currently
restrict the extent of improvements.
One of the most notorious problems which
CSR in Africa has become associated with is
corruption. To some extent, some of the commentary draws upon racial stereotypes and lazy

CSR in Africa

diagnosis. Nevertheless, even allowing for these

reservations, corruption remains embedded
within many mineral, oil, and gas producing
regions. Unless addressed, potential benefits
from revenues received through extractive industries will not be realized. Instead political and
economic elites will continue to prosper in the
short term (McFerson 2009). That corruption
continues despite widespread condemnation is
indicative of how symptomatic the problem is
of wider systemic problems that often stem from
the bureaucratic boundaries and opposing loyalties which were constructed during colonialism
and reinforced post independence. For instance,
the practice has largely continued because it is
part of a suite of mutually supporting policies
which includes considerable constraints on political and civil participation and economic activities, particularly in spheres dominated by elites.
Moreover, as McFerson (2009) points out when
using the example of Nigeria where active pluralism is accompanied by restrictions, freedom of
expression and civic participation are not sufficient in themselves to produce proportionate
political representativeness and protection of
individual rights. This dilemma raises awkward
questions about the likelihood that CSR
approaches can be successful in locations lacking
civil participation. Conversely, and a more difficult question, relates to whether TNCs should be
working with unrepresentative governments to
implement CSR policies. At one level the
intended socially beneficial outcomes for some,
if not many, is desirable. However, in a point
which echoes some of the debates over the allocation of international aid, to what extent are
those outcomes acceptable if they contribute to
prolonging repressive, unjust regimes.
Across the northern hemisphere there are
growing concerns about the rise of BRIC countries and in particular the influence of China in
Africa. Such perceptions fail to acknowledge that
considerable concerns remain about northern
hemisphere TNC engagement and attempts to
apply moral boundaries are seriously undermined
by the history of Western involvement in Africa.
Moreover, the prominence of BRIC countries and

CSR in Africa

threat to Northern interests has created competition for resources and markets and the profile of
CSR, or versions thereof, within competitive
packages is growing in prominence. To some
extent this could be an opportunity for greater
distribution of resources, provisions, and services
within Africa.
Such opportunities, however, should be
viewed with considerable caution. Following on
from the preceding sections, there are multiple
socially responsible issues in Africa which indigenous companies and TNCs have to consider.
Alongside this emphasis has to be placed upon
the reality that these TNCs are commercial
organizations that are not necessarily best placed
to formulate and implement solutions. Consideration of the scale of the issues such as illiteracy,
epidemics, abject poverty, famine, corruption,
political turmoil, massive inequalities, and
repressive regimes highlights the magnitude,
multiplicity, and interwoven complexity of the
problems. In other words, even if companies
wanted to address these issues, the stark reality
is that they are not capable of doing so. Moreover,
for companies to become involved to this extent
would fundamentally threaten the sovereignty of
the particular nation-state, its credibility and ultimately its legitimacy. Hence, these issues will
only be overcome with CSR involvement if
indigenous firms and TNCs are part of sustainable, representative, multiagency, and disciplinary partnerships (Vertigans 2012).

Future Directions
Shifts in patterns of global trade, communications, deregulation, privatization, and transportation have provided industrial, manufacturing,
agricultural, and service sector opportunities.
Across Africa, economies are being transformed
to utilize these possibilities. That new forms of
income generation are not being fairly shared is
indicative of the power imbalance between
TNCs, African governments, and local communities. Arguably CSR is being introduced in part
to blur the stark boundaries between powerful

709

national companies, international commerce,

indigenous civilian life, and concomitant consequences. Despite this power continues to be held
disproportionately by the TNCs. The emergence
of BRIC nations and growing reliance on scarce
resources which are found in Africa such as
minerals, oil, and gas should change this
dynamic. Competition over African resources
and markets enhances the bargaining power of
indigenous peoples. Hence, African governments
will be provided with numerous opportunities to
gain the extended commitment of TNCs in partnerships within a CSR framework. The extent to
which politicians will be willing to utilize the
increasingly favorable conditions to negotiate
on behalf of their populations, and not subsets
therein, will be heavily dependent upon societal
levels of political participation, transparency, and
civilian representation which were discussed in
the key issues section.
Alongside pessimistic projections, sight
should not be lost of national firms and TNCs
current considerable investments in Africa
which, when added to taxation contributions,
suggests that there should be an array of favorable
outcomes. Certainly, there have been successful
community projects and income has been
invested productively by national governments.
In sum though, there is an overwhelming argument that local firms and TNCs CSR approaches
need to be more strategic, considered and consultative in order to gain better outcomes from their
expenditure. Much can be learnt from the mistakes of international approaches to development. The top-down and bottom-up
approaches need to be integrated. Instead of
implementing initiatives from above, or working
in isolation with communities, the so-called third
generation approach works in partnership with
government, indigenous nongovernment, and
community-based organizations while using
international connections in order to advocate
and engage with national and global policy
debates (Williams et al. 2009).
And by engaging with stakeholders, CSR can be
adapted to local needs and demands. In short, it has
to be context specific. Amaeshi et al. (2006, p. 9)

710

point out that in the instance of Nigeria, and which

applies across nation-states, CSR will be about
addressing the peculiarity of the socioeconomic
development challenges of the country (e.g., poverty alleviation, health care provision, infrastructure development, education, etc.). They might not
necessarily reflect the popular western standard/
expectations of CSR (e.g., consumer protection,
fair trade, green marketing, climate change concerns, social responsible investments, etc.).

CSR in Italy

CSR in Italy
Patrizia Torrecchia
Department of Scienze Economiche,
Aziendali e Finanziarie, Universita` degli studi di
Palermo, Palermo, Italy

Synonyms
RSI (Responsabilita` Sociale dImpresa)

Cross-References
Global Reporting Initiative
Millennium Development Goals (MDGs)
Royal Dutch Shell (RDS)
Sustainable Tourism
United Nations Global Initiatives

References and Readings

Amaeshi, K. M., Adi, A. B. C., Ogbechie, C., & Amao,
O. O. (2006). Corporate social responsibility in Nigeria: Western mimicry or indigenous influences?.
Available at SSRN: http://ssrn.com/abstract896500.
Accessed 27 Apr 2012.
Binns, T., Dixon, A., & Nel, E. (2012). Africa: Diversity
and development. Abingdon: Routledge.
Frynas, J. G. (2009). Beyond corporate social responsibility: Oil multinationals and social challenges.
Cambridge: Cambridge University Press.
Harford, T. (2006). The undercover economist. London:
Abacus.
McEwen, C. (2009). Postcolonialism and development.
Abingdon: Routledge.
McFerson, H. (2009). Governance and hyper-corruption
in resource-rich African countries. Third World Quarterly, 30(8), 15291547.
Sen, A. (1999). Development as freedom. Oxford: Oxford
University Press.
Vertigans, S. (2012). Paying the price for corporate social
responsibility: Social costs and dividends of oil and
gas company approaches in Nigeria. Social Responsibility Review, 1, 3548.
Visser, W. (2006). Corporate social responsibility
in developing countries. Mendeley. Available at:
http://www.mendeley.com/research/corporate-socialresponsability-developing-countries/. Accessed 24
Apr 2012.
Williams, G., Meth, P., & Willis, K. (2009). Geographies
of developing areas: The global south in a changing
world. Abingdon: Routledge.

Definition
The European Commission defines Corporate
Social Responsibility as a concept whereby
companies decide voluntarily to contribute to
a better society and a cleaner environment
(European Commission 2001). A lot of other
different definitions have been set for CSR. In
general, it is seen as a way for a corporate to
self-regulate, monitoring its activities to control
where they respect the spirit of the law, the
ethical standards, and the international norms.
The objective of CSR is to make positive impacts
on the environment, consumers, employees, communities, and all stakeholders. Actually, in Italy,
this concept is assuming a broader sense: not only
Corporate Social Responsibility, but the more
general concept of Entitys social responsibility
is explored, where we find both for profit organizations, public administrations and NGOs,
namely, in Italian, the concept of Azienda.

Introduction
In Italy, as in the rest of the world, the debate on
social responsibility issue is certainly vast and
varied. In recent years, the interest around this
topic has been gradually growing, and numerous
are the entities that have decided to take the path
of social responsibility and that have become
careful of the consequences and impacts, including future ones, that their decisions and acts could
produce on the environment lato sensu.

CSR in Italy

It is necessary to distinguish between

two levels on the development of CSR (RSI in
Italian): the private and the public level
(however, we cannot forget that concerning the
NPOs Italy has also a nineteenth-century tradition). In fact, companies were the first and then
also public administrations have found that being
socially responsible is good not just in ethical
terms, but also in financial and economical
ones. It seems that we have taken a new road
which leads to a paradigm shift from the past:
honesty is the best practice and nowadays
people care about social responsibility
(Crowther and Caliyurt 2008).
Social responsibility considers all the relations
that the organization has with society in
general, with the state, customers, and suppliers,
of course with its workers and citizens, and
those groups without whose support the
organization would cease to exist (Freeman
1984, pp. 3132), in one word with all the
stakeholders.
As all the entities are requested to a concern
both for people and for the environment, concepts, such as accountability, transparency, and
sustainability, have become an imperative for
monitoring and improving their performances.
The mentioned responsibility implies, from
one hand, the power to fulfill the legitimate
expectations, both economic and noneconomic,
of all internal and external stakeholders; on the
other hand, the presence of discretional areas in
pursuing the institutional purposes. It means that
all the entities have to be accountable for their
behavior and results and to establish a constructive dialogue, based on mutual trust with the
various stakeholders.
CSR in Italy has not so recent roots. In the first
decades of twentieth century, Italian doctrine had
already developed some theoretical contributions
that can be considered as forerunners on this
theme (Torrecchia and Gulluscio 2011). Palumbo
(1934), for example, assumed that maximizing
the net profit had to be subject to the maximization of all other companys components benefit.
Panciera (1939) proposed to make a difference
between revenue balance, that should highlight
the economical result of the accounting period,

711

and the social functionality balance, that

should take into account the entire economic
system where the company operates. But we
have to wait until the end of the 1970s to have
a broader attention to CSR.
It was during the 1980s that an interesting
academic debate rose on social and environmental responsibility issues. Even though the companies started just from the 1990s to implement the
connected tolls, at the end of the 1990s, also
Public Administration started to be sensible to
this topic. Originally, the Local Authorities tested
some of the social responsibility tools.
Typical tools that show the orientation to
responsibility are Code of Conduct; Charter of
values; Organizational and management model
ex legislative decree n. 231/01; Environmental
Report; Social Report; Social and environmental
sustainability; Social certification (SA8000);
Cause-related marketing; and Adherence to
global standards. Among them, the most leading
tool used in Italy is certainly the Social Balance
(Bilancio Sociale). The norms on social environmental balance in Italy are not numerous. Among
the others, we can cite the following:
Legge n. 1571/1981, which tried to introduce
the use of social accounting but it has never
been applied
Legislative Decree (D. Lgs.) n. 153/1999
made the bank drafting the report on the management in two parts: the first as an economic
and financial report and the second as mission
balance
D. Lgs. n. 155/2006 that made social enterprises to present a social balance
The lack of norms brought to the development
of standardized models of accounting, and this
led to a difficulty in comparing them among
different companies. Anyway, this had also
a positive influence as it allowed the companies
to develop ingenious models, and make it possible for testing and innovation.
The first social balance in Italy appeared in
1978 by the group Merloni, who participated in
a research project seeking to implement the basis
for a culture of social responsibility. It was an
isolated case as, until 1994, no other social
balances were drafted in Italy.

712

There are a number of initiatives in Italy that

recognize CSR, including the Sodalitas Social
Award and the Great Place to Work award.
Financial ethics is experiencing particular development, with the Italian Bankers Association
(ABI) preparing reports on CSR issues relating
to the banking sector, and rating companies with
reference to CSR and socially responsible
investing.
Nowadays, there is a research group that
works on this theme, and there is also a forum at
the website www.bilanciosociale.it in which the
Social Balance is defined as follows: it is a great
tool, that represents the certification off an ethical
point of view, the element that legitimizes the
role of a subject, not only moral but also in
structural terms, in the eyes of the community
of reference, a moment to emphasize their link
with the territory, an opportunity to affirm the
concept of enterprise as a good citizen, a subject
that is pursuing its own economic interests to help
improve the quality of life of members of the
society in which it is inserted. The companys
mission and its sharing are important elements
to obtain the consent of customers, staff, public
opinion.
The Italian Public Administration got
involved in these issues in conjunction with
some circumstances, as for instance the need to
contain the public debt, some major scandals
involving the public sector, causing the lack of
credibility of these institutions, as well as the
introduction of partnership between public and
private sectors (Romolini 2007; Hinna 2004).
The delayed interest of Italian Public Administration toward the social responsibility theme
may have two main causes: the lack of norms on
this subject, the Italian Public Administration, in
fact, faces the culture of obligation; therefore,
only what is provided for by law is going to be
performed; the reticence for new elements and
the lack of a consolidated managerial culture.
It is interesting to see what research centers
were set up in Italy to the study of Corporate
Social Responsibility (Bottani G., ICSR):
ICSR, the Italian Centre for Social Responsibility is a foundation whose mission is to
increase the attention in promoting social

CSR in Italy

responsibility, research, training, dissemination, and comparison with particular attention

to the needs of its economy mainly consisting
of small and medium enterprises.
University Bocconi Research Unit, that
is, organized in several groups: CSR and
Sustainability; Environmental Management
and Climate Change; Social Enterprise and
Philanthropy Management; Business Ethics;
Business and Asset Protection.
ALTIS, Alta Scuola Impresa e Societa`,
Universita` Cattolica del Sacro Cuore, whose
activity is not only dedicated to CSR, but
oriented to a general Social Responsibility.
There are different divisions: Corporate Social
Responsibility; Corporate governance; Internationalization of businesses, with particular
attention to the contribution development
of the poorest countries; Dissemination of
international experience of industrial districts;
Private Partnership/Nonprofit/Public; Management of Nonprofit Enterprise.
CreaRes, Centro di Ricerche su Etica negli
Affari e Responsabilita` Sociale (Universita`
dellInsubria, Facolta` di Economia in Varese),
whose main aim is to create the conditions for
the construction of networks and research programs for the intensification of training activities, and development of application projects,
in international and national perspectives.
EconomEtica, Centro interuniversitario per
lEtica Economica e la Responsabilita` Sociale
dImpresa, whose main aims are developing
academic research on Economic Ethics and
CSR; promoting the contribution of Italian
universities to be active in the international
scientific community on these issues;
creating a forum to promote public dialogue
between universities, companies, and their
stakeholders, the set of associations and
professions concerned, and the public
institutions to encourage reflection and
discussion on principles and organizational
models of CSR.
Politeia, Centro per la Ricerca e la
Formazione in Politica ed Etica, that makes
research on SR issues, organizes seminars, and
masters programs.

