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Understanding the impact of internal and external Corporate Social

Responsibility:
Perspectives on changing dimensions of Global Marketing.
Marya Wani
1
& Vishnupriya Raghavan
2

Corporate Social Responsibility involves acts undertaken by corporate entities to address a wider array
of stakeholder concerns. It expands the activities of business entities to an entirely new dimension
where the society as a whole is concerned. The most important objective of any corporate entity is to
create value. Corporate social responsibility enhances the concept of value from a limited number of
consumers and shareholders, to the entire globe. If earlier value creation was limited to shareholders,
now the gamut includes stakeholders. This sustainable and socially relevant Endeavour has also
silenced the critics that saw capitalism as exploitation of the masses. Recently there has been a plethora
of advertisements depicting corporate social responsibility around the world. These advertisements
largely address stakeholder concerns like economic, environmental and social concerns like poverty,
water scarcity, endangered species, physical and mental disability, child labour, girl child education and
the like. Increasingly, advertising messages are aimed to project companies as socially and
environmentally responsible.

The aim of this paper is to develop a framework to understand the integration of corporate social
responsibility within the fabric of the corporate entity. It would therefore, aim to classify the endeavors
into two broad categories of internal and external integration of corporate social responsibility. Internal
corporate social responsibility would mean acts of social responsibility where the companys normal
operations bring in the element of stakeholder concern. External on the other hand would mean
donating a percentage of profits towards stakeholder concerns in areas where the company is not
directly involved in terms of operations. Various companies will be studied and then categorized as
internally or externally socially responsible or both. A theoretical framework will thus be developed for
classifying corporate social responsibility.
The paper will examine the impact of these activities on stakeholders to understand which of these
types of corporate social responsibility makes a better impact in the minds of the stakeholders. The
findings could thus help corporate entities to adapt a CORPORATE SOCIAL RESPONSIBILITY
policy that creates a positive differential for the stakeholders and also makes corporate social
responsibility relevant and a continuing endeavour for corporate sector.
Key-words:
Stakeholders, Integration, Internal and External Corporate social responsibility, Concerns,
Sustainability.

1. Assistant Professor, Department of Marketing, International School for Management Excellence,
Bangalore
2. Assistant Professor and Head, Department of Information Systems, Bangalore Management
Academy, Bangalore


1. INTRODUCTION
The term Corporate Social Responsibility has been gaining a lot of attention recently. Businesses today
have higher expectations from the stakeholders than ever before. This concept has also attracted a lot of
attention from academia. We begin with explaining the concept of Corporate Social Responsibility.
Kotler, Lee (2005) define corporate social responsibility as, corporate social responsibility is a
commitment to improve community well-being through discretionary business practices and
contributions of corporate resources.
Corporate social responsibility can be conceived as adopting a holistic view towards the environment
in which a business operates. Rather than considering only the business as a system, it is considered as
part of a larger system with the awareness that the business needs to co-exist with the larger system and
cannot benefit in the longer run if it causes harm to the larger system. This view of business as part of a
larger system will also not change the profit motive to philanthropy. Here a supply chain view of the
business is adopted where the entire global chain is considered. It would therefore mean that the
positive and negative impact of the businesses activities in the entire global supply chain in terms of
resources (natural and manmade) should be considered.
As such Corporate Social Responsibility is not a paradigm shift away from capitalism; it is rather an
effort to broaden the scope of capitalism into a more holistic approach.
Corporate Social responsibility has gained a lot of attention in the recent past. There are many reasons
for it:
1. Empowered consumers: Consumers today are more aware and demanding than they were ever
before. Their ever rising expectations from the businesses mean that they consider all actions of the
business before making a purchase decision. This has forced businesses to adopt measures that are
considered socially responsible by its larger customer base.
2. Communication boom: The advent of technology based communication tools like mobile
telephony, internet etc have shattered all communication barriers across the globe. Communication
flow among the consumers in different parts of the world has tremendously increased and this transfer
happens almost in real time thanks to technology. As a result any act of companies gets amplified
positively or negatively within minutes of the news.
3. Depletion of global resources: This has been happening at an alarming rate. Resources like water,
land, forests, and animal and plant species are being depleted at a pace where the earth is not able to
replenish them. This gap between the use and replenishment has heightened awareness among all
citizens of the planet. Not only has the pressure from consumers increased, but also as part of the globe,
the businesses have also understood their part in conserving resources.
4. Competition: Competition is tougher and meaner than ever before. Businesses are operating at
highest augmentation levels. Corporate Social Responsibility has also been used as an augmentation
tool for various products and services. As a result businesses that do not pay attention to it will not be
able to withstand competition in the longer run.

