A Historical Perspective on Corporate Social Responsibility

In 1962, Friedman published a book, Capitalism and Freedom, which argued that a company had no “social responsibility” to the public or society, but only to its shareholders.’ (Source: Article by Gillian Tett in The Financial Times, ‘Does capitalism need saving from itself?’, 6 September 2019.).

Critically analyse Friedman’s statement, with reference to corporate social responsibility, corporate citizenship and the UN Global Compact, to evaluate whether corporate responsibility should be regulated.

A 1970 study on CSR commissioned by the Committee for Economic Development led to a publication entitled ‘A New Rationale for Corporate Social Policy’, which contributed to restructure the discourse on CSR. The first paper in this publication started with the following words:

“The corporation owes its existence and its continued prosperity to the successful operation of the economy and the viability of the social arrangements.”

Development of CSR is linked with the advent and growth of bigger corporations or multinational companies. Merrick Dodd argued that such a situation needed laws requiring consideration of corporations as social corporations in order to so bring some alignment between their the business and social obligations. Recent CSR developments show the adoption of laws and regulations that streamline corporate laws to include CSR principles. Various countries have adopted this approach, and businesses increasingly seek guidance with the help of channels such as business dissertation help. For instance, Germany law requires certified private and occupational pension schemes shall report ethical and social aspects in investment policies. Belgium, under the Social Label Law 2002, requires corporate to report social performance over each three (3) year period. Its Occupational Pension Law 1999 requires disclosure of criteria around CSR performance by pension fund managers. The UK Trustee Act 2000 requires trustees to develop social performance. The UK Companies Act 2006 requires reporting specifically for environmental and social issues.

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1. William J Boumol, Rensis Likert, Henry C Wallich and John J McGowan, A New Rationale for Corporate Social Policy (New York: Committee for Economic Development 1970).
2. Min-Dong Paul Lee, ‘A review of the theories of corporate social responsibility: Its evolutionary path and the road ahead’, (2008) 10 (1) International Journal of Management Reviews 53-73, p.58-59.
3. William J Boumol, ‘Enlightened Self Interest and Corporate Philanthrophy’, in William J Boumol, Rensis Likert, Henry C Wallich and John J McGowan (eds.), A New Rationale for Corporate Social Policy (New York: Committee for Economic Development 1970) 3.
4. RengineePillay,The Changing Nature of Corporate Social Responsibility: CSR and Development- The Case of Mauritius (Oxon: Routledge 2015) 11.
5. Mia Mahmudur Rahim, Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy (Springer 2013)35.
6. Ibid.
7. Mia Mahmudur Rahim, Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy (Springer 2013) 2, n.4.

Friedman identifies the desire to make profits as the only driver for companies’ endeavour. Friedman has expressed a lot of criticism against CSR. He was critical when businessmen or corporations consider social responsibilities or social ends as one of the business pursuits. There is a viewpoint that is based on the interest of the shareholders. Hetherington stated:

"There is no reason to think that shareholders are willing to tolerate an amount of corporate non-profit activity which appreciably reduces either dividends or the market performance of the stock."

This viewpoint makes CSR activity not appropriate where it is limited for corporate non-profit activity and is not aligned with the interest of the shareholders. This does not agree with the view that a company has also other stakeholders such as employees, local populations, or persons impacted by the company, whose interests are also necessary from the perspective of CSR. There shall be a balance between the shareholders’ interests and application of CSR principles. Dahl stated that corporations should be social enterprises and that their existence and decisions is justified as long as they serve public or social purposes.

CSR is a contested subject, as is seen in the discussion here. The wide acceptance of CSR as a legitimate activity to pursue by companies does not guarantee it to be a universally definable concept. There are many different dimensions to it, but it must be defined to at least a level that identifies a core or common reference point to understand and apply the principles of CSR. European Commission sees CSR as an integration of the business concerns with social and environmental concerns.The current development of CSR is seen in public regulatory mechanisms that are developed to regulate companies’ CSR activities, their self-regulatory mechanisms, and co-regulatory measures between public bodies and civil society, for the sole purposes of CSR goals. Caroll and Shabana state that CSR

