Decisiones compartidas: responsabilizar e implicar a los hijos

This section concentrates on the fundamental aspects of CSR and details its underlying motivations and early practice by industrial philanthropists. It also underlines the reasons why economic motivation prevails among contemporary organizations.

Benevolent business leaders had placed CSR at the heart of their businesses long before the term CSR was even invented. Early industrial philanthropists had demonstrated great concern for their employees and the local community. This was evident in the establishment of industrial towns for their workers and the local

61 community. In the UK, the essence of CSR could be traced back in the aftermath of the Industrial Revolution (Smith 2003; Blowfield & Murray 2008) and was practiced by renowned industrial magnates. For example, George Cadbury built the Bourneville town in 1879 equipped with proper housing and basic amenities for his factory workers (Smith 2003; Blowfield & Murray 2008). Similarly, this paternalistic capitalism was also championed by William Hesketh Lever, founder of Lever Brothers (now known as Unilever) who promoted a sound employee welfare scheme which included a fixed eight hour working day, sickness benefits and a pension, while ensuring workers were not deprived from a convenient and healthy living by building the ‘garden village’

(Fitzgerald 2003, p. 3). The place was named after one of Unilever renowned brands Port ‘Sunlight,’ back in 1888 (Daily Post.co.uk Sept 21, 2007; Smith 2003; Fitzgerald 2003). In Scotland, an exemplary business practice was championed by Robert Owen.

Among his first attempts, after acquiring New Lanark, the largest cotton-spinning factory in Britain, from David Dale, was to build schools for the New Lanark community (Robert Owen n.d.). He also abolished child labour in his factories. A similar practice was observed in the United States – George Pullman (1881) built a town on the outskirts of Chicago for his railroad car company workers which was described as the ‘most perfect city in the world’ (Smith 2003, p. 52; The Economist 1995). L’Etang (2006) associated these paternalistic acts with Quakerism, which was inclined to do social justice on the basis of religious faith. She further affirmed that modern ‘CSR practice in Britain originated in the Quaker’s values rather than invented in the US in the 1960s’ (p.407).

62 Despite their noble gestures of doing good to employees and society at large, the philanthropists’ underlying intentions are often questioned. Scholars have suggested multiple motivations that drive corporations to undertake CSR. Hemingway and Maclagan (2004) identified the Quakers’ philanthropic programmes i.e. Cadbury and Lever who were driven by altruistic values. Similarly, Rowlinson & Hassard (1993 in Hemingway & Mclagan 2004) proposed a more critical stance as they affirmed Quakers’ philanthropic commitment was a reactive response to ‘contemporary social movement’ or merely public relations (p.37). On the other hand, Smith (2003) argued that the purpose of these paternalistic actions reflects a mixture of a desire to do good (the ‘normative case’) and enlightened self-interest (the ‘business case’) (p.53).

In recent years, there has been an increasing volume of literature which has identified the business case as the main aspiration for many organizations to engage in CSR (Cochran, 2007; Silberhorn & Warren, 2007; Waldman & Siegel, 2008). For example, a survey of CR reported by KPMG found that 74% of companies disclosed

‘economic considerations’ as a driver for corporate responsibility (KPMG 2005 cited in Smith 2008, p. 282). A clear business case for doing good was also central in Prahalad

& Hammond’s (2003) article ‘Serving the world’s poor, profitably’ which emphasised how doing business in the world’s poorest market could help multinational companies (MNCs) improve the lives of billions of people while at the same time bring enormous revenues, greater operating efficiency and new sources of innovation. The business case of CSR was further enhanced by the growing volume of evidence elaborating on the benefits that have accrued from CSR practices. For example, Business for Social Responsibility (BSR) in Kotler & Lee (2005) highlighted a range of bottom-line benefits that may derive from the practice of CSR that among others include, ‘increased

63 sales and market share, strengthen brand positioning, enhance corporate image, increased appeal to investors and financial analyst’(pp.10-11). In addition, the meta-analysis¹⁹ findings conducted by Orlitzky, Schmidt & Ryan (2003 in Orlitzky 2008), supports a positive relationship between Corporate Citizenship (CC) and Corporate Financial Performance (CFP) (p. 116). Such finding has countered previous studies that displayed a weak linkage or neutral relationship between CSR and Corporate Financial Performance (CFP).

On the other hand, scholars have also identified that manager’ personal values and interests in a particular social cause can be a motivating factor for adopting best business practices (Hemingway & Maclagan 2004; Swanson 2008). From this vantage point, Swanson (2008) strongly exhorted that ‘moral leaders should use their organisation’s authority to ensure that the social benefits of corporate impacts are maximised’ (p.233) and at the same time work to lessen harmful outcomes. However, scholars have concluded that the motivation for embracing socially responsible behaviour among corporations is hard to discern (L’Etang 1994; Rollinson 2002 in Hemingway & Maclagan 2004; Dunfee 2008). This thesis among others aims to fill this gap by attempting to examine the underlying motivation of corporations in pursuing CSR in Malaysia.

