Description
The objective of this paper is to reflect on the consequences of the current economic and financial crisis on Corporate Social Responsibility (CSR).
International Journal of Economic Sciences and Applied Research 2 (1): 36-50
36
Crisis and Corporate Social Responsibility: Threat or Opportunity?
Dra. Belén Fernández-Feijóo Souto
Department of Finances and Accounting
Faculty of Economics and Business Administration
University of Vigo, Spain
E-mail: [email protected]
Abstract
The objective of this paper is to reflect on the consequences of the current economic and
financial crisis on Corporate Social Responsibility (CSR), a concept of great importance
nowadays. The core approach is the possible link between CSR and the crisis, if both
elements can be combined. After an introduction to the current economic and financial
situation, some conceptualizations about CSR are made to clarify the perspective used
for this complex and incompletely defined concept. The last part of the paper presents
an approach to the combination of both concepts, concluding with the idea that CSR in
crisis periods can be converted from being a threat to an opportunity.
Keywords: Crisis, Corporate social responsibility, Business ethics
JEL classification: M10, M14, M21
1. Introduction: the Current Crisis
A great number of economic and financial experts agree in considering the current
world-wide economic and financial crisis to be the worst since the Second World War.
The crisis began in the United States with the burst of the subprime mortgage housing
bubble, after governmental, supervisory and regulatory authorities undervalued the real
risk of the situation. But as the world has become closer, economic and financial
markets have diminished in number but increased in size and interconnection. The
effects of a financial problem are wide-sweeping and all the world economies suffer the
consequences.
Crisis and Corporate Social Responsibility: Threat or Opportunity?
37
Other circumstantial elements have made economic and financial markets more
unstable. Noteworthy among them are the evolution of the price of oil, the conduct of
currency exchange rates, the continued increase of interest rates, the liquidity
contraction of the banking system and the uncontrolled growth of several economic
sectors, with the loss of investor confidence as a result. All these elements are linked to
sustained favourable economic and financial performance. As Geithner
1
said in his
speech at the Council on Foreign Relations Corporate Conference in New York City last
year:
“The origins of this crisis lie in complex interaction of number of forces. Some
were the product of market forces. Some were the product of market failures.
Some were the result of incentives created by policy and regulation. Some of
these were evident at the time, others are apparent only with the benefit of
hindsight. Together they produced a substantial financial boom on a global
scale.
…….
Global savings appeared to rise faster than did perceived real investment
opportunities, and this development helped to push down real long-term interest
rates around the world. At the same time, many emerging market economies
built up very large levels of official reserves to reduce external vulnerability and
to hold the value of their currencies stable against the dollar. The exchange rate
policies in these economies—economies that together accounted for an
increasing share of global GDP—made overall global financial conditions more
accommodative, even as the United States and other countries tightened their
monetary policies”.
Therefore, the crisis is a result of financial and economic globalization but
domestic market weaknesses, after a long period of uncontrolled growth
2
, have also
played a role. The current decade can be described as a period of “easy money” due to,
among other reasons, interest rate policy in industrial countries.
As has been said, the economic and financial bubble exploded with the
subprime mortgage crisis in the United States the beginning of this chain reaction. For
the financial sector, the role played by the supervisory and regulatory authorities that
underestimated the extent of the problem and its short and long-term consequences is
questionable. Instead of recognizing the real risk the financial system was supporting,
the supervisory and regulatory authorities opted for further deregulation.
Whether the world economy, basically the United States and Europe, will
overcome the crisis in a long or short period and what the economic and financial
markets will be like when it is over, are questions without answers at the moment. There
1
Geithner is the President and Chief Executive Officer of the Federal Reserve Bank of New
York.http://www.newyorkfed.org/newsevents/speeches/index.html. Date: 08/September/05
2
The average world economic growth during the 1990s was around 3 per cent per year, while
during the 2000s up to 2007, it was 4.5 per cent per year.
Souto Fernández-Feijóo Belen
38
are several aspects to be considered to construct the scenario in which the performance
of the new economy will operate:
- How and when it will be possible to recover the previous world growth
figures.
- When private consumers will recover their trust in the economy.
- The evolution of economic and industrial activity and investment after this
cooling-down period.
- The evolution of financial activity, especially the activity of banks as they
assume their role as suppliers of funds, with full guarantees, to promote
consumption and investment.
- …
But the current economic and financial crisis is not the only world-wide crisis.
In a broad sense, entrepreneurial business activities are undergoing a long process of
change which can be considered a crisis of maturity oriented towards the role they play
within society
3
. As Porter and Kramer (2002) highlight, companies have to change their
focus towards the social setting in which they act and interact. Economic, social and
environment goals with a long-term perspective are not independent or in conflict in
spite of the fact that they can be contradictory in the short-term.
Specifically, there is a tendency which links the lack of ethics, principles and
values in the classic entrepreneurial model as one of the most important reasons
explaining the current economic and financial crisis. Stigliz (2008) argues that financial
authorities have not innovated as they should have done to respond to the needs of
society, in the sense of incorporating other social and environmental variables beyond
pure economic profit for the decision making process.
As a result of the combination of the economic and financial crisis with what
has been called an entrepreneurial crisis of maturity, Corporate Social Responsibility
(CSR) has risen to prominence in the last decade. Even though CSR is a new
controversial concept, everybody in the academic and business spheres agree that it is a
fundamental strategy for achieving the sustainable development that our globalized
world needs.