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8. Milton Friedman, ‘The social responsibility of a business is to increase its profits’, in G. D. Chryssides, & J. H. Kalerbusiness, An Introduction to Business Ethics. (London: Cengage Learning 1993) 251
9. Ibid, 249.
10. JAC Hetherington, Corporate Social Responsibility Audit: A Management Tool for Survival (London; The Foundation for Business Responsibilities 1973) 37.
11. RA Dahl, ‘A prelude to corporate reform’, (1972) Business & Society Review 17-23, p. 18.
12. David Crowther and Guler Aras, Corporate Social Responsibility (Ventus Publishing 2008) 10.
13. JeehyeYou,Legal Perspectives on Corporate Social Responsibility: Lessons from the United States and Korea‬ (Noida: Springer) 4.‬‬‬‬‬‬
14. Carmen Palzer and Alexander Scheuer, ‘Self-Regulation, Co-Regulation, Public Regulation’ (2003) Promote or Protect 165.

comprises concepts that are competing, complementary and overlapping. The following concepts are the most probable descriptors acceptable in the area of CSR: corporate citizen-ship, stakeholder management, business ethics and sustainability.

CSR has possibility of remaining a concept prone to perpetual dispute. Its narrow conceptualisation concerns with the relationship between the corporations and the local society members where the corporation has a presence.Its broader conceptualisation concerns inter-relationships between the global corporations, governments of different jurisdictions where global corporations have presence and the citizens of those countries. In this relevance, globalisation majorly contributes to growth of transnational politics, ‘hollowing out’ of the nation state. Nation states losses influence on economic activity because of high level of influence exercised by transnational corporations on nation states. Corporate social responsibility thus occupies an important place that will drives business ethics codes that corporate sector should increasingly adheres to it. As one can see, for instance practices of globalisation arguably weaken accountability of governments and companies regarding anti-corruption practices. This affects relevant enforcement framework. This calls for a complementary international and national measure. In this regard, the UN Global Compact puts forth steps to ensure anti-corruption policies and programs are complied with by and incorporated in organizations and businesses and to

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15. Archie B. Carroll and Kareem M. Shabana, ‘The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice’ (2010) International Journal of Management Reviews 85-105, p.105.2
16. Ibid.
17. AJ Okoye, ‘Theorising Corporate Social Responsibility as an Essentially Contested Concept: Is a Definition Necessary?’ (2009) 89 Bus Ethics 613.
18. David Crowther and Guler Aras, Corporate Social Responsibility (Ventus Publishing 2008) 10.
19. Ibid.
20. Peter Newman and Andy Thornley, Planning World Cities: Globalization and Urban Politics (2nd Edition, Palgrave Macmillan 2011).
21. J.D Sullivan, The Moral Compass of Companies: Business Ethics and Corporate Governance as Anti-Corruption Tools (International Finance Corporation 2009).
22. Onyeka Osuji, ‘ Fluidity of Regulation-CSR Nexus: The Multinational Corporate Corruption Example’ (2011) 103(1) Journal of Business Ethics pp.31–57.
23. D.S. Hawley, Exporting Corruption; Privatization, Multinationals and Bribery (The Corner House 2000).
24. P Bratsis, 'Corrupt Compared to What? Greece, Capitalist Interests, and the Specular Purity of the State' (2003) In Discussion Paper No. 8., 2003. The Hellenic Observatory The European Institute.

ensure collective step with collective actions are undertaken. One such undertaking could be the 1994 Caux Round Table that calls for ethical responsibility and non-participation in corrupt practices and bribery by business. These are the reason for the necessity of corporate social responsibility that lays out business ethics codes.

