https://en.wikipedia.

org/wiki/Corporate_social_responsibility
Corporate social responsibility (CSR, also called corporate conscience, corporate
citizenship or responsible business)[1] is a form of corporate self-regulation integrated into
a business model. CSR policy functions as a self-regulatory mechanism whereby a business
monitors and ensures its active compliance with the spirit of the law, ethical standards and national
or international norms. With some models, a firm's implementation of CSR goes beyond compliance
and engages in "actions that appear to further some social good, beyond the interests of the firm and
that which is required by law."[2][3] The aim is to increase long-term profits through positive public
relations, high ethical standards to reduce business and legal risk, and shareholder trust by taking
responsibility for corporate actions. CSR strategies encourage the company to make a positive
impact on the environment and stakeholders including consumers, employees, investors,
communities, and others.
Proponents argue that corporations increase long-term profits by operating with a CSR perspective,
while critics argue that CSR distracts from businesses' economic role. A 2000 study compared
existing econometric studies of the relationship between social and financial performance,
concluding that the contradictory results of previous studies reporting positive, negative, and neutral
financial impact, were due to flawed empirical analysis and claimed when the study is properly
specified, CSR has a neutral impact on financial outcomes.[4]
Critics[5][6] questioned the "lofty" and sometimes "unrealistic expectations" in CSR. [7] or that CSR is
merely window-dressing, or an attempt to pre-empt the role of governments as a watchdog over
powerful multinational corporations.
Political sociologists became interested in CSR in the context of theories
of globalization, neoliberalism and late capitalism. Some sociologists viewed CSR as a form of
capitalist legitimacy and in particular point out that what began as a social movement against
uninhibited corporate power was transformed by corporations into a 'business model' and a 'risk
management' device, often with questionable results.[8]
CSR is titled to aid an organization's mission as well as a guide to what the company stands for its
consumers. Business ethics is the part of applied ethics that examines ethical principles and moral
or ethical problems that can arise in a business environment. ISO 26000 is the recognized
international standard for CSR. Public sector organizations (the United Nations for example) adhere
to the triple bottom line (TBL). It is widely accepted that CSR adheres to similar principles, but with
no formal act of legislation.
Contents

[hide]

1Definition

2Consumer perspectives

3Approaches
3.1Cost-benefit analysis

4Scope
o

5Implementation
o

5.1Engagement plan

5.2Accounting, auditing and reporting

5.3Ethics training

5.4Common actions

5.5Social license

4.1Supply chain

6Potential business benefits

o

6.1Triple bottom line

6.2Human resources

6.3Risk management

6.4Brand differentiation

6.5Reduced scrutiny

6.6Supplier relations
7Criticisms and concerns

7.1Nature of business

7.2Motives

7.3Misdirection

7.4Controversial industries

7.5The Kizhakkambalam takeover

8Negative impact of corporate psychopathy

9Stakeholder influence
o

9.1Ethical consumerism

9.2Socially responsible investing

9.3Shareholder advocacy

9.4Creating shared value

9.5Public policies

9.6Crises and their consequences

10Geography
o

10.1UK retail sector

11See also

12References

12.1Notes

12.2Sources
13External links

Definition[edit]

The term "corporate social responsibility" became popular in the 1960s and has remained a term
used indiscriminately by many to cover legal and moral responsibility more narrowly construed. [9]
Business Dictionary defines CSR as "A companys sense of responsibility towards the community
and environment (both ecological and social) in which it operates. Companies express this
citizenship (1) through their waste and pollution reduction processes, (2) by contributing educational
and social programs and (3) by earning adequate returns on the employed resources." [10]
A broader definition expands from a focus on stakeholders to include philanthropy and volunteering.
[11]

Consumer perspectives[edit]
Most consumers agree that while achieving business targets, companies should do CSR at the
same time.[12] Most consumers believe companies doing charity will receive a positive response.
[13]

Somerville also found that consumers are loyal and willing to spend more on retailers that support

charity. Consumers also believe that retailers selling local products will gain loyalty.[14] Smith (2013)
[15]

shares the belief that marketing local products will gain consumer trust. However, environmental

efforts are receiving negative views given the belief that this would affect customer service.
[14]

Oppewal et al. (2006) found that not all CSR activities are attractive to consumers. [16] They

recommended that retailers focus on one activity.[17] Becker-Olsen (2006)[18] found that if the social
initiative done by the company is not aligned with other company goals it will have a negative impact.
Mohr et al.(2001)[19] and Groza et al. (2011) [20] also emphasise the importance of reaching the
consumer.

Approaches[edit]

CSR Approaches

Some commentators have identified a difference between the Canadian (Montreal school of CSR),
theContinental European and the Anglo-Saxon approaches to CSR.[21] It is said that for Chinese
consumers, a socially responsible company makes safe, high-quality products; for Germans it
provides secure employment; in South Africa it makes a positive contribution to social needs such as
health care and education.[22] And even within Europe the discussion about CSR is very
heterogeneous.[23]
A more common approach to CSR is corporate philanthropy. This includes monetary donations and
aid given to nonprofit organizations and communities. Donations are made in areas such as the arts,
education, housing, health, social welfare and the environment, among others, but excluding political
contributions and commercial event sponsorship.[24]
Another approach to CSR is to incorporate the CSR strategy directly into operations. For instance,
procurement of Fair Trade tea and coffee.
Creating Shared Value, or CSV is based on the idea that corporate success and social welfare are
interdependent. A business needs a healthy, educated workforce, sustainable resources and adept
government to compete effectively. For society to thrive, profitable and competitive businesses must
be developed and supported to create income, wealth, tax revenues and philanthropy. The Harvard
Business Review article Strategy & Society: The Link between Competitive Advantage and
Corporate Social Responsibility provided examples of companies that have developed deep linkages

between their business strategies and CSR.[25] CSV acknowledges trade-offs between short-term
profitability and social or environmental goals, but emphasizes the opportunities for competitive
advantage from building a social value proposition into corporate strategy. CSV gives the impression
that only two stakeholders are important - shareholders and consumers.
Many companies employ benchmarking to assess their CSR policy, implementation and
effectiveness. Benchmarking involves reviewing competitor initiatives, as well as measuring and
evaluating the impact that those policies have on society and the environment, and how others
perceive competitor CSR strategy.[26]

Cost-benefit analysis[edit]
In competitive markets cost-benefit analysis of CSR initiatives, can be examined using a resourcebased view (RBV). According to Barney (1990) "formulation of the RBV, sustainable competitive
advantage requires that resources be valuable (V), rare (R), inimitable (I) and non-substitutable
(S)."[27][28] A firm introducing a CSR-based strategy might only sustain high returns on their investment
if their CSR-based strategy could not be copied (I). However, should competitors imitate such a
strategy, that might increase overall social benefits. Firms that choose CSR for strategic financial
gain are also acting responsibly.[3]
RBV presumes that firms are bundles of heterogeneous resources and capabilities that are
imperfectly mobile across firms. This imperfect mobility can produce competitive advantages for
firms that acquire immobile resources. McWilliams and Siegel (2001) examined CSR activities and
attributes as a differentiation strategy. They concluded that managers can determine the appropriate
level of investment in CSR by conducting cost benefit analysis in the same way that they analyze
other investments.
Reinhardt (1998) found that a firm engaging in a CSR-based strategy could only sustain an
abnormal return if it could prevent competitors from imitating its strategy.[29]

Scope[edit]
Initially, CSR emphasized the official behavior of individual firms. Later, it expanded to include
supplier behavior and the uses to which products were put and how they were disposed of after they
lost value.