2. Corporate Social Responsibility
Friedman´s conclusion (1970) about Corporate Social Responsibility (CSR) has
probably become one of the most referenced arguments for researchers in this field. The
simplification of shareholder goals like “to make as much money as possible while
conforming to the basic rules of society, both those embodied in law and those
embodied in ethical custom,” and the summary of CSR through the payment of taxes,
have hardly been criticised since they were published.
3
Jonker and De Witte (2006b:1).
Crisis and Corporate Social Responsibility: Threat or Opportunity?
39
In spite of this position, CSR is in an exponentially growing path and, generally
speaking, companies are increasingly assuming and integrating a social perspective in
their internal culture in advance of what is required by law. It can be asserted that
responsible firms incorporate benefits from this attitude in several scopes: the
enhancement of reputation, retention of high- quality employees and becoming an
eligible employer.
However, as the concept of CSR is studied in depth starting from a simple
thought, companies must consider other obligations within society beyond profit-making
for shareholders, it appears to be quite a confusing concept. Academics have not been
able to offer a clear and generally accepted framework for CSR. Even basic questions
like “What is CSR? How can you define CSR?” do not have a unique answer. A clear
example of what is said is Carroll’s paper (1999), which presents close to 25 definitions
that have appeared for CSR since 1953, when Howard Bowen’s (1953) book, “Social
Responsibilities of the Businessman,” was published.
Carroll’s paper ends with the following quote:
“As we close out the 1990s and look ahead to the new millennium, it is expected
that attention will be given increasingly to measurement initiatives as well as
theoretical developments. For these concepts to develop further, empirical
research is doubtlessly needed so that practice may be reconciled with theory.
The CSR concept will remain as an essential part of business language and
practice, because it is a vital underpinning to many of the other theories and is
continually consistent with what the public expects of the business community
today. As theory is developed and research is conducted, scholars may revise
and adapt existing definitions of CSR or new definitions may come into the
literature” (1999:292).
These ideas are now, nearly ten years later, perfectly adapted to the current
times, including and completed with the assumption that cultural differences vary
definitions of CSR, due to dynamic and evolving ethical standards (Maignan and Ferrell,
2003).
With this background of the growing use of CSR all over the world, firms are
increasingly incorporating social strategies and CSR initiatives, giving a positive
response to a real citizen’s demands.
Different aspects of CSR can be highlighted:
- The participation of different actors, agents, named stakeholders, with
different motives.
- The implications for managerial strategy and decisions.
- The growing importance of international initiatives by different institutions
for CSR.
- The necessary adaptation of CSR initiatives to the particular scenario where
they are going to be applied: the cultural, social and environmental
Souto Fernández-Feijóo Belen
40
particularities of each enterprise, each geographic area and each country,
where a firm has activity.
- The possibility of implementing a CSR strategy for all kinds of
organizations: small or large, private or public companies, for any possible
type of ownership structure.
CSR is not an entirely new concept. It can be considered to have part of its roots
in guilds and brotherhoods, economic or not, and charitable institutions. Currently,
however, CSR cannot be simplified to social activities because there is much more
involved in it. The ample literature by different authors like England (1967), Rokeach
(1979), Gutman (1988), Frederick (1995), Agle et al. (1999), Adler (2002) and Locke
and Latham (2004), in addition to the well-known Carroll (1999), can help in the
analysis and revision of this complex and difficult concept, which even Godfrey and
Hatch (2007: 87) describe as “a tortured concept within the academic literature”.
Godfrey and Hatch’s agenda (2007) formulate suggestions for future research in CSR.
Rundle-Thiele and McDonald, L. (2008), furthering with the agenda, propose a break-up
of the CSR concept into different areas, giving the consideration that CSR is a set of
different activities that have to be all considered to valuate the overall social
performance of the firm.
CSR conceptual evolution and the increasing number of companies that
incorporate this strategic business approach offer us an initial argument to analyze CSR
benefits: “Over the past decade, a growing number of companies have recognized the
business benefits of CSR policies and practices” (Mittal et al. 2008: 1437).
CSR benefits have been extendedly worked on academic literature
4
. The most
important benefit is the organization satisfaction for its own responsibility. In addition to
this satisfaction and as a resume of key CSR benefits, the following can be highlighted:
- building a reputation as a responsible business; linked to increasing market
share, maintaining key personnel and directing investors confidence towards
CSR
- assuming consumer selective elections that are increasingly including CSR
criteria to make business more competitive5
- changing relationships all along the chain value, based on trust and doing
things the right way with suppliers and customers
- improving working climate, thus increasing employee permanence,
motivation and productivity
- reducing legal conflicts on complying with regulatory requirements
4
Freeman (1984), Soloman and Hansen (1985), Stanwick and Stanwick (1998), Ruf et al. (2001),
Geczy et al. (2005) or Bechetti et al. (2007), among others.
5
Maigna and Ferrel (2003) analyze the perception of costumers of CSR dimensions. This paper
is oriented to demonstrate Carroll 1979 and 1999 models.
Crisis and Corporate Social Responsibility: Threat or Opportunity?
41
- improving relations and implications within the local community, given the
wide range of opportunities this question poses in terms of reputation,
positive press and wealth
- assuming positive and negative impacts of the company activity as a key
question in management decisions, with a long-term perspective
- re-designing processes with CSR green parameters, reducing waste, that
often simplifies operations and saves money.