II LITERATURE REVIEW
There is abundant literature available on Corporate Social Responsibility. The literature covers various
aspects of Corporate Social Responsibility ranging from financial impact to more satisfied customer,
branding exercise and critique of the subject.
Luo, Xueming; Bhattacharya (Nov, 2009) try to examine the financial implications of Corporate Social
Responsibility. Mackey, Mackey, Tyson, Barney (2007) examine the impact of Corporate Social
Responsibility on firms market value. Surroca, Jordi; Trib, Josep A.; Waddock, Sandra (2010)
examine the effects of firms financial performance And Corporate Social Responsibility.
Literature is also available on the impact of socially responsible behavior on corporate performance.
Lai, Chi-Shiun; Chiu, Chih-Jen; Yang, Chin-Fang; Pai, Da-Chang(2010) studied the impact of
Corporate Social Responsibility on brand equity in B2 B markets. Khandelwal & Mohendra(2010),
examined the employee awareness on Corporate Social Responsibility. They studied the effects of
values, vision and Corporate Social Responsibility on its members of the organization. Foote, Jessica;
Gaffney, Nolan; Evans, James R.. (Aug 2010) provide a framework for design of high performing
organization and list Corporate Social Responsibility as an important factor for performance
excellence. Cruz, J. M. and Matsypura, D. (Feb2009) tried to model Corporate Social Responsibility
with supply chain network of the corporate.
Some authors view Corporate Social Responsibility as an umbrella concept. Peloza, John; Falkenberg,
Loren. California (2009) explain that social responsibility should be integrative not transactional.
Wanger, Tillmann: Lutx, Richard J; Weiltz, Barton A( 2009) measured the variation of actual behavior
on account of Corporate Social Responsibility with their stated standards. Devinney, Timothy M..
Academy of Management Perspectives, May2009, debate the efficacy of Corporate Social
Responsibility practices.

III INTERNAL AND EXTERNAL CORPORATE SOCIAL RESPONSIBILITY
We use this as a framework to understand the integration of Corporate Social Responsibility within the
fabric of the business. Internal corporate social responsibility would means acts of social responsibility
where the companys normal operations bring in the element of stakeholder concern. External on the
other hand would mean donating a percentage of profits towards stakeholder concerns in areas where
the company is not directly involved in terms of operations.

Some characteristics of internal and external Corporate Social Responsibility have been discussed in
table 1.
INTERNAL CORPORATE SOCIAL
RESPONSIBILITY
EXTERNAL CORPORATE SOCIAL
RESPONSIBILITY
1. Considers business as part of the eco-system
including the society, environment and the
entire globe.

2. Follows socially responsible behavior in its
entire supply chain.

3. Considers Corporate Social Responsibility
as a part of its business model.

4. Abandons a prospectively profitable
proposition in case it is detrimental to the
society at large.
1. Dedicates a part of its revenues to
philanthropic endeavors.

2. Considers Corporate Social Responsibility
separate from the business model.
Table 1.
Before we attempt to explain what these characteristics, it is important to clarify that a Company could
employ both internal and external Corporate Social Responsibility simultaneously. We wish to
emphasize that an internal orientation is more sustainable and involved than external orientation.
Characteristics of internal and external Corporate Social Responsibility:

INTERNAL CORPORATE SOCIAL RESPONSIBILITY:
1. Considers business as part of the eco-system including the society, environment and the entire
globe: This requires a very long term orientation. A company by law is defined to have perpetual
existence. This means that a company is expected to continue for eternity for the sake of argument.
This means that for a company to exist the earth must also exist. So, whatever effort the company
makes to restore the planet and life within it, is actually an effort to ensure the companys own
perpetual existence.
2. Follows socially responsible behavior in its entire supply chain: Companys source their supplies
from various vendors and also use a number of logistics partners to deliver products and services to its
customers. This means that the entire supply chain needs to be cohesive to the societys interest.
Companies need to ensure that the entire supply chain is socially responsible. MakeITfair (2008), held
an international roundtable based on research reports dealing with Corporate Social Responsibility
issues in the space of consumer electronics.