Supply chain[edit]

Incidents like the 2013 Savar building collapse pushed companies to consider how the behavior of
their suppliers impacted their overall impact on society. Irresponsible behavior reflected on both the
misbehaving firm, but also on its corporate customers. Supply chain management expanded to
consider the CSR context. Wieland and Handfield (2013) suggested that companies need to include
social responsibility in their reviews of component quality. They highlighted the use of technology in
improving visibility across thesupply chain.[30]

Implementation[edit]
CSR may be based within the human resources, business development or public
relations departments of an organisation,[11] or may be a separate unit reporting to the CEO or
the board of directors. Some companies approach CSR without a clearly defined team or
programme. For example, see the ethnographic study of social responsibility as a subjective state,
conducted in a UK-based multi-national corporation. Results revealed four different modes of moral
commitment to social responsibility and sustainability, with the 'Conformist' mode representing the
majority of employees. Some of these were in formal CSR roles. Interestingly, support was found for
the notion of corporate social entrepreneurship: a minority of employees, driven by their dominant
self-transcendent values. These individuals had enlarged their own job roles of their own volition and
were progressing a social agenda, in addition to their formal job role to achieve the company's profit
targets.[31]

Engagement plan[edit]
An engagement plan can assist in reaching a desired audience. A corporate social responsibility
individual or team plans the goals and objectives of the organization. As with any corporate activity, a
defined budget demonstrates commitment and scales the program's relative importance.

Accounting, auditing and reporting[edit]

Main article: Social accounting
Social accounting is the communication of social and environmental effects of a company's
economic actions to particular interest groups within society and to society at large. [32]
Social accounting emphasizes the notion of corporate accountability. Crowther defines social
accounting as "an approach to reporting a firms activities which stresses the need for the
identification of socially relevant behavior, the determination of those to whom the company is
accountable for its social performance and the development of appropriate measures and reporting

techniques."[33] Reporting guidelines and standards serve as frameworks for social accounting,
auditing and reporting:

AccountAbility's AA1000 standard, based on John Elkington's triple bottom line (3BL)
reporting

The Prince's Accounting for Sustainability Project's Connected Reporting Framework [34]

The Fair Labor Association conducts audits based on its Workplace Code of Conduct and
posts audit results on the FLA website.

The Fair Wear Foundation verifies labour conditions in companies' supply chains, using
interdisciplinary auditing teams.

Global Reporting Initiative's Sustainability Reporting Guidelines

Economy for the Common Good's Common Good Balance Sheet[35]

GoodCorporation's standard[36] developed in association with the Institute of Business Ethics

Synergy Codethic 26000[37] Social Responsibility and Sustainability Commitment

Management System (SRSCMS) Requirements Ethical Business Best Practices of
Organizations - the necessary management system elements to obtain a certifiable ethical
commitment management system. The standard scheme has been build around ISO 26000 and
UNCTAD Guidance on Good Practices in Corporate Governance.The standard is applicable by
any type of organization.;

Earthcheck Certification / Standard

Social Accountability International's SA8000 standard

Standard Ethics Aei guidelines

The ISO 14000 environmental management standard

The United Nations Global Compact requires companies to communicate on their

progress[38] (or to produce a Communication on Progress, COP), and to describe the company's
implementation of the Compact's ten universal principles.[39]

The United Nations Intergovernmental Working Group of Experts on International Standards

of Accounting and Reporting (ISAR) provides voluntary technical guidance on eco-efficiency
indicators,[40] corporate responsibility reporting,[41] and corporate governance disclosure.[42]

The FTSE Group publishes the FTSE4Good Index, an evaluation of CSR performance of
companies.

EthicalQuote (CEQ) tracks reputation of the worlds largest companies on Environmental,

Social, Governance (ESG), Corporate Social Responsibility, ethics and sustainability.

In nations such as France, legal requirements for social accounting, auditing and reporting exist,
though international or national agreement on meaningful measurements of social and
environmental performance has not been achieved. Many companies produce externally audited
annual reports that cover Sustainable Development and CSR issues ("Triple Bottom Line Reports"),
but the reports vary widely in format, style, and evaluation methodology (even within the same
industry). Critics dismiss these reports as lip service, citing examples such as Enron's yearly
"Corporate Responsibility Annual Report" and tobacco companies' social reports.
In South Africa, as of June 2010, all companies listed on the Johannesburg Stock Exchange (JSE)
were required to produce an integrated report in place of an annual financial report and sustainability
report.[43] An integrated report reviews environmental, social and economic performance alongside
financial performance. This requirement was implemented in the absence of formal or legal
standards. An Integrated Reporting Committee (IRC) was established to issue guidelines for good
practice.

Ethics training[edit]
The rise of ethics training inside corporations, some of it required by government regulation, has
helped CSR to spread. The aim of such training is to help employees make ethical decisions when
the answers are unclear.[44] The most direct benefit is reducing the likelihood of "dirty hands",[45] fines
and damaged reputations for breaching laws or moral norms. Organizations see increased
employee loyalty and pride in the organization.[46]

Common actions[edit]
Common CSR actions include:[47]

Environmental sustainability: recycling, waste management, water management, renewable

energy, reusable materials, 'greener' supply chains, reducing paper use and
adopting Leadership in Energy and Environmental Design (LEED) building standards.[48][49][50]

Community involvement: This can include raising money for local charities, providing
volunteers, sponsoring local events, employing local workers, supporting local economic growth,
engaging in fair trade practices, etc.[51][52]

Ethical marketing: Companies that ethically market to consumers are placing a higher value
on their customers and respecting them as people who are ends in themselves. They do not try
to manipulate or falsely advertise to potential consumers. This is important for companies that
want to be viewed as ethical.

Social license[edit]
Social license refers to a local communitys acceptance or approval of a company. Social license
exists outside formal regulatory processes. Social license can nevertheless be acquired through
timely and effective communication, meaningful dialogue and ethical and responsible behavior.
Displaying commitment to CSR is one way to achieve social license, by enhancing a companys
reputation.[53]

Potential business benefits[edit]

A large body of literature exhorts business to adopt measures non-financial measures of success
(e.g., Deming's Fourteen Points, balanced scorecards). While CSR benefits are hard to quantify,
Orlitzky, Schmidt and Rynes[54] found a correlation between social/environmental performance and
financial performance.
The business case for CSR[55] within a company employs one or more of these arguments:

Triple bottom line[edit]

"People, planet and profit", also known as the triple bottom line form one way to evaluate CSR.
"People" refers to fair labour practices, the community and region where the business operates.
"Planet" refers to sustainable environmental practices. Profit is the economic value created by the
organization after deducting the cost of all inputs, including the cost of the capital (unlike accounting
definitions of profit).[56][57]

This measure was claimed to help some companies be more conscious of their social and moral
responsibilities.[58] However, critics claim that it is selective and substitutes a company's perspective
for that of the community. Another criticism is about the absence of a standard auditing procedure. [59]
The term was coined by John Elkington in 1994.[57]

Human resources[edit]
A CSR program can be an aid to recruitment and retention,[60][61] particularly within the
competitive graduate student market. Potential recruits often consider a firm's CSR policy. CSR can
also help improve the perception of a company among its staff, particularly when staff can become
involved through payroll giving, fundraising activities or community volunteering. CSR has been
credited with encouraging customer orientation among customer-facing employees. [62]

Risk management[edit]
Managing risk is an important executive responsibility. Reputations that take decades to build up can
be ruined in hours through corruption scandals or environmental accidents. [63] These draw unwanted
attention from regulators, courts, governments and media. CSR can limit these risks. [64]

Brand differentiation[edit]
CSR can help build customer loyalty based on distinctive ethical values. [65] Some companies use
their commitment to CSR as their primary positioning tool, e.g., The Co-operative Group, The Body
Shop and American Apparel[66]
Some companies use CSR methodologies as a strategic tactic to gain public support for their
presence in global markets, helping them sustain a competitive advantage by using their social
contributions as another form of advertising.[67]

Reduced scrutiny[edit]
Corporations are keen to avoid interference in their business through taxation and/or regulations. A
CSR program can persuade governments and the public that a company takes health and safety,
diversity and the environment seriously, reducing the likelihood that company practices will be
closely monitored.

Supplier relations[edit]

Appropriate CSR programs can increase the attractiveness of supplier firms to potential customer
corporations. E.g., a fashion merchandiser may find value in an overseas manufacturer that uses
CSR to establish a positive imageand to reduce the risks of bad publicity from uncovered
misbehavior.

Criticisms and concerns[edit]

CSR concerns include its relationship to the purpose of business and the motives for engaging in it.

