Embrace Blog Post – Industry Focus II

by Carmel Somers – Digital Technology Skills Limited (DTSL)

The second in a series of blog posts which looks at Corporate Social Entrepreneurship as the end point of a journey which begins with Corporate Social Responsibility.

Corporate Social Entrepreneurship (CSE) is ‘a way of doing business’ so that all staff in any given organisation (public, private or third sector) are fully aware of their role, responsibility and contribution to the sustainable socioeconomic enhancement of their organisations and the communities in which they live and work. The CSE process includes: creating an enabling entrepreneurial environment, fostering corporate social intrapreneurship, amplifying corporate purpose and values as well as building strategic alliances in order to solve economic and social problems and to promote the success of emerging innovative business strategies.

Corporate Social Responsibility – The Theoretical Foundations of CSR

Corporate Social Entrepreneurship (CSE) is a relatively new area which has its origins in Corporate Social Responsibility (CSR). Understanding theories which underpin CSR is useful as they in turn are the foundational theories which impact the theoretical framework of CSE.

Most research studies reference four main CSR theory areas. The first, Shareholder Value theory stems from economic theory, the second Stakeholder theory is based on ethical perspectives, the third, Corporate Social Performance theory evolved from sociology, and the fourth, Corporate Citizenship theory has its origins in political science.

Shareholder Value theory (SVT) states that the only social responsibility of business is to make a profit, thereby increasing the organisation’s economic value for its shareholders. Any additional social activities that a company engages in are only acceptable if they are required by law, or if they contribute to increasing shareholder value (Friedman, 1970). Though Peter Drucker (1954) stated that profitability and social responsibility are compatible, at its core this theory is primarily focused on creating wealth by focusing the company’s efforts towards maximising shareholder value. Tax systems are seen as the way for some of the wealth created by business to be shared with society through government mediation. Any negative social impacts of business can be managed appropriately through the law, and non-governmental organisations (NGO) can address other social problems and inequalities. This model is still widely used by many organisations today.

Stakeholder Value theory takes into account the individuals or groups with a “stake” in the company whether they are beneficiaries, or can be harmed by the actions of the business. This concept of CSR according to Jones (1980) means that “corporations have an obligation to constituent groups in society, other than stockholders and beyond that prescribed by law or union contact”. There are a variety of approaches to stakeholder theory, Evan and Freeman (1988) base stakeholder theory on two ethical principles called the ‘Principle of Corporate Rights’ (P1) and ‘Principle of Corporate Effects’(P2). The former establishes that corporations ought to be managed for the benefit of its customers, suppliers, owners, employees and local communities. These groups should have the opportunity to participate in decisions that impact on their welfare, and their rights must be ensured. The latter states that management bears a fiduciary responsibility to stakeholders and must act in their interests, in addition to the interest of the corporation to ensure its survival. This theory appears to be ethically stronger than shareholder value theory as it considers the rights of the stakeholders and their legitimate interests, therefore managerial responsibility extends beyond fiduciary obligation to the shareholders.

Corporate Social Performance theory evolved from several approaches building on theories by Sethi (1975), Carroll (1979) and Preston & Post (1981). Carroll first introduced the concept of “corporate social performance” outlining a set of four obligations an organisation has to society; economic, legal, ethical and philanthropic and created the “Pyramid of Corporate Social Responsibility”. This was revised by Carroll & Schwartz (2003) to three core domains; economic, legal and ethical and a Venn model framework. By integrating these three domains the model describes the organisations efforts to meet changing societal conditions and provides a starting point to motivate and guide the activities of the business.

Corporate Citizenship theory has its roots in political science where ‘citizenship’ is at the core of the concept and reflects the participation of business in society and, as noted by Matten et al., (2003) business has it’s ‘rightful place in society, next to other ‘citizens’ with whom the corporation forms a community’. Corporate citizenship publicises both the ethical and social aspects of business, and the role it plays in defending and respecting human rights. In addition corporate citizenship activities are seen to have global scope, can enhance an organisations reputation and have the ability to deliver long term financial performance as they are in fact strategic investments according to Gardberg & Fombrun (2006).

All of these theories can be used to explain what companies are doing in the area of CSR. In practice companies are following different models. In the US the shareholder model is popular, while Europe and Japan tend to adopt the stakeholder model. However, companies are also following the corporate social performance model and many transnational companies adopt the corporate citizenship model. A strong normative theory is needed with a good philosophical foundation according to Melé, (2008). It will need to reflect a view of humanity, business and society and the relationship between society and business to be truly effective. Each of the theories described in this blog has their foundation in a different philosophical areas and each has positive and negative attributes.

References

Carroll, A. B. 1979. ‘A Three‐Dimensional Conceptual Model of Corporate Performance’. Academy of Management Review, 4: 497–505

Drucker, P. 1954. The Practice of Management. New York: Harper.

Evan, W. M., and Freeman, R. E. 1988. ‘A Stakeholder Theory of the Modern Corporation: Kantian Capitalism’. in T. Beauchamp and N. Bowie (eds.), Ethical Theory and Business. Englewood Cliffs, NJ: Prentice Hall, 75–93.

Friedman, M. 1970. ‘The Social Responsibility of Business is to Increase its Profits’. New York Times Magazine

Gardberg, N. A., and Fombrun, C. 2006. ‘Corporate Citizenship: Creating Intangible Assets across Institutional Environments’. Academy of Management Review, 31(2): 329–46.

Jones, T. M. 1980. ‘Corporate Social Responsibility Revisited, Redefined’. California Management Review, 22(2):59–67

Matten, D., Crane, A. and Chapple, W. 2003. ‘Behind the Mask: Revealing the True Face of Corporate Citizenship’. Journal of Business Ethics, 45(1–2): 109–20

Melé, D., 2008. Corporate social responsibility theories. The Oxford handbook of Corporate Social Responsibility, pp.47-82.

Preston, L. E., and Post, J. E. 1981. ‘Private Management and Public Policy’. California Management Review, 23(3): 56–63.

Schwartz, M. S., and Carroll, A. B. 2003. ‘Corporate Social Responsibility: A Three‐Domain Approach’. Business Ethics Quarterly, 13(4): 503–30.

Sethi, S. P. 1975. ‘Dimensions of Corporate Social Performance: An Analytical Framework’. California Management Review, 17(3): 58–64.

Embrace is an EU funded Research Project to promote Corporate Social Entrepreneurship (CSE) in HEI educational programmes and improve students’ competences, employability and attitudes contributing to the creation of new business opportunities dealing with social change inside companies as well as promoting collaboration among companies.

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