Levine (2008) highlights managing risks as a main benefit of CSR in the
short-term:
“Why implement a CSR program? In short, to manage risks and to ensure legal
compliance companies may be exposed to a variety of legal and reputational risks if they
do not have adequate social compliance or corporate social responsibility/sustainability
programs in place
6
” (2008: 2).
3. Crisis and Corporate Social Responsibility: Threat or opportunity?
The recent financial scandals and industrial bankruptcies have had consequences on the
business perspective of managers and stockholders. This situation has strengthened the
tendency to believe in a necessary change of business, which entails focusing on a wider
concept of entrepreneurial profit with a long-term view and giving the proper
importance to stakeholders, people or groups of people that affect or are affected by a
firm’s activity
7
.
Therefore, the key question is whether there is any relation between CSR and
economic magnitudes linked to prosperity, and if so, what is this relation like? There is
ample literature dealing with these questions, but the result is inconsistent. Links
between CSR and cost, profit, long-range survival, etc. are not clear.
The following table (Table 1) shows a summary of the state of the art, reflecting the
confusing scenery around CSR and its relationship with financial performance,
shareholder’s value and investor’s perspective, among other economic and financial
parameters.
6
Levine (2008: 2) continues:
“Such risks include: lawsuits under the Alien Tort Claims Act, and related class action
litigation; governmental investigation by federal and state labor departments, project
finance/investment contract issues, and the receipt of shareholder resolutions on labor,
human rights, supply chain and sustainability issues, among others”.
7
Becchetti et al. (2007, 3).
Souto Fernández-Feijóo Belen
42
Geczy et al., 2005 Investors’ positive attitude towards CSR and
ethical considerations in deciding on
investments
Positive
Author Conclusion What is the
relationship?
Ingram and
Frazier, 1983
Environmental performance has a negative
effect on financial statements
Negative
Freeman, 1984 CSR minimizes transaction costs and potential
conflicts with stakeholders
Positive
Soloman and
Hansen, 1985
CSR costs are clearly covered with benefits in
employee morale and productivity
Positive
Freedman and
Jaggi, 1982
CSR and shareholder’s value don’t coincide Negative
Pava and Krausz,
1996
CSR and financial performance are positively
linked
Positive
Preston and
O’Bannon, 1997
CSR and the magnitude of financial evolution
coincide
Positive
Waddock and
Graves, 1997.
Social and economic performance have
opposite consequences on financial statements
Negative
Stanwick and
Stanwick, 1998
Importance of stakeholders’ recognition for a
positive evolution of financial magnitudes
Positive
Verschoor, 1998 Positive relationship between corporate
performance and stakeholder relationships
Positive
Jensen, 2001 Social constraints and responsible social
behaviour can work against value
maximization.
Negative
Ruf et al., 2001 CSR and sales increase are observed in
several companies, with temporal continuity
Positive
Bauer et al., 2002 Comparison of ethical and traditional
investment finds mixed results, with a light
positive trend towards ethical funds
Not conclusive
Orlitzky et al.,
2003
The results of their meta-analysis confirm a
positive relation between social responsibility
and financial performance
Positive
Barnea and Rubin,
2005
CSR investment is negatively related to
insiders’ ownership
Negative
Crisis and Corporate Social Responsibility: Threat or Opportunity?
43
Bauer et al., 2007 Investors appreciate ethical investment funds Positive
Bechetti et al.,
2007
Market penalizes the exit from social
responsibility index and ethical funds
Positive
Mittal et al., 2008 Strong evidence against the idea that CSR
initiatives have universal or systematic
positive financial impacts
Not conclusive
Table 1. CSR and economic-financial performance
It is noteworthy that in many of these contributions, evidence of a positive effect of CSR
strategies on economic performance has been found, but this effect is not so clear
regarding financial performance. Furthermore, CSR has a positive effect on internal
variables, like motivation or entrepreneurial culture. However, the possible benefit for a
shareholder’s value or the real cost of CSR implementation is not probed. Another
important point to highlight, that can explain the aforementioned inconsistent results
besides the confusion and complexity of the concept, is the use of different
methodologies of analysis, not always appropriated to what is required for CSR
8
.
In any case, there is no conclusive and unanimous opinion about the
relationship between CSR and economic-financial performance measures. And
implementation of CSR needs financial funds because it generates costs
9
. The
consequence is evident: CSR in periods of crisis is a threat for firms’ survival and such a
strategy is not expected in these times of uncertainty. But the decisions based on the cost
of implementing responsible strategies are not the only threat, despite being an error in
the long-term perspective. The overuse of corporate sponsorship, based on CSR, only
with marketing purposes, can change the customers’ initial positive perception.
Customer sensitivity is much more likely to break out in crisis periods. The press of
consultants and advisers, that asset CSR as a new business opportunity, is also a threat
to be considered.
Nonetheless, some observations can be made to soften these somewhat harsh
assumptions. And even to change the perspective and turn round to convert the negative
deduction in an opportunity for those companies who decide to begin or continue with
CSR implementation.
The new perspective, necessary for the aforementioned turnaround, is based on
the hypothesis that establishes that CSR is more than a temporary fashion
10
; it is a
management tool under constant renovation which will last throughout time
11
. The
world is still far away from the ideal situation of a global and unique framework for
8
Orlitzky et al. (2003) argue that most of contradictory results are due to the use of inappropriate
methodological and statistical tools.
9
Levis, 2005, 7.
10
Fernández-Feijóo, 2008, 209.
11
Gil et al., 2007, 384.