Nature of business[edit]
Milton Friedman and others argued that a corporation's purpose is to maximize returns to its
shareholders and that obeying the laws of the jurisdictions within which it operates constitutes
socially responsible behavior.[68]
While some CSR supporters claim that companies practicing CSR, especially in developing
countries, are less likely to exploit workers and communities, critics claim that CSR itself imposes
outside values on local communities with unpredictable outcomes.[69]
Better governmental regulation and enforcement, rather than voluntary measures, are an alternative
to CSR that moves decision-making and resource allocation from public to private bodies.
[70]

However, critics claim that effective CSR must be voluntary as mandatory social responsibility

programs regulated by the government interferes with peoples own plans and preferences, distorts
the allocation of resources, and increases the likelihood of irresponsible decisions. [71]

Motives[edit]

A story of CSR promoted by Azim Premji Foundation in India[72]

Some critics believe that CSR programs are undertaken by companies to distract the public from
ethical questions posed by their core operations. They argue that the reputational benefits that CSR
companies receive (cited above as a benefit to the corporation) demonstrate the hypocrisy of the
approach.[73]

Misdirection[edit]
Another concern is that sometimes companies use CSR to direct public attention away from other,
harmful business practices. For example, McDonald's Corporation positioned its association
with Ronald McDonald House as CSR[74] while its meals have been accused of promoting poor eating
habits.[75]

Controversial industries[edit]
Industries such as tobacco, alcohol or munitions firms make products that damage their consumers
and/or the environment. Such firms may engage in the same philanthropic activities as those in other
industries. This duality complicates assessments of such firms with respect to CSR. [76]

The Kizhakkambalam takeover[edit]

A textile company called Kitex has taken over the administration of an entire Indian village
called Kizhakkambalam near Cochin by winning the local body elections. Environmentalists and
mainstream politicians of India point out that this can lead to a dangerous precedent because the
company got actively involved in CSR only after they were caught red-handed in polluting the village.
[77]

Negative impact of corporate psychopathy[edit]

Main article: Psychopathy in the workplace
As corporate psychopaths have little or no conscience or care or empathy, it follows logically that
they are not driven by any notion of social responsibility or commitment to employees or to the wider
public.[78]

Stakeholder influence[edit]
One motivation for corporations to adopt CSR is to satisfy stakeholders.
Branco and Rodrigues (2007) describe the stakeholder perspective of CSR as the set of views of
corporate responsibility held by all groups or constituents with a relationship to the firm. [79] In their
normative model the company accepts these views as long as they do not hinder the organization.
The stakeholder perspective fails to acknowledge the complexity of network interactions that can
occur in cross-sector partnerships. It relegates communication to a maintenance function, similar to
the exchange perspective.[80]

Ethical consumerism[edit]
The rise in popularity of ethical consumerism over the last two decades can be linked to the rise of
CSR.[81] Consumers are becoming more aware of the environmental and social implications of their
day-to-day consumption decisions and in some cases make purchasing decisions related to their
environmental and ethical concerns.[82]

Socially responsible investing[edit]

Main article: Socially responsible investing
Shareholders and investors, through socially responsible investing are using their capital to
encourage behavior they consider responsible. However, definitions of what constitutes ethical
behavior vary. For example, some religious investors in the US have withdrawn investment from
companies that violate their religious views, while secular investors divest from companies that they
see as imposing religious views on workers or customers.[83]

Shareholder advocacy[edit]
Non-profits such as Ceres (organization) and As You Sow, and investing firms such as Calvert
Investments promote corporate responsibility through shareholder mobilization and corporate
engagement.

Creating shared value[edit]

Non-governmental organizations are also taking an increasing role, leveraging the media and the
Internet to increase the visibility of corporate behavior. Through education and dialogue, the
development of community awareness in pushing businesses to change their behavior is growing. [84]
Creating Shared Value (CSV) claims to be more community aware than CSR. Several companies
are refining their collaboration with stakeholders accordingly.

Public policies[edit]
Some national governments promote socially and environmentally responsible corporate practices.
The heightened role of government in CSR has facilitated the development of numerous CSR
programs and policies.[85] Various European governments have pushed companies to develop
sustainable corporate practices.[86] CSR critics such as Robert Reich argued that governments

should set the agenda for social responsibility with laws and regulation that describe how to conduct
business responsibly.
Regulation[edit]
Fifteen European Union countries actively engaged in CSR regulation and public policy
development.[86] CSR efforts and policies are different among countries, responding to the complexity
and diversity of governmental, corporate and societal roles. Studies claimed that the role and
effectiveness of these actors were case-specific.[85]
The variety among companies complicates regulatory processes. [87] Self-regulation allows each
corporate actor to balance profits and social responsibility without cumbersome governmental
involvement. Studies suggest that mandated CSR distorts the allocation of resources and increases
the likelihood of irresponsible decisions.[88]
Bulkeley cited the Australian government's actions to avoid compliance with the Kyoto Protocol in
1997, over concerns of economic loss and national interest. The Australian government claimed that
the pact would damage Australia more than any other OECD nation.[89] In November 2007, the new
Prime Minister Kevin Rudd ratified the protocol.
Canada adopted CSR in 2007. Prime Minister Harper encouraged Canadian mining companies to
meet Canadas newly developed CSR standards.[90]
The Heilbronn Declaration is a voluntary agreement of enterprises and institutions in Germany
especially of the Heilbronn-Franconia region signed the 15th of September 2012. The approach of
the Heilbronn Declaration targets the decisive factors of success or failure, the achievements of the
implementation and best practices regarding CSR. A form of responsible entrepreneurship shall be
initiated to meet the requirements of stakeholders trust in economy. It is an approach to make
voluntary commitments more binding.[91]
Laws[edit]
In the 1800s,the US government could take away a firm's license if it acted irresponsibly.
Corporations were viewed as "creatures of the state" under the law. In 1819, the United States
Supreme Court in Dartmouth College vs. Woodward established a corporation as a legal person in
specific contexts. This ruling allowed corporations to be protected under the Constitution and
prevented states from regulating firms.[92] Recently countries included CSR policies in government
agendas.[86]

On 16 December 2008, the Danish parliament adopted a bill making it mandatory for the 1100
largest Danish companies, investors and state-owned companies to include CSR information in their
financial reports. The reporting requirements became effective on 1 January 2009. [93] The required
information included:

CSR/SRI policies

How such policies are implemented in practice

Results and management expectations

CSR/SRI is voluntary in Denmark, but if a company has no policy on this it must state its positioning
on CSR in financial reports.[94]
In 1995, item S50K of the Income Tax Act of Mauritius mandated that companies registered in
Mauritius paid 2% of their annual book profit to contribute to the social and environmental
development of the country.[95] In 2014, India also enacted a mandatory minimum CSR spending law.
Under Companies Act, 2013, any company having a net worth of 500 crore or more or a turnover of
1,000 crore or a net profit of 5 crore must spend 2% of their net profits on CSR activities. [96] The rules
came into effect from 1 April 2014.[97]

Crises and their consequences[edit]

Crises have encouraged the adoption of CSR. The CERES principles were adopted following the
1989 Exxon Valdez incident.[45] Other examples include the lead paint used by toy maker Mattel,
which required the recall of millions of toys and caused the company to initiate new risk
management and quality control processes. Magellan Metals was found responsible for lead
contamination killing thousands of birds in Australia. The company ceased business immediately and
had to work with independent regulatory bodies to execute a cleanup. Odwalla experienced a crisis
with sales dropping 90% and its stock price dropping 34% due to cases of E. coli. The company
recalled all apple or carrot juice products and introduced a new process called "flash pasteurization"
as well as maintaining lines of communication constantly open with customers.

Geography[edit]
Corporations that employ CSR behaviors do not always behave consistently in all parts of the world.
[98]

Conversely, a single behavior may not be considered ethical in all jurisdictions. E.g., some

jurisdictions forbid women from driving,[99] while others require women to be treated equally in
employment decisions.