CSR in Italy

Within the Italian public administration, the

importance of the relationship between economy
and environment, two of the three areas of
sustainable development, becomes increasingly
evident and with it the need to analyze and measure their size. The awareness of this fact has,
among other things, led to the development of
several new instruments of governance. Among
these, the environmental budget is certainly one
of the newer forms of experience in public
administration (ISPRA 2009).
Environment carries out certain functions
essential for the economy and in general for the
sustenance of man as it supplies the natural
resources, and receives and transforms the waste
of human activity ensuring the survival of mankind. Awareness that natural resources are not
infinite led to a kind of turnaround that has led
to some rules that are necessary to ensure not only
present life forms but also future ones: Preserving environment meets the needs of the present
without compromising the ability of future generations to meet their own needs (according to
the WCED).
Historically a first definition of sustainable
development appeared during the Conference of
the United Nations held in Stockholm in 1972.
From that date, a series of meetings gave light to
the theme of environment. Internationally the
first impulse to a green accounting came out of
the conference held in Rio in 1992 in which
was defined the Agenda 21 (work summarizing
strategies and actions to promote sustainable
development). Until the 1980s, Italy has only
resorted to the application of European Directives, and only in recent years, it is possible to
speak about an Italian Environmental Policy.
Italy started the implementation of Agenda 21,
and approved the National Plan for sustainable
development with the decision of the CIPE
(Interministerial Committee for Economic
Planning) of 28 December 1993. Moreover,
with the environmental protection program
excerpt (PSTA) we have a first significant application of new environmental policies to address
sustainability.
PSTA provides funding for six projects
designed to achieve the Strategic Objective of

713

sustainability in different areas. One of these is

the provision of tools to support sustainable
development, such as updating the National
Plan for Sustainable Development in Implementation of Agenda 21. An important step for Italy
toward the introduction of Environmental
Accounting as a tool for sustainable development
in 1998 is the presentation of the draft framework
law on the Environmental accounting of the
State, Regional, and Local Authorities.
The need for legal regulation governing environmental accounting is closely linked to objectives that have prompted some MPs to take an
active interest in environmental issues. One of the
above objectives, such as the attempt to bring out
those costs referred as hidden which are generated by the unconditional use of renewable and
un-renewable natural resources, and undisputed
cause of damage to the environment and health.
This then binds to the need to allow administrators to have full cognizance of the performances
staged in line with government policies in
the area.
Other important institutions are as follows:
ISTAT (the national institute for official statistics), as the center of scientific and technical
coordination and preparation of environmental accounts
APAT (now called ISPRA, the national
institute for environmental protection and
research), as the institute in charge of preparation, organization, and validation of environmental information produced and
acquired by ARPA
ENEA (the national agency for the new technologies, the energy, and the sustainable
development), as the institute responsible
for the validation of instruments for
measurements
In the annex to the law, there are listed the
statistical tools suitable for processing the
accounting requirements:
NAMEA (National Accounting Matrix
Including Environmental Accounts), an
array of integrated economic accounts
with environmental indicators to describe
the interaction between economy and
environment

714

SERIEE (Syste`me Europeen pour le

Rassemblement
des
Informations
Economiques sur lEnvironnement), a system
of satellite accounts identifying expenditure
on the protection of the environment, government, businesses, and families
A system of sectoral indicators of an environmental pressure system that measures the ratio
between natural and social systems in order to
define the impact of economic activities on
environmental resources

Key Issues
If we take a look at the practical level of CSR in
Italy, it is interesting to see how institutions made
several and various reporting models. As well
analyzed by Hinna (2005), it is possible to highlight different models of approaching to CSR:
those that focus the attention on the entire process; and the others that suggest a particular
attention only on the final part of the process,
that is, the document.
Concerning the latter group, it focuses on principles definition and on the phases necessary for
drawing up the final report. Thus, following these
models the social responsibility consists only on
how good the final reports are. Hinna (2005) then
shows five different models that belong to this
approach:
Abi/Ibis model: It was conceived by the Italian
Association of Banks (Associazione Bancaria
Italiana, Abi) in 2001, in order to meet the
need of its member banks toward a social
reporting. The basic idea was that a homogeneous social balance could improve transparency and reliability of the provided data and
therefore, the banks credibility. The first ABI
model was based upon the following parts:
Introduction, a description of the characteristics of the bank; Report, a process highlighting
the value-added composition and distribution;
Social relation, an analysis of the relationship
between the bank and its context; Accounting
system, a way for monitoring the different
stakeholders expectations; Suggestions for
improvement, a concluding part that states

CSR in Italy

the ways for improving the future

management.
Federcasse model: It was designed by the
Federation of Cooperative Credit Banks
(Federazione delle Banche Cooperative di
Credito, Ferdercasse) that set its own standard
in 2002 following Abis standard. A different
reporting document was proposed: the mission
balance that emphasizes on the mutualistic
character of these particular banks.
Csr-Sc of Italian Ministry of Welfare: It was
proposed by Italian Ministry of Welfare for
the elaboration of a standard coherent with
the EUs position on CSR. The conceived
document presents a set of indicators about
the social performances.
Gbs model: It was elaborated by the Social
Balance Study Group (Gruppo di studio sul
Bilancio Sociale). This model presents three
main parts of the social balance: Identity,
which highlights the mission, the ethic values,
and the strategic plan of the entity; Added
value, which represents the production and
distribution of the added value to the different
stakeholders; Social report, which analyzes
the relationship between the entity and its
stakeholders.
Sers-Sustainability Evaluation and Reporting
System model: It was elaborated by the
European Centre Space of Bocconi University
in Milan. Its aim is to make an efficient
and integrated system for the performance
measurement. Its three main parts are Sustainability balance; Integrated information system; and Key performance indicators.
Concerning, instead, the models that focus on
the process, they look at the reporting as the final
part of a broader process. Always Hinna (2005),
among European ones, illustrates four Italian
models of this kind:
Seam model: In 2001, a process called
Progress was developed, by the consortium
Sean. It defined a way for encouraging change
inside and outside the entity through an
improving process toward a responsible and
social management.
SocialMetrica model: It was dedicated mainly
on the development of metrics for measuring

CSR in the Banking Industry

social impact in the nonprofit sector and in the

public administrations.
Comunita`&Impresa model: It is based on an
innovative social balance that is articulated in
five sections: the first one highlights the base
values and describes the socioeconomic context; the second one calculates the distribution
of added value; the third identifies the main
stakeholders; the fourth concerns the social
budget; and the last one shows a comparison
with the other organizations about the social
quality.
Cantieri Pa model: It is based on a double
perspective of empirical analysis and a
theoretical and methodological comparison.
A handbook was elaborated to serve as a
guideline.

Future Directions
Italian CSR now faces a twofold challenge. On
the one hand, it has to second a broader definition
of CSR through the retrieval of the positive tradition of generalism anchored to the concept of
azienda that goes beyond the concept of corporate; in this way, it can state a General Social
Responsibility independent of the species of
entity. On the other hand, it needs to positively
open to the international debate for an increasing
interconnection with the other cultures on this
theme. Finally, another trend is toward a creeping
coding standard that makes not everyone agree
but that seems somehow an inevitable
perspective.

Cross-References
Core Principles of CSR Approaches
Corporate Social Innovation
CSR and Regional Development
CSR Communication
CSR Europe
CSR Frameworks
CSR Measurement
Cultures, Businesses, and Global CSR

715

References and Readings

Commission of the European Communities. (2001).
Green Paper - Promoting a European framework for
Corporate Social Responsibility, Brussels, 18.7.2001
Crane, A., et al. (2009). The Oxford handbook of corporate
social responsibility. Oxford: Oxford University Press.
Crowther, D., & Caliyurt, K. T. (2008). Globalization
and social responsibility. Newcastle upon Tyne:
Cambridge Scholars Publishing.
Freeman, R. E. (1984). Strategic Management: A stakeholder Approach. Boston, MA: Pitman.
Hinna, L. (2004). Il bilancio sociale. Scenari, settori
e valenze. Modelli di rendicontazione sociale. Gestione
responsabile e sviluppo sostenibile. Esperienze europee
e casi italiani. Milano: Il Sole 24 Ore.
Hinna, L. (2005). Come gestire la responsabilita` sociale
dellimpresa. Manuale pratico-operativo. Processi,
strumenti e modelli. La redazione del bilancio sociale.
Milano: Il Sole 24 Ore.
ISPRA (Istituto Superiore per la protezione e la ricerca
ambientale). (2009). Il Bilancio Ambientale negli Enti
Locali. Linee guida, Versione per la sperimentazione.
Palumbo, P. (1934). Ragioneria Commerciale, Palermo:
Ciuni.
Panciera, E. (1939). Riflessi corporativi nelleconomia
aziendale, Palermo: Palumbo.
Rappa, G. (2005). Fasi storiche della teoria italiana sul
bilancio sociale, in SISR (Ed.), Riferimenti storici e
processi evolutivi nellinformativa di bilancio tra
dottrina e prassi, Roma: Rirea, vol. n. 2.
Ricci, P. (Ed.). (2004). La responsabilita` sociale
dellimpresa: il ruolo e il valore della comunicazione,
in Atti del Convegno 29 gennaio 2004. Milano: Franco
Angeli.
Ricci, P. (2010). Larticolo 41 della Costituzione Italiana
e la responsabilita` sociale dimpresa Scritto in onore
del Professor Vittorio Coda, in RIREA, Roma, n. 3 e 4,
marzo e aprile.
Romolini, A. (2007). Accountability e bilancio sociale
negli enti locali. Milano: Franco Angeli.
Rusconi, G., & Dorigatti, M. (2004). La responsabilita`
sociale. Milano: Franco Angeli.
Torrecchia, P., & Gulluscio, C. (2011). Social responsibility. The Italian case within public administration.
Paper presented at the 3rd International Conference
on Governance, Fraud, Ethics & Social Responsibil

ity, Trakya Universitesi

Nevsehir Universitesi,
711
June 2011.
Zamagni, S. (2003). La responsabilita` sociale
dellimpresa: presupposti etici e ragioni economiche,
Il Ponte, Anno LIX n. 1011.

CSR in the Banking Industry

Banks and CSR

716

CSR in the Banking Sector

Introduction

CSR in the Banking Sector

Banks and CSR

CSR in the Media

Media Reporting of CSR

CSR Index
FTSE4Good Index
Sustainability Assessment Models

CSR Interaction
CSR Communication

CSR Management
Sustainability Management

CSR Measurement
Subhasis Ray
Xavier Institute of Management, Bhubaneswar,
Orissa, India

Synonyms
Corporate social performance (CSP); Measuring
corporate reputation; Sustainability rating

Definition
CSR measurement can be defined as ways to
quantify the performance of organizations in the
field of Corporate Social Responsibility.

Corporate Social Responsibility (CSR) has come

into the mainstream academic literature predominantly in the 1950s, coinciding with the rise of
large global corporations (Bowen 1953). Efforts
to measure it and explore the issues in doing that
are relatively new, dating back to the early 1990s
(Wolfe and Auperle 1991). The different ways to
measure CSR have been complicated due to the
fact that the very definition of the concept is
unclear and contradictory. Most definitions
agree that CSR entails thoughts and work beyond
immediate business and profit but disagree on
almost all other issues like drivers (of CSR) as
well as its scope, business logic and beneficiaries.
This has created problems in developing valid
and reliable tools to measure CSR.
Issues with Measurement
A section of researchers have agreed that CSR
should be measured due to its growing importance in business, and measurement is important.
Researchers have argued that organizations
should adopt voluntary ethics measurement systems (e.g., Neill et al. 2003) as it helps in longterm strategic decisions, understanding the operational relationship between stakeholders, and
identifying areas that require trade-offs between
different stakeholder groups. CSR measurement
in general can help external stakeholders like
customers judge a business group. This power to
reward or punish organizations for their social
performance can lead to promotion of more sustainable practices.
Critics of voluntary ethics measurement say
that traditional legal and business education may
hinder such disclosures, considering the chance
that such voluntarily disclosed information be
used against the same managers in a court of law.
Measurement approaches have been categorized into three themes: managerial surveys, indicator-based approach, and evaluation by experts
(Maignan and Ferell 2000). Different measurement tools can be used across these themes: survey, questionnaire, indices, scales, content
analysis, measures based on perception, and
case studies. We will look at the different

CSR Measurement

approaches and their critiques for a better understanding of the issues related to CSR
measurement.
What to Measure?

With the definition of CSR being varied across

countries and companies, CSR measurement creates two problems: having a standard definition of
CSR in place and developing indicators to measure CSR-related activities. Realizing that corporate responsibilities and actions may not match,
some researchers have coined the term Corporate
Social Performance (CSP), intending to identify
how the corporations fare on their social responsibility. The term (social/environmental/economic) impact is also used to understand the
effect of corporate operations. Economic (e.g.,
number of jobs created) and environmental
impacts (e.g., level of green house gas emission)
are more direct and hence easy to measure.
Indirect impacts of industries such as the growth
of downstream industries or improvement in
infrastructure are difficult to measure. Similarly,
intentional impacts, those that a company states
in its CSR agenda, are easier to measure than
unintentional impacts.
The measurement of social impact, Social
Impact Analysis (SIA), first started in the 1960s
in the USA where it was used to analyze the
impact of large public sector projects. Today, it
is common practice for major projects or operations around the world. The scope of SIA may or
may not cover CSR-related activities of
a company. For example, a SIA would typically
be done for a mining project, and the mining
companys CSR agenda may evolve from it. Its
CSR performance and its measurement will
require separate indicators and methods.
Frameworks
A company setting out to measure its corporate
social performance by developing indicators or
metrices may first have to adopt a commonly
accepted framework to focus its activities. Some
of the commonly adopted frameworks are provided by the Prince of Wales Business Forum
(www.iblf.org), Business in the Community
(BITC), Global Reporting Initiative, and others.

717

There are also standards and guidelines developed by specific industry bodies. For example,
the International Council on Mining and Metals
(ICMM) publishes guidelines for companies on
various issues like environment, biotechnology,
and so on. The Equator Principles (www.equatorprinciples.com)
provide
guidelines
for
project financing organizations for managing
and assessing social and environmental risks in
project. The United Nations Global Compact
(www.unglobalcompact.org) is a widely
followed framework adopted by major multinationals of the world. The International Standards
Organization has issued its new CSR standard,
ISO 26000. This standard attempts to standardize
the understanding and meaning of CSR, though
many feel that developing universal standards for
CSR may be difficult (http://en.wikipedia.org/
wiki/ISO_26000). Most of these frameworks are
general and voluntary in nature, helping companies to operationalize them for their industry and
develop relevant performance indicators for CSR
measurement.