Souto Fernández-Feijóo Belen
44
CSR. To move towards this goal, the development of models to manage CSR tools is
necessary. And this important work is being done in several fields: academic,
entrepreneurial and institutional, as Jonker and De Witte (2006a) tested with the
compilation of more than forty models for managing CSR developed over the five
previous years, with different scopes and diverse orientations
12
.
Although these models are diverse, there are a set of common issues in nearly
all of them which can be redirected to change the perspective of implementing CSR
models from a threat to an opportunity in periods of crisis (Figure 1):
1. CSR model implementation can be assessed as innovation, a key concept for
achieving long-term entrepreneurial survival, a logical objective in situations of crisis.
2. CSR provides the desired atmosphere (internal culture, motivation) in which
exceptional periods (crises) can be approached.
3. CSR gives adequate treatment to stakeholders, changing their possible
position of risk towards the firm to an attitude of alliance.
4. CSR implementation reinforces business strategy, a necessity always covered
but which has special relevance in periods of crisis.
12
A great number of models compiled by these authors have been designed with EU research
projects. This financial support makes it clear that the European authorities want to promote the
trend of CSR implementation.
CSR
Process
needs
1. Innovation
2. Comfortable atmosphere
3. Stakeholders’ role
4. Business strategy
5. Market attitude
6. Investor confidence
7. Deep internal reflection
Crisis
periods
needs
Figure 1. CSR implementation process and crisis periods: necessities.
Crisis and Corporate Social Responsibility: Threat or Opportunity?
45
5. CSR model implementation strengthens companies’ market position, when it
is perceived as such
13
. That is why communication and transparency are important.
These two characteristics are inherent to CSR.
6. CSR offers a guarantee and confidence to investors, due to information
offered by responsible companies. Financial resources are always necessary but they
become critical in times of crisis.
7. CSR implementation obligates one to reflect deeply about main concerns
clearly linked to long-range survival: identity (including mission and vision), systems
(incorporating procedures and rules), accountability (defining what and how much
responsibility is wanted) and transactivity (clarifying who affects and who is affected by
the firm’s activity) (Figure 2).
13
Maigna and Ferrel (2003) and Rundle-Thiele and McDonald (2008) approach to CSR through
consumers’ perception.
Identity:
mission and
vision
Systems:
procedures
and rules
Transactivity:
who affects
and who is
affected
Accountability
:
what and how
Business
Proposition in
RSC
Business Context
Societal Context
Figure 2. Developed from The CSR Management Model. In: Jonker and De Witte (2006, 5)
Geographic, cultural, social
and natural environment
Internal Context
Innovation
C t t
Souto Fernández-Feijóo Belen
46
This last issue, a deep internal reflection about who the firm is - what it is like,
where it is and where it wants to be, and how and with whom it wants to advance on its
way towards achieving its objectives - is essential. This task, well done, is enough in
itself, because the result obtained by the firm strongly justifies the effort to be made.
Another important consequence of this internal reflection is to bring out what Gray
(1997, 2001) calls ‘silent social accounts’:
“Law has steadily increased the areas of disclosure required of (particularly)
companies on such matters as employees, political and charitable donations and
governance. At the same time, organisations have steadily increased their areas
of voluntary disclosure, most obviously on environmental issues but also on
matters such as consumers, product safety and interactions with the community.
…
Taken together, these data form the basis of a social account – a ‘silent’ social
account” (2001, 10).
4. Conclusions
Throughout this paper, the double relationship between CSR and the crisis has been
acknowledged and explained. This relationship appears in both the lack of CSR as one
of the causes of the current economic and financial crisis and as a tool for managing the
current situation and helping firms overcome the consequences of the crisis.
The current economic and financial structure, with global markets that, as we
have seen in recent months, feel the effects of domestic financial problems all over the
world, must be revised. After the evolution of the world economic systems over the last
twenty years, capitalism has become the best of all existing economic models, all of
which are imperfect. But this affirmation is not enough to resign and not try to improve
an old model that needs numerous changes. Each company has its own responsibility in
this necessary task, as CSR is a management model for control, with guarantees to avoid
undesired facts and to offer more market transparency.
In their CSR implementation process, organizations must redefine their essential
business objectives. These objectives must be aligned with the strategy of the company
and have to be coherent with the change in organizational culture that CSR represents.
The new attitude, forms and perspectives should be the result of a deep internal
reflection that will increase the core value of the firm. This core value will be favoured
by the innovation inherent in CSR; its positive effects on internal variables, like
motivation or entrepreneurial culture; the support of stakeholders in their new role
within and towards the firm; reinforcement of business strategy; strengthening of
company market position; and investor confidence. With this panorama, firms will be in
a better position to overcome the turbulent situation of the current economic and
financial crisis, using CSR as a business opportunity.
This paper should not conclude without mentioning the negative potential of
CSR in periods of crisis. In spite of the benefits that in the long-term are widely
recognized, the cost of RSC implementation cannot be forgotten. Throughout this paper,
Crisis and Corporate Social Responsibility: Threat or Opportunity?
47
it has been relegated to the background, because the implementation of responsible
policies and strategies is a long- term process. This characteristic allows for the planning
of a series of tasks, basing the decision of which tasks to carry out on the circumstances
of the moment. The implementation process of CSR is long and it can always improve.
The output of the deep internal reflection on which CSR must be based, will also
provide enough material for a first version of social accounting. Companies have more
silent accounting than they realize.