UN Global Compact aims to align ten universally accepted principles around the areas of human rights, environment, labour and anticorruption. Businesses should ensure advancement of markets, commerce, finance and technology benefiting economies and societies. Global Compact brings together companies, governments, labour, civil society, the UN and other key stakeholders. Governments need to be pro-active in setting up required guidelines and play a crucial role in helping civil society respond to agreed expectations. Organisational legitimacy vis-a-vis corporate social responsibilities calls harmony between corporate activities and social value. Corporation forms a part of a larger social system and for it to be legitimate part of the larger social system; it must comply with its social obligations. In recent times, Milton Friedman famously stated that the only social responsibility of a corporation is to maximise profits for its shareholders.As such, there should not be any intervention by the state and government in the private market, which creates the greatest possible good for the society by its invisible hand. According to Adam Smith, the invisible hand of the private marketplace that may maximise social benefits of individual commercial efforts and on the corporation should have the one social purpose of maximising its wealth, which will in turn maximise social wealth. A contrary viewpoint, according to Dodd, is that CSR should be an essential aspect of business organisations’

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25. United Nations Global Compact, ‘The Ten Principles’ accessed <‘http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/principle10.html>.
26. Caux Round Table, ‘ Principles for Business’ (2018), accessed .
27. J.D Sullivan, The Moral Compass of Companies: Business Ethics and Corporate Governance as Anti-Corruption Tools (International Finance Corporation 2009).
28. Dr. Jagbir Singh Kadyan, ‘United Nations Global Compact and Corporate Social Responsibility’ Volume 5 Issue 10, October 2016 International Journal of Science and Research (IJSR) 478
29. CristiLindblom, ‘The Implications of Organisational Legitimacy for Corporate Social Performance Disclosure’ (1994) Paper presented at the Critical Perspectives on Accounting Conference,NY, 2.
30. Milton Friedman, ‘The social responsibility of a business is to increase its profits’, in G. D. Chryssides, & J. H. Kalerbusiness, An Introduction to Business Ethics. (London: Cengage Learning 1993) pp. 249-265.
31. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Indianapolis: Liberty Classics 1976).

decision making and functioning. Legal responsibilities should be structured accordingly as it will not be realistic to expect business managers to involve and integrate CSR activities with economic activities of the firm.

Books

Crowther D and Aras G, Corporate Social Responsibility (Ventus Publishing 2008)

JeehyeYou,Legal Perspectives on Corporate Social Responsibility: Lessons from the United States and Korea‬ (Noida: Springer)

Boumol WJ, ‘Enlightened Self Interest and Corporate Philanthrophy’, in William J Boumol, Likert R, Henry C Wallich and John J McGowan (eds.), A New Rationale for Corporate

Social Policy (New York: Committee for Economic Development 1970) 3

Friedman M, ‘The social responsibility of a business is to increase its profits’, in G. D. Chryssides, & J. H. Kalerbusiness, An Introduction to Business Ethics. (London:Cengage Learning 1993) 251.

Hawley DS, Exporting Corruption; Privatization, Multinationals and Bribery (The Corner House 2000).

Hetherington JAC, Corporate Social Responsibility Audit: A Management Tool for Survival (London; The Foundation for Business Responsibilities 1973).

J.D Sullivan, The Moral Compass of Companies: Business Ethics and Corporate Governance as Anti-Corruption Tools (International Finance Corporation 2009).

Newman P and Thornley A, Planning World Cities: Globalization and Urban Politics (2nd Edition, Palgrave Macmillan 2011)

Pillay R, The Changing Nature of Corporate Social Responsibility: CSR and Development- The Case of Mauritius (Oxon: Routledge 2015)

Rahim MM, Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy (Springer 2013)

Smith A, An Inquiry into the Nature and Causes of the Wealth of Nations (Indianapolis: Liberty Classics 1976)

You J, Legal Perspectives on Corporate Social Responsibility: Lessons from the United States and Korea‬ (Noida: Springer) 39-40.