Key Issues
Key Measurement Methods
Indices and Databases
In the last two decades, many indices called CSR
(or sometimes) sustainability indices have been
developed to rate and rank organizations based on
their Corporate Social Performance (CSP). Some
of the better known among them are Dow Jones
Sustainability Index (DJSI), Kinder, Lydenberg,
and Domini (KLD) Database (now http://www.
msci.com/products/esg/), FTSE4Good, the
Fortune Index, Canadian Social Investment Database (CSID), etc. They were developed primarily
to help investors choose socially responsible
companies.
The databases consider multiple factors for its
CSR ratings: an organizations relation with the
community, relation with employees, environmental compliance, the nature of the product
produced, treatment of women and minorities,
military contracts, approach toward nuclear
power, etc. They measure the financial

718

performance of companies that follow the principles of sustainable development and looks at
economic, social, and environmental criteria.
The economic criteria look at codes of conduct,
corporate governance, risk, and crisis management. Environmental criteria are derived from
the report published by the company. Social
criteria cover philanthropy, labor practice,
human capital development, company reports,
and talent acquisition. Factors specific to
a particular industry are considered as applicable
under all criteria. Subsequently, information on
the different indicators is collected from
questionnaires, company and other published
documents, as well as personal contacts. Companies are first ranked based on their sustainability
practices, and the leaders are analyzed for
the financial performance. However, the
linkage between sustainable practices of
a company and its financial performance has
been debated for long, and no conclusive proof
of one affecting the other has emerged after
decades of research.
The FTSE4GOOD index (http://www.ftse.com/
Indices/FTSE4Good_Index_Series/index.jsp), like
DJSI, measures the performance of socially
responsible companies and helps investors looking
to invest in socially responsible companies.
A similar methodology like DJSI is followed.
The CSID covers community, diversity, relationship with employees, environmental performance, international operations, product and
business practices, and corporate governance.
An organizations strengths and weaknesses
along these dimensions are measured and
the average taken to be an indicator of the firms
CSR practices (Mahoney and Thorne 2005).
Measurement Based on Compliance to Codes

Various codes exist, providing guidance on the

CSR activities and performance of industries.
Some of the codes like Social Accountability
8000 (SA 8000: www.cepaa.org) have been popular among industries. Industry practice specific
codes and guidelines are also in vogue; Fair Wear
Foundation (apparel), Kimberley Process (diamond), Ethical Trading Initiative (apparel), Fair
Trade, Fairfood are some of the well-known

CSR Measurement

initiatives to bring in sustainability and its measurement into mainstream business.

Indicator-Based Measurement

A second approach in measuring CSR is based on

deciding on single or multiple indicators and
measuring a corporations performance on those
indicators. Indicators are similar to the dimensions discussed above with more quantifiable
results (e.g., adherence to pollution standards is
a common indicator of environmental performance). Corporate crime as recorded by the government is another indicator. Many researchers
use more than one indicator to bring a holistic
touch to their measurement system. One common
critique to indicator-based measurement is their
ability to create a universal standard (e.g., adherence to pollution norms in a developing country
may be considered a poor performance when
compared to that of a developed economy having
stricter norms). Developing successful indicators
requires an approach that is beyond business and
immediate profit, a general applicability, inclusion of a large number of companies, and availability of reliable data.
There are broadly two types of indicators used
in CSR measurement. Process indicators show
the process of achieving a stated output/outcome.
How a company lists or ranks its suppliers may be
a process indicator for a company that claims to have
a green supply chain. Substantive indicators on the
other hand deal with single, quantifiable numbers or
events, which may be an input, output, or outcome of
the process. In the example stated above, the number
of complaints received on the usage of child labor by
suppliers is a substantive indicator. GRI has developed certain process and substantive indicators and
requires companies to report their CSR-related activities based on these indicators.
Content Analysis

Publicly available documents like annual reports

and corporate websites are analyzed to understand the CSR performance of organizations.
Termed content analysis, this method is gaining
acceptance mainly due to the increased level of
corporate disclosure, often as a result of new
regulations. Many organizations today publish

CSR Measurement

their CSR or sustainability reports which provide

information on their activities. This gives an
opportunity to select indicators and rate companies. The use of third-party audited reports and
following globally accepted reporting norms like
Global Reporting Initiative (GRI) guidelines act
as a quality check for the published documents.
However, companies often disclose what they
choose to disclose, and it may not give the full
picture of their CSR activities.
Perception Scales

A fourth method of measuring CSR is to create

a scale and note the perception of individuals
along the scale on various factors. The individuals can be selected from different stakeholder
groups like employees, suppliers, customers,
community members, NGOs, etc. One limitation
of using scales is that it forces respondents to
answer only on pre-chosen dimensions. Different
scales have been developed for these respondent
groups. The Perceived Role of Ethics and Social
Responsibility (PRESOR) is one example of such
scales (Singhapakdi et al. 1996). However, some
researchers feel that there are not enough scales
to measures CSR at the organizational level and
rarely any that cover all stakeholder groups.
A related problem is poor response rates in surveys used to measure such perceptions.
Critiques of the Measurement Process
There is almost universal agreement that CSR
performance needs to be measured to bring in
sustainable development-related indicators
while judging performance on the social responsibility front. This also relates to the concept of
the triple bottom line, which argues that organizational performance should be measured
along three dimensions: economic, social, and
environmental. Critics, however, point out that
intention to measure goes against the spirit of
CSR and biases the measurement process. Supporters of CSR measurement are also not sure
whether the right techniques are used today. Measurement is a costly endeavor, both in terms of
time and resources, and hence, a poorly done
measurement can be worse than no measurement,
as all costs are finally passed on to the end user of

719

a product or service. Secondly, there is much

debate on the rise of rating bureaus as well as
conflicts arising from contradictory scores given.
Organizations like Enron (USA) and Satyam
(India) that committed corporate frauds were earlier recipients of CSR awards, exposing the
weaker side of such ratings and rankings. Also,
a customer is at a loss to select one rating or
certification from many. There are also technical
issues with the methods and tools.
All measurements need to be reliable, valid,
and comparable. Reliability ensures that the same
test will give same result every time it is repeated.
Validity ensures that the indicators or values that
are measured are really important, e.g., counting
the number of accidents may not be a valid measure to understand the safety orientation of
a software company; preparedness drills or fire
fighting arrangements can be a more valid indicator. Comparability refers to standardized social
and environmental performance indicators that
tend to vary across countries and industries.
Many issues like fair practice or equal opportunity employment are more felt than seen and
hence difficult to capture in a survey. Low
response rates to surveys make things worse. We
must remember that standardization has its limits,
and while standardization of parameters tends to
help, identifying best values for them may be
impossible. What is acceptable pollution in
China may be far above the norm in California.
Arguing along these lines, some researchers have
argued that nation-based CSR indices may be better than a global standard (Gjolberg 2009).
The source of data for measuring CSR performance has also been questioned (Henriques 2010).
Most organizations use Internet, academic papers,
surveys, and company case studies as their source.
Apart from academic writings, the remaining
sources are likely to be biased, not reflecting the
true state of affairs. To understand the measure of
CSR that a company has requires long study and
listening to many stakeholders. Tools like narrative analysis or content analysis are more advantageous though listening to the right stakeholders
still remains an issue.
Most CSR measurement metrices do not look
at the performance of suppliers of corporations,

720

allowing managers to report better figures toward

compliance. Manufacturing organizations face
this charge most as they shift their operations to
developing economies having lower labor costs
and compliance pressures. Many of them counter
by saying that they cannot be held responsible for
independent suppliers.
The cultural aspects of resources also make CSR
measurement more difficult. Social value given to
land in India or Indonesia is higher than that in the
USA, making the impact of displacement difficult
to measure for mining or oil companies.
A related issue that emerges from the discussion above is the different externalities that bias
such measurements as well as the relative importance (weightings) that different organizations
give to one specific factor. One can assume that
relative importance of, say, human rights over
environmental pollution is not just a matter of
putting a number but one of philosophy and outlook. Using relative performance in CSR measurement can lead to Enron or WorldCom
winning a CSR award, showing that relative performances should be used with caution. Using
absolute performances, on the other hand, will
never allow a chemical plant to win over
a software company in terms of its CSR performance as chemical companies pollute much
more. Methodologies used by most rating/ranking organizations are not clear and difficult to
understand (Chatterji and Levine 2006).
In the end, CSR measurement is only the last part
of a companys sustainability journey. It has to start
with the felt need to be sustainable and followed up
by a formal policy, an identified group of executives
(from all levels) who will be responsible and
accountable, as well as the development of key
performance indicators, implementation, and
reporting. As noted earlier, starting from the point
of measurement may distort the whole spirit of CSR.

CSR Measurement

The practice of using metrices to measure

nonfinancial performance is catching on with different organizations, though the accuracy of their
research approach, methodology, and tools
remains doubtful. There is little standardization
in the way CSR measurement is done, making
the field opaque and costly to navigate. This
leads to multiple measurement/s (organization/s),
raising the compliance cost for companies. Incorporating a few steps can improve the CSR measurement process: increased transparency,
standardizing data/parameters, better data quality
(Chatterji and Levine 2006). As different industries work in different areas and contexts, finding
one universal measure will remain a challenge.
Measurement needs to be with reference to the
change an organization wants to see, and results
can vary over time. Thus, differentiation is necessary between short-term tangible results and longterm (indirect) impacts of CSR programs. There
will be a preference for the former for the sake of
markets and shareholders, and one needs to be
careful in judging these results. Some work (e.g.,
being ethical and transparent in contracts and supplier selection) may defy measurement. Measuring CSR in multiple areas (e.g., education, health,
culture) and then integrating them to a single number may prove challenging.
Clearer understanding of CSR performance
and its measurement will help as many emerging
economies like India have started rolling out voluntary guidelines on CSR for its corporations. On
the whole, a robust measurement of CSR can be
a win-win-win strategy for corporations, consumers, and other stakeholders, encouraging
adoption of best practices and contributing to
sustainable development. Measurement should
lead to review and revision of existing policies
and practices to ensure sustainable CSR management. Finally, no single number can yet catch the
complex nuances of CSR activities and their
impacts on communities and countries.

Future Directions
A few trends appear from the discussion above.
Most organizations today feel the necessity to
participate in CSR measurement (rating/ranking)
processes, irrespective of their motive to do so.

Cross-References
Dow Jones Sustainability Indexes (DJSI)
FTSE4Good Index

Cultural Differences in Values/Ethics and Decision-Making

721

References and Readings

CSR Policy Development

Bowen, H. R. (1953). Social responsibilities of the businessman. New York: Harper & Row.
Caroll, A. B. (2000). A commentary and an overview of
key questions on corporate social performance measurement. Business & Society, 39(4), 466478.
Chatterji, A., & Levine, D. (2006). Breaking down the l f
codes: Evaluating non-financial performance measurement. California Management Review, 48(2), 2951.
Fairtrade. www.fairtrade.org.uk
Gjolberg, M. (2009). Measuring the immeasurable/
constructing an index of CSR practices and CSR performance in 20 countries. Scandinavian Journal of
Management, 25, 1022.
Global reporting initiative. www.globalreporting.org
Henriques, A. (2010). Corporate impact; measuring and
managing your social footprint. London: Earthscan.
Kapstein, E. (2008). Measuring unilevers economic footprint: The case of South Africa. London: INSEAD.
Mahoney, L. S., & Thorne, L. (2005). Corporate social
responsibility and long-term compensation: Evidence
from Canada. Journal of Business Ethics, 57(3), 241
253. doi:10.1007/s10551-004-5367-z
Maignan, I., & Ferrell, O. C. (2000). Measuring corporate
citizenship in two countries: The case of the United
States and France. Journal of Business Ethics, 23,
283297.
Neill, J., Stovall, O., & Perkins, D. (2003). The balanced
scorecard; a multiple stakeholder perspective. Journal
of Accounting and Finance Research, 5, 5868.
Singhapakdi, A., Vitell, S. J., Rallapalli, K. C., & Kraft,
K. L. (1996). The perceived role of ethics and social
responsibility: A scale development. Journal of Business Ethics, 15, 11311140.
Stovall Scott, O., Neill, J. D., & Brad, R. (2006).
Institutional impediments to voluntary ethics measurement systems. Journal of Business Ethics, 66,
169175.
Wolfe, R., & Aupperle, K. (1991). Corporate social performance: Methods for evaluating an elusive construct. In
J. E. Post (Ed.), Research in corporate social performance and policy (pp. 265-268). Greenwich: JAI Press.

View on the Ground: CSR from a Capabilities

Approach

C
CSR Reporting Guidelines
Sustainability Reporting Guidelines

CSR Visibility
Media CSR Forum

CSR-Oriented Public-Private
Networks
Partnerships for CSR

Cultural Differences in Values/Ethics

and Decision-Making
Cynthia Rodriguez Cano
Information Technology & Marketing
Department, J. Whitney Bunting College of
Business, Georgia College & State University,
Milledgeville, GA, USA

Synonyms

CSR Models
Sustainability Assessment Models

Ancestry; Culture; Ethnicity; Heritage; Hofstede;

Kinship; Rituals; Tradition

Definition

CSR Policies
Public Policies on CSR

Culture is a complex concept, the study of which

dates back to ancient times. In 1952, Kroeber
and
Kluckhohn
synthesized
conceptual

722

interpretations from various viewpoints and

developed a comprehensive definition of culture:
Culture consists of patterns, explicit and
implicit, of and for behavior, acquired and transmitted by symbols, constituting the distinctive
achievement of human groups, including their
embodiments in artifacts; the essential core of
culture consists of traditional (i.e., historically
derived and selected) ideas and especially
their attached values; culture systems may, on
the one hand, be considered as products
of actions, on the other as conditioning elements
of further action (p. 181). Tradition is a cultures
past, which carries the power of authority;
the very fact of survival and continuity gives
an aura of authority, legitimacy, and rightness to
cultural beliefs and practices. Common
phrases in most culturestimed honored,
in the eyes of the ancestors, our fathers before
us, and the way it was always doneindicate
the reverence and authority of traditions
(Nash 1996).

Introduction
Culture is one of the most important human characteristics and is superior to other social associations, such as nationality, political affiliation,
age, and education. Culture affects how people
behave and provides distinctions between different groups. Culture provides markers of ethnic
differences and boundaries that distinguish members and nonmembers among social (ethnic)
associations. The most common ethnic boundary
markers are kinship, the presumed biological and
descent unity of the group; commensality, the
propriety for eating together indicating equality,
peership, and intimacy (i.e., eating together is
only one step removed from the intimacy of bedding together); and common cult, indicating
a value system, sacred symbols, and attachments.
This trinity of boundary markers separates ethnic
groupings from other kinds of social aggregates,
groups, and entities. If kinship, commensality,
and cult are breached with regularity, the group
as a differentiated social association would cease
to exist (Nash 1996).