19 Meta-analysis is a type of literature review that goes beyond the outcomes of statistical significance tests (Schmidt 1992 in Orlitzky 2008, p. 114)

64 2.6 CSR as a Concept

The modern concept of the social responsibility of business has received a mixed response from scholars. This section depicts the early debate on CSR as found in the literature and reasons underlying the apparent tension.

CSR as a concept can be traced back to as early as the 1930s. Professor E.

Merrick Dodd (1932) was among the first academics who became involved in the debating of the social responsibility of corporations. In his classic paper ‘For whom are corporate managers trustees?’(1932) he recommended CSR as a timely concept for adoption by corporations. He observed that the change in public opinion towards business obligations to the community will eventually drive corporations to assume responsibility towards employees, consumers and the general public. His opinion diverged from Berle (1931) who asserted that the sole purpose of business corporations is to generate profit for their stockholders.

However, the modern concept of CSR is attributed to Howard Bowen’s publication “Social responsibilities of the businessman” in 1953 (Carroll 1979). In this seminal work, Bowen recognized that promoting the publics’ interest as a central component in pursuing the social responsibilities of businessmen. He stated that:

‘…the obligation of businessmen to pursue those policies, to make those decisions, or to follow those lines of actions which are desirable in terms of the objectives and values of our society.’ (Bowen 1953, p.6 in Carroll 2008, p. 25)

65 Bowen (1953) further proposed some practical recommendations for corporations to ensure social viewpoints were included in business policies and decision making. He suggested several measures i.e., social audits, social education and a business code of conduct to guide managers in making decisions that fit both the organisation and societal interests (Bowen 1953 in Windsor 2001, p.151). Drawing from functional perspective, PR would be in the best position to advise management to undertake CSR that would generate mutual benefits to both business and stakeholders.

However, this thesis undertakes a critical stance to explore the actual role of PR in CSR in which the functional perspective could be very much contested.

Sethi (1974) maintained that CSR mainly relates to the public’s expectations of an organisation’s behaviour. Akin to Bowen he also drew special attention to the importance of social audit in helping corporations to keep track of the constant change in public expectations and to make necessary changes to a firm’s long term objectives.

Since then, scholars have started to acknowledge the importance of responding to other social factors that deserve the same rights as shareholders (Frederick 1960; Carroll 1979; Jones 1980; Freeman 1984; Waddock & Smith 2000; Wilson 2001; Post, Preston

& Sachs 2002). Business and societal relationships were cornerstone in Davis’s (1973)

‘Iron Law of Responsibility,’ which strongly asserted that business as a social institution ought to use the power granted by society responsibly on a long term basis (cited in Carroll 2008). The influence of society towards business success is also apparent in Carroll (2008) when he wrote:

‘It must be observed, however, that it is society, or the public, that plays an increasing role in what constitutes business success, not just business executive alone, and for that reason, CSR has an upbeat future in the global business arena’(p.42)

66 In this respect, L’Etang (2006) argued that CSR may serve as a potential avenue for organisations to contribute positively to society. She exhorted organizations to make full use of CSR to benefit society in view of the considerable degree of support it has rendered to business. L’Etang (2006) states that:

‘the practice of CSR is potentially a way of redressing the balance and distributing benefits and burdens in society on the grounds that business benefits from publicly funded infrastructures and considerable economic, social, and political power and that this accumulation of power should lead to increased responsibility.’ (p.413)

The heighten demand for corporations to be socially responsible served as a reminder for business to give considerable attention to much wider issues i.e., negative business externalities to consumers and environment, equal job opportunities, culture, health, and education (Ashen 1974). Constant debate on social responsibility of business has indirectly contributed to the development of many theoretical frameworks of CSR i.e., corporate social performance, stakeholder theory, corporate citizenship, shareholder value theory just to name a few. However, this thesis addressed on two prevailing approaches to CSR; the shareholder value theory and the stakeholder theory that represent the Classical view and the alternative view respectively.

2.6.1 Shareholders’ versus stakeholders’ frameworks

The maximization of shareholders’ value underlies the neoclassical economy theory (Mele 2008). The neoliberal economists (e.g., Levitt 1958; Friedman 1970) strongly challenged the idea for corporations to have responsibility other than maximizing profit. Levitt (1958) was among the first to criticize the idea of social responsibility of business. In his article ‘The danger of social responsibility’ he

67 exhorted that welfare and society are not the corporation’s business. Levitt (1958) illustrated this stand when he wrote that ‘welfare is supposed to be automatic; and where it is not, it becomes government’s job’ (p.47). Similarly, Friedman believed that morality, responsibility and conscience reside in the invisible hands (Smith 1776) of the free market system (cited in Goodpaster & Matthews 2003, p.141-142). In this case both the organization and its managers are not responsible to pursue any social good to society. Milton Friedman’s (1970) famous statement that the only responsibility of business is to its owners (shareholders), had profoundly rejected the idea of a firm contributing to social welfare. He argued that a corporation is an artificial person and thus cannot have responsibilities. He also highlighted that the sole responsibility of a corporate executive (manager) is to make as much profit as possible for the owner or shareholders of a company. In his view, agents who are making investments using shareholders’ funds for socially desirable ends is equivalent to imposing taxes on shareholders (L’Etang 2006). Lantos (2001) distinguished three types of CSR: ethical (avoiding social harm), altruistic (doing good works at possible expense to stockholders) and strategic (good works that are also good for business) (p.595).