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doc_957456409.pdf
The objective of this paper is to reflect on the consequences of the current economic and financial crisis on Corporate Social Responsibility (CSR).
International Journal of Economic Sciences and Applied Research 2 (1): 36-50
36
Crisis and Corporate Social Responsibility: Threat or Opportunity?
Dra. Belén Fernández-Feijóo Souto
Department of Finances and Accounting
Faculty of Economics and Business Administration
University of Vigo, Spain
E-mail: [email protected]
Abstract
The objective of this paper is to reflect on the consequences of the current economic and
financial crisis on Corporate Social Responsibility (CSR), a concept of great importance
nowadays. The core approach is the possible link between CSR and the crisis, if both
elements can be combined. After an introduction to the current economic and financial
situation, some conceptualizations about CSR are made to clarify the perspective used
for this complex and incompletely defined concept. The last part of the paper presents
an approach to the combination of both concepts, concluding with the idea that CSR in
crisis periods can be converted from being a threat to an opportunity.
Keywords: Crisis, Corporate social responsibility, Business ethics
JEL classification: M10, M14, M21
1. Introduction: the Current Crisis
A great number of economic and financial experts agree in considering the current
world-wide economic and financial crisis to be the worst since the Second World War.
The crisis began in the United States with the burst of the subprime mortgage housing
bubble, after governmental, supervisory and regulatory authorities undervalued the real
risk of the situation. But as the world has become closer, economic and financial
markets have diminished in number but increased in size and interconnection. The
effects of a financial problem are wide-sweeping and all the world economies suffer the
consequences.
Crisis and Corporate Social Responsibility: Threat or Opportunity?
37
Other circumstantial elements have made economic and financial markets more
unstable. Noteworthy among them are the evolution of the price of oil, the conduct of
currency exchange rates, the continued increase of interest rates, the liquidity
contraction of the banking system and the uncontrolled growth of several economic
sectors, with the loss of investor confidence as a result. All these elements are linked to
sustained favourable economic and financial performance. As Geithner
1
said in his
speech at the Council on Foreign Relations Corporate Conference in New York City last
year:
“The origins of this crisis lie in complex interaction of number of forces. Some
were the product of market forces. Some were the product of market failures.
Some were the result of incentives created by policy and regulation. Some of
these were evident at the time, others are apparent only with the benefit of
hindsight. Together they produced a substantial financial boom on a global
scale.
…….
Global savings appeared to rise faster than did perceived real investment
opportunities, and this development helped to push down real long-term interest
rates around the world. At the same time, many emerging market economies
built up very large levels of official reserves to reduce external vulnerability and
to hold the value of their currencies stable against the dollar. The exchange rate
policies in these economies—economies that together accounted for an
increasing share of global GDP—made overall global financial conditions more
accommodative, even as the United States and other countries tightened their
monetary policies”.
Therefore, the crisis is a result of financial and economic globalization but
domestic market weaknesses, after a long period of uncontrolled growth
2
, have also
played a role. The current decade can be described as a period of “easy money” due to,
among other reasons, interest rate policy in industrial countries.
As has been said, the economic and financial bubble exploded with the
subprime mortgage crisis in the United States the beginning of this chain reaction. For
the financial sector, the role played by the supervisory and regulatory authorities that
underestimated the extent of the problem and its short and long-term consequences is
questionable. Instead of recognizing the real risk the financial system was supporting,
the supervisory and regulatory authorities opted for further deregulation.
Whether the world economy, basically the United States and Europe, will
overcome the crisis in a long or short period and what the economic and financial
markets will be like when it is over, are questions without answers at the moment. There
1
Geithner is the President and Chief Executive Officer of the Federal Reserve Bank of New
York.http://www.newyorkfed.org/newsevents/speeches/index.html. Date: 08/September/05
2
The average world economic growth during the 1990s was around 3 per cent per year, while
during the 2000s up to 2007, it was 4.5 per cent per year.
Souto Fernández-Feijóo Belen
38
are several aspects to be considered to construct the scenario in which the performance
of the new economy will operate:
- How and when it will be possible to recover the previous world growth
figures.
- When private consumers will recover their trust in the economy.
- The evolution of economic and industrial activity and investment after this
cooling-down period.
- The evolution of financial activity, especially the activity of banks as they
assume their role as suppliers of funds, with full guarantees, to promote
consumption and investment.
- …
But the current economic and financial crisis is not the only world-wide crisis.
In a broad sense, entrepreneurial business activities are undergoing a long process of
change which can be considered a crisis of maturity oriented towards the role they play
within society
3
. As Porter and Kramer (2002) highlight, companies have to change their
focus towards the social setting in which they act and interact. Economic, social and
environment goals with a long-term perspective are not independent or in conflict in
spite of the fact that they can be contradictory in the short-term.
Specifically, there is a tendency which links the lack of ethics, principles and
values in the classic entrepreneurial model as one of the most important reasons
explaining the current economic and financial crisis. Stigliz (2008) argues that financial
authorities have not innovated as they should have done to respond to the needs of
society, in the sense of incorporating other social and environmental variables beyond
pure economic profit for the decision making process.
As a result of the combination of the economic and financial crisis with what
has been called an entrepreneurial crisis of maturity, Corporate Social Responsibility
(CSR) has risen to prominence in the last decade. Even though CSR is a new
controversial concept, everybody in the academic and business spheres agree that it is a
fundamental strategy for achieving the sustainable development that our globalized
world needs.