UK retail sector[edit]
A 2006 study[100] found that the UK retail sector showed the greatest rate of CSR involvement. Many
of the big retail companies in the UK joined the Ethical Trading Initiative,[101]an association established
to improving working conditions and worker health.
Tesco (2013)[102] reported that their essentials are Trading responsibility, Reducing our Impact on
the Environment, Being a Great Employer and Supporting Local Communities. J
Sainsbury[103] employs the headings Best for food and health, Sourcing with integrity, Respect for
our environment, Making a difference to our community, and A great place to work, etc. The four
main issues to which UK retail these companies committed are environment, social welfare, ethical
trading and becoming an attractive workplace.[104][105]

Top ten UK retail brands in 2013 based on Retail Week reports: [106]

Retailer

Annual Sales bn

Tesco

42.8

Sainsbury's

22.29

Asda

21.66

Morrisons

17.66

Mark and Spencer

8.87

Co-operative Group

8.18

John Lewis Partnership

7.76

Boots

6.71

Home Retail Group

5.49

King Fisher

4.34

Anselmsson and Johansson (2007)[107] assessed three areas of CSR performance: human
responsibility, product responsibility and environmental responsibility. Martinuzzi et al. described the
terms, writing that human responsibility is the company deals with suppliers who adhere to
principles of natural and good breeding and farming of animals, and also maintains fair and positive
working conditions and work-place environments for their own employees. Product responsibility
means that all products come with a full and complete list of content, that country of origin is stated,
that the company will uphold its declarations of intent and assume liability for its products.
Environmental responsibility means that a company is perceived to produce environmental-friendly,
ecological, and non-harmful products.[108] Jones et al. (2005) found that environmental issues are the
most commonly reported CSR programs among top retailers. [109]

http://economictimes.indiatimes.com/topic/CSR
csr)

(imp link for reference newz abt

http://www.greenbiz.com/blog/201
2/12/13/seven-steps-developingprofitable-csr-strategy
7 steps to developing a profitable
CSR strategy
David Jerome and Rob Kleinbaum
Wednesday, December 19, 2012 - 6:00am

Asking if there is business value to a corporate responsibility or

sustainability strategy is the wrong question. No one would ask if
marketing strategy has business value; sometimes it does, sometimes it
doesnt, depending on its quality. The more relevant question is: What
does your company need to do to ensure its CR strategy creates business
value? That's tougher to answer for CR because compared to marketing,
CR is new and people have a poorer understanding of the issues.
Our 15 years experience working in three multinationals have suggested
how to develop a profitable CR strategy. We believe these lessons are
broadly applicable and would help any company think clearly about CR
and how to make it a contributing part of the business. In this article we
discuss some of the keystones; the full framework can be read here.
1. Insist on profitability. Top management should require a focus on
business value, not philanthropy, NGO management, or cause marketing.
A company needs to think carefully about how CR can save or make
money for its business, meet the challenge of a specific societal need,
and create shared value by acting in its own best interests.

Companies struggle with intangibles, and the traditional business case

is often short-sighted and poorly applied to issues such as CR. Regardless
of the technical flaws of financial analysis, the effort should be profitable
in the judgment of senior leadership. The guiding principle is that a good
corporate responsibility strategy is about how to make money, not give it
away.
Following this logic will allow companies to do far more social good than a
traditional approach.
2. Link to the companys core purpose. The core purpose of the
enterprise is the beacon for finding a valuable CR strategy. As Drucker
showed many years ago, successful companies have a reason-for-being
beyond making money-- and the strategy must connect to it.
Autodesk created a database of sustainable building materials and
incorporated it in their products. Its such a simple way to have a great
impact -- by putting sustainable choices at the fingertips of everyone who
buys their software. Cisco uses virtualization for meetings traditionally
held face-to-face, lowering the cost and carbon footprint of doing
business. The travel industry now has a competitor they never expected.
IBMs Smarter Planet program uses technology to control energy use and
waste. Georgia-Pacific helps its customers Reduce, Reuse and Recycle.
Whole Foods weaves a strong consistent story in its product, employment,
and community efforts, apt for its brand promise. These companies vary
on the green spectrum but all their CR efforts tie to their product and
core business.
A cynic might say these are no more than marketing ploys. Our response:
If a company makes money from good citizenship, it will be a better
citizen. By doing what they do best to meet societys needs each of these
companies create shared value for their business and society.
The most important lesson of our experience is that sustainability is not a
substitute for having a great product. The path to winning is to have a
great product that integrates sustainability.
Customers are not willing to tradeoff the main promise of a product; they
expect a great product that is sustainable. An effective sustainability

strategy integrates the customer, society and the business; it does not
compromise them. Companies that adopt popular causes are making safe
choices, but ones with limited business value.
3. Understand customers. Companies either do not understand the
diversity among customers or let their own biases draw a picture of their
customers that may not be accurate. The debate on the value is polarized
and takes the focus off the important question: Who cares and how much?
Below is the segmentation from the Yale/George Mason Six Americas
Study, which analyzes Americans' interpretations of and responses to
climate change. We have seen two other proprietary segmentations from
leading research houses with shockingly similar results, especially as they
had different samples and different purposes. This gives confidence in
these findings.

The implications are profound:

The 10 to 15 percent who are Alarmed will actively turn those
concerns into market behaviors. (The proprietary results showed 2025 percent make up this segment.)

 The 52 percent who are Concerned and Cautious care, but time
and/or money stand in the way of acting. These people want
sustainability, but it needs to be free and easy.
The 25 percent who are Disengaged and Doubtful do not care or are
unsure.
The Dismissive 10 percent are actively hostile. They hate the issue
of global warming but do care about other issues (see below).
A company needs to know who its customers are, how they fall on this
spectrum and how these numbers will change over the life of their
products. The Alarmed, Concerned and Cautious dropped from 70 percent
in 2008 to 64 percent today. With economic recovery and environmental
catastrophes, the number caring and acting will likely grow.
The chemical industry has been experimenting with environmentally
friendly polyethylene made from sugar cane instead of oil and gas. The
chemical properties are the same but the price is 10 to 20 percent higher.
A high-volume commodity chemical made from green feedstock at price
parity or price discount would be a tremendous win, appealing to all.
However, if an industrial customer must pay more for a commodity that is
greener but not better otherwise, then its end customers must be
willing to pay more for the final product. The success depends how many
of the end customers are Alarmed.
4. Focus on the right issues. Corporate responsibility and sustainability
apply to a wide range of issues. The table below, from proprietary
research, shows the relevance of 20 CR issues to the equivalent of the
Concerned and Cautious.

The environmental and energy issues are more relevant than those
associated with local economic opportunity. Note how low charity falls on
the list, yet this is where most companies focus their CR efforts.
Energy and the environment encompass many issues. The table below
shows the relevance of these issues to each segment.

5. Everyone finds energy costs, fuel prices, and energy

independence personally relevant. The debate over global warming
has obscured the importance of sustainability and environmental issues
by taking attention away from issues that matter to everyone.
6. Use the organization properly. The CEO needs to support the
search for value, reinforce the principle that CR strategy should be
effective and profitable, and protect it in its early stages.
Once CR leaves the traditional safety of philanthropy and NGO
management, it has no natural home. It cuts across the silos of
marketing, finance, public policy, purchasing, legal and communications,
so it needs air cover. Because sustainability threatens existing budgets,
there will be attempts to kill the effort as it is being born. Besides, the
middle layers who control budgets seem disproportionately Dismissive
and need to be kept at bay.

7. Other benefits. A good CR strategy helps employee engagement,

innovation, and collaboration. But the most important other benefit is CR
turns peoples opinion of companies from a Them to an Us. People
think of Exxon as Them. BP thought it could use sustainability to become
an Us but the company's hypocrisy and errors have turned it back into
Them -- a cautionary tale against faking it. Ben & Jerrys is an Us, GE and
IBM are back to being Us. Being an Us means citizens are comfortable
with the idea of successful businesses.
When companies are seen to understand we rise and fall together, it
shows they care and can be trusted.

https://www.devex.com/news/is-corporate-social-responsibility-profitable-forcompanies-80354

Is corporate social responsibility profitable for

companies?
By Floyd Whaley 20 February 2013
5
79

Will businesses continue to invest in development if Wall Street doesnt reward them? Photo
by: Benjamin Dumas / CC BY-NC-SA
This article is produced and published by Devex Impact, a global initiative of Devex
and USAID, that focuses on the intersection of business and global development and
connects companies, organizations and professionals to the practical information they need
to make an impact.
In 2011, Harvard Business School Professor Michael Porter the king of business gurus
put forward a radical proposition to global corporations.
Businesses must reconnect company success with social progress, he wrote in the
Harvard Business Review. Shared value is not social responsibility, philanthropy, or even
sustainability, but a new way to achieve economic success. It is not on the margin of what
companies do but at the center.
We believe that it can give rise to the next major transformation of business thinking, he
boldly pronounced.