Journal

Carroll AB and Shabana KM, ‘The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice’ (2010) International Journal of Management Reviews 85-105, p.105.2 Boumol WJ, Likert R, Wallich HC and McGowan JJ, A New Rationale for Corporate Social Policy (New York: Committee for Economic Development 1970) Bratsis P, 'Corrupt Compared to What? Greece, Capitalist Interests, and the Specular Purity of the State' (2003) In Discussion Paper No. 8., 2003. The Hellenic Observatory The European Institute. Dahl RA, ‘A prelude to corporate reform’, (1972) Business & Society Review 17-23, p. 18. Kadyan JB, ‘United Nations Global Compact and Corporate Social Responsibility’ Volume 5 Issue 10, October 2016 International Journal of Science and Research (IJSR) 478 Friedman M, ‘The social responsibility of a business is to increase its profits’, in G. D. Chryssides, & J. H. Kalerbusiness, An Introduction to Business Ethics. (London: Cengage Learning 1993) pp. 249-265. Lee MDP, ‘A review of the theories of corporate social responsibility: Its evolutionary path and the road ahead’, (2008) 10 (1) International Journal of Management Reviews 53-73, p.58-59 Lindblom C, ‘The Implications of Organisational Legitimacy for Corporate Social Performance Disclosure’ (1994) Paper presented at the Critical Perspectives on AccountingConference,NY, 2. Okoye AJ, ‘Theorising Corporate Social Responsibility as an Essentially Contested Concept: Is a Definition Necessary?’ (2009) 89 Bus Ethics 613. Osuji O, ‘ Fluidity of Regulation-CSR Nexus: The Multinational Corporate Corruption Example’ (2011) 103(1) Journal of Business Ethics pp.31–57. Palzer C and Scheuer A, ‘Self-Regulation, Co-Regulation, Public Regulation’ (2003) Promote or Protect 165.

Others

Caux Round Table, ‘ Principles for Business’ (2018), accessed . United Nations Global Compact, ‘The Ten Principles’ accessed <‘http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/principle10.html>. ‘…for 50 years business has been getting relentlessly bigger and stronger, while governments have become progressively weaker.’ (Source: Letter from Jeremy Grantham to The Financial Times, 25 October 2019.)

Critically analyse this statement, to evaluate the relative power and control of the transnational corporation (TNC) as against that of the state, and the range of mechanisms to hold TNCs accountable.

Multinational corporations or MNCs evolved in the late 19th century, and thereafter rapidly grew after the Second World War. The political role of MNCs is impactful in developing or underdeveloped countries. Globalisation contributes majorly to growth of transnational politics. On the same line, there is an ever increasing importance to developing nations of the need of direct foreign investment by transnational corporations (TNCs). TNCs engage in enough business activities, outside the country of origin and they take management decisions based on regional or global alternative. Because of their size, TNCs dominate industries where a relatively small number of firms control the output and markets. Their nature and approaches have major implications for decision makers, policymakers, legislators, and business leaders. They adopt approaches such as building contacts with various levels of government in order to legitimise their operations in countries and obtain favourable decisions. Global corporations influence domestic political system and business models to advance their interests and gains, ‘hollowing out’ of the nation state. Nation states losses their influence on economic activity due to high level influence exercised by transnational corporations on nation states.

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32. Cherunilam, International Economics (New Delhi: Tata McGraw-Hill 2008).
33. The World Bank, Combating Corruption, accessed .
34. Peter Newman and Andy Thornley, Planning World Cities: Globalization and Urban Politics (2nd Edition, Palgrave Macmillan 2011).
35. Hans Jansson, Mohammed Saqib, and D. Deo Sharma. "The state and transnational corporations." Books (1995).
36. Ibid.
37. The World Bank, Combating Corruption, accessed .
38. Peter Newman and Andy Thornley, Planning World Cities: Globalization and Urban Politics (2nd Edition, Palgrave Macmillan 2011).
39. Ibid.

Globalisation arguably weakens accountability of governments and companies regarding anti-corruption practices. This affects relevant enforcement framework. As the consequence or as the cause of it, approaches of global corporation influence domestic policies and economic framework. One such approach is in the form of economic pressure. Foreign direct investment has an exploitive angle to it as it can create a higher bargaining or influential aspect in the environment of domestic economy. Due to such investment, economic advantages lean towards the corporations. As one can see, MNCs were used by western countries and they acted as agents of neo-colonialism in order to gain control over the weaker developing nations. They acquired dominant market position and majorly shaped domestic policies and laws for their own private gains.

The ever increasing and far penetrating power and influence exercised by TNCs has led to many trade and economic issues; interference in nations’ affairs; shaping of international politics; human rights issues; and other labour and employment problems. For instance, one of the problematic techniques is the use of a cost and accounting instrument known as "transfer pricing" that enables avoidance of both market mechanisms and national laws in order to maximize profits. TNCs are allegedly notorious in influencing nations' political affair. For instance is the 1954 US invasion of Guatemala with the aim of preventing the Guatemalan government from taking unused land of United Fruit Company for redistribution to peasants. Among other abuse of their power, mention is made here of TNCs failing to protect human right, such as when TNCs failed to control industrial hazards at their facilities as was seen in the case of the German TNC Bayer's chromate production factory in South Africa.