Cultural Differences in Values/Ethics and Decision-Making

Tangible cues or surface pointers make ethnic

affiliation recognizable at a distance or in a fleeting instance. As such, these surface pointers act
as barriers to intimate contact in much the same
way as the core trinity of ethnicity. Frequent
surface pointers include dress, language, and
culturally denoted physical features. This secondary trinity stands for and implies differences
in blood, substance, and cult. Surface pointers
consist of an assortment of symbols, including
language, ritual calendars, specific taboos in
joint social participation, and special medical
practices, among others.
Individuals associate themselves with groups
that provide them with a sense of positive distinctiveness. Social group membership is important
to individuals because they are motivated to see
themselves and their groups as different from
other groups and as better besides (Fiske and
Taylor 1991, p. 165). People typically develop
systems to categorize and classify themselves and
others. These systems allow individuals to attach
significant meanings to the classification groupings. Ethnicity, along with other elements, such
as gender and occupation, help define ones
social identity. Individuals are favorably biased
toward members of their own group; they also
tend to exaggerate intergroup differences and
enhance intragroup similarities (Fiske and Taylor
1991).
National Culture
In his seminal work, Geert Hofstede (2001)
developed a framework for understanding the
culture of nations. Hofstede suggested that cultural differences cannot be understood without
studying history; the origins of cultural differences presume a comparative study of history.
Hofstede argued that changes in cultural patterns
come from ecological factors, which in turn influence societal norms (see Fig. 1).
Based on data collected by the IBM Corporation between 1967 and 1973, Hofstede identified
four dimensions of national culture: power distance, uncertainty avoidance, individualism/collectivism, and masculinity/femininity. Power
distance relates to how countries address inequality. Inequality can occur in the distribution of

Cultural Differences in Values/Ethics and Decision-Making

723

ORIGINS

SOCIETAL NORMS

CONSEQUENCES

Ecological Factors

Value systems of
major groups in the
population

Structure and functioning of

institutions

Geography
History
Demography
Hygiene
Nutrition
Economy
Technology
Urbanization

Family patterns
Role differences
Social stratification
Socialization emphases
Educational system
Religions
Political systems
Legislation
Architecture
Theory development

Cultural Differences in Values/Ethics and Decision-Making, Fig. 1 Stabilization of culture patterns

such resources as prestige and wealth, with different countries weighting elements differently.
In organizations, inequality is formalized by
boss-subordinate relationships. Uncertainty
avoidance deals with the future and how humans
cope with changes in technology, law, and religion. In organizations, uncertainty avoidance
takes the forms of technology, rules, and rituals.
Individualism and collectivism, which speaks to
the relationship between the individual and the
collectivity of a given society, is reflected in the
way people live together (e.g., nuclear families,
extended families, or tribes). Masculinity and
femininity is a matter of the emotional and socials
roles of genders (e.g., universally, women attach
more importance to social goals, such as relationships and helping others). After conducting additional research, Hofstede added a fifth dimension
of national culture, long-term versus short-term
orientation, which considers attitudes toward
such things as marriage and organization philosophy (e.g., marriage should last forever even if
the love has disappeared versus if love has
disappeared from the marriage, it is best to
make a new start; bottom-line versus building

relationships and market position). Fifty countries were evaluated based on Hofstedes national
culture framework (see Table 1).
Organizations and Culture
The critical dimensions of culture for organizations are power distance (i.e., who decides what)
and uncertainty avoidance (i.e., how one can
assure that what should be done will be done).
High power-distance organizations lack trust,
support political rather than strategic thinking,
and support personal planning and control rather
than impersonal systems. High uncertaintyavoidance organizations are less likely to practice
strategic planning, leave planning to specialists,
support a need for more detail in planning and
short-term feedback, and have a more limited
view of relevant information (Hofstede 2001).
Based on power distance and uncertainty
avoidance, organizations can be categorized into
four organizational types: personnel bureaucracy,
full bureaucracy, work-flow bureaucracy, and
implicitly structured (see Table 2). In personnel
bureaucracy organizations, relationships among
people are strictly determined by hierarchal

724

Cultural Differences in Values/Ethics and Decision-Making

Cultural Differences in Values/Ethics and Decision-Making, Table 1 Index scores and ranks of select countries
and regions

Country
Argentina
Australia
Austria
Belgium
Brazil
Canada
Chile
Columbia
Costa Rica
Denmark
Ecuador
Finland
France
Germany
Great Britain
Greece
Guatemala
Hong Kong
Indonesia
India
Iran
Ireland
Israel
Italy
Jamaica
Japan
Korea (South)
Malaysia
Mexico
Netherlands
Norway
New Zealand
Pakistan
Panama
Peru
Philippines
Portugal
South Africa
Salvador
Singapore
Spain
Sweden
Switzerland
Taiwan

Power distance
Index
Rank
49
3536
36
41
11
53
65
20
69
14
39
39
63
2425
67
17
35
4244
18
51
78
89
33
46
68
1516
35
4244
35
4244
60
2728
95
23
68
1516
78
89
77
1011
58
2930
28
49
13
52
50
34
45
37
54
33
60
2728
104
1
81
56
38
40
31
4748
22
50
55
32
95
23
64
2123
94
4
63
2425
49
3536
66
1819
74
13
57
31
31
4748
34
45
58
2930

Uncertainty
avoidance
Index
Rank
86
1015
51
37
70
2425
94
56
76
2122
48
4142
86
1015
80
20
86
1015
23
51
67
28
59
3132
86
1015
65
29
35
4748
112
1
101
3
29
4950
48
4142
40
45
59
3132
35
4748
81
19
75
23
13
52
92
7
85
1617
36
46
82
18
53
35
50
38
49
3940
70
2425
86
1015
87
9
44
44
104
2
49
3940
94
56
8
53
86
1015
29
4950
58
33
69
26

Individualism/
collectivism
Index
Rank
46
2223
90
2
55
18
75
8
38
2627
80
45
23
38
13
49
15
46
74
9
8
52
63
17
71
1011
67
15
89
3
35
30
6
53
25
37
14
4748
48
21
41
24
70
12
54
19
76
7
39
25
46
2223
18
43
26
36
30
32
80
45
69
13
79
6
14
4748
11
51
16
45
32
31
27
3335
65
16
19
42
20
3941
51
20
71
1011
68
14
17
44

Masculinity/
femininity
Index
Rank
56
2021
61
16
79
2
54
22
49
27
52
24
28
46
64
1112
21
4849
16
50
63
1314
26
47
43
3536
66
910
66
910
57
1819
37
43
57
1819
46
3031
56
2021
43
3536
68
78
47
29
70
45
68
78
95
1
39
41
50
2526
69
6
14
51
8
52
58
17
50
2526
44
34
42
3738
64
1112
31
45
63
1314
40
40
48
28
42
3738
5
53
70
45
45
3233

Long-term/
short-term
orientation
Index
Rank
n.a.a
n.a.a
31
2224
31
2224
38
18
65
6
23
30
n.a.a
n.a.a
a
n.a.
n.a.a
n.a.a
n.a.a
46
10
n.a.a
n.a.a
41
14
39
17
31
2224
25
2825
n.a.a
n.a.a
a
n.a.
n.a.a
96
2
n.a.a
n.a.a
61
7
n.a.a
n.a.a
43
13
n.a.a
n.a.a
34
19
n.a.a
n.a.a
80
4
75
5
n.a.a
n.a.a
a
n.a.
n.a.a
44
1112
44
1112
30
2526
0
34
n.a.a
n.a.a
a
n.a.
n.a.a
19
3132
30
2526
n.a.a
n.a.a
a
n.a.
n.a.a
48
9
19
3132
33
20
40
1516
87
3
(continued)

Cultural Differences in Values/Ethics and Decision-Making

725

Cultural Differences in Values/Ethics and Decision-Making, Table 1 (continued)

Country
Thailand
Turkey
Uruguay
United States
Venezuela
Yugoslavia
Region
Arab countries
East Africa
West Africa

Power distance
Index
Rank
64
2123
66
1819
61
26
40
38
81
56
76
12

Uncertainty
avoidance
Index
Rank
64
30
85
1617
100
4
46
43
76
2122
88
8

Individualism/
collectivism
Index
Rank
20
3941
37
28
36
29
91
1
12
50
27
3335

Masculinity/
femininity
Index
Rank
34
44
45
3233
38
42
62
15
73
3
21
4849

Long-term/
short-term
orientation
Index
Rank
56
8
n.a.a
n.a.a
a
n.a.
n.a.a
29
27
n.a.a
n.a.a
a
n.a.
n.a.a

80
64
72

68
52
54

38
27
20

53
41
46

n.a.a
25
16

7
2123
1011

27
36
34

2627
3335
3941

23
39
3031

n.a.a
2829
33

Data not available

Source: Hofstede (2001).

Cultural Differences in Values/Ethics and DecisionMaking, Table 2 National culture, organizational type,
and problem resolution
Power
distance
(PDI)

Large

Small

Uncertainty avoidance (UAI)

Full bureaucracy
Personnel
bureaucracy
Countries: Latin,
Countries:
Mediterranean,
China, India
Islamic, Japan, some
other Asians
Work-flow
Implicitly
bureaucracy
structured
Countries: German- Countries:
speaking, Finland,
Anglo,
Israel
Scandinavian,
Netherlands
Strong
Weak

Source: Hofstede (2001).

frameworks, but the work flow is much less codified. In China, for example, organizations are
governed by people, whereas in the United States,
organizations are government by law (Chang
1976). The work-flow bureaucracy is the opposite
of the personnel bureaucracy. In full bureaucracy
organizations, the relationships between and
among people, as well as work processes, tend
to be rigidly prescribed in either formal rules or
traditions. In contrast, implicitly structured organizations lack formal rules and relationships
between and among people and work processes
tend to be free of codification (Hofstede 2001).

Key Issues
Culture Shock
Intercultural interactions confirm ones identity
and prejudices (i.e., stereotypes) and are a source
of acculturative stress, or what is commonly
known as culture shock. The symptoms of culture
shock include excessive preoccupation with
cleanliness of drinking water, food, and surroundings; great concern over minor pains;
excessive anger over delays and minor frustrations; the idea that people are taking advantage or
cheating; reluctance to learn the host countrys
language; a feeling of hopelessness; and a strong
desire to associate with persons of ones own
nationality. Culture shock may be so severe that
an expatriates assignment has to be terminated
permanently. Culture shock has been shown to be
a persistent problem with expatriates in both
developed counties (2540%) and developing
countries (70%) (Harzing 1995). Lack of adaptation to foreign cultures is a problem for organizations and can result in communication
breakdown, loss of effectiveness, and complete
failure.
Apples and Oranges
Long-term versus short-term orientation has been
linked to political issues. The short-term orientation of Western countries cannot be applied to

726

non-Western countries, where the long-term orientation predominates. The following axioms are
not transportable from Western to non-Western
countries (Hofstede 2001).
The solutions to pressing global problems do
not presuppose worldwide democracy. The
rest of the world is going Western.
Free market capitalism cannot be universal.
This assumes an individualist mindset that is
not universal.
Concepts of human rights cannot be universal.
The Universal Declaration of Human Rights
adopted in 1948 was based on individualist
Western values, which are not consistent
with collectivism.
Business Negotiations across Cultures
Cross-cultural negotiations may involve different
rules of conduct. The nature of the control and
decision-making structure, the number of people
involved, and the distribution of decision-making
power may vary among players. Tolerance for
ambiguity during the process, negotiators emotional needs, and trusting and distrusting may not
be consistent among participants. These differences suggest the following (Hofstede 2001):
Power distance affects the degree of centralization in decision-making (i.e., importance of
negotiators status).
Uncertainty avoidance affects the tolerance of
ambiguity and trust in opponents.
Collectivism affects relationships. In collective societies, replacing a negotiator means
a new relationship must be built, which takes
times.
Masculinity affects the need for ego-boosting
behavior. Feminine cultures are more likely to
resolve conflicts through compromise and to
strive for consensus.
A long-term orientation affects the perseverance with which desired ends are pursued.

Cultural Differences in Values/Ethics and Decision-Making

improves as one ages; behavior is governed by

external factors in earlier stages and internal factors in later stages (Kohlberg 1971). Levels of
moral judgment (i.e., moral intensity) vary with
the issue under consideration and across cultures.
For example, business people in the United States
scored higher on moral judgment than Latvian
business people (Smith et al. 2009). The influence
of moral development on moral judgment suggests that the promotion of moral development in
all areas of society will increase the quality of
ethical business judgment and overall ethical
behavior (Smith et al. 2009).
Vanishing Business Values
Values are culturally learned depositions and the
foundation of human personality (i.e., value systems). Value systems are determinants of behavior, attitudes, and decision-making. Recent
financial disasters bring into question the quality
of business values in todays markets. The
collapse of Enron, a US corporation, had pervasive effects. In the United States, 22,000 people
were left out of work; the retirement plan was so
devalued that future financial security vanished.
In 1992, Enron promoted its $3 billion naturalgas power plant in Dabhol, India, the single largest foreign investment in Indias history, as the
poster child for economic liberation. Instead, the
project was an economic disaster and a human
rights nightmare (i.e., water sources were damaged). Enron is an example of a bottom-line
approach. Greed, egoism, materialism, and waste
that is almost endemic in todays version of capitalism; the growing disparity between the
wealthy and poor; the misuse of the worlds natural resources; and the corruption of political
system by corporate money are all evidence of
a value system gone awry.

Future Directions
The Role of Moral Judgment
Moral judgment is a psychological process and
the outcome of cognitive moral development
(CMD), cultural background, and personal
moral code. The quality of moral judgment

In addressing problems of financial transparency,

Chris Davis, a British Member of the European
Parliament (MEP), said that although the European Parliaments financial rules are complicated

Culture

and even seem designed to discourage ethical

behavior, one would expect British MEPs to
know right from wrong (Lamond 2008). Daviss
charge attached ethical behavior to individuals
rather than rules. This notion is highly important
in todays marketplace, where more than half
of the worlds largest economies are firms
(Anderson and Cavanagh 2000). The top
200 corporations combined sales are 18 times
greater than the combined annual incomes of the
1.2 billion people living in severe poverty. Moreover, the top 200 corporations are growing faster
than overall global activity. Individuals guiding
these massive economic entities will instill
values that drive decision-making.
Infusion of individual value systems and corporate structure is essential for building socially
responsible organizations. Successful companies
will insure an inclusive environment. Inclusion
incorporates involvement, engagement, and the
integration of diversity into organization processes (Roberson 2005). Whereas diversity
focuses on the makeup of the population, inclusion is an attitudinal and cultural transformation
(Lieber 2008). An inclusive environment necessitates an alignment of values, behaviors, and
attitudes of employees with those of the organization. Corporations must recognize the barriers
that make inclusion difficult to achieve and provide viable resolutions.