2. Corporate Social Responsibility
Friedman´s conclusion (1970) about Corporate Social Responsibility (CSR) has
probably become one of the most referenced arguments for researchers in this field. The
simplification of shareholder goals like “to make as much money as possible while
conforming to the basic rules of society, both those embodied in law and those
embodied in ethical custom,” and the summary of CSR through the payment of taxes,
have hardly been criticised since they were published.
3
Jonker and De Witte (2006b:1).
Crisis and Corporate Social Responsibility: Threat or Opportunity?
39
In spite of this position, CSR is in an exponentially growing path and, generally
speaking, companies are increasingly assuming and integrating a social perspective in
their internal culture in advance of what is required by law. It can be asserted that
responsible firms incorporate benefits from this attitude in several scopes: the
enhancement of reputation, retention of high- quality employees and becoming an
eligible employer.
However, as the concept of CSR is studied in depth starting from a simple
thought, companies must consider other obligations within society beyond profit-making
for shareholders, it appears to be quite a confusing concept. Academics have not been
able to offer a clear and generally accepted framework for CSR. Even basic questions
like “What is CSR? How can you define CSR?” do not have a unique answer. A clear
example of what is said is Carroll’s paper (1999), which presents close to 25 definitions
that have appeared for CSR since 1953, when Howard Bowen’s (1953) book, “Social
Responsibilities of the Businessman,” was published.
Carroll’s paper ends with the following quote:
“As we close out the 1990s and look ahead to the new millennium, it is expected
that attention will be given increasingly to measurement initiatives as well as
theoretical developments. For these concepts to develop further, empirical
research is doubtlessly needed so that practice may be reconciled with theory.
The CSR concept will remain as an essential part of business language and
practice, because it is a vital underpinning to many of the other theories and is
continually consistent with what the public expects of the business community
today. As theory is developed and research is conducted, scholars may revise
and adapt existing definitions of CSR or new definitions may come into the
literature” (1999:292).
These ideas are now, nearly ten years later, perfectly adapted to the current
times, including and completed with the assumption that cultural differences vary
definitions of CSR, due to dynamic and evolving ethical standards (Maignan and Ferrell,
2003).
With this background of the growing use of CSR all over the world, firms are
increasingly incorporating social strategies and CSR initiatives, giving a positive
response to a real citizen’s demands.
Different aspects of CSR can be highlighted:
- The participation of different actors, agents, named stakeholders, with
different motives.
- The implications for managerial strategy and decisions.
- The growing importance of international initiatives by different institutions
for CSR.
- The necessary adaptation of CSR initiatives to the particular scenario where
they are going to be applied: the cultural, social and environmental
Souto Fernández-Feijóo Belen
40
particularities of each enterprise, each geographic area and each country,
where a firm has activity.
- The possibility of implementing a CSR strategy for all kinds of
organizations: small or large, private or public companies, for any possible
type of ownership structure.
CSR is not an entirely new concept. It can be considered to have part of its roots
in guilds and brotherhoods, economic or not, and charitable institutions. Currently,
however, CSR cannot be simplified to social activities because there is much more
involved in it. The ample literature by different authors like England (1967), Rokeach
(1979), Gutman (1988), Frederick (1995), Agle et al. (1999), Adler (2002) and Locke
and Latham (2004), in addition to the well-known Carroll (1999), can help in the
analysis and revision of this complex and difficult concept, which even Godfrey and
Hatch (2007: 87) describe as “a tortured concept within the academic literature”.
Godfrey and Hatch’s agenda (2007) formulate suggestions for future research in CSR.
Rundle-Thiele and McDonald, L. (2008), furthering with the agenda, propose a break-up
of the CSR concept into different areas, giving the consideration that CSR is a set of
different activities that have to be all considered to valuate the overall social
performance of the firm.
CSR conceptual evolution and the increasing number of companies that
incorporate this strategic business approach offer us an initial argument to analyze CSR
benefits: “Over the past decade, a growing number of companies have recognized the
business benefits of CSR policies and practices” (Mittal et al. 2008: 1437).
CSR benefits have been extendedly worked on academic literature
4
. The most
important benefit is the organization satisfaction for its own responsibility. In addition to
this satisfaction and as a resume of key CSR benefits, the following can be highlighted:
- building a reputation as a responsible business; linked to increasing market
share, maintaining key personnel and directing investors confidence towards
CSR
- assuming consumer selective elections that are increasingly including CSR
criteria to make business more competitive5
- changing relationships all along the chain value, based on trust and doing
things the right way with suppliers and customers
- improving working climate, thus increasing employee permanence,
motivation and productivity
- reducing legal conflicts on complying with regulatory requirements
4
Freeman (1984), Soloman and Hansen (1985), Stanwick and Stanwick (1998), Ruf et al. (2001),
Geczy et al. (2005) or Bechetti et al. (2007), among others.
5
Maigna and Ferrel (2003) analyze the perception of costumers of CSR dimensions. This paper
is oriented to demonstrate Carroll 1979 and 1999 models.
Crisis and Corporate Social Responsibility: Threat or Opportunity?
41
- improving relations and implications within the local community, given the
wide range of opportunities this question poses in terms of reputation,
positive press and wealth
- assuming positive and negative impacts of the company activity as a key
question in management decisions, with a long-term perspective
- re-designing processes with CSR green parameters, reducing waste, that
often simplifies operations and saves money.