Though Porters idea of shared value was warmly embraced by the heads of some of the
worlds largest corporations all of which have active corporate social responsibility and
sustainability programs not everyone was convinced.
Larry Summers, the former U.S. treasury secretary, and a colleague of Porters at Harvard,
was overheard at the World Economic Forum meeting in Davos, not longer after the
announcement of the idea, asking incredulously: Do you believe this [expletive]?
Summers offhand comment captured the core argument at the root of corporate global
governance efforts. There is a wide chasm between those who believe that corporate social
responsibility and sustainability are integral to company profits and growth, and those who
believe such efforts are public relations at best and a distraction from core activities at
worst.
These conversations about corporate social responsibility and profits are held in silos, said
Nigel Cameron, president of the Center for Policy on Emerging Technologies (C-PET), a
Washington D.C.-based think tank that analyzes emerging trends in business and
government. The CSR people talk to the CSR people and the corporate people talk to
corporate people.
There isnt a connected discussion going on at a high level, he said.
The question of whether corporate social responsibility is profitable and adds value to a
company is important to the development community because the private sector has far
greater resources than government aid programs. If the game-changing resources of the
worlds largest corporations are put toward the tasks of poverty, climate change and other
global challenges, the results could be dramatic.
Corporate social responsibility over the years has developed from a simple form of checkwriting by companies to a complex set of principles that encompass nearly every interaction
a company has with society.
Corporate social responsibility encompasses not only what companies do with their profits,
but also how they make them, according to a definition from the Corporate Social
Responsibility Initiative at Harvards Kennedy School of Government. It goes beyond
philanthropy and compliance and addresses how companies manage their economic,
social, and environmental impacts, as well as their relationships in all key spheres of
influence: the workplace, the marketplace, the supply chain, the community, and the public
policy realm.

Porters theory of shared value takes the concept of corporate social responsibility further.
He argues that companies should use their interactions with society and more importantly
address societys problems to drive new business opportunities and create a source of
significant untapped profits.
The ability to address societal issues is integral to profit maximization instead of treated as
outside the profit model, Porter wrote in the Harvard Business Review article, which he coauthored with Mark Kramer, founder of the nonprofit consultancy FSG.
In the debate over the role that profits should play within the realm of corporate citizenship,
the views on both sides of the issue can be stark.
Alice Korngold, a New York-based corporate social responsibility consultant to global
corporations, echoes many of Porters basic concepts.
There is no question that companies that are the most effective in integrating sustainability
in their values and strategy will be the most successful in increasing shareholder wealth,
she said in an email interview. Businesses that are the most innovative in finding solutions
to global challenges such as climate change and energy, economic development,
education, healthcare, human rights, and protecting ecosystems will be the most
profitable.
The opposite case has been made by Aneel Karnani, a professor of strategy at the
University of Michigans Ross School of Business. He argues that by seeking profits and
growth, companies generate employment and other benefits to society. They should focus
on that task.
The idea that companies can do well by doing good has caught the attention of
executives, business academics, and public officials, Karnani wrote in his 2010 study
Doing Well by Doing Good: The Grand Illusion. This appealing proposition has convinced
many people. It is also a fundamentally wrong proposition.
If markets are working well, there is no need to appeal to companies to fulfill some vague
social responsibility, he wrote.
As a practical matter, for those who make decisions associated with large scale investments
in companies, the issue is more nuanced, according to Bharat Joshi, an investment
manager at Aberdeen Asset Management in Malaysia who works with a team to oversee
$1.7 billion in assets.

If you ask us strictly as an investor, the key is that the company is being responsible on the
social side but at the same time they have sustainable earnings, and it does not jeopardize
the operations of the business, he said in a telephone interview.
Companies should do CSR in a measured way, not funnel cash to a founders social
business or charity, he said. It is okay to take from the bottom line if it is being done in a
sustainable way. Its healthy and investors look at it quite highly.
Joshi noted that the relationship between profit and social responsibility is a more pressing
issue in the United States, where companies place a premium on corporate social
responsibility. Many large companies in other parts of the world, including Asia, need to
focus on running their operations with more transparency before they try to improve the
world around them.
They must get corporate governance right, get their house in order first, before they
address sustainability and social issues, he said.
Peter Gampel, the director of business valuation at the accounting firm Fiske & Company in
Florida, in the United States, noted that a companys value is based on its tangible assets
such as it cash holdings, property and buildings as well as its intangible assets.
If there is a merger, we are brought into put a value on intangibles, he said. There are
dollar amounts for patents, licenses, customer relationships, trademarks, but we dont
usually try to assess the value of a companys social responsibility. This is not quantifiable
from a numbers point of view.
But, Gampel said, social responsibility does clearly have an impact on a companys value
and profitability. Companies that are socially responsible make their brands more attractive
to consumers and are more appealing to high quality potential employees. The impact on
the profits of companies that behave poorly is less clear.
The situation of Foxconn, the Taiwan-based electronics manufacturer best known for
making Apple products in China, is one of the clearest examples of the conflict between
social responsibility and profit. Foxconn has been implicated in using underage workers and
poor conditions at its factories have been linked to a series of employee suicides.
Despite the scandal, however, the sales of Iphone, Ipads and other Apple products
produced in China have soared.

If conditions were very dire and deplorable for the workers, consumers at some point would
say maybe we shouldnt buy this product, but I think it will take a lot to get that point, said
Gampel. It will take a lot to get consumers to switch brand loyalty over social issues.
The situation is similar for investors, he said. They might be concerned about social issues,
but it will not easily stop them from making a profitable investment.
I dont think the social responsibility issues override the importance of profitability from the
investors perspective, he said.
The research on the relationship between profits and social responsibility is inconclusive. It
indicates that large scale investors and the stock market do not clearly reward or punish a
company based solely on its global corporate citizenship or sustainability efforts, though
there are indicators of a slight profit benefit to doing social good.
The one thing that proponents and opponents of linking corporate social responsibility to
profits agree upon is that more definitive data is needed. A key problem is how to gauge
corporate global citizenship. Companies often have an inflated view of their efforts on the
issue, and public relations is often inter-twined with social responsibility activities.
A 2009 working paper by the Bank of Finland looked at companies that were included or
excluded in a key social responsibility ranking between 1990 and 2004, and the impact that
it had on the value of their stock. The study found that stocks dropped an average 3 percent
when a company was removed from a list of socially responsible companies. When a
company was added to the list, its stock enjoyed a market value boost of about 2 percent.
In one of the most definitive studies on the topic, researchers from Harvard Business
School, University of California and the University of Michigan reviewed 167 scholarly
studies, according to a summary of their work in the report Measuring the Value Of
Corporate Philanthropy: Social Impact, Business Benefits, And Investor Returns, produced
by the Committee Encouraging Corporate Philanthropy.
The study authors concluded that after thirty-five years of research, the preponderance of
scholarly evidence suggests a mildly positive relationship between corporate social
performance and corporate financial performance and finds no indication that corporate
social investments systematically decrease shareholder value.
The research indicates that the profit link to social responsibility could be vulnerable to other
company activities. For example, global corporate citizenship might indeed be profitable but
exploiting workers or destroying natural resources in developing countries might be more
profitable.