727

Fiske, S. T., & Taylor, S. E. (1991). Social cognition

(2nd ed.). New York: McGraw-Hill.
Harzing, A. W. K. (1995). The persistent myth of high
expatriate failure rates. International Journal of
Human Resource Management, 6, 457474.
Hofstede, G. (2001). Cultures consequences (2nd ed.).
Thousand Oaks, CA: Sage Publications.
Kohlberg, L. (1971). From is to ought: How to commit the
naturalistic fallacy and get away with it in the study of
moral development. In T. Mischel (Ed.), Cognitive
development and epistemology. New York: Academic.
Kroeber, A., & Kluckhohn, C. (1952). Culture: A critical
review of concepts and definitions. New York: Vintage
Books.
Lieber, L. (2008). Changing demographics will require
changing the way we do business. Employment Relations Today, 35, 91.
Nash, M. (1996). The core elements of ethnicity.
In J. Hutchinson & A. D. Smith (Eds.), Ethnicity
(pp. 2428). New York: Oxford University Press.
Rakichevikj, G., Strezoska, J., & Najdeska, K. (2010).
Professional ethics basic component of organizational culture. Tourism & Hospitality Management
2010, Conference Proceedings, pp. 11681177.
Roberson, Q. M. (2006). Disentangling the meanings of
diversity and inclusion in organizations. Group and
Organizational Management, 31, 212236.
Yiing, L. H., & Ahmad, K. Z. B. (2009). The moderating
effects of organizational culture on the relationship
between leadership behavior and organizational commitment and between organizational commitment and
job satisfaction and performance. Leadership & Organization Development Journal, 30, 5686.

Cultural Pluralism
Cross-References

Cultures, Businesses, and Global CSR

Discrimination
Diversity

Cultural Relativism
References and Readings
Anderson, S., & Cavanagh, J. (2000). Top 200: The rise of
corporate global power. Institute of Policy Studies.
Retrieved November 21, 2010, from http://www.
corpwatch.org/article.php?id377
Chang, Y. L. (1976). Early Chinese management thought.
California Management Review, 19, 7176.
Draft, R. L. (2005). The leadership experience (3rd ed.).
Vancouver, BC: South-Western College Publishing.

Ethical Absolutism Versus Ethical Relativism

Culture
Cultural Differences in Values/Ethics and
Decision-Making

728

Culture and Organization

Performance
Beatrice Dimba
School of Management and Commerce,
Strathmore University, Nairobi, Kenya

Synonyms
Best practice; High performance work practices;
National cultures, values, beliefs, assumptions;
SHRM practices

Definition
These synonyms show at least two different
groups of uses which should be stressed here.
SHRM practices also known as high performance
work practices (HPWP), or best practices, are
those decisions and actions which concern the
management of employees at all levels in the
business, and which are related to the implementation of strategies directed toward sustaining
competitive advantage (Kramar 1992). Examples
include recruitment practices, staff appraisal systems, remuneration systems, and flexible work
arrangements.
Culture is the beliefs, values, assumptions,
attitudes, and behaviors of a group of people.
National culture is defined as the values,
beliefs, and assumptions learned in early childhood that distinguish one group of people from
another (Aycan et al. 2007). National culture is
deeply embedded in everyday life and is relatively impervious to change (Hofstede 2001,
2006). It is also a central organizing principle of
employees understanding of work, their
approach to it, and the way in which they expect
to be treated. National culture implies that one
way of acting or one set of outcomes is preferable
to another.
Organizational performance is a method of
measuring the success of the organization to
ensure that it achieves its goal (Guest 2001).
Organizations link the maximization of

Culture and Organization Performance

performance with SHRM practices, the SHRM

practices can enhance organizational image,
interpersonal relations, and commitment to the
organization.

Introduction
Of all the factors affecting strategic human
resource management (SHRM), perhaps none is
more potent than the national culture. This is
because the values underlying human resource
management (HRM) are not based on individual
countrys values. As Kanungo (1995, p. 11)
pointed out:
. . .because many of our human resource management tools have been developed primarily within
a context of economically developed nations, most
have never been appropriate for use in developing
countries. Traditional US-based HRM theories, in
particular, with their lack of contextual
embeddedness, their strong individualistic orientation, and their emphasis on freewill. . . mismatch
what is most salient about the nature of work and
human systems in developing countries.

Aycan et al. (2007) contend that because of the

increasing demands of the globalized and liberalized business environment, both researchers
and practitioners have started paying more attention to the study of culture as an explanatory
variable. The researchers have also come to realize that the uncritical adaptation of SHRM practices and techniques evolved in the context of
Western cultural values may not be effective in
other sociocultural environments.
Extant literature (Gelfand 2000) reckons that
managers in organizations are recognizing that it
is impossible to maintain parochial views while
doing business across cultures. Cultural knowledge and a global focus are crucial to survive, and
to thrive, within todays business environment.
However, the same literature does not give
a global focus that is commensurate with the
global reality of business. Discussion and empirical assessment of culture and human resource
management practices (Aycan et al. 2000) has
been focused on specific developed countries
and developing countries have been given little
attention (Nyambegera et al. 2000). It is worth

Culture and Organization Performance

analyzing the employee cultural values in multinational companies (MNCs) in a developing

country and consequently on organizational
performance.

Key Issues
Concept of Culture
To understand the implications of cultures within
an organization, it is important to understand the
basic concept of culture:
. . .the core of culture is composed of explicit and
tacit assumptions or understandings commonly
held by a group of people; a particular configuration of assumptions/understandings is distinctive to
the group; these assumptions/understandings serve
as guides to acceptable and unacceptable perceptions, thoughts, feelings and behaviors; they are
learned and passed to new members of the group
through social interaction; culture is dynamic it
changes over time. (Milliken and Martins 1989)

The implication of this definition is that culture

is a collective social phenomenon. For instance,
management communicates organizational work
culture through practices of recruitment, staff
appraisals, remuneration, and flexible work
arrangements. All these practices are aspects of
social interactions. Organizational culture can,
therefore, be created, rather than just inherited by
employees. Once in existence, it subtly influences
perception, thought, action, and feeling of the
employees in ways that are consistent with their
cultural reality. It guides the selection, interpretation, and communication of information in ways
that are meaningful to the employees.
Hofstede (1980) reckons that most countries
inhabitants share a national character that is more
clearly apparent to foreigners than to the
nationals themselves.
Consequently, whereas typically, crossnational comparative research has asked When,
and under what conditions do certain cultural
identities become salient and more relevant than
others? and How do various cultures interact?
(Dahler-Larsen and Hernes 1997), it may be more
meaningful to ask questions such as How do
national cultural values affect SHRM practices
in less developed African countries?

729

Relationship Between Culture and

Organizational Performance
The linkage between culture and organizational
performance is indirect in that culture mediates
the relationship between SHRM practices and
firm performance (Dimba 2010). Research
(Dimba 2010; Aycan et al. 2007) shows that
SHRM practices do affect organizational performance. However, transfer of SHRM practices
from developed nations to developing nations
by MNCS may face challenges in goal achievement (Kirkman et al. 2006). National cultural
values are related to workplace behaviors, attitudes, and, consequently, organizational performance. People with different mental programs
often see situations differently and have different
approaches and solutions to problems.
Since the cultural values are unique to specific
circumstances, the effect of such behaviors on
organizational performance may be different. In
other words, the SHRM practices transferred
from the developed countries may not yield
the same organizational performance because of
different national culture.

Future Directions
While progress has been made in the field of
HRM, this entry illustrates that much remains to
be done to make culture a global discipline. In
this spirit, the entry offers unexplored questions
and presents a new framework and approaches to
make SHRM practices more inclusive of cultures
around the globe. It is hoped that this entry will
stimulate new dialogues and new debates making
cross-cultural issues more of the norm, and less of
the exception in the field of HRM. Research
on this field (Budhwar and Katou 2005) has
been more concerned with relationships between
SHRM practices and organizational performance
mediated by HRM outcomes.

Cross-References
Business Performance
Business Strategy

730

Competitive advantage
Corporate Reputation
Corporate Strategy
Culture and Organization Performance

Culture of Implementation
from Kenyan organizations. International Journal of
Human Resource Management, 11(4), 639663.
Nyambegera, S. M., Daniels, K., & Sparrow, P. (2001).
Why fit doesnt always matter: The impact of HRM
and cultural fit on job involvement of Kenyan
employees. Applied Psychology: An International
Review, 51(1), 109140.

References and Readings

Aycan, Z., Kanungo, R. N., Mendonca, M., Yu, K., Deller,
J., Stahl, G., & Kurshid, A. (2000). Impact of culture
on human resource management practices: A 10-country comparison. Applied Psychology, An International
Review, 49(1), 192221.
Aycan, Z., Al-Hamadi, A. B., Davis, A., & Budhwar, P.
(2007). Cultural orientations and preference for HRM
policies and practices. The case of Oman. International Journal of Human Resource Management, 18,
1132.
Budhwar, P., & Katou, A. (2005). The effect of human
resource management systems on organizational performance in Greek manufacturing: A mediating
model. EURAM 2005 Conference, Munich.
Dimba, B. A. (2010). Strategic human resource management practices: Effect on performance. African
Journal of Economic and Management Studies, 1(2),
128137.
Gelfand, M. J. (2000). Cross-cultural industrial and organizational psychology: Introduction to the special
issue. Applied Psychology: An International Review,
49(1), 2931.
Hofstede, G. (1980). Motivation, leadership and organization: Do American theories apply abroad? Organizational Dynamics, 9, 4263.
Hofstede, G., & Bond, M. H. (1988). The Confucius
connection: From cultural roots to economic growth.
Organization Dynamics, 16, 421.
Hofstede, G. (2001). Cultures consequences: Comparing
values, behaviors, institutions, and organizations
across nations (3rd ed.). Thousand Oaks: Sage.
Hofstede, G. (2006). What did GLOBE really measure?
Researchers Minds versus Respondents Minds.
Journal of International Business Studies, 37(6),
882896.
Kirkman, B. L., Lowe, K. B., & Gibson, C. B. (2006). A
Quarter Century of Cultures Consequences: A review
of empirical research incorporating Hofstedes cultural values framework. Journal of International Business Studies, 37(4), 285320.
Kramar, R. (1992). Strategic human resource management: Are the promises fulfilled? Asia Pacific Journal
of Human Resources, 30(1), 115.
Milliken, F. J., & Martins, L. L. (1996). Searching for
common threads: Understanding the multiple effects
of diversity in organizational groups. Academy of
Management Review, 21(4), 402433.
Nyambegera, S. M., Sparrow, P., & Daniels, K. (2000).
The impact of cultural value orientations on individual
HRM preferences in developing countries, lessons

Culture of Implementation
Implementation

Cultures, Businesses, and Global CSR

Kristijan Krkac
Zagreb School of Economics and Management,
Philosophical Faculty of the Society of Jesus in
Zagreb, University of Zagreb, Zagreb, Croatia,
Europe

Synonyms
Corporate culture; Cultural pluralism; Ethical
relativism; Global CSR; Governance; Human
rights performance; International business;
Multinationals; Organizational behavior; Organizational culture; UN Global compact

Definition
The topic of the present entry is transdisciplinary
since it covers the following topics: multinationals
and local cultures, global ethics and global business,
and finally a series of issues similar to the present
one such as cultural pluralism, ethical relativism,
organizational behavior, organizational culture,
etc. All of these issues arise from the simple daily
phenomenon of their multinationals entering and
operating in our local cultures and vice versa.
The first word which needs to be clarified is the
word global. If one searches the internet in order to
find an identifying feature of the global business or
CSR, one will be disappointed since a vast majority

Cultures, Businesses, and Global CSR

of websites repeat some general or specific CSR

requirements such as human rights, governance,
sustainability, etc. without trying to make vivid
what does it mean to run a global business or to
be an ethical officer of a multinational. The word
global in the present entry does not mean primarily universal which is by all means vital but
previous to that it means all-impact in the way
that the globe should be understood as a networked
phenomenon on which each and every event in any
part has an impact on all other parts creating a
meta-net of mutually interdependent nets.
Corporate social responsibility (CSR) as far as
it is a total of standard practices as lege artis procedures of majority of members of a business
community; their moral valuations and ethical justifications, is the proper part of a culture. Now, if
one understands global CSR in this particular primordial or Ancient Greek sense of morality and
ethics, specific topics arise, from theoretical such
as the is-ought difference and half-theoretical and
half-practical such as the issue of plurality and
relativism of cultures to purely practical such as
the issue of conditions under which multinationals
should operate in a local culture. The majority of
the entry will be directed toward the practical
issues. However, it should be mentioned that
some solutions to theoretical and intermediate
problems of pragmatist (or consequentialist) ethics
can be presupposed as reasonably defensible as the
background of solutions which will be suggested
in what follows (most notably by J. S. Mill,
W. James, J. Dewey, H. Putnam, R. Rorty and
P. Singer, K.-O. Apel, H. Jonas, later L. Wittgenstein and J. Habermas).
Contrary to a business which is a matter of esprit
de geometrie, a culture is an issue of esprit de
finesse (B. Pascal). This peculiar duality should
reflect on CSR too in the way that it should make
these opposites meet in certain harmony.
Concerning the phenomenon of a culture any
description supplied by history or cultural anthropology will do for the present purposes in the way
that it should keep ones attention on the culture
aspect more than on the corporate aspect as something which in the expression of a corporate culture
may be understood as sui generis phenomenon
which surely is not the case. Finally, there is no

731

strict difference between CSR, culture, and even

businesses on a global level and strict descriptions
of these phenomena or standard procedures as well,
not because one should see this in advance or
a priori as some kind of integral unity to which
everything should fit in. This is so because there is
no essence here, there are only many mutually
overlapped, crisscrossed, convergent, and divergent
nets; there is only a series of patterns composed of
these nets (what is by L. Wittgenstein called
a family resemblance phenomenon). That is to
say that integral unity of different patterns of global
businesses, cultures, and global CSRs is not given
in advance but is the result of observing, studying,
and comparing these complex phenomena and
solving complex practical problems on a global
level. Therefore, concerning the method of
approaching the issue, so to say essentialist
approach which is by the very nature of an institution promoting it monistic and insensitive to particular and fine cultural differences (such as UN
Global Compact) cannot do much per se. What is
needed in addition to such essentialist approach is
a kind of pluralist or comparative approach
which will observe and understand the complicated
net of interrelations between cultures and precisely
the understanding of such net will enable one to
apply universal principles such as real
Triple Bottom Line (consisting of human rights,
environmental performance, and governance)
(Aras and Crowther 2008).
Finally businesses are to be described formally in legal, economic, and sociological terms
in order to understand that their integral CSR lies
in their core (literally in their core business and its
standard or lege artis procedures) and not in some
remote (physically and conceptually) functions
of say companys PR or Marketing Department
(which will eventually cover up business flaws by
great philanthropy, for instance). If one is producing petroleum or chemical fertilizers it is very
hard to follow CSR and this is an issue of a core
business since it is a dirty business, but if one is
providing healthcare for poor people, then it is
other way around. However, this is just a nave
difference which should be questioned. Namely,
there are no strictly speaking good and bad businesses since one can easily imagine a case in

732

which an oil company gradually switches to

renewable energy sources production (wind
energy, solar energy, etc.), and in which an organization providing healthcare for poor is engaged
in numerous socially irresponsible activities
(bribery, financial frauds, illegal collaborations
with pharmaceutical industry, etc.).