Considering the importance of TNCs and the economic benefits to the nations and also the far-reaching influence that they exercise in international politics, it is unthinkable to ban TNCs. The creation of legal entity status to companies, the legal principles of separation of liabilities between the company and its management, high power exercise by stakeholders and creditors and many other legal and business principles have remove even a minimum possibility of reducing the powers of corporations, Whether it is TNCS or MNCs, they will remain influential and have high significant part in local, national and international legal, commercial, social, economical, and political environment. This greatly calls for enforceable national and international mechanisms to make TNCs abide to principle of accountability. Some of the international and national mechanisms to govern make TNCs activities are discussed here. The ABC Model framework calls for national and international legal frameworks to abide to combat corruption. The 1994 Caux Round Table provides for

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40. D.S. Hawley, Exporting Corruption; Privatization, Multinationals and Bribery (The Corner House 2000).
41. P Bratsis, 'Corrupt Compared to What? Greece, Capitalist Interests, and the Specular Purity of the State' (2003) In Discussion Paper No. 8., 2003. The Hellenic Observatory The European Institute.
42. V.N. Khanna, International Relations (Noida: Vikas Publishing 2013).
43. Steve Chapman, Sociology (Letts and Lonsdale 2004).
44. Amy Chua, World On Fire (London: Arrow Books 2004).
45. Jed Greer and Kavaljit Singh, ‘A brief history of transnational corporations’ (2000) In Global Policy Forum, 147-167.
46. Elspeth Guild, ‘The Legal Framework: Who is Entitled to Move’ in Elspeth Guild, Controlling frontiers: free movement into and within Europe (Routledge 2017).
47. Jed Greer and Kavaljit Singh, ‘A brief history of transnational corporations’ (2000) In Global Policy Forum, 147-167.
48. Joel Bakan, The corporation : the pathological pursuit of profit and power (New York: Constable 2005).
49. Stefania Giavazzi, Francesca Cottone, Rosa, and Michele De, Preventing Corporate Corruption: The Anti-Bribery Compliance Model (Springer 2014).

principles governing ethical and responsible corporate behaviour. Business ethics provide multinationals a framework to strategically address weak regulatory institutions in developing countries. Article 7 of the ICC Rules of Conduct and Recommendations to Combat Extortion and Bribery call for implementation of policies or codes by enterprises. The Sarbanes Oxley Act of 2002 (SOX) grants employees of publicly traded companies a right of action against retribution because they reported fraud. UN Global Compact aims to align ten universally accepted principles around the areas of human rights, environment, labour and anticorruption. Businesses should ensure advancement of markets, commerce, finance and technology benefiting economies and societies. Global Compact brings together companies, governments, labour, civil society, the UN and other key stakeholders. Governments need to be pro-active in setting up required guidelines and play a crucial role in helping civil society respond to agreed expectations. Guiding Principles on Business and Human Right States provides for nation states to protect against human rights abuse within their jurisdiction by third parties, including business enterprises. It provides for implementing laws and policies that can govern creation and ongoing operation of business enterprises to protect human rights.

Laws and regulations may not always work in restraining powers of TNCs or to make them accountable. Economism takes an upper hand and it subdues business ethics. There have been cases of protests by TNCs for making them accountable for their actions oversees, as was seen in the case of ACTA in Burma. The laws and framework are soft and often voluntary and many TNCs ignore them. The lack of core defining elements, such as specificity of human rights obligations, often makes performance assessment of TNCs challenging. Maybe a hybrid model, such as seen in the case of CSR activities, could be applied where home states take active role in regulating and enforcing self-regulations of TNCs. Such hybrid could be seen in the UK Slavery Act, the UK Bribery Act and the 2017 French devoir vigilance law, where regulatory compliances are imposed on companies. But, most of these mechanisms are soft law, self regulatory or voluntary, problems may arise due to lack of enforcement measures. As said, economism precedes all interests, but interests of TNCs.

