Dong Gun Yoo
Word Count – 1,763 / PIN – 10362
The Synthesis of Corporation and Society
Dong Gun Yoo
The turn of the century has brought with it numerous changes to the world of business management. For one, new trends are arising in consumer society every moment according to which firms must adjust their strategies. One new trend in the business world that has caught the eyes of many is corporate social responsibility (henceforth CSR) and social entrepreneurship. The public is taking ever more interest in the social responsibility of companies. In a study conducted by McKinsey & Company in January 2006, results show that an overwhelming majority of the executives surveyed agree as to the importance of CSR in a company’s management but they also replied that they were nervous as to how they should carry it out. With the way that CSR and social entrepreneurship is defined now, issues concerning their validity are likely to rise. The current viewpoints on CSR and social entrepreneurship are impediments to more benefits that can be achieved through their effective implementation.
CSR and social entrepreneurship as in the minds of many limit the scope of actions that corporations can take, thereby reducing the potential benefits that the society can gain. Philip Kotler defines CSR to be “a commitment to improve community well-being through discretionary business practices and corporate resources”, and according to Professor Dees social entrepreneurs play the role of change agents in the social sector by: a) adopting a mission to create and sustain social value (not just private value), b) recognizing and relentlessly pursuing new opportunities to serve that mission, c) engaging in a process of continuous innovation, adaptation, and learning, d) acting boldly without being limited by resources currently in hand, and e) exhibiting a heightened sense of accountability to the constituencies served and for the outcomes created. These are along the line of definitions that
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Dong Gun Yoo
the general public would have of the two terms, and according to these definitions, one can see that both CSR and social entrepreneurship involve the act of good-will on the behalf of corporations. There are four basic justifications as to why we need CSR in the first place: moral obligation, sustainability, license to operate, and reputation (Porter, 2). To a certain degree, each of these arguments helps the case for the practice of CSR. However, none guides the corporate leaders as to what choices they must make. In his book Capitalism and Freedom, Nobel laureate Milton Friedman states that “there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits” (Colorado). In the most basic sense, the social responsibility of corporations is to create goods and services which would satisfy the needs and wants of consumers. However, although what Friedman states is true, we cannot rule out the fact that customers, and hence the society in which the corporations operate, determine whether a company is successful in the end. Hence, the definitions of CSR and social entrepreneurship we have now must be modified in order to bring about the maximum benefits for both the society and the businesses. Problems arise out of CSR due to the two seemingly conflicting desires of companies and consumers. First, we always pit business against society, and second, we consumers force companies to come up with generic, not company-specific, methods of fulfilling CSR (Porter, 1). As such, CSR becomes a cost, a constraint, or a charitable deed, for companies with these views, because they cannot reconcile the differences, and the capacity of corporations to produce more social benefit or profit is greatly reduced. Take the case of General Electric’s program to adopt underperforming public high schools near its major U.S. facilities. In a study of ten schools, nearly all showing significant improvement, with graduation rates in four of five worst-performing schools doubling from an average of 30% to 60% (Porter, 9). However, in order to achieve this, General Electric has had to contribute between $250,000 and $1 million over a five-year period to each school, with no significant benefits for the
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company itself (Porter, 9). What the General Electric truly needed is to have developed a program that is aligned with its direction of goal and value. Another common implementation of CSR comes as a defense or mitigation of adverse effects from business activities. CSR takes on a passive role in the business management, a problem which must be addressed in order to completely integrate CSR into corporations.
In order to solve the problem mentioned, we first need a new measure of CSR or social entrepreneurship and its impact on the consumer society. Porter argues that “measuring and publicizing social performance is a potentially powerful way to influence corporate behavior� (Porter, 3). Many of the rankings used today, such as the Dow Jones Sustainability Index and FTSE4Good Index, are inconsistent in the criteria they use to judge whether a company is socially more responsible than another. The Dow Jones Sustainability Index includes weights customer service almost 50% more heavily than corporate citizenship, whereas FTSE4Goood Index contains no measure of economic performance or customer service (Porter, 3). Some criteria are even worth questioning the validity of, such as the size of a company’s board as a measure of community involvement which is a criterion used by the Dow Jones Sustainability Index. When corporations are spitting out CSR reports, it seems that the most common response to the problem of CSR is merely cosmetic, playing its role only in public relations and media campaigns. Of the 250 largest multinational corporations, 64% published CSR reports in 2005, aggregating anecdotes about uncoordinated initiatives (Porter, 2), and in addition, most of these reports put too little emphasis on the actual impact made on the society. With incoherent measuring and ranking of CSR, corporations are left directionless as to how they should go about engaging in socially responsible actions while maintaining their profits, at the least. One solution to solving the problem raised is to devise a new method of measuring CSR of corporations and the impact they make on the society.
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Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Dong Gun Yoo
A second solution to this problem is for companies to redefine CSR such that the definition is situation-specific. Corporations opened their eyes to the idea of CSR only after the public responded to issues the corporations had previously thought unrelated to business management.