SUPPLY CHAIN CLEAN-UP AT HP, SONY ERRICSON:
HP had responded by conducting a study into its supply chain to be able to track the metals used. This
included tracing it down to the first tier suppliers to attend the issues addressed.
Sony Ericsson had conducted an audit into its supply of cobalt and tantalum to ensure there were no
illicit and illegal activities like child labour and other abuses involved in any step of their supply chain.
Similar audits of the supply chain have been issued by Nokia as well. MakeITfair(2010), came up with
a number of recommendations for ensuring a socially responsible supply chain. This included efforts to
ensure that mining activities resulting from operations of these electronic giants do not cause harm to
environment or society at large.
DE BEERS WASHES THE BLOOD OFF ITS DIAMONDS
In the late 1990s De Beers, the famous diamond league, was accused of using diamonds that were
sourced using illicit activities.
The company used to mine its diamonds and source from other producers as well. It controlled about
90% of worlds total diamonds during that period. There were growing allegations that the diamonds
were sourced using illegal activities. These diamonds were even termed as conflict diamonds or
blood diamonds. Blood diamonds were defined by U.N Security Councils as "diamonds that
originate from areas controlled by forces or factions opposed to legitimate and internationally
recognized governments or in contravention of the decisions of the Security Council." At this point it
could be observed that the De Beers was not considering the entire supply chain for Corporate Social
Responsibility. However, later De Beers stepped up and using Kimberley Process, which is an
international government certification that determines that rough diamonds sourced are free from
conflict diamonds.
"The net result has been that something like 99.8% of all diamonds around the world now flow through
this certificated system and are monitored to ensure that the way in which the business is being
conducted is totally auditable, totally ethical, and that there is no funding that is flowing through to
undesirable organizations anywhere in the world," said a company official(O' Conell, 2009).
3. Considers Corporate Social Responsibility as a part of its business model: This would mean
that a company practices Corporate Social Responsibility as a strategic variable and intertwines social
responsibility into its business model. Investopedia.com defines business model as The plan
implemented by a company to generate revenue and make a profit from operations. The model includes
the components and functions of the business, as well as the revenues it generates and the expenses it
incurs.

MCIS CSR CHARTER:
MCI (n.d., 2009), an event management company, having its headquarters in Switzerland displays this
theme. In its Corporate Social Responsibility endeavor it has used the United Nations Global compact
as a policy framework; being the pioneer in its sector to do so. The United Nations Global Compact
provides a framework for businesses to respond to the challenges of globalization. It was established in
July 2000. This compact lists a set of 10 core values in human rights, labour standards, environment
and anticorruption. MCI has incorporated these core values of UN Global compact by adopting the
following principles.
Human Rights Principle 1 &2: MCI intends to avoid human rights violation in any of its business
operations.
Labour Rights Principles 3,4, 5, 6: This includes equal opportunity in the workforce. Fairness and
healthy environment, Child welfare etc form a part of these principles among many others.
Environment Principles 7,8 & 9: This involves solutions to water scarcity and other environmental
issues. Here MCI seeks to use resources efficiently, eliminate waste and promote sustainable business
practices.
Corruption Principle 10 : This deals with ethical practices and fair play in business practices.

4. Abandons a prospectively profitable proposition in case it is detrimental to the society at large:
This would call for immense commitment towards Corporate Social Responsibility. Here the existing
business or a profitable endeavor could be abandoned on account of being detrimental to society. This
might go to the extent of Mc Donalds deserting of its high calorie burgers or Coca Colas
abandonment of coke in its current form being high on sugar and calories. One important point to be
noted is that this measure is not necessarily anti-capitalist. In the long run with consumer awareness
and understanding of issues being heightened and the speed of communication, no business could
survive an act that is detrimental to the society.
Higher the company scores on all the four characteristics, the greater would be its internal Corporate
Social Responsibility.