Introduction
Since there are many descriptions of culture, of
business, and of CSR, one cannot start by making
any sound statement concerning these phenomena
and their relations. This goes even beyond descriptions of phenomena in question because various,
often incommensurable, routines are considered to
be hardcore cultural, business, and CSR practices in
the same time or not at all. For instance, philanthropy is considered as a cultural routine in some
parts of the world, as well as a typical CSR activity
too, and as such it is rarely performed without great
expectations of certain substantial economic and
noneconomic returns (which in most cases goes
heavily beyond the costs of it), and therefore, it is
essentially inauthentic. In addition, philanthropic
CSR is often performed in order to cover some
corporate social irresponsibilities (CSI) done in
the same time by the same company but in
a different department, or in a different part of the
world; therefore, the CSR is basically selective or
partial. On the other hand, as far as it is certain
that there are no criminal cultures, that is to say that
criminal parts of cultures are always a kind
of subculture phenomena, it is illustrative that
non-selective, anonymous, and authentic CSR
(meaning without expectation of any economic or
noneconomic returns whatsoever) is sometimes
performed by essentially criminal businesses (for
example, by Yakuza after the Kobe earthquake in
1995), and that some essentially CSI and illegal
actions are performed by so to say humanistic
institutions (such as by some high UN officials or
by Caritas officials). So, there is no strict difference
between CSR and CSI and clear-cut descriptions of
any particular CSR or CSI activity (surely ethical
codes of various professions tend to supply precise
definitions (duties) of what is forbidden and

Cultures, Businesses, and Global CSR

permissible but this is the issue of business ethics

(BE) and its founding in deontological theory).
These two interpretations of CSR and CSI narrow the field of research on this particular topic
and remind one that he or she should proceed in
the course of the research with extreme caution,
always reconsidering operative definitions and
redescribing phenomena of business, culture, and
CSR in the light of new circumstances on the
global level. In the following sections conceptual
relations between cultures and businesses (the first
part) and of relations between multinationals and
local cultures (the second part) will be addressed
and presented as a summary on the background of
these limitations.

Key Issues
1. Local Cultures and Corporate Cultures:
A Preliminary Conceptual Analysis
Concerning general conceptual relations between
cultures, businesses, and social responsibilities
(SR) some features can be mentioned and
questioned. Basically, cultures as well as businesses have their own SR as their integral parts.
Some cultures and businesses have SR than
others; some can be educated quite easily and
are eager to learn, others refuse to do it. More to
that, there is no business which is not a part of
a culture in many different ways; therefore:
(1) Any business is a part of at least one culture,
meaning that it operates within a community
which has more or less distinctive cultural
features.
On the other hand, there is always something
that can be labeled as the culture of a business;
therefore:
(2) Certain corporate culture is always a part of
a business no matter if it is implicit and indirectly manifested (by standard routines of
a company), or explicit and clearly stated
(in some companys documents).
Therefore, what we have here is a kind of
bottom-up model: culture business business
culture (as shown in Fig. 1 within a and b both).
Here, one should not have in mind just cultural
perspectives of a business such as managerial,

Cultures, Businesses, and Global CSR

Cultures, Businesses,
and Global CSR,
Fig. 1 A range of relations
within and between
cultures and businesses;
where a, b cultures,
a a relation between
culture, b a relation
between a business and
a culture, c a relation
between businesses, and
d a relation between
businesses cultures

733

A continental or global
contexts: EU, UN, Human
Rights, The Global Compact

A culture

A culture

a
A business

A business

c
A business
culture

organizational, or working cultures (Hofstede

1980; Deal and Kennedy 1982; Frost et al.
1985), but previously to that a kind of awareness
of a core business and its standard routines, a kind
of familiarity with the spirit of a whole business
placed on a bigger background of a local culture
(by all stakeholder groups, principally by managers, and members of a local community).
Now, an organizational culture of a company
is not composed just of nice workplaces, high
wages, on-site healthcare, etc. but of various frequently rather silly missions, visions, core values,
ideologies, dress codes, routines, impolite and
immoral managers, and even subcultures in various divisions of a company. Furthermore,
a corporate culture (or an organizational culture)
is not the same as a corporate structure (which in
most cases is bureaucratic or patrimonial), and
not the same as a corporate climate (which is
merely an average pulse of employees). On
the other hand, a local culture is not composed
just of an interesting people, places, heritage,
habits, food, drinks, strange practices, customs,
routines, languages and dialects, etc. but of various silly ideologies, beliefs, values, immoralities
(at least for someone coming from a significantly
different culture and this raises the first ethical
issue here, namely, that of cultural pluralism, and
moral/ethical
relativism)
(Cook
1999).
Concerning this matter, one is often confronted
with two opposite radical viewpoints and accompanied practices, one which essentially inflates
culture and cultural practices, and the other
which reduces relevant influence of it.
Concerning the present topic certain tension
between a functional and a substantial

b
d

A business
culture

understanding of a culture is hard to avoid. In

order to circumvent this particular tension one
can use strange definitions of culture. For
instance, according to L. Wittgenstein:
Culture is like a great organization which assigns to
each of its members his place, at which he can work
in the spirit of the whole, and his strength can with
a certain justice be measured by his success as understood within that whole. (Wittgenstein 1998:9)

This particular description of a culture is

attractive since it encompasses both perspectives
which are frequently considered to be opposite
and therefore contributing to two different understandings of it, one which is technical and procedural (here analogous with say an artificial
corporate culture), and the other which is artistic,
almost romanticized (here analogous with a natural
local culture). Wittgenstein combines these
two perspectives by combining a culture as organization which assigns places at which one works
on the one hand, and a culture as a place at which
one works in the spirit of the whole on the other
hand. Nonetheless, this or similar dual descriptions
of a culture are useful for projections to influences
between businesses and cultures by and large.
Previously mentioned points (1) and (2) create
major issues within this topic, namely, influences
between a business with its culture on local culture and vice versa. The most vital notion here is
not that of respect or rights, rather it is the notion
of a core business and notion of a local culture.
The nature of a business determines its possible
relations with a culture in which it operates in
terms of say a business being a petroleum business or a healthy food production business. That
is to say, that some business sectors are by their

734

very nature aggressive toward local cultures,

while others are so to say local culture friendly.
A similar situation is with different cultures,
namely, some are business sensitive, and others
are not. If specific types of business cultures are
added here, cultures such as already mentioned
organizational, work, or management cultures,
then what one gets is the real issue of influence
of a business on a local culture and vice versa.
This relation, namely, a business to a local
culture, is the one of power. It all depends on
the power of a business and of a local culture in
terms not just of sensitivity to SR, legal, and
economic perspectives, but of the basic motivation and readiness to act (collectively) in terms of
reconciling the fundamental interests of all
included stakeholders. There are numerous varieties here, but the most important (types of) relations are the following:
(a) All sides included working together for
mutual benefit which cannot be achieved by
them alone (meaning that a local culture
influences a business in an essentially positive and creative manner and that a business
influences a local culture maintaining and
improving its most vital features).
(b) A business aggressively influences, changes,
and destroys a local culture (in terms of
language, habits, standard daily routines,
lives, heritage, environment, and prospects for
the future) intruding its business culture as the
ultimate standard of a local culture (further on
interpreted as monoculturalism and global
strategy).
(c) A local culture (or more often various subcultures; no matter whether they are urban or
rural) is irrationally against a business, so
a company finally fails to operate in a local
culture. Of course, one can see that the possibility (a) is better than (b) or (c). In addition,
(c) is more often a reaction to (b) but there are
opposite cases as well.
Now, another problem between (a), (b), and
(c) starts with a bit of nonsense and insensitivity.
It is quite ridiculous to start a business anywhere
without a culture research (to a market research)
and this is how quite often (b) starts. Completely
opposed to that, a culture research should be

Cultures, Businesses, and Global CSR

conducted and it should be accompanied with

the data about the business doing the research
which should be displayed to a local community
in order for a local community to research the
business in return.
(3) Therefore, the first step in achieving (a)
and avoiding (b) and (c) can be termed as a
business/culture mutual research. Anything
less than such open-minded and friendly
research is plain nonsense. However, the first
step is on a business since it enters a local
culture, not the opposite.
On the other hand, sensitivity of a business
toward a culture and vice versa is of utmost
importance as well, meaning that an open discussion on the future relationships between
a business and a local culture should be
conducted in the spirit of openness, sincerity,
and friendliness without concealing any
strengths, weaknesses, opportunities, or threats
of all stakeholders included. Here is the point
where besides the legal and the economic perspectives the moral as the cultural perspective
enters the discussion. Standpoints, interests, and
expectations in terms of freedoms and responsibilities of all sides included should be clearly
stated. All of this is easy to achieve if a culture
is a small one and if a business is relevantly
similar to a local culture in terms of language,
working habits, customs, ethnicity, value system,
etc. If this is not the case, many issues can arise.
(4) However, it is possible to formulate
a hypothesis that under certain further conditions it is expensive to respect a local culture
but in a long run respecting a local culture
creates many economic and noneconomic
benefits for a business; on the other hand, it
is hard for a business to be accepted by a local
culture but in a long run it can create not just
an economic but indeed a cultural advancement which cannot be achieved without the
presence of a business in a local culture (a).
(4.1) The formal argument in favor of (4),
that is to say in favor of (a) and against
(b) and possibly (c) is quite straightforward. Namely, in all cases a companys
(wealth, stocks) profit maximization
will result with CSI, and there is only

Cultures, Businesses, and Global CSR

one exception, namely a companys

profit maximization will result with
CSR or at least with prevention of CSI
only if the companys profit (wealth,
stocks) reflects the extent to which the
benefits of such CSI are less than the
expected present value of the future
costs of CSI (in the form of penalties,
lost reputation, or similar). One should
notice that this is an argument against
CSI but not in favor of CSR and as such
can be regarded as a necessary but not as
the sufficient CSR condition as well.
(The lack of international regulations
makes this issue much more vital and
complicated on the global level.)
Concerning further sufficient conditions mentioned in (4) it can be said that they surely include
elements such as the type of economic system
(say a level of economic freedom), the nature of
legal system, social stratification (major social
groups, and major subculture groups), the governance standards (within a local culture and within
a business as well), etc. These variables substantially determine relations between cultures and
businesses and resulting CSR.
2. Multinationals on National, International,
Continental, and Global Cultural Levels
Previously mentioned issues are quite simply
resolved on a national level, or even on international level in some special cases, but they are
quite complex on the global/world level. Few
examples can be supplied here. There are many
countries in which two or even more quite diverse
cultural patterns, business cultures, moral norms,
ethical considerations, and consequently CSRs
for centuries exist and coexist as a whole by all
means (Croatia, hardly noticeable country on the
world map, can serve as a fine example). Such
countries may be good examples of how to implement various global CSR standards in terms of
recognizing, avoiding, or resolving standard
obstacles in this process. Another example can
be Europe as the continent on which many differences coexist as a whole (but based primarily on
economic and political reasons). In Europe, due
to specific economies, for instance, personal

735

capitalism in the UK, cooperative managerial

capitalism, or social market economy in Germany, etc., contrary to say competitive managerial capitalism in USA; due to different
free-market clusters such as Germanic, Latin
European, and Nordic one; due to specific business climates in which businesses aim at broader
social, legal, political, and cultural environment;
due to jurisprudential heritage and practices; and
due to political and social culture of regular
dialogue and negotiations as preconditions of
all decisions and actions, specific relations and
at least mutual respect between businesses and
local cultures produces specific approach to CSR
(nowadays flavored with EU Commission Green
Papers). As a result, most of CSR in EU is done
within the whole composed of businesses, cultures, politics, and different laws and regulations
and in terms of stakeholder theory application, or
applications of various ethics such as ethics of
care, ethics of responsibility, ethics of discourse,
or pragmatist ethics. Such approach releases the
tension between different corporate and cultural
methods and goals, and in addition offers an
integral understanding of the whole of cultures,
businesses, and resulting CSR.
Now let us move from a continental to a global
level where there are several unique relations,
which are important since they require special
attention, for instance, the relation:
Between the strongest multinational companies and small local cultures in developing
countries
Between multinationals and local cultures in
leading countries
Among multinationals
There are varieties of values, of doing business,
and CSRs in different countries and continents.
Multinational companies have been focused on
three groups of ethical disputes (De George 1993):
(d) By which rules are multinationals bound:
those of the home country or those of the
host country? If those of host country, then
it could mean that a multinational would
obey local laws and customs no matter if
they are unacceptable in the home country.
If those of home country, then it could mean
that a multinational will confront the local

736

laws and customs with its own corporate culture which can be considered legal and good
in the home country but completely criminal
and immoral in the host country (examples
like child labor, forced labor, discrimination
on the basis of gender or race).
(e) How a multinational should perform if it
operates in a less developed country? To what
extent it should interfere with the host countrys
resources, labor, and culture? Should human
rights be regarded as minimum of interference
in terms of not ignoring safety, health, protection of land, etc. of the host country?
(f) Although there are universal human rights,
there are no adequate international social institutions, laws, and courts which can set rules for
multinationals. Therefore, multinationals can
fix prices in transfer payments, avoid taxes,
and circumvent national legal restrictions.
What kind of global institution is needed in
order to control multinationals? (For instance,
the Clinton White House in July 1998 declined
to sign the documents of the International
Criminal Court (ICC) precisely because of
a clear view on these matters).
The hypothesis (4) can be viewed from
a variety of perspectives, but two are of importance here, namely, from the cultural point of
view, and from business point of view. These
viewpoints are not as mutually radically opposed
as they seem to be:
Since under the cultural point of view, one
should have in mind some elements of cultural
anthropology dealing with economic, business, and entrepreneurship phenomena.
Under the business point of view, one should
have in mind some elements of international
and inter- and transcultural business practices
(in spheres of international management, marketing, governance, etc.).
Both views meet in different pragmatic models
of integration of CSR in the whole composed of
businesses and cultures. The most fitting model is
an application of the stakeholder theory contrary to
the most popular practice which is the stockholder
theory, but there are other theories such as an

Cultures, Businesses, and Global CSR

integrative social contract theory (Th. Donaldson),

etc. Now, concerning an application of these and
similar models not in small-scale cultures but on the
global level it should be mentioned that there are at
least two major strategies concerning the relation
between businesses and cultures, namely:
(g) Global strategy (typical monoculturalism)
which seeks workers who are the closest to
the corporate standards (previously marked
as (b))
(h) Adjustment strategy (typical multiculturalism) which seeks workers who are the closest
to the local standard of a good worker in
terms of work habits, values, etc. (Hodgetts
and Luthans 2000; De George 1993) (previously marked as (a), as shown in Fig. 2, see
relations ad between a and b in Fig. 1)
The choice between (g) and (h), if it is a real
choice at all since there are many mixed models,
in order to solve practical daily issues implicit in
(df), is primarily the choice between different
modes of corporate governance, which can be
qualified as being proper or improper, sensitive
or insensitive, responsible or irresponsible,
etc. Furthermore, it is not obvious that (g) is bad
and that (h) is good since there are circumstances
in which good corporate standards can improve
the life of a local culture (no matter if they de
facto rarely do). However, in most cases (g) tends
to change the local culture and this quite often
ends with irreparable damage to a local culture
(in terms of lives, health, habits, heritage, environment, or simply language or a dialect). It is
possible even that (h) is not always the best for
a local culture since surely it is possible that there
are some corporate practices that can be useful
for a local culture in terms of its better maintenance and improvement. Basically, the choice
here should be made on the basis of understanding of business and local cultures communicating
and working together and this point is frequently
overlooked. (Prosser 1989; in Fig. 2 g/h is proposed as more adequate then a) In short, CSR
experts and practitioners are still looking for
a proper analysis of the phenomena and for effective models.