Levine (2008) highlights managing risks as a main benefit of CSR in the
short-term:
“Why implement a CSR program? In short, to manage risks and to ensure legal
compliance companies may be exposed to a variety of legal and reputational risks if they
do not have adequate social compliance or corporate social responsibility/sustainability
programs in place
6
” (2008: 2).
3. Crisis and Corporate Social Responsibility: Threat or opportunity?
The recent financial scandals and industrial bankruptcies have had consequences on the
business perspective of managers and stockholders. This situation has strengthened the
tendency to believe in a necessary change of business, which entails focusing on a wider
concept of entrepreneurial profit with a long-term view and giving the proper
importance to stakeholders, people or groups of people that affect or are affected by a
firm’s activity
7
.
Therefore, the key question is whether there is any relation between CSR and
economic magnitudes linked to prosperity, and if so, what is this relation like? There is
ample literature dealing with these questions, but the result is inconsistent. Links
between CSR and cost, profit, long-range survival, etc. are not clear.
The following table (Table 1) shows a summary of the state of the art, reflecting the
confusing scenery around CSR and its relationship with financial performance,
shareholder’s value and investor’s perspective, among other economic and financial
parameters.
6
Levine (2008: 2) continues:
“Such risks include: lawsuits under the Alien Tort Claims Act, and related class action
litigation; governmental investigation by federal and state labor departments, project
finance/investment contract issues, and the receipt of shareholder resolutions on labor,
human rights, supply chain and sustainability issues, among others”.
7
Becchetti et al. (2007, 3).
Souto Fernández-Feijóo Belen
42
Geczy et al., 2005 Investors’ positive attitude towards CSR and
ethical considerations in deciding on
investments
Positive
Author Conclusion What is the
relationship?
Ingram and
Frazier, 1983
Environmental performance has a negative
effect on financial statements
Negative
Freeman, 1984 CSR minimizes transaction costs and potential
conflicts with stakeholders
Positive
Soloman and
Hansen, 1985
CSR costs are clearly covered with benefits in
employee morale and productivity
Positive
Freedman and
Jaggi, 1982
CSR and shareholder’s value don’t coincide Negative
Pava and Krausz,
1996
CSR and financial performance are positively
linked
Positive
Preston and
O’Bannon, 1997
CSR and the magnitude of financial evolution
coincide
Positive
Waddock and
Graves, 1997.
Social and economic performance have
opposite consequences on financial statements
Negative
Stanwick and
Stanwick, 1998
Importance of stakeholders’ recognition for a
positive evolution of financial magnitudes
Positive
Verschoor, 1998 Positive relationship between corporate
performance and stakeholder relationships
Positive
Jensen, 2001 Social constraints and responsible social
behaviour can work against value
maximization.
Negative
Ruf et al., 2001 CSR and sales increase are observed in
several companies, with temporal continuity
Positive
Bauer et al., 2002 Comparison of ethical and traditional
investment finds mixed results, with a light
positive trend towards ethical funds
Not conclusive
Orlitzky et al.,
2003
The results of their meta-analysis confirm a
positive relation between social responsibility
and financial performance
Positive
Barnea and Rubin,
2005
CSR investment is negatively related to
insiders’ ownership
Negative
Crisis and Corporate Social Responsibility: Threat or Opportunity?
43
Bauer et al., 2007 Investors appreciate ethical investment funds Positive
Bechetti et al.,
2007
Market penalizes the exit from social
responsibility index and ethical funds
Positive
Mittal et al., 2008 Strong evidence against the idea that CSR
initiatives have universal or systematic
positive financial impacts
Not conclusive
Table 1. CSR and economic-financial performance
It is noteworthy that in many of these contributions, evidence of a positive effect of CSR
strategies on economic performance has been found, but this effect is not so clear
regarding financial performance. Furthermore, CSR has a positive effect on internal
variables, like motivation or entrepreneurial culture. However, the possible benefit for a
shareholder’s value or the real cost of CSR implementation is not probed. Another
important point to highlight, that can explain the aforementioned inconsistent results
besides the confusion and complexity of the concept, is the use of different
methodologies of analysis, not always appropriated to what is required for CSR
8
.
In any case, there is no conclusive and unanimous opinion about the
relationship between CSR and economic-financial performance measures. And
implementation of CSR needs financial funds because it generates costs
9
. The
consequence is evident: CSR in periods of crisis is a threat for firms’ survival and such a
strategy is not expected in these times of uncertainty. But the decisions based on the cost
of implementing responsible strategies are not the only threat, despite being an error in
the long-term perspective. The overuse of corporate sponsorship, based on CSR, only
with marketing purposes, can change the customers’ initial positive perception.
Customer sensitivity is much more likely to break out in crisis periods. The press of
consultants and advisers, that asset CSR as a new business opportunity, is also a threat
to be considered.
Nonetheless, some observations can be made to soften these somewhat harsh
assumptions. And even to change the perspective and turn round to convert the negative
deduction in an opportunity for those companies who decide to begin or continue with
CSR implementation.
The new perspective, necessary for the aforementioned turnaround, is based on
the hypothesis that establishes that CSR is more than a temporary fashion
10
; it is a
management tool under constant renovation which will last throughout time
11
. The
world is still far away from the ideal situation of a global and unique framework for
8
Orlitzky et al. (2003) argue that most of contradictory results are due to the use of inappropriate
methodological and statistical tools.
9
Levis, 2005, 7.
10
Fernández-Feijóo, 2008, 209.
11
Gil et al., 2007, 384.