The relationship between social responsibility and profits has not been demonstrated to the
point that it is the primary driving factor in the way large scale, mainstream investments are
undertaken. But there are notable efforts to go beyond socially responsible investing and
bring in the hedge funds, institutional investors and other major players.
In 2006, then-United Nations Secretary General Kofi Annan launched the UN Principles for
Responsible Investment, a set of values and guidelines for sustainable investing. To date,
nearly 1,000 asset owners and investment managers including many mainstream funds
are signatories to the program. Though the effort is worthy of praise, its critics note that the
principles are voluntary. Asset managers can enjoy the prestige of becoming a signatory
and ignore the principles if they choose.
Another more low-key but influential effort was established by the late actor Paul Newman
in 1998. The Committee Encouraging Corporate Philanthropy was created to encourage
companies to commit greater resources to philanthropy. Today, its members include the
CEOs of some of the top global corporations, and it funds in-depth research into topics such
as the links between profitability and corporate responsibility.
Though many are having the conversation about linking core company operations and profit
to social responsibility, their clearly remains a large divide in the debate.
To illustrate this point, Cameron, the president of the Washington D.C. think tank Center for
Policy on Emerging Technologies (C-PET), recalled a speaking engagement he had at the
Planet Under Pressure conference in March 2012 in London in the run-up to the United
Nations Conference on Sustainable Development (Rio+20).
He noted that the event was billed as a premiere gathering of those interested in issues
associated with climate change, but there was almost no corporate presence at the
meeting. The heads of the worlds energy companies were also not in attendance.
If the energy companies saw this discussion as part of their core mission, they would have
been part of the process, he said. It was mostly CSR people.
According to Cameron, the debate on whether social responsibility is profitable will not be
answered by studies and research. It will be answered by the actions of the worlds largest
companies those who lead them.
For most people at the top end of the investment community, the business community, the
banks, the people who push the capital markets around, corporate social responsibility is a
fringe issue, he said. If the people at the top saw this as an issue of building long-term

value, there would be a retooling of corporate resources and activities across the board. We
arent seeing that now.
Though the debate is far from settled over the profitability of corporate social responsibility,
there is near complete agreement that corporate citizenship is no longer an option. It is now
a requirement.
Corporate social responsibility is an intangible asset that in some cases is integrally linked
to a companys profits such as Starbucks, which markets its coffee as beneficial to the
growers who produce it. Its social responsibility in part justifies the fact that its prices are
higher than a generic cup of coffee at the convenience store.
In other cases, social practices are more about risk mitigation. A chemical company might
have little public profile or apparent need to address social issues, but if its waste fouls its
surrounding community it will likely pay a price in litigation and government sanctions that
affects its profits.
Companies around the world, and those who trade their shares and analyze their value,
have recognized that corporate social responsibility has inherent value for a company. The
exact dollar figure on that value may never be clearly quantified but the general trend
toward greater corporate engagement in social issues is one that will have long-term
impacts on the development community.

http://www.sustainablebusinesstool
kit.com/corporate-socialresponsibility-vs-profit/
Corporate Social Responsibility vs
Profit
Corporate Social Responsibility, Economy 3 Mark Whitman

32
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In 1970, the Nobel Laureate Milton Friedman published a now famous paper arguing that the role
and responsibility of business is to maximise profits within the basic rule of law. Any activity that
detracted from this responsibility for profit maximisation was in the eyes of Friedman, inefficient and
bad for business. For Friedman, the idea of a social responsibility over and above that of profit
maximisation was not only counter-intuitive but wrong.
Friedmans article fuelled much debate amongst the academic community which continues to
flourish today. Back in the 70s Corporate Social Responsibility (CSR) had not been formally defined
and was certainly not a function of any prominence in the firm. Early arguments were founded
largely on theoretical and ethical terms as there was limited empirical data to base propositions on.
Rolling forward four decades and it is evident that the relatively nascent field of CSR has grown in
prominence in practice as well as theory. A multitude of case studies and data now exists which
researchers can draw on to test theories.

One of the key questions that dominates the literature is the link between CSR and profitability
often phrased as the relationship between corporate social performance (CSP) and corporate
financial performance (CFP). To date the results have been mixed with some researchers finding a
strong positive correlation (see: Orlitzky, Schmidt and Rynes, 2004), whilst others suggesting no
discernible correlation (see: Bauer, Koedijk and Otten, 2005) and in some instances a negative
relationship (see: Brammer, Brooks and Pavelin, 2006).
Of course, the challenge with looking at CSR from a profitability perspective is that it is very difficult
to establish causation between CSR activities and financial performance the former is often very
abstract and intangible.
Intuitively it makes sense that investment in CSR could lead to improvements in brand reputation
which could translate into higher sales, premium prices and better attraction / retention of staff,
amongst other things. But showing causation is very difficult.
This is partly why most executives believe that there is a clear economic rationale to incorporate
CSR activities into their business, but usually not clear enough to make decisions that require
significant investment. Hence, it is unusual to find a Fortune 500 company that doesnt have some
form of CSR programme, but equally unusual to find a large company which has a CSR budget that
isnt a fraction of the size of other more central budgets like finance, HR, audit and operations.
That being said, a number of high profile companies have proved the exception to the rule.
UnileversSimple Living Plan, GEs Ecomagination programme and Nestles Creating Shared
Value are excellent examples; each company having invested heavily in CSR programmes that are
central to their business strategy and market positioning. However, the jury is still out on the impact
of these initiatives on each companys financial performance.
Despite the abstract nature of CSR as it relates to profitability, there are cases where a direct
relationship between an investment in CSR and financial benefit can be established. In
particular,investments in resource efficiencies such as energy or water conservation often results in
cost savings. Return on investment is easy to calculate and the financial benefit of efficiency
initiatives easy to establish.
A good example that illustrates this relationship comes from Wal-Mart who was able to reduce their
environmental impact and save significant costs by tackling inefficiencies in their value chain. In a
direct CSR effort, the company reduced packaging saving millions in lower disposal costs, and
invested in better route planning for its huge fleet of trucks which cut out 100 million miles from their

2009 delivery routes, saving $200 million in costs and reducing their carbon footprint by a similar
quantum.
Beyond looking at the relationship between CSP and CFP, some researchers have suggested that
CSR has wealth-protective instead of wealth-enhancing effects (Oikonomou, Brooks and Paevlin,
2012). The suggestion here is that good CSR practices mitigate financial risk and therefore protect
the balance sheet from adverse shocks. These wealth-protective effects are essentially captured in a
corporations stock market valuation and are usually signalled to the market through listings on
sustainability indices like the FTSE4Good or Dow Jones Sustainability Index. In theory investors are
willing to pay a market premium for stocks that have a lower financial risk, thus making executive
and shareholder stock more profitable.
Other commentators have proposed that CSR adds most value when environmental and social
objectives are aligned with business objectives. In this way CSR activities become central to an
organisations strategy benefiting both the financial performance of the firm as well as generating a
societal benefit. The idea was succinctly proposed by Michael Porter and Mark Kramer using yet
another term, Creating Shared Value (CSV).
Nonetheless, the debate still continues on the role that CSR plays in terms enhancing financial
performance. What is clear though, is that major companies continue to invest in CSR
initiatives. Assuming Friedman was right, it follows that companies must be receiving some form of
benefit, either in a wealth enhancing or wealth protective way, that explains the continued interest
and investment in CSR.

http://www.ukessays.com/essays/management/relationship-between-corporatesocial-responsibility-and-organizational-profitability-management-essay.php

Relationship Between Corporate

Social Responsibility And
Organizational Profitability
Management Essay
There are numerous factors affecting the organizational profitability; one of the important factors is
corporate social responsibility. This paper tries to examine the relationship between Corporate Social
Responsibility and organizational profitability. Many tools are used to measure the organizational
profitability while those of the corporate social responsibility can sometimes be unreliable or
insufficient. The tool chosen for measuring the Corporate Social Responsibility is Kinder, Lydenberg
and Domini & Co. which is a database that is recently used as one of the most comprehensive
source for Corporate Social Performance research.
This paper will mainly focus on Egyptian organizations and study their engagement in corporate
social responsibility and compare the different result of profitability for a period of five years.
Keywords: Corporate Social Responsibility, Corporate Social Performance, Organizational
profitability, Return on investment, Kinder, Lydenberg and Domini & Co.

Corporate social responsibility and

Organizational Profitability
Researchers tried to define corporate social responsibility in such way that suits all theoretical and
operational purposes, such as "Actions that appear to further some social good, beyond the interests
of the firm and that which is required by law" (McWilliams & Siegel 2001, P.117). CSR concerns
everyone such as customers, employees, suppliers, community groups, governments, and even
some stockholders as stated by McWilliams and Siegel (2001).