Cultures, Businesses, and Global CSR

Cultures, Businesses,
and Global CSR,
Fig. 2 Two basic
strategies; global (g), and
adjustment (h), and in
a possible mutually
transactional strategy (g/h)

a company

737

a local
culture

a company

=
a local
culture

Global strategy (g)

a company

a local
culture

C
=

a company

a local
culture

Adjustment strategy (h)

a company

a local
culture

a company

a local
culture

Mutually transactional strategy (g/h)

Future Directions
Cultures and Businesses as Perspectives of
an Integral Living Process: Lessons for
a Global CSR
It seems useful to view and to act as this interaction
between a business and a local culture is a kind of
process (as a whole) which should be managed
properly or lege artis meaning with certain mutual
respect and dignity as properties of the very process. A CSR as an integral part of a culture, no
matter if it is considered on a conceptual, an intranational, an international, or a global level, flows
from the very nature of core business, and it is by
all means value-neutral set of routine practices
integral, implicit, and essentially manifested by a
good business being done properly. Now, the
idea of global CSR is not the idea of an
essence which should be universally imposed to
any global business as something additional,
extraordinary, or special.
(5) Rather, the idea of a global CSR is the idea of
a global net of many similarities and dissimilarities, analogies and disanalogies, and patterns of national, international, and

continental CSR practices as an integral part

of global businesses by multinationals,
a perspective implicit and essentially
manifested in and by a good core business
being done properly (as shown in Fig. 3).
(5.1) It is not the issue of whether multinationals should or should not do intentional direct harm, produce more good
than bad in the host country, contribute
to local culture or not, respect human
rights or not, pay taxes or not,
etc. because they should, rather it is
the issue of how they should do it.
(5.2) The best way to observe and to develop
the very phenomenon of CSR on
a global level is to start from official
financial and auditing reports and statements (of course, some global accounting ethics is presupposed here). (For
global accounting see McPhail and
Walters 2009; and for finance see
Boatright 2010). There one can find
enough data for starting a research on
various issues concerning particular
stakeholders, not just about business

738

Cultures, Businesses, and Global CSR

Business +
CSR theory

manifests

Business +
CSR practice

governs

A CORE
BUSINESS
Standard business
/ CSR procedure

creates

exemplifies

Business ethics +
CSR principles
(ethical codes...)

Finance,
accounting,
management
and marketing
culture

Business +
CSR facts

Global
Business
Culture

A local
culture

Cultures, Businesses, and Global CSR, Fig. 3 An integral unity of business, cultures and CSR

being done legally or not, but socially

responsibly or not as well.
(5.3) Based on such observations one can
research in all other directions using all
convenient methods for creating global
minimum standards of CSR which will
respect all sides included (For global
marketing ethics see Brenkert 2009; and
for global management see Hodgetts and
Luthans 2000; and Allinson 2005).
To return to the examples from the beginning,
this is why one can and perhaps should be somewhat reluctant while deciding which is worse,
namely, a legal global business being only selectively CSR, in one part of the world (and say in
terms of philanthropy), while being completely CSI
in some other part, or an illegal global business
being authentically, nonselectively, and anonymously CSR.
(6) Such procedural or in fact organic unity and
a morphological understanding of the interaction between businesses and cultures can
improve not just our initial motivation for
acquiring knowledge about others and our

respect for the different/others, no matter if

we are part of a company or of a local
culture, or both, but our acknowledgment of
the whole integral process and its dignity as
well. Such understanding will result with
a CSR/culture sense and sensitivity, and practices as integral to global businesses. Therefore, global businesses and local cultures
have a responsibility to acquire and to share
all that is mentioned in Fig. 3; in short the
duty to understand. Without mentioning
other prerequisites for a global CSR even
this one taken solely obviously presupposes
certain social and cultural climate and sensitivity without which it cannot be achieved.
(6.1) The crucial category of this model is a
standard business procedure (SBP). Its
CSR naturally flows from understanding
it in terms of a core business (as shown in
Fig. 3 in the middle). However this is the
result of particular procedures in particular companys departments. If
a company is a multinational one, then
its global business culture is determined

Customer Lifetime Values

by local cultures as well as by particular

procedures which manifest SBP. Therefore, local cultures and core businesses
of a company are inter-reliant.
(6.2) Now, how is this done? If a company and
a local community understand the
companys core business, then SBP is
the way via which such understanding
is acquired, namely SBP manifests theory (say the process of production of
some good or service), governs practices
(production, marketing, etc.), creates
facts (results), and exemplifies BE and
CSR (in terms of principles and ethical
codes).
Only within such redescription of a global
CSR as a kind of context of understanding,
a conceptual background, and a cultural whole,
the protection of human rights, various global
initiatives such as UN Global Compact, Green
papers on CSR by European Commission, and
various global codes of various professions, and
of multinationals can make any sense and can be
put into work effectively in the long run (because
in the short run it is like Napalm Death band
sings: Multinational corporations, genocide of
the starving nations).

739

de George, R. T. (1993). Competing with integrity in

international business. New York: Oxford University
Press.
Deal, T. W., & Kennedy, A. A. (1982). Corporate cultures. Reading, MA: Addison-Wesley.
Frost, P. J., et al. (1985). Organisational culture. Beverly
Hills: Sage.
Hodgetts, R. M., & Luthans, F. (2000). International management: Culture, strategy, and behaviour. Boston:
McGraw-Hill.
Hoffman, W. M., Kamm, J. B., Frederick, R. E., & Petry,
E. S., Jr. (Eds.). (1994). Emerging global business
ethics. Westport: Quorum Books.
Hofstede, G. (1980). Cultures consequences: International differences in work-related values. Beverly
Hills: Sage.
Prosser, M. H. (1989). The cultural dialogue: An introduction to intercultural communication. Washington
DC: SIETAR International.
Wittgenstein, L. (1998). Culture and value. Oxford:
Blackwell.

Global Applied Perspectives

Allinson, R. E. (2005). Saving human lives, lessons in
management ethics. Dordrecht: Springer.
Boatright, J. R. (Ed.). (2010). Finance ethics, critical
issues in theory and practice. Oxford: Wiley.
Brenkert, G. G. (2009). Marketing in a global society. In
G. G. Brenkert (Ed.), Marketing ethics (pp. 184233).
Oxford: Blackwell.
Mcphail, K., & Walters, D. (2009). The ethics of international accounting. In K. McPhail & D. Walters (Eds.),
Accounting and ethics (pp. 156184). Oxford:
Blackwell.

Cross-References
Bribery and Corruption
Corporate Social Responsibility
Cross-Cultural Attitudes to CSR
Cultural Differences in Values/Ethics and
Decision-Making
Global Governance and CSR
Stakeholder Theory

Customer
Primary Stakeholders

Customer Commitment Statement

References and Readings

Mission Statements (Credo, Way, Vision)

Global Universal Perspectives

Aras, G., & Crowther, D. (2008). Culture and corporate
governance (Social responsibility research network).
London: Ventus Publishing ApS.
Cook, J. W. (1999). Morality and cultural differences.
Oxford: Oxford University Press.

Customer Lifetime Values

Customer Value Creation

740

Customer Perceived Value

Customer Value Creation

Customer Satisfaction
Customer Value Creation

Customer Value Creation

Hart O. Awa
Department of Marketing, University of Port
Harcourt, Port Harcourt, Rivers State, Nigeria

Synonyms
Competitive advantage; Customer lifetime
values; Customer perceived value; Customer
satisfaction; Customer value drivers, relationships; Market orientation; Outside-in approach

Definition
Customers willingness to buy a product is often
driven by his assessment of its functional, social,
and psychological values relative to alternatives
and efforts. When making choice among competing alternatives, rational and knowledge customers prefer offerings perceived to deliver
superior value, thus potentially creating competitive advantage. Consumers themselves articulate
value expectations for every product class, brand,
and vendor based on their vast access to information and attempt to express such expectations as
preference drivers. The classical economic theorists view customer value as the worth of a thing,
which may be intrinsic or extrinsic. By this,
inducement of feelings and emotional states
through respects, courtesy, warmth, empathy,
and assistance may also be an integral part of

Customer Perceived Value

customer value delivery network. Customer

value creation is a customer-centric or outsidein framework that optimizes corporate growth
through long-term affairs between a firm and its
customers. It is a complex phenomenon (often
inferred from behavior) incorporating multiple
contexts (pre and posture) and multiple assessment criteria (attributes, performances, and consequences); it is relative in comparison to known
and imagined alternatives; and idiosyncratic (two
consumers rarely evaluate value indices uniformly), dynamic, conditional, or contextual
depending on individual, situation, or product.
Customer value is rooted in equity theory and
often results in rational and/or emotional bonds
with a product/maker. However, because equity
concept measures customer evaluation of what is
fair, right, or deserved for cost of offering, value
creation transforms conformance value into
a subjective perception of benefits (utility,
worth, quality) a customer receives from
a product relative to the sacrifice made and competitors offerings. Consumer value is the perceived preference for and evaluation of product
attributes, attribute performances, and consequences arising from use that facilitate achieving
customers goals and purposes in the use situation. It is rather intangible asset/experience-based
judgment of a product by a customer or a tradeoff between multiple benefits (pecuniary and
non-pecuniary competence, market position,
and social and psychological rewards) and sacrifice (price, cost, time). Strategists should understand what these trade-offs are, and attempt to
influence elements of perceived customer value,
customer
lifetime
value,
and
value
delivery processes product features,
manufacturing, distribution and logistics, advertising appeals, etc.
With the influx of sophisticated technology
and internet, data-based marketing uses database
technology and analytical techniques to build
front-office and back-office systems to evaluate
customer value drivers, buying pattern and lifetime value of individual customer expressed in
sales and profitability overtime. The front-office
database systems track and analyze multisourced
assortment of data on each customers habits or

Customer Value Creation

shopping profile in terms of demography, attitude, perception, psychographics, and other characteristics that determine preferences, activities,
tastes, likes and dislikes, and complaints. However, the back-office systems (or data warehouse)
fill and support customer orders and store all
customer information to help top management
or recovery team monitor contacts and make
informed decisions on how to add values and
foster continuity in the buyer-seller affairs.
Firms use intimate knowledge of customer preferences to inject into every staff and units of the
organization, including the trading partners (e.g.,
suppliers and dealers) esprit de corps toward
building differentiated and customer valued
business. The effectiveness of marketing
strategy revolves around understanding the
factors that drive customer perception of values
or the heuristic of value equation perceived
value perceived benefits /delivered price.

Introduction
The road maps in firms pursuit for where and
how to attract long-term growth given environmental changes revolve around real and
sustained customer value creation. Customers
are fast becoming a key source of competitive
advantage organizations enjoy market leadership and dominant market share by distinguishing
themselves in sustainable customer value
creation process offering streams of unique
and compelling benefits to the chosen market
segments. The knowledge economy attempts
convergence of information, goods, and services
into total solutions to maximize customer perceived values and of course customer satisfaction.
Firms
develop
knowledge-based
relationship with customers in attempts to create
and deliver customer values overtime; they seek
to replace win-lose or zero-sum thoughts
(negative) with win-win thinking or value
creationdriven growth (positive). Gone are the
days of manipulation of marketing mix and
wealth maximization, traditional re-engineering,
single unconnected events, or exclusive focus on
internal value creation (inside-out) processes.

741

Businesses are now deeply involved in customer

intimacy, enriching the customer, ongoing customer relationship, or internal and external value
creation, where a clear grasp of the world of
customers helps the value-chain to deliver customized solutions. In the contemporary world of
change, tailoring marketing strategy to suit customer value propositions implies defining business purpose most validly in terms of creating
customer values.
Effective marketing strategy pushes customers upward in the loyalty ladder by linking
customer value requirements with processes for
creation, production, and distribution. Putting
growth first (e.g., short-term financial goals or
to maximizing shareholders wealth) may impair
wealth and perhaps reduce sustainability of prospective opportunities. Rather strong revenue
growth is sustainable when firms deliver superior
customer-endorsed and difficult-to-copy distinctiveness borne out of capability gaps. The novelty
is placing value-chains future in the hands of
customers via cooperation and commitment to
promises, shared values, mutuality, and
reciprocity. Customer value creation is crucial
to market orientation and defines key success
factor(s) (KSFs) and competitive performance.
When fueled by a culture of change, appropriate
mix of human networks, social capital, intellectual capital, and technology assets provide
services customers find consistently superior
and useful. Strategists aggressively seek for, and
build, competitive advantage that demonstrates
superior customer values (satisfaction) and
firms financial performance. Customers being
an absolute entity in all managerial decisions,
the sustained meeting of their differential aspirations defines firms potentials for survival, greatness, and value creation.
Creating and delivering superior customer
usefulness
inescapably
involves
new
organizational forms emphasizing systems and
value-chain management that link the divergent
interests of employees, suppliers, dealers, and
investors alike. The era of selfishness, superficiality, and self-indulgence with its concomitant
oppressive and offensive associations, fragmented
views, corporate disgrace, short-term exchanges,