EXTERNAL CORPORATE SOCIAL RESPONSIBILITY

1. Considers Corporate Social Responsibility separate from the business model:
Coca Cola is the worlds largest beverage company. It registered a net income of $2,055,000,000 in the
year 2009 claims Yahoo finance (n.d, www.finance.yahoo.com). Most of the sales are contributed by
sweetened beverages including coke, fanta , Sprite etc. According to Murray, Pizzorno (n.d, Health
Effects of Drinking Soda, 2010), in their article for Encyclopedia of Natural Medicine explain, The
allergencity of penicillin in the general population is thought to be at least ten percent. Nearly 25
percent of these individuals will display hives, angioedema, or anaphylaxis upon ingestion of penicillin.
Hives and anaphylactic symptoms have been traced to penicillin in milk, soft drinks, and frozen
dinners Many general dietary factors have been suggested as a cause of osteoporosis, including: low
calcium-high phosphorus intake, high-protein diet, high-acid-ash diet, high salt intake, and trace
mineral deficiencies. It appears that increased soft drink consumption is a major factor that contributes
to osteoporosis. A deficiency of vitamin K leads to impaired mineralization of bone. Boron deficiency
may contribute greatly to osteoporosis as well as to menopausal symptoms..
Soft drinks have long been suspected of leading to lower calcium levels and higher phosphate levels in
the blood. When phosphate levels are high and calcium levels are low, calcium is pulled out of the
bones. The phosphate content of soft drinks is very high, and they contain virtually no calcium."
This explains that soda based soft drinks are unhealthy. However, Coca cola instead of considering the
societal good is hard selling its products, due to the financial repercussions. It is instead indulging in
environmental awareness campaigns like recycling of the coke pet bottle etc.
3. Dedicates a part of its revenues to philanthropic endeavors:
Here, the company spares a part of its profits towards philanthropic endeavors. Instead of integrating
Corporate Social Responsibility into the operations, the company uses a peripheral approach to
Corporate Social Responsibility.

PROCTOR AND GAMBLE DECIDES TO EDUCATE BACKWARD INDIA
Proctor and Gambles Shiksha campaign (n.d, www.pg.com, 2010) is a good case. This is the
philanthropic effort of P &G providing access to Education to underprivileged children living in
villages like Bhoipali in India.
Shiksha funds NGOS working for the same cause and also issues like poverty, health and
immunization. This is done by dedicating a part of sale proceeds towards the cause. The contribution
was made from every sale of a large pack of P&G brand in India between April and June 2010.

TATA GROUPS LEGACY OF DOING GOOD
Tata Group had the Corporate Social Responsibility integrated into its corporate fabric long before the
terms sustainability and Corporate Social Responsibility became fashionable (n.d, Our commitement,
2010). It has a number of Corporate Social Responsibility initiatives including:
1. The Tata Council for Community initiative (TCCI) in collaboration with United Nations
Development Program (India) created the Tata Index for Sustainable Human Development that
accounts for community work of Tata. This includes endeavors in health, women-children welfare,
rural development etc to name a few. Under its gamut it covers rural outback of Gujarat, Kerala,
Andhra Pradesh among many others.

2. Environmental concerns. Tata adheres to Global Reporting Initiative, advocated by United Nations.
The group tries to ensure the safety of flora and fauna in all aspects of its operations.
TCCI Chairman, Kishor Chaukar claims Environment is a focus within our overall corporate social
responsibility matrix.

3. Tata trusts: These include institutions that support an array of socially relevant aspects. Some of
them include Sir Dorabji Tata and allied trusts, Sir Ratan Tata Trust, JN Tata Endowment. These trusts
support causes like provision of higher education for bright Indian students, scientific endeavors among
many others.

4. There are a number of institutions run by the company including Indian Institute of Science, JRD
Tata Ecotechnology Centre, Tata Institute of Fundamental Research, Tata institute of Social Sciences,
Tata memorial Center, Tata Medical Center to promote learning. Also, supported are causes like Sports,
arts by National Centre of Performing Arts, Marg etc.

5. Code of honour which is a review of Corporate Social Responsibility initiatives of Tata.

6. Tata Jagriti Yatra: That is an annual train journey that attempts to awaken the spirit of social and
economic entrepreneurship in Young Indian Adults.

7. Tata also has incorporated Corporate Social Responsibility into its business model by coming out
with products like Nano, created with the aim of serving a population that couldnt afford to buy a car
or Swatch, the water purifier to serve communities that cannot access clean drinking water.
According to a Nielson survey, Tata group was ranked at number two following Reliance India Limited
on Corporate Social Responsibility. (www.economictimes.com, 2010). Tata is a good example of a
consistent internal and external Corporate Social Responsibility. The company has knitted Corporate
Social Responsibility into its operational fabric since its inception and has proved that internal
Corporate Social Responsibility is sustainable and results in long term benefits.
The importance that Internal Corporate Social Responsibility has gained in businesses today can be
scaled by examining the case of British Petroleum.