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This paper will examine the relationship between corporate social responsibility and the profitability
of Egyptian organizations. The purpose of this paper is to examine whether the corporate social
responsibility will increase the profitability or not and to figure out the main benefits of being engaged
in corporate social responsibility.
The paper is compromised of three main sections. The first section gives an overview on corporate
social responsibility in general and how it is important for both organizations and community. The
second section focuses on the concept of organizational profitability as it explains how it is
measured and how profit maximization can be defined from a behavioral perspective. The third
section is probably the most important section of the paper as it focuses on studying the relationship
between the corporate social responsibility and the organizational profitability and the different
consequences that may occur.

Literature Review
Corporate social responsibility (CSR) is a concept that is growing fast and more attention should be
paid to the meaning behind its linguistic. (Amaeshi and Adin, 2007). The definition of Corporate
Social Responsibility (CSR) can sometimes be ambiguous as stated by McWilliams and Siegel
(2001).
Davis (1960) mentioned that CSR is considered as decisions or actions taken beyond the
organization's economic or technical self interest. Moreover Davis (1973) mentioned that CSR
doesn't only refer to the economic, technical or legal requirements of the firm, it goes beyond that
and may affect all the firm's actions. While Fitch (1976) described the CSR as the challenges taken
by the corporation whether fully or partially to solve social problems. CSR should also have a
suitable degree of how much it fits both the society's expectations and business ethics. (Zenisek,
1979).
"The notion that business organizations have societal obligations which transcend economic
functions of producing and distributing scarce goods and services and generating a satisfactory level
of profits for their shareholders" (Epstein, 1989, P.585).
Moreover it was seen by Maclagan (1999) as a process that should express the moral values and
interest of the individuals. McWilliams and Siegel (2001) added that CSR should go beyond the
Legal interests of the firms. It should be actions that show some good to the society. While CSR as
stated by Carroll (1991) is seen as a pyramid of Economic, legal, ethical and philanthropic as shown

in Figure (1.1). The pyramid of CSR was supported by Dusuki (2008) confirming that studies have
observed people's perception based on Carroll's Pyramid of CSR.
CSR concerns everyone such as customers, employees, suppliers, community groups,
governments, and even some stockholders as stated by McWilliams and Siegel (2001). They all form
pressure on the company which can sometimes results in a great conflict on goals and objectives
(McWilliams & Siegel, 2001).
As pointed above, CSR has numerous definitions and explanations. Moreover McWilliams, Siegel
and Wright (2006) emphasized on how difficult it is, to make theoretical development or
measurement since the definitions of CSR is either too many or not clear enough.

Approaches of Corporate Social Responsibility

According to Kramer and Porter (2006), four issues for organization to be engaged in CSR are:
moral obligation, sustainability, license to operate, and reputation. Kramer and Porter (2006)
described the Moral appeal as doing the right thing which appears more in the nonprofitable
business. Sustainable Development is defined as "Meeting the needs of the present without
compromising the ability of future generations to meet their own needs." (Kramer, Porter, 2006, P.
81) while the license to operate can be represented in the governments and the communities'
regulations and other stakeholders to do business. Finally, reputation is used by many companies to
improve a company's image, and gain customer's loyalty, build a strong brand and have a higher
value of its stock (Kramer & Porter, 2006).
While Brammer, Millington and Rayton (2007) stated that Employees' training can be seen as an
activity of social responsible and should be used to increase the employees' commitment to the
organization, they also mentioned that the fair treatment of employees which is a approach of social
corporate responsibility increase commitment to the organization.

Effect of Corporate Social Responsibility

As mentioned by Cacioppe, Forster and Fox (2007) a lot of studies focusing on how important the
companies' reputation and whether it is engaged in a social responsibility for both customers and
investors or not, while other researches focused on how the attitude and behavior of the managers
and professionals can be affected by their perception about the company's ethical and social
responsibility.

Effect of Corporate Social Responsibility on

the Community.

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Kramer and Porter (2006) added that CSR can provide a wealthy economy and society by having
different forms of cooperation such as investing capital, doing business, purchasing goods, and
providing jobs. Moreover, Evans, Foote and Gaffney (2010) added that companies could be
disciplined by their customers when they don't meet the society expectation or the expectation of the
customers by decreasing the demand of their products. Mathis (2007) mentioned that CSR can
change companies to be more pro-active and accordingly they will have a high influence on the
policy making process and a better position within their sectors than their competitors.

Effect of Corporate Social Responsibility on

Organizations.
It is important to analyze the effect of CSR on organizations and to determine whether CSR can
have an impact on the organizational performance or not. Evans, Foote and Gaffney (2010) stated
that CSR has important and clear influence on achieving performance excellence. According to
Cacioppe, Forster and Fox (2008) some studies showed that CSR can have a potential influence on
the employees' and leaders' behavior, while organizational success is impacted by the ethical sense
of customers and investors. Jaramillo, Mulki and Valenzuela (2010) viewed CSR as a way to gain
customers' retention and loyalty, on their article they analyzed how ethical firms can not only attract
more customers but also build a long term strong relationship.
While Singh (2006) explained why many researchers focused on how to achieve the customers'
needs and wants, since customer satisfaction has a positive influence on the organizational
profitability. Cacioppe, Forster and Fox (2008) studied that CSR leads to both the retention of both
employees and customers with the trusted brand image and the good quality of workforce. Mathis
(2007) looked at the CSR as a way to provide sustainability to organizations. Moreover Cacioppe,
Forster and Fox (2008) added that investors take in their consideration companies' management
before investing in it. Evans, Foote and Gaffney (2010) stated that the least benefit companies can
get from taking CSR as one of its business strategy is on the public relations level.

Organizational Profitability
As defined by Primeaux (1997) profit is the end result of subtracting total costs (TC) from total
revenues (TR). Therefore, profit maximization is producing the right quantity of goods and services
given the right amount of resources (Primeaux, 1997). Profit maximization can be defined from a
behavioral perspective as producing the right quantity and quality of goods and services the
consumers want within the legal and ethical norms of the society (Primeaux & Stieber, 1994). Failing
to account for the ethical effects of decisions can bring about negative consequences that signify
opportunity costs for the society and consumers, hence, managers who fail in taking into account
ethical aspects of their decisions are not profit maximizing due to the costs incurred as a result of
overlooking ethical dimensions of the decision (Primeaux, 1997; Primeaux & Stieber, 1994).
The performance measurement that will be used to evaluate and compare the efficiency of different
investments will be the return on investment (ROI). To calculate ROI, the benefit of an investment, it
is divided by the cost of the investment; the result is a percentage or a ratio
(http://www.investopedia.com/terms/r/returnoninvestment.asp)
The return on investment formula:
In the above formula "gains from investment", refers to the profits gained from spending the
investment of interest. Return on investment is a very common measurement because of its
adaptability and simplicity. That is, if an investment does not have a positive ROI, or if there are
other opportunities with a higher ROI, then the investment should be not be undertaken.
(http://www.investopedia.com/terms/r/returnoninvestment.asp)

Impact of Corporate Social Responsibility on

Organizational Profitability
Kolstad (2007) has shown in his paper that the relationship between CSR and profit are a
controversial issue. Kramer and Porter (2006) added that corporations can think of CSR as a
constraint or an additional cost, although it may be an opportunity for them to innovate and gain a
competitive advantage. Friedman (as cited by Foote, Gaffney and Evans, 2010) was criticizing the
money spend on CSR stating that the major responsibility of the managers is to maximize the profit
of the organization as they contracted with the owners of the firm.