742

and a power-based notion is gradually replaced

by dynamic value-chain relational longevity
and harmonic connections. Fragmented focus on
maximizing the interests of one group (say
customers or investors) may not guarantee sustainable value creation and growth; rather
a precise understanding of customers relative
and dynamic propositions requires the commitment, energy, and distinct imagination of
employees and other subsystems, including
the delivery of consistent maximized shareholders wealth. Employees are an enviable
source of competitive advantage or difficultto-copy innovative services; thus, management
theories emphasize they should be adequately
motivated and rewarded, counseled, trained and
retrained, treated mature, and encouraged to do
challenging jobs and be involved in decision
making.
The question is what drives customer values?
Customer value drivers are the outcome of
buyers beliefs about a product, its maker, buyer
motivation, and buying situation. They facilitate
cognitive processing and retrieval of information,
provides basis for differentiation, creates attitudes and feelings, and ultimately provides reason to buy. Consumer behavior scientists support
the notion that choice among alternatives is
a function of customer value perception. Value
perception is influenced by customer value
drivers decision-related attributes perceived to
hold top-notch position in consumer decision
exercise. Scholars including Sheth and his
coauthors proposed theoretical models that provide lenses to the understanding of values that
drive customer choice.
1. Functional and Emotional Values. Buyers
motivations are often objective, subjective,
or emotional. The theory of hedonism assumes
man seeks pleasure; he often draws perceived
values from subjective cost-benefit analysis of
a product. The cost relates to consumers perception about information search, acquiring,
owning, installing, using, servicing, and/or
disposing of a product. Others are environmental and opportunity costs, degree of budget fit, price, volume discounts, profitability,
and cash flow. And the benefit results from the

Customer Value Creation

perceived utility derivable from the products

physical, utilitarian, economic, and psychological specifications. Sometimes, customer
values are driven by an emotion rather than
actual functional performance; that is, feelings
of love and affection make a product to enjoy
favorable halo effects.
2. Social and Psychological Values. Sometimes,
consumer values are derived from who is present at the point of purchase and his apparent
roles in decision making as well as the extent
of membership cohesiveness to the norms and
values of demographic, socioeconomic, cultural, religious, racial, or ethnic groups. Customer value is also derived from buyers
psychological motivation and goals arising
from needs for visibility, recognition, prestige,
and self-esteem, and belongingness. Other
goals may be to avoid high-profile failures
and to be viewed as opinion leader and problem solvers.
3. Epistemic Values. Customer value is also
driven by some products or firms characteristics of creating curiosity, novelty, and desire
for knowledge. Values may be creatively
made or improved upon customer-delivery
attributes to offer low price and superior service; to ensure on-time delivery, innovative
solution, and integration with existing systems; to minimize learning complexity and
dexterity, costs of installing, operating and
servicing; and to provide additional service,
or to appeal to other market segments.
4. Situational Values. Specific situations and
purchase decision contexts drive customer
values. Situation may facilitate or debar
a given purchase behavior or may not even
have influence at all. Buying situation consists
of temporary environmental factors that form
the context within which purchase-related
activity occurs. Russell Belks classic work
proposed that current values and behaviors
may be shaped by time and place of observation outside personal and stimulus attributes.
We may infer that the five situational factors
addressed in his work influence customer
value assessment and ultimately behavior.
Physical
surroundings,
e.g.,
store

Customer Value Creation

environments decors, sound, visible configuration of merchandise, etc; social surroundings (see 2 above); task antecedent, e.g.,
momentary moods such as anxiety, pleasantness, hostility, and excitements or momentary
conditions such as cash on hand, fatigue, and
illness rather than chronic traits; task definition, e.g., shopping for use or for gift; and
temporal perspective, e.g., time of the day to
season of the year.
5. Buyer Perception about the Vendors. Often
customer values are driven by the extent to
which buyers perceive firms as good strategic
partners. This view is informed by the firms
perceived financial, technology and manpower strengths, credibility, trust, expertise,
and commitment to shared values. Where economic and performance values can be
influenced relatively rapidly by changes in
price and product design, it takes longer time
to change perceptions about a company.

Strategic Tips on Customer Value

Creation
Customer value is created when a firm delivers
customer delight and satisfaction. Seven tips are
provided below to guide building customer value.
Mutual exclusiveness does not apply in choosing
these tips since the use of one does not preclude
the use of the other, especially among firms that
have different business/product portfolios that
perhaps demand a blend.
1. Customer Service
Early marketing mix taxonomy recognizes
customer service as an integral supportive function. Perhaps, the stiff competition in most industries precipitates customers new pedestal
providing overtime support to avoid opponents
encroaching and/or to encourage trial or
switching behaviors. The contemporary approach
involves the use of call centers and Customer
Interaction Centers (CIC) CRM software to
store all customers details in terms of their service requests, complaints, product returns, and
information requests. Such information are multiple sourced Web, fax, phone, face-to-face,

743

kiosks, etc. When a customer calls, the system

can be used to retrieve and store information
relevant about him. By serving the customer relatively faster and better, and by keeping all information about him centrally, a company aims at
customer retention, cost savings, and profitability; encouraging new customers and customer
referrals; and building customer values. The key
infrastructural requirements of CSS include
Computer Telephony Integration (CTI), which
provides high volume processing capability and
reliability. This means issues such as product
availability and ease of acquisition, price
and discount plans, installment credit policy,
service and delivery plans, information booklet
and dissonance reducing and/or eliminating
details, promotions, and others are integral in
building consumer values and so, they are
assumed ongoing and essential functions of digital interactions.
Excellent customer service is anchored on
a tripod people, processes, and environment.
People staff is monitored through actual measurements of external and internal customer satisfaction as well as compliance to customer
defined service level; processes are continually
monitored and improved upon through models
TQM, Benchmarking, Control Charts, Matrices,
PERT, etc; and environment recognizes
the peculiarities of the local and nonlocal
changes. However, customer service development is anchored on 7 Cs; a model proposed to
guide organization on how to tailor customer
values.
Contacts/interactions. Regular and stress-free
contacts with customers as well as visible and
accessible solution to customer problems
improve managerial decisions. The firms
social relationships should portray it as
a good corporate citizen.
Compassion. Commitment and supportiveness to customers ideals; making accounts
feel their business quota contributes
significantly to the growth of the organization;
understanding consumer problems and
aiding risk reduction; and alerting
customers on the need for other product or
service items.

744

Communication. Company-wide commitment

to customer satisfaction; listening to, and
relaying, customer complaints for proficient
handling; and devising responsive approaches
geared
at
improving
dissonance-free
exchanges after-sale service in the forms of
congratulations for the making the wisest
choice, free installation, instruction manuals,
customer education, and spare parts and maintenance services.
Competence. A good salesperson needs initiatives, creativity, knowledge, and technical
know-how to offer constructive and valuable
customer advice, especially in a competitive
world. He also masters the use of modern
technologies to write quality reports that can
aid management decisions.
Credibility. Staff personal traits and professionalism should portray believability in
terms of dependable and consistent performance and meeting deadlines for customer
delivery.
Confidentiality. Trustworthiness, consistency,
and reliability; integrity and privacy of customer information; and offering personalized
attention to accounts.
Courtesy. Creating an atmosphere of relaxed
relationship; showing empathy and personal
rapport with accounts; effective use of customers time and resources; and recognizing
the accounts efforts to the organizations
growth. Firms dialogue with customers
and form cooperative networks with them to
cultivate switching barriers and loyalty
expressed in repurchase intentions and crosssell opportunities.
2. Market segmentation
The audiences show different responsiveness
to various marketing programs; marketing management avoids spreading thin in all fronts by
operating mass marketing. Recognizing the
nature of market strata and available resources,
customer valuebased segmentation, or benefitsought segmentation timely informs management
on choosing and targeting specific customer
groups with appropriate identifiable customer
value requirements. General Foods, for instance,

Customer Value Creation

markets canned dog to reflect sociocultural

changes that influenced dog ownership and dog
care. The company unveiled five major dog
owner segments (functionalist, family mutt,
baby substitutes, nutritionalist, and middle of
the road) each with distinct needs, customer
value, or motives relating to ownership or care.
3. Product-/Market-Related Strategies
Firms pursue customer valuedriven growth
when they raise market share and/or sales objective significantly through ensuring product
design processes are based on customers voice.
Borrowing Igor Ansoffs product/market expansion framework, the four quadrants guide
management.
Penetrating incumbent markets. Innovation in
value creation may involve using existing
organizational and marketing capabilities to
increase primary demand, and to encourage
new uses for old offerings among current
users. The firm encourages more uses per
time, brand switching, and trial behavior
among nonusers in the segment.
Developing new markets and new uses. This
integrates new market segments that have
needs that may be met by existing offerings.
It may involve new distribution channel and
reaching out to other geographical locations
and countries. Aside the conventional retail
outlets, the firm may use trained salesmen to
call on prospects at home, daily markets, and
offices to make representation for the
products.
Creating new products and services. This
demands the provision of different economic
satisfaction through adding incremental products, new products, or new product lines that
had not existed in the companys portfolio. It
could also result from low cost but quality
innovations resulting from manpower uniqueness and access to cheap and quality raw materials. Cost reduction must offer long-term
supports to customer value creating activities
and, thus, results from product or process
improvements.
Spreading risks. Innovation may be offering
different products for creating new potential

Customer Value Creation

satisfaction rather than building primary

demand through semi-skimmed (or product
improvement) approach. The assumption is
opportunities exist outside the present business and the firm has a proper mix of business
strengths to tap it or spread risks. This
approach may cost more but its overriding
effect is to make the economy more
productive.
4. Distribution and Promotion
The database technology and analytical techniques of data-based marketing provide overtime
customer lifetime values and effective guide to
customized offers and target of resources. The internet is revolutionary; it has brought a lot of innovations in distribution channel. For instance, the
promise of electronic commerce is improved firmcustomer/value-chain alignment through information sharing culminating to great potentials for
exchange of customer values and product information. Thus, disintermediation captures improved
profitability and direct contacts, and low selling
prices. Increasing customer intimacy at lower
costs augments firms ability to create superior
values. Also, web interaction may include valueadding customer incentives in the forms of rebates,
price-off, coupons, sweepstakes, free samples,
etc. However, one should recognize that unleashing
more premiums on incumbent customers makes
economic sense because customer value increases
customer retention and profitability.
5. Pricing policy
Often price measures wealth, value, quantity,
and quality. Firms maximize returns when they
use value-based pricing policy; they set prices in
accordance with perceived customer value
expectations (as shaped by value drivers) relative
to competition. Those that pursue proprietary
valuebased competitive advantage enjoy less
price sensitivity culminating in higher or stable
price even when competitors aggressively lower
prices. A good grasp of the world of consumers
reduces operational costs and asking price, and
ultimately builds loyalty.
6. Customer Relationship Management
The instability in the world business cycle
perhaps since the 1980s; shorter product lifecycle

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and market saturation; complexity and globalization of markets; and technological breakthrough
have caused repositioning of business to giveand-take flow of values. The recognition is that
the cost of generating new customers outweighs
that of keeping existing ones. Scholars (e.g.,
Buchanan and Gilles 1990; Boone and Kurtz
2007) show that continual delivery of customer
values is associated with relationship and profitability. First, account maintenance costs decline
as percentage of revenue increases per account;
second, sales is stimulated by building switching
barriers and less price sensitivity as well as creating media through which satisfied customers
voice out cost-free viral promotions and referrals;
and third, long-term customers are more likely to
purchase ancillary products and higher margin
supplemental products. For instance, product
bundling (pairing goods or services for a price,
e.g., Dabur Herbal toothpaste and Ballpoint pen)
and sales cannibalization/cross-selling (selling
related offering to existing customers, e.g.,
Coke and Diet Coke) satisfy the last option.
7. Positioning and Repositioning
Once a product is accurately made to reflect
customer value requirements, the next marketing
thrust is to utilize firms distinctive value creating
competencies to create competitive advantage.
Often firms effectively use elements of promotion to carve out a distinctive niche in the minds
of the public(s) in a manner that the firm and its
products are perceived to solve customer problems relative to competitors offerings. For
instance, Avis challenged Hertz saying we are
number two, we try harder; it differentiated itself
from the underdog a clever marketing strategy,
since Americans tend to favor the underdog. An
effective positioning attracts premium price and
distribution leverage and makes it difficult for
opponents to match attractively without lowering
customer value indices. However, an effective
positioning may be repositioned later to accommodate changes in the environment. For instance,
7 Up Bottling Company repositioned itself from
Un-cola to a Caffeine-free soft drink with the
message: Caffeine. Never had it. Never will.
Schlitz was positioned as: when youre out of

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Schlitz, youre out of beer, and following the

result of a psychographic study, Schlitz was
repositioned to appeal to the heavy beer consumers sense of masculinity, hedonism, and
fantasy.
Firms are guided by the following steps in
their choice of positioning and repositioning;
identify relevant unique selling propositions (or
value drivers), assess the relative importance of
each in the consumer decision process, compare
the product with competitors on important value
drivers, and determine the information needs in
the buyer decision process.

Key Issues
Customer value creation evolves to offer sustainable and more strategic growth opportunities to
firms. Writings on it have long existed but it is
only recently their application began to gather
moment owing to stiff competition and other
environmental variables. The philosophy is that
profit maximization is not the purpose of an
enterprise but a limiting factor. Profit is a result
and not a cause; it is a test of business validity or
performance against the classical economic
invention emphasizing the explanation, cause,
or rational of business behaviors. Business purpose lies in the society; its ability to continually
deliver customer values measures its competitiveness and permits the mantra of your money
back and no question asked. Therefore redefining
business purpose to reflect customer values is
increasingly important because the competitive
world demands long-term buyer-seller affairs
rather than the traditional interactions created by
marketing mix taxonomy.

Future Directions
Sustainable growth and good corporate citizenry
are increasingly achieved by placing customer
value creation first. This raises questions about
the processes through which customer value creation advocates convince value-chain/investors
on improved customer intimacy. Recognizing

Customer Value Creation

that there is a paradigmatic shift from shortterm buyer-seller interactions to an overtime relationships, the future directions of research should
focus on
Proposing more dynamic mechanisms that
guide management on thorough grasping of
the world of consumers with special interest
on what drives customer perceptions, and
translating same to superior and compelling
values.
Redefining and revalidating the linkages
between customer values, marketing strategies, business purpose, and business process.
Regularly reconsidering the dynamics of customer values and buying situations in order to
make reliable forecasts bearing in mind the
length of time required to implement investments in service/product development, marketing channels, and other business
processes. Apparently ample studies focus on
this but not much applies to practical settings.
Therefore, organizations wanting successful
growth potentials amid changing environment
must critically explain the customer in terms
of his value propositions and value expectations, and deliver same better than
competitors.

Cross-References
CSR and Catholic Social Thought
Customer Perceived Value

References and Readings

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Collaborative experience of value chain architecture:
A systemic paradigm to building customer loyalty.
Global Journal of Management & Business Research,
11(3/1.0), 6980.
Belk, R. (1975). Situational variables and consumer
behaviour. Journal of Consumer Research, 2(3),
157164.

Customer Value Drivers, Relationships

Boone, L., & Kurtz, D. (2007). Contemporary marketing.
Philadelphia: Harcourt College.
Buchanan, R., & Gilles, C. (1990). Value managed relationships: The key to customer retention and profitability. European Journal of Management, 8(4),
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Igor, A. (1965). Corporate strategy. New York:

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Customer Value Drivers,

Relationships
Customer Value Creation