For example, Nike faced extensive consumer boycott after The New York
Times reported abusive labor practices in the early 1990s (Cushman), realizing that they could no longer disregard the social responsibility. So far, corporations have focused, not on the integration of the social values into their mission statements, but on a superficial treatment of what the society wants. In other words, CSR often serves as a method of covering up the wrongdoings of the corporations after they have caused enough damage to bring about public attention. In order to turn CSR so that businesses and entrepreneurs can be more proactive, we need to redefine CSR. Corporations may come to realize that CSR can become a source of tremendous social progress, as the business applies its considerable resources, expertise, and insights to activities that benefit society (Porter, 1). In order to do so, corporations must first realize that corporations and society are interdependent, and do not exist at the cost each other. First, corporations rely on the society for its operations in the normal course of business, and second, external social conditions affect internal corporate management. From the fundamental law of economics, a healthy society creates more demand for business as the human needs and aspirations grow along with it, while a healthy society needs successful companies to create jobs, wealth, and innovation. However, entrepreneurs often do not recognize the mutual relationship between a corporation and the society it operates in. They spend too much trying to analyze the friction between the too, and not enough analyzing the shared values. As such, for a more successful implementation of CSR, we can turn to the basic rule of design: satisfy both sides, turn it into a win-win situation. When a company can come up with a strategy that will move beyond good corporate citizenship or mitigating
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harmful value to initiatives whose social and business benefits are large and distinctive (Porter, 10). For example, Toyota’s Prius, the hybrid vehicle, is a great example of innovative car models that not only produce competitive advantage over rivals but also produce environmental benefits. By emitting as little as 10% of the harmful pollutants or consuming only half the amount of gas when compared with conventional vehicles (Porter, 10), Prius has helped elevate Toyota to a unique position. It is important to note that this practice did not come as a result of a defensive response to public uproar, but as an innovative strategy on the behalf of Toyota to gain competitive advantage over its rivals. It just happens that Prius’s specifications help benefit the society tremendously. Another example of such shared-value opportunity is Microsoft’s Working Connections partnership with the American Association of Community Colleges (AACC) (Microsoft). By investing in community colleges which do not have standardized IT curricula, Microsoft’s $50 million five-year initiative not only had direct impact on the society, but Microsoft also benefitted from the expanded influx of professional IT workers who graduate from the community colleges. The best example is yet to come: Nestlé’s Milk District (Nestlé). Nestlé exemplifies a symbiotic relationship between social progress and competitive advantage. When Nestlé wanted to enter the Indian market in 1962, it received permission to establish a dairy in Moga, a region with severe poverty. Although it was not Nestlé’s intention to carry out philanthropy in Moga, their value depended on obtaining local source of milk from a large base of small farmers. Nestlé’s practices eventually led to Moga having a significantly higher standard of living than other regions in the vicinity (Porter, 11). Hence, we must recognize that CSR can be of tremendous benefit to both players once they learn to build upon their mutual existence and attempt to make the best out of it.
CSR and social entrepreneurship are crucial ideas in today’s business world, as a
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Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Dong Gun Yoo
larger majority of the public is coming to the opinion that corporations are no longer exempted from the law. Corporations exist because the society can provide them with the resources they need, and a society is sustained by the operations of corporations. Once we learn to recognize this mutual dependence, we will help solve the problem of fragmented engagement in CSR. CSR is no longer just mitigation for the wrongdoings of corporations. CSR must become an integrated element of business management for the benefit of all.
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Works Cited
Cho, Hyungjoon. Corporate Social Responsibility: A Case Analysis of Community Relations in Samsung Group. Thesis. Korea Advanced Institute of Science and Technology, 1997.
Cushman, John H. "INTERNATIONAL BUSINESS: Nike Pledges to End Child Labor And Apply U.S. Rules Abroad." The New York Times 13 May 1998, sec. D: 1.
Dees, Gregory J. "The Meaning of "Social Entrepreneurship"" Center for the Advancement of Social Entrepreneurship. 30 May 2001. Duke University: Fuqua School of Business. 1 Apr. 2009 <http://www.caseatduke.org/documents/dees_sedef.pdf>.
Kotler, Philip, and Nancy Lee. Corporate social responsibility doing the most good for your company and your cause. Hoboken, N.J: Wiley, 2005.
"The McKinsey Global Survey of Business Executives: Business and Society." McKinsey Quarterly (2006). The McKinsey Global Survey of Business Executives : Business and Society - The McKinsey Quarterly. Jan. 2006. McKinsey Quarterly. 1 Apr. 2009 <http://www.mckinseyquarterly.com/The_McKinsey_Global_Survey_of_Busin ess_Executives__Business_and_Society_1741>.
Microsoft Corporation. "Microsoft Announces Working Connections "Class of 2002"" Press release. Microsoft Announces Working Connections "Class of 2002": More Than $2 Million in Grants Support. 26 Jan. 2000. Microsoft. 1 Apr. 2009 <http://www.microsoft.com/Presspass/press/2000/jan00/classof02pr.mspx>.
Nestlé. "Milk collection in Caquetá, Colombia." Press release. Milk collection in 7
Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
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Caquetá, Colombia. 1 Apr. 2009 <http://www.nestle.com/SharedValueCSR/FarmersAndAgriculture/Milk/Milk+ collection+in+Caquet%C3%A1.htm>.
Porter, Michael E., and Mark R. Kramer. "Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility." Harvard Business Review 84 (2006): 78-92.
"The Social Responsibility of Business is to Increase its Profits, by Milton Friedman." University of Colorado at Boulder. University of Colorado. 31 Mar. 2009 <http://www.colorado.edu/studentgroups/libertarians/issues/friedmansoc-resp-business.html>.
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