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Arino, Canela and Garcia-Castro (2010) mentioned that CSR is not always providing a positive
impact on the financial performance, some cases showed that it could have a negative impact as
well. While McWilliams and Siegel (2000) added that a lot of empirical studies, showed that CSR
and profitability can be engaged in a positive, negative or even neutral relationship. kolstad (2007)
stated that CSR can be seen as a way to reach the final goal of the organization which is increasing
the shareholder returns but can't be considered as a goal itself. Companies should balance
scarifying some financial profit and between satisfying its stakeholders at least on the short term.
(Arino, Canela & Garcia-Castro, 2010). Kolstad (2007) added that executives used to care only
about the profits and the benefits of the shareholders, while nowadays companies may have to
widen their goals to include the CSR.
Friedman (as cited in Kolstad, 2007) presented the idea that maximizing the profit is the only
essential moral aspect that can be offered by the executive to the corporation and that idea was
supported by four arguments. First, he mentioned that managers should follow the interest of the
shareholders according to the legal contract they have. Second it will be illegal for managers not to
follow the interest of the shareholders since this will be considered as taxation to the shareholders.
(Kolstad, 2007).
Third, he advised the corporations to focus more on its core operations to be more efficient. Fourth,
since not all the corporations is engaged on CSR, then CSR can be an added cost to corporations
that cares about society leading to unfair competition between companies Friedman (as cited in
Kolstad, 2007). Kolstad (2007) strongly criticized the overstated idea presented by Friedman, saying
that responsibility of business should be seen in a wider view and should take in consideration other
agents and shouldn't only consider the shareholders' interest and that the provided idea will need
more examination and analysis.
While Peloza (2006) mentioned that due to many criticisms of CSR by whom, managers tried to
ensure that CSR will deliver a financial income to the firm by developing different strategic forms for
CSR. While Demacarty (2009) pointed out that the CSR doesn't necessarily provide a stronger
financial return nor does it produce weaker return, it depends on the techniques that are used to
increase the financial.
Waddock and Graves (1997) studied the linkage between corporate social performance (CSP) and
financial performance; they hypothesized a positive relationship between CSR and financial
performance using CSP as a measure of CSR and return on investment (ROI), return on assets
(ROA) and return on equity (ROE) as measures of profitability or the firm's financial performance.
The study reported that the improved financial performance leads to increase in the CSP. Moreover,
firms that engage in CSP have good financial performance since the ability to invest in socially

responsible activities signals good managerial performance that provides the firm with resources that
can be used for discretionary investments (Waddock and Graves, 1997).
Similar findings were reported by Orlitzky, Schmidt and Rynes (2003). Orlitzky et al found a positive
relationship between CSP and financial performance using meta-analysis.

Research Gap
While going through the literatures that studied Corporate Social Responsibility, a lot has been found
on understanding the Corporate Social Responsibility either in its definition, approaches or even in
how to measure it.
One can find some limitations and gaps since Corporate Social Responsibility can have many aims,
some of its definition was very narrow while others were very broad, involving almost everyone's
concern. The problem with the confliction on aims and means is that it is not clear whether Corporate
Social Responsibility should be applied by organizations or not. Some results showed that Corporate
Social Responsibility is a must for organizations and societies to grow while others concerned it as
an overhead.
Another Gap is that the relationship between Corporate Social Responsibility and profitability. A lot of
researchers analyzed whether Corporate Social Responsibility is profitable or not, but limited
researches studies the impact of Corporate Social Responsibility on a certain companies or for a
certain country and noticed its effect on profitability.
The purpose of this proposal is to examine the effect of CSR on organization's profitability. The
research question is: What is the effect of CSR on the profitability of Egyptian Organizations?

Hypothesis
Organizations that are engaged in CSR will have high CSP.
Organizations that are engaged in CSR will have higher financial performance.
The relationship between CSR and Organizational profitability is strongly positive with a higher
corporate social performance and financial performance.

Implications
Organizations are usually committed to their employees, customers, and their society. Organizations
that experience high levels of commitment to the well being of society will have a better image and

therefore gain more loyalty of employees, customers and may gain higher profit. Further,
organizations may view ethical and social judgment as one of their effectiveness and success.
A reasonable measurement of CSR is critical for studying its effect, Kinder, Lydenberg and Domini &
Co. (KLD) tool will provide a full report of organization's CSR indicating to what extend the
organization is involved in social activities.
Then different results of CSR measurements will be compared to the annual profit of organizations.
A focus on these two variables may improve the overall performance of organizations and bring
more satisfaction to the whole society.

Method
Subjects or Participants
The study will focus on the effect of CSR and organizational profit on Egyptian organizations, the
population will be 100 Egyptian organizations and accordingly the sampling size will be 80
organizations. The sampling design will be the simple random sampling so that each company will
have an equal chance of being chosen as the subject.

Instrument
Evans, Foote and Gaffney (2010) stated that there should be a reliable way to measure the
relationship between organizational profitability and CSP and those researches have been deeply
involved in how to measure the CSP of organizations. They also added that past measurement was
not accurately measuring the outcomes of CSR since they were based on reputational surveys,
government pollution indices, financial reports, and CSR orientation studies.
The research tool will be developed by Kinder, Lydenberg and Domini & Co. (KLD) which is a social
choice investment advisory firm. Their tool is a social performance database. Waddock (2003)
mentioned that KLD is currently the most commonly used database and is considered a
comprehensive source for CSP research.
KLD publishes the CSP ratings and the data cover areas of environmental performance, social
contribution, corporate governance, and controversial business involvement.KLD require sources
include direct communication with the company managers, public documents, and governmental
data ( http://www.kld.com). Figure (1.2) illustrates the structure of the KLD database.
Chen and Delmas (2010) described KLD's three main categories which are environmental
performance, social ratings, and governance ratings. They described how each of these categories

are divided into levels for example the environmental performance includes climate change and
operations and management, while social ratings includes human rights and the employees' relation
while governance rating includes the structure and reporting methods.

Design
Dependent variable is the organizational profitability, in order to measure our hypothesis; I am using
the following measure of profitability: Return on investment (ROI) was among the measures of
performance, ROI is the most used.
The independent variable will be the CSR. Factors such as firm's size, industry and risk were
considered control variables (Waddock & Graves, 1997). I used Kinder, Lydenberg,
Domini (KLD) index as a measure of how well companies perform socially .KLD measures have
been used in previous research to study the SP in premier management journals (Agle et al., 1999;
Coombs and Gilley, 2005; Hillman and Keim, 2001; McWilliams and Siegel, 2000). The KLD have
several advances, as it represents a multi-dimensional measure of SP, consistently measured by a
group of professionals with and where different information sources are combined to find out the final
score for each firm (Waddock and Graves, 1997).

Procedure
KLD researches the social, environmental, and governance performance of corporations. KLD
research relies on five different data sources to obtain the ratings and analysis of each company.
Data are collected in a closely controlled process from each company, government, non-government
organization and media sources. KLD tracks each company through more than 14,000 global media
sources daily. (http://www.kld.com). Figure (1.3) illustrates the KLD research process they are using.
A quantitative technique will be needed to measures the effect of CSR on profitability, a valuable
data should be provided to KLD. To obtain such information required, both documents and Surveys
will be used.
Documents of the companies' CSR activities in the community will be examined and a comparison
will be made between them. Published documents about the companies and how they are engaged
in CSR practices will be used to get a general idea about the subject at hand. For example, news
paper articles can be investigated to know what activities each company is sponsoring or to gain an
idea about educational simulations moreover, accounting books can be investigated to get an idea of
the profitability trend at times when CSR activities are adopted, such documents may include
financial statements, balance sheets and cash flow. Figures in accounting books should be analyzed
to measure profitability.

Interviews of top management and corporate social responsibility manager will be conducted to
understand their perceptions of the effect CSR will have on the company's profits. Also Top
management will be interviewed to determine whether CSR is considered one of the decisions made
by top management and to determine the extent by which the CSR activities affects the financial
value and profitability.
Concerning the profit, the analysis will check financial performance through financial documents
including (ROI) will be used as measures of profitability or the firm's financial performance and
compare it with different CSR measurements reported from the KLD.
The research is planned to analyze data within five years period for each of the companies and, the
period can be considered long to be able to analysis the effect of CSR and compare it the profit of
the organization.
Concerning the Time plan, data will be collected for the three companies in the first period. The three
companies will be contacted and debriefed about the purpose of the research. Interviews should be
scheduled with corporate social responsibility manager early to guarantee that there will be sufficient
time and the last period will be left for entering the data using the KLD tool and analyze the reports
the final results of the research.

Limitations
The most important limitation is that the results of case studies cannot be generalized as it studies
very specific companies and it only seeks in-depth understanding of some elements.
Also there could be information unavailability, where the required information could be unavailable or
unattainable. It could sometimes be difficult to be able to get accurate and precise information.
Another limitation is that the measurement of the organizational long term profitability and its
estimate may be affected by other unexpected factors such as financial crisis, inflation in the market.
Yet, the research can give an indicator to organizations on whether the CSR has an impact of their
profitability or not and according to the research they can decide to what extent they would like to be
involved in CSR.