Historical Development of the Corporate Social Responsibility Concept

The desire to create positive social change in the corporate world is not necessarily a new phenomenon, although current social, political, economic, and ideological conditions inflect it in specific ways today. Questions regarding the nature, scope, and impact of organizations have been present in various forms for centuries, ranging across the classical, medieval, mercantile, industrial, and corporate eras. Although seldom acknowledged, the corporate form and the modern labour union both grew out of late medieval guilds. [20]

An important milestone in the history of CSR was an Industrial Revolution (late 18th and 19th centuries) and industrialization in 19th and 20th century generally. In that time large-scale corporations began to emerge with their activities increasingly affecting their communities, society, and environment. This fact evocated and intensified debates on the appropriateness of their actions. As the result of these debates new legislations became enacted – regulating formation of trusts, use of child labour, labour safety, etc. As the reaction to the public critics on system of factory labour, industrialists developed “industrial welfare programmes” that provided education, recreation, and socialization of workers, and were seeking to produce simultaneously good workers and good citizens.

One such pioneer was Robert Owen, who in the early 1800s set up a series of social villages around his textile mills in Scotland. These villages catered for the education of employees and their children as well as providing health care, food cooperatives, banking facilities and leisure activities. The doctrine of “Owenism” became so popular that it was soon exported across the Atlantic to the USA where similar practices were introduced in a number of cotton farms. [21]

Together with origins of CSR was also striving for its place in everyday business the philosophical study of moral values and rules - ethics. The idea of ethics in business is not new. It can be traced back to 19th century philanthropists, such as the early socialist entrepreneur Robert Owen, as already mentioned, and various Quaker-owned businesses. [22,23]

In 1920s Henry Ford believed he ought to pay his workers enough to afford to buy the cars they produced. That policy appeared to place him at disadvantage, since the wages and job security at his plants were well in excess of the norm in the auto industry at the time. But his decision ultimately benefited Ford Motor Company by making it an attractive employer and by stimulating demand for its products. [24] Nevertheless, what is more important, at the same time, Ford’s move benefited wider society by raising the bar for pay and labour practices across the auto industry. Thus, perhaps unwittingly, Henry Ford used simple CSR tools without ever knowing anything about CSR concept.

Hand in hand with the above mentioned development, economic theories also moved forward from Adam Smith’s rule of invisible hand of the market and preference of “profit above people” via the Alfred Marshall’s theory categorizing economics as a moral science enrooted in ethics [25] to Elton Mayo emphasizing social and psychological factors and their impact on work and also to Peter Drucker stating that profit is not the primary goal, but rather an essential condition for the company's continued existence. The business theorist of Norwegian origin, Thorsten Veblen, wrote about the concept of enterprise accountability back in the 1920s in his widely quoted book, The Engineers and The Price System.[26] Another father of early corporate social responsibility theory was the German economist Karl William Kapp who published his most acclaimed work, The Social Costs of Private Enterprises in the 1950s, in which he openly criticised the lack of social and environmental conscience of American enterprises. [27]

Even though CSR has to be understood and explained as a compact complex encompassing both internal and external dimensions and social and environmental aspects, for a better understanding this subchapter is divided into two streams – social and environmental. Such separation finds also support in an underlying fact that social and environmental issues had a little different historical development and they were not always seen as two sides of the same coin.

The 1950s saw the start of the modern era of CSR when it was more commonly known as social responsibility. In 1953, Howard Bowen published his book, Social Responsibilities of the Businessman, and is largely credited with coining the phrase corporate social responsibility and is perhaps the father of modern CSR. Bowen advocated that CSR was “industry’s obligation to pursue those policies, to make those decisions, or to follow those lines of actions which are desirable in terms of objectives and values of society”. [28] Bowen took a broad approach to business responsibilities, including responsiveness, stewardship, social audit, corporate citizenship and fundamental stakeholder theory. [29]

Another thinker, management guru Peter Drucker was one of the first to explicitly address CSR, including public responsibility as one of the eight key areas for business objectives developed in his 1954 book, The Practice of Management. While Drucker believed that management’s first responsibility to society involved making a profit, he felt it was also most important that management consider the impact of every business policy and action upon society. [30]

Bowen’s and Ducker’s as well as others´ conceptions were based on classical Greek philosophy represented by Socrates and Plato. Particularly relevant is Socrates´ opinion that managers should treat with entrusted property, as it was their own. [31]

A landmark in modern CSR was 1971 when the Committee for Economic Development [32] (hereinafter also CED) in the USA published the report Social Responsibilities of Business Corporations. As a code of conduct, the CED outlined a three-tiered model of CSR:

· The inner circle: the basic responsibilities an organisation has for creating profit and growth;

· The intermediate circle: an organisation must be sensitive to the changing social contract that exists between business and society when it pursues its economic interests;

· The outer circle: the responsibilities and activities an organisation needs to pursue towards actively improving the social environment [32]

Theoretical improvement of CSR concept ensured economist Carroll. He categorised CSR along four layers, which he labelled economic, legal, ethical and discretionary responsibilities. The four classes reflect that the history of business suggests an early emphasis on the economic and then legal aspects and a later concern for the ethical and discretionary aspects. In 1991, Carroll first presented his CSR model as a pyramid, as shown in Figure 1.1: Pyramidal Structure of Corporate Social Responsibility” on the following page. It was suggested that, although the components are not mutually exclusive, it helps the manager to see that the different types of obligations are in a constant tension with one another. [33] Very important is that the model has been empirically tested and largely supported by the findings and that it incorporates and gives top priority to the economic dimension as an aspect of CSR.