Consistent with Friedman (1970), he strongly asserted that doing good at the expense of shareholders’ resources without any return on investment is an illegitimate aim for a publicly held organisation. Lantos argument is built on the basis of agency theory that depicts a manager’s role as an agent who is expected to pursue shareholders interests at all times.

Both Levitt (1958) and Friedman (1970) were renowned scholars who profoundly opposed the idea of CSR. Critics believed that Friedman failed to understand the positive advantages to be gained from CSR, such as reduction of

68 business costs and sustaining profits (Heath & Ni n.d.). However, CSR has continued to receive considerable support in literature and has largely contributed to the development of stakeholder theory.

Branco & Rodrigues (2007) affirmed that the stakeholder perspective has become inevitable in CSR discourse or analyses. Evidence in literature has suggested that stakeholder theory has gained momentum in management literature following Freeman’s (1984) landmark book ‘Strategic management’. According to Freeman (1984) the stakeholder approach offers innovative ways for managers to manage their organizations effectively. The term stakeholder was originally defined as ‘those groups without whose support the organization would cease to exist’ by the Stanford Research Institute (Freeman 1984, p. 31). Unlike the classical view held by the neoliberal economists, stakeholder theory suggested that ‘there is a multiplicity of groups having a stake in the operation of the firm, and all of them merit consideration in managerial decision making’ (Lea 1999, p. 153).

Stakeholder theory acknowledged the importance of balancing the interests of business and its other stakeholders to ensure long term business survival. Additionally, the new stakeholder theory hypothesised that favourable relationships with critical stakeholders determined firms ability to generate sustainable wealth and a long term value for society as well (Post, Preston & Sach 2002). Therefore, an underlying challenge for contemporary management based on this contention is to develop and implement organisational policies and practices that take into account the goals and concerns of all the relevant stakeholders. Post, Preston & Sachs (2002) also affirmed that constant learning and monitoring are pertinent conditions for a successful

69 stakeholder management in view of the appearance of a new stakeholder groups and changes that have constantly taken place in terms of stakeholders’ concerns and interests. In a similar vein, Windsor (1999) has argued that the ‘entire notion of the balancing of partially conflicting interests requires more careful scrutiny than has occurred’ (in Windsor 2001, p.243).

On the other hand, L’Etang (1995) in her critique argued that stakeholder theory may neither help prioritising stakeholders nor produce a qualitative account of the relationship ‘but simply describes the formal relationship between company and stakeholders in terms of the company’s mission’ (p. 125). Lea (1999) among others has highlighted critiques that argued responsibility to other non-shareholders may undermine a corporation’s efficiency in generating wealth. Furthermore, managing a fair and balance distribution of resources seems to be another major issue of concern amongst critics and advocates of stakeholder theory. Clarkson (1995) asserted that corporations are obliged to ensure a fair and balanced distribution of wealth to primary²⁰ stakeholders to maintain their continuous support and participation. In this context, he advocated management to use ethical judgment and choices to resolve any conflicting interests (Clarkson 1995). On the other hand, Dunfee (2008) argued that the stakeholder theory is not capable in helping managers to allocate resources on discretionary social responsibility. In view of this deficiency, he advocates managers to treat social investment as equivalent to financial investment and to have some comparative advantage in justifying the CSR allocation along with high standard of transparency (Dunfee 2008).

20 A primary stakeholder group is one without whose continuing participation the corporation cannot survive as a going concern i.e., shareholders, investors, employees, customers, suppliers, governments and communities (Clarkson 1995, p. 106)

70 Notwithstanding the ongoing debate, CSR continues to gain momentum and to embrace wider issues such as community, governance, accountability, supply chain, human rights and the environment (Business for Social Responsibility 2007). CSR discourse at present is being addressed by scholars in many countries (Crowther 2008).

I have argued in Chapter 1 that CSR is a social construct that is greatly influenced by the socio-economic, political and cultural landscape of a nation. The next section focuses on the specific social, political and economic dimensions that have shaped the evolution of CSR in selected countries; the United States and the United Kingdom. As mentioned in Chapter 1, the selection of these two countries has been made in view of their pioneering role in CSR and considerable amount of information found in literature.

2.7 Social, political and economic influence on the evolution of CSR

This section aims to provide insight as to how CSR practice and approach are influenced by the socio-economic and political landscape of a nation as chronicled in the relevant literature. This section begins by illustrating the development of CSR in two developed nations namely the United States and the United Kingdom. The discussion focuses on major policies, economic structure and socio-cultural aspects that have largely influenced the development of CSR in these respective nations. Meanwhile the evolution and development of CSR in Malaysia as reported in the literature will be discussed in Chapter 3.