Souto Fernández-Feijóo Belen
44
CSR. To move towards this goal, the development of models to manage CSR tools is
necessary. And this important work is being done in several fields: academic,
entrepreneurial and institutional, as Jonker and De Witte (2006a) tested with the
compilation of more than forty models for managing CSR developed over the five
previous years, with different scopes and diverse orientations
12
.
Although these models are diverse, there are a set of common issues in nearly
all of them which can be redirected to change the perspective of implementing CSR
models from a threat to an opportunity in periods of crisis (Figure 1):
1. CSR model implementation can be assessed as innovation, a key concept for
achieving long-term entrepreneurial survival, a logical objective in situations of crisis.
2. CSR provides the desired atmosphere (internal culture, motivation) in which
exceptional periods (crises) can be approached.
3. CSR gives adequate treatment to stakeholders, changing their possible
position of risk towards the firm to an attitude of alliance.
4. CSR implementation reinforces business strategy, a necessity always covered
but which has special relevance in periods of crisis.
12
A great number of models compiled by these authors have been designed with EU research
projects. This financial support makes it clear that the European authorities want to promote the
trend of CSR implementation.
CSR
Process
needs
1. Innovation
2. Comfortable atmosphere
3. Stakeholders’ role
4. Business strategy
5. Market attitude
6. Investor confidence
7. Deep internal reflection
Crisis
periods
needs
Figure 1. CSR implementation process and crisis periods: necessities.
Crisis and Corporate Social Responsibility: Threat or Opportunity?
45
5. CSR model implementation strengthens companies’ market position, when it
is perceived as such
13
. That is why communication and transparency are important.
These two characteristics are inherent to CSR.
6. CSR offers a guarantee and confidence to investors, due to information
offered by responsible companies. Financial resources are always necessary but they
become critical in times of crisis.
7. CSR implementation obligates one to reflect deeply about main concerns
clearly linked to long-range survival: identity (including mission and vision), systems
(incorporating procedures and rules), accountability (defining what and how much
responsibility is wanted) and transactivity (clarifying who affects and who is affected by
the firm’s activity) (Figure 2).
13
Maigna and Ferrel (2003) and Rundle-Thiele and McDonald (2008) approach to CSR through
consumers’ perception.
Identity:
mission and
vision
Systems:
procedures
and rules
Transactivity:
who affects
and who is
affected
Accountability
:
what and how
Business
Proposition in
RSC
Business Context
Societal Context
Figure 2. Developed from The CSR Management Model. In: Jonker and De Witte (2006, 5)
Geographic, cultural, social
and natural environment
Internal Context
Innovation
C t t
Souto Fernández-Feijóo Belen
46
This last issue, a deep internal reflection about who the firm is - what it is like,
where it is and where it wants to be, and how and with whom it wants to advance on its
way towards achieving its objectives - is essential. This task, well done, is enough in
itself, because the result obtained by the firm strongly justifies the effort to be made.
Another important consequence of this internal reflection is to bring out what Gray
(1997, 2001) calls ‘silent social accounts’:
“Law has steadily increased the areas of disclosure required of (particularly)
companies on such matters as employees, political and charitable donations and
governance. At the same time, organisations have steadily increased their areas
of voluntary disclosure, most obviously on environmental issues but also on
matters such as consumers, product safety and interactions with the community.
…
Taken together, these data form the basis of a social account – a ‘silent’ social
account” (2001, 10).
4. Conclusions
Throughout this paper, the double relationship between CSR and the crisis has been
acknowledged and explained. This relationship appears in both the lack of CSR as one
of the causes of the current economic and financial crisis and as a tool for managing the
current situation and helping firms overcome the consequences of the crisis.
The current economic and financial structure, with global markets that, as we
have seen in recent months, feel the effects of domestic financial problems all over the
world, must be revised. After the evolution of the world economic systems over the last
twenty years, capitalism has become the best of all existing economic models, all of
which are imperfect. But this affirmation is not enough to resign and not try to improve
an old model that needs numerous changes. Each company has its own responsibility in
this necessary task, as CSR is a management model for control, with guarantees to avoid
undesired facts and to offer more market transparency.
In their CSR implementation process, organizations must redefine their essential
business objectives. These objectives must be aligned with the strategy of the company
and have to be coherent with the change in organizational culture that CSR represents.
The new attitude, forms and perspectives should be the result of a deep internal
reflection that will increase the core value of the firm. This core value will be favoured
by the innovation inherent in CSR; its positive effects on internal variables, like
motivation or entrepreneurial culture; the support of stakeholders in their new role
within and towards the firm; reinforcement of business strategy; strengthening of
company market position; and investor confidence. With this panorama, firms will be in
a better position to overcome the turbulent situation of the current economic and
financial crisis, using CSR as a business opportunity.
This paper should not conclude without mentioning the negative potential of
CSR in periods of crisis. In spite of the benefits that in the long-term are widely
recognized, the cost of RSC implementation cannot be forgotten. Throughout this paper,
Crisis and Corporate Social Responsibility: Threat or Opportunity?
47
it has been relegated to the background, because the implementation of responsible
policies and strategies is a long- term process. This characteristic allows for the planning
of a series of tasks, basing the decision of which tasks to carry out on the circumstances
of the moment. The implementation process of CSR is long and it can always improve.
The output of the deep internal reflection on which CSR must be based, will also
provide enough material for a first version of social accounting. Companies have more
silent accounting than they realize.
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