Even though CSR is well rooted in today’s business environment, CSR had in its modern history and still has opponents. One of the most influential opponents was famous economist Milton Friedman who advocated “that there is one and only one social responsibility of business - to 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”. [34]

Figure 1.1: Pyramidal Structure of Corporate Social Responsibility

Source: Figure based on lecture of Bakhsheshy, A. (2007), Corporate Citizenship, Social Responsibility, Responsiveness, and Performance, available at: http://home.business.utah.edu/mgtab/BS-02.ppt

Even though Friedman was a strongly against CSR concept, today, we can extend his famous opinion on CSR and in this way transform his disapproving view. Important words in his definition of “staying within the rules of the game” in 1970 extended only to the basic free market principles, but nowadays the list of rules of the game would be much longer. Society’s expectations of business increase every year, and no firm can hope to be successful without taking into account of those expectations - whether it is a reduction in pollution, detailed contents labelling, or additional health benefits. [35] The frameworks that have built up around CSR can help companies to make sense of these expectations, and achieve a balanced approach to their responsibilities. A lot has changed since Friedman wrote his article. Today, companies are learning they can increase profits as a result of their CSR efforts, not despite them. Human beings do not only assimilate with their surroundings but actively adjust them according to their needs. The intensity and kind of such an influence followed the development of civilization (e.g. invention of iron enabled to make tools enabling agriculture in less convenient areas). These human beings´ actions had both positive and negative impact. Thomas Robert Malthus (1766-1834) ranks among the pioneers investigating the disproportion between the growth of population and available natural sources. With growth of pollution, extinction of some species, and appearance of other environmental problems more scientists and politicians started paying attention to the problematic and realized, the problems are not only on the local level but have global character (e.g. R. Carson in book Silent Spring (1962), General Secretary of the United Nations U Thant).

The establishment and work of the association called “the Club of Rome” in 1968 meant a significant step in the environmental problematic, crossing boundaries by including more than 30 scientists from 10 countries into the project. Foundation stone to the environmental politics was laid in 1972 in Stockholm at the 1st United Nations Conference on the Human Environment (also known as the Stockholm Conference). [36] The formulation of the idea of sustainable development is considered as the most important conclusion of United Nations´ activities in 1970th and 1980th. The United Nations was aware that the global progress cannot be stopped but must “meet the needs of the present without compromising the ability of future generations to meet their own needs.” [37] Sustainable development can be conceptually broken into three constituent parts: environmental sustainability, economic sustainability and socio-political sustainability. Further United Nations´ summits concluding in more or less successful results followed:

· Earth Summit in Rio de Janeiro in 1992 concluding Rio Declaration on Environment and Development, Agenda 21, Convention on Biological Diversity, Forest Principles, Framework Convention on Climate Change. [38]

· Earth Summit in Johannesburg in 2002 adopting the Johannesburg Declaration that built on earlier declarations made at Stockholm in 1972, and in Rio de Janeiro in 1992.

Traditionally, environmental protection has been considered to be in the public interest and external to private life. Governments have assumed principal responsibility for assuring environmental management, and have focused on creating and preserving a safe environment. They have directed the private sector to adopt environmentally sound behaviour through regulations, sanctions and occasionally, incentives. When environmental problems have arisen, the public sector has generally born the responsibility for mitigation of environmental damage. In this approach, some have contended that unrestricted private sector behaviour has been considered as presenting the environmental problem. However, the roles of sectors have been changing, with the private sector becoming an active partner in environmental protection. Many governments and businesses are now realizing that environmental protection and economic growth are not always in conflict.

An earlier emphasis on strict governmental regulations has ceded ground to corporate self-regulation and voluntary initiatives. As a result the environmental aspect of CSR can be defined as “duty to cover the environmental implications of the company’s operations, products and facilities; duty to eliminate waste and emissions; duty to maximize the efficiency and productivity of used resources; and duty to minimize practices that might adversely affect the enjoyment of the country’s resources by future generations”. [39]

Today in the global economy, where the Internet, the news media and the information revolution shine light on business practices around the World, companies are more frequently judged on the basis of their environmental stewardship. Increasingly business partners, governments and consumers want to know what is inside a company. This transparency of business practices means that for many companies, environmental aspects of CSR, are no longer a luxury but a requirement.