Corporate Social Responsibility (CSR), as it is now practiced, is fatally flawed and has therefore outlived its usefulness. That is the argument put forward in a provocative paper entitled “A New Approach to CSR: Company Stakeholder Responsibility” published in the book Corporate Social Responsibility: Reconciling Aspiration with Application (Palgrave MacMillan). The paper is jointly authored by The Darden School Professor of Business Administration R. Edward Freeman and CEIBS Professor of Entrepreneurship Rama Velamuri.
CSR encompasses the widely accepted notion that corporations should not only pursue economic gain and increase shareholder value, but also voluntarily undertake actions to improve the social welfare of the communities in which they operate. The concept calls upon business entities to meet and even exceed regulations that protect society. The idea, which has long been popular in the West, has gained acceptance in China over recent years.
Professors Freeman and Velamuri express a bold counter viewpoint in their paper. In pointing out CSR’s flaws, they maintain that the accepted perception of CSR erroneously promotes the concept that business issues and social issues can be addressed separately. This approach, they write, advances the potentially harmful idea that the underlying structure of business is either ‘not good’ or is ‘morally neutral’ and must then be fixed by grafting on a CSR program. The two scholars also name “focus on corporations” as the second flaw of many current CSR programs; they ask readers to question why social responsibility does not apply to all types of organizations.
Though the authors argue that CSR is all but dead, they are not ready to bury the concept yet. In their paper, they outline a raft of proposals to address the shortcomings they have identified. “We propose to replace ‘corporate social responsibility’ with an idea we call ‘company stakeholder responsibility’. This is not just semantics, but a new interpretation of the very purpose of CSR,” they write. “Company signals that all forms of value creation and trade, all businesses, not just corporations, need to be involved. Stakeholder suggests that the main goal of CSR is to create value for key stakeholders and fulfill our responsibilities to them. And Responsibility implies that we cannot separate business from ethics.”
All companies must think carefully about the basic value proposition to each key stakeholder group: customers, employees, suppliers, investors and the government. Any company that creates value ethically for all these stakeholders is a good corporate citizen. Thus, donating money to the opera can never (in a moral sense) make up for short-changing customers or providing an inadequate return to investors.
The paper presents four levels of commitment to company stakeholder responsibility which explore issues including: identifying the principles that the company and its leaders stand for; determining how to improve the wellbeing of stakeholders; ascertaining the company principles and values that form the basis for interaction with stakeholders; and understanding how a firm’s principles complement or contradict key societal trends and beliefs. Their list of 10 principles for company stakeholder responsibility promotes the importance of treating all stakeholders as “real” people, which involves engaging in dialogue and finding solutions that meet their specific needs.
The cutting-edge article is the latest project undertaken by Prof. Velamuri, who joined CEIBS full-time faculty this September. At CEIBS, Dr. Velamuri focuses on two areas of research. The first explores how the ethical behavior of firms’ founders influences their ability to mobilize stakeholder support. The second examines the relationship between entrepreneurial strategies and firm growth.
Read full text of the paper.