BRITISH PETROLEUM S LOVE AFFAIR WITH DISASTERS
British Petroleum saw the wrath of the public ire over its massive oil spill in the Gulf of Mexico, from
an underwater well over the American coastline spanning from Lousiana to Florida. (Brown, 2010)
Ironically, British petroleum had launched a Beyond Petroleum Slogan, by using Ogilvy & Marther
services (Landman, 2010) . This was done to position the company as an environmentally friendly. The
logo of the company was changed to green and yellow. However this peripheral effort ( External
Corporate Social Responsibility) did not have much of an impact due to the lack of Internal Corporate
Social Responsibility. The actions of the company did not justify the beyond petroleum title. The
company invested heavily in extractive oil operations and reduced investment in renewable energy
sources. BPs actions were responsible for the oil sand disaster in Alberta, Canada.
Earlier in 2005, there was an explosion at a gasoline tower in Texas City, which killed 15 and injured
170. This tower as owned by BP. Later, investigation proved BPs defiance of its own protocols for
operating the tower, and disabling of a warning system. BP was slapped with a fine of more than $50
million for the same. In 2006, 4800 barrels of oil leaked in the Alaska Prudhoe Bay, and the culprit was
BP again. In May 2008, BP along with eight oil companies paid a sum of $423 million to settle a law
suit filed by public water providers.
The incident at Gulf of Mexico had been triggered by a malfunction in oil rig deepwater horizon. The
oil rig blowout happens due to eruption of natural gas, mud, oil and water from the well and their
ignition at the surface resulting in an explosion. (Breed & Borenstein, 2010). This blast killed 11
workers, and had tremendous impact on the marine environment surrounding the oil spill.
There are very few instances of global condemnation of an act of a company considered socially
irresponsible. In response BP has responded by following the steps as described transcript of Facebook
(n.d, www.facebook.com, 2010) where Mike Utsler, COO of BP's Gulf Coast Restoration Organization
(GCRO) responded to queries.
The first step was to stop the flow of oil at the subsea level, which was contained with 88 days of the
spill. The second was to control oil spill on the water surface. This meant oil skimming and other such
methods. For this purpose more than 61 ocean skimming vessels were used having a capacity of
450,000 barrels per day. The rest would be removed by burning. The third was to use pre-approved
dispersants. The fourth was to use near shore skimming by employing 6000 local commercial fishing
vessels, which represented nearly 800000 barrels per day capacity. Finally they also used protective
booming systems.
This might have been a normal course of action for any disaster of this magnitude. The important point
to observe is that the COO of BPs Gulf coast restoration organization, Mike Utsler, responded to a
question by a facebook user. Corporate Social Responsibility has thus increased the accountability of
business to an ever collaborating global community.
A group of organizations including BP, US department of defense, US department of interior etc set up
a unified command. This included a media campaign with a website, facebook, twitter, flicker, and
YouTube to keep the public informed about measures taken to minimize the impact of the oil spill.
BPs branding naturally took a big hit. According to Techcrunch.com (Rao, 2010), BPs brand value took
a nose dive and reduced by nearly $ 1 billion due to the incident, was reported by General Sentiments,
a brand management firm.
It can be argued that BP did not fare well on account of internal Corporate Social Responsibility. As
stated earlier BPs track record on preventing the explosions due to underwater wells had been poor. We
explained in the earlier section that a company practicing internal Corporate Social Responsibility
would align its operations with such values. Considering the risk involved to the environment the
responsibility of a petro-chemical company is heightened.


IV. CONCLUSION

Having examined various companies and their Corporate Social Responsibility initiatives, it is clear
that Corporate Social Responsibility is no longer a fancy term. Corporate entities are seriously pursuing
Corporate Social Responsibility endeavors and trying their best to appear as socially responsible.
Companies have adopted standards issued by UN, Global Rating Index, ISO etc to ensure their
devotion to Corporate Social Responsibility adherence.
Kotler, Kartajaya, & Setiawan (2010) comment in their book that the future of marketing is horizontal.
This means that consumers are also a part of branding. The more consumers collaborate; fuelled by the
communication and technology revolution, the greater will Corporate Social Responsibility initiatives
be evaluated and scrutinized by them. In order to stay competitive it is imperative for the business
organizations to practice Corporate Social Responsibility in ways that is considered appropriate by
various stakeholders.
Organizations respond by using either External Corporate Social Responsibility or Internal Corporate
Social Responsibility. It could be said that companies paying attention to only external Corporate
Social Responsibility and ignoring to choose internal Corporate Social Responsibility, do not score well
on the public radar and vice versa. This is not to discount external Corporate Social Responsibility
efforts but to emphasize that in order to be recognized a truly socially responsible organization, internal
Corporate Social Responsibility is crucial.


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