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50. Caux Round Table, 'Principles for Business' (2018) accessed .
51. Prabhir Vishnu Poruthiyil, ‘Weaning Business Ethics from Strategic Economism: The Development Ethics Perspective’ (2013) 116 (4) Journal of Business Ethics 735-749.
52. David Schultz and Khachik Harutyunyan, ‘Combating corruption: The development of whistleblowing laws in the United States, Europe, and Armenia’ (2015) 1(2) International Comparative Jurisprudence 87-97.
53. Dr. Jagbir Singh Kadyan, ‘United Nations Global Compact and Corporate Social Responsibility’ Volume 5 Issue 10, October 2016 International Journal of Science and Research (IJSR) 478
54. UN General Assembly, ‘Report of the Special Representative of the SecretaryGeneral on the issue of human rights and transnational corporations and other business enterprises’ (2011) Human Rights Council.
55. Prabhir Vishnu Poruthiyil, ‘Weaning Business Ethics from Strategic Economism: The Development Ethics Perspective’ (2013) 116 (4) Journal of Business Ethics 735-749.
56. Julio Faúndez and Celine Tan, International economic law, globalization and developing countries (Edward Elgar Publishing 2010).
57. Vibe Ulfbeck, Kateřina Peterková Mitkidis, and Alexandra Andhov, Law and Responsible Supply Chain Management (New York: Routledge 2019).

Bibliography

Books

Bakan J, The corporation : the pathological pursuit of profit and power (New York: Constable 2005).

Chapman S, Sociology (Letts and Lonsdale 2004).

Chua A, World On Fire (London: Arrow Books 2004).

Cherunilam, International Economics (New Delhi: Tata McGraw-Hill 2008).

Faúndez J and Tan C, International economic law, globalization and developing countries (Edward Elgar Publishing 2010).

Giavazzi S, Cottone F, Rosa, and De M, Preventing Corporate Corruption: The Anti-Bribery Compliance Model (Springer 2014).

JanssonH, Saqib M, and Sharma DD. "The state and transnational corporations." Books (1995).

Hawley DS, Exporting Corruption; Privatization, Multinationals and Bribery (The Corner House 2000).

Khanna VN, International Relations (Noida: Vikas Publishing 2013).

Newman P and Thornley A, Planning World Cities: Globalization and Urban Politics (2nd Edition, Palgrave Macmillan 2011)

Ulfbeck V, Mitkidis KP, and Andhov A, Law and Responsible Supply Chain Management (New York: Routledge 2019).

Journals

Greer J and Singh K, ‘A brief history of transnational corporations’ (2000) In Global Policy Forum, 147-167.

Elspeth Guild, ‘The Legal Framework: Who is Entitled to Move’ in Elspeth Guild, Controlling frontiers: free movement into and within Europe (Routledge 2017).

Kadyan HS, ‘United Nations Global Compact and Corporate Social Responsibility’ Volume 5 Issue 10, October 2016 International Journal of Science and Research (IJSR) 478

P Bratsis, 'Corrupt Compared to What? Greece, Capitalist Interests, and the Specular Purity of the State' (2003) In Discussion Paper No. 8., 2003. The Hellenic Observatory European Institute,

Poruthiyil PB, ‘Weaning Business Ethics from Strategic Economism: The Development Ethics Perspective’ (2013) 116 (4) Journal of Business Ethics 735-749.

Poruthiyil PB, ‘Weaning Business Ethics from Strategic Economism: The Development Ethics Perspective’ (2013) 116 (4) Journal of Business Ethics 735-749.

Schultz D and Harutyunyan K, ‘Combating corruption: The development of whistleblowing laws in the United States, Europe, and Armenia’ (2015) 1(2) International Comparative

Jurisprudence 87-97

UN General Assembly, ‘Report of the Special Representative of the SecretaryGeneral on the issue of human rights and transnational corporations and other business enterprises’ (2011) Human Rights Council.

Others

Caux Round Table, 'Principles for Business' (2018) accessed .

The World Bank, Combating Corruption, accessed .

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