Five Ways of Reinventing CSR under Contemporary Capitalism

CSR is intimately connected with the way that capitalism is practised, and poor CSR outcomes are often the result of shortcomings of contemporary capitalism. In this context, the five “solutions” for reinventing CSR that emerged from this study are meant to point toward ways that managers can make their companies’ CSR efforts more effective, that is, ethical, long-term, inclusive, values-oriented, and well matched to a firm’s particular characteristics and institutional environment.

By Rebecca Chunghee Kim

The Problem: CSR is under siege.

Is CSR simply a management fad? Ask business leaders this question and many will answer yes. Scepticism toward CSR is increasing for two main reasons. Some question its practical legitimacy: is its economic impact positive? Others question its moral legitimacy: is it genuine or just another marketing tool? What underlies these attacks on CSR, and how can business leaders and researchers effectively respond to them?

This paper is inspired by two commonplace observations, which lead to the two overarching research questions I seek to answer.

The first observation is that CSR is under siege. While CSR has gained fame as a buzzword, it has lost credibility, as its economic impact is difficult to measure, opportunistic managers are incentivised to distort information they provide to the public concerning their companies’ CSR, and corporate CSR programmes have been ineffective in delivering the benefits that CSR promised to society. This leads to the first overarching research question: what is the fundamental reason that CSR is under siege in contemporary capitalism?

The second observation is that capitalism has some shortcomings of its own that need to be reinvented. While capitalism is widely considered the best instrument that humans have devised for producing and distributing wealth, business misbehaviour, bankruptcies, and scandals are regularly found in capitalist economies, and sustained inequality, environmental destruction, societal exclusion, business and political corruption, institutional collapse, and distortion of competition are chronic by-products of the capitalistic system The aim of “maximising shareholder value” has been criticised as not being competitive, sustainable, inclusive, democratic, or ethical.

These are precisely the problems that CSR is intended to address, through a rebalancing of the power of the market with democratic and accountable government and a strong civil society. Yet CSR practised under a capitalist system is inevitably influenced by the same forces that result in capitalism’s well-documented problems. This leads to the second research question: assuming that CSR cannot be decoupled from capitalism, how then can CSR be changed or “reinvented” so that it produces better results?

The Context: Five “shortcomings” of capitalism that lead CSR’s failure

1. Runaway self-interest leads to CSR as window dressing

In recent decades, pushed by the ideas of Milton Friedman¹, who controversially wrote that “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game” (1970), and the movie Wall Street, which popularised the phrase “Greed is good”, social responsibility has often become dissociated from business, or positioned as an enabler of profit-making rather than a goal in itself. This has produced a “moral deficit” and an amoral, if not anti-moral, “greed is good” utilitarian school of economics.

One outcome of the pursuit of self-interest by individuals and firms is that it encourages business leaders to take a utilitarian view of CSR, to see it as a means to tackle organisational inertia, to raise company image and social reputation, or to conceal unethical activities. This often leads to CSR activities that not only fail to contribute to societal goals, but that are unethical, such as “window dressing” CSR.

2. Quarterly capitalism leads to quarterly CSR

Barton (2011)² argues that one of the greatest weaknesses, or misuses, of modern-day capitalism is a short-term operational and fiscal approach, which he terms “quarterly capitalism”. The pressures on CEOs and managers to meet quarterly earnings targets are strong, and undoubtedly contribute to efficiency and productivity. However, focusing on quarterly earnings consumes an extraordinary amount of senior executives’ time and attention, and excessive focus on short-term financials can adversely affect the long-term health and sustainability of the business itself. The tyranny of short-termism negatively affects the sustainability of companies and the broader economic system.

Quarterly capitalism naturally leads to a corresponding quarterly approach to CSR, with corporations embracing CSR as a PR tactic to earn positive media coverage and relieve public pressure. Short-term CSR, however, is utterly incapable of authentically addressing issues such as the climate crisis, poverty, and economic inequality. Addressing these issues in any meaningful way requires a long-term commitment and long-term strategies — over decades, not quarters.

3. Capitalism for the elite leads to elitist CSR

One of the fundamental drawbacks of global capitalism is that it produces uneven development and income inequalities, as the rich get richer and the poor get poorer. In his book on inequality in America, Saving Capitalism, Reich (2016)³ argues that capitalism should be for the many, not the few. In recent years, billionaires and large corporations have become caricatures of capitalism’s failures, as many feel that capitalism has left them behind and only benefits the elites.

Elitist capitalism gives rise to elitist CSR initiatives and outcomes driven by the well-off and people in positions of power. Trying to implement a CSR agenda created exclusively by management leaders or a CSR department is misguided. Elite-designed CSR is likely to be viewed with scepticism by many stakeholders, who are apt to doubt the sincerity of the initiatives or may interpret them as indications that the company is hiding something. Another manifestation of an elitist approach is the publicising of cherry-picked CSR success stories and examples of “best-practice” CSR.

While the CSR best-practice approach is commendable for showing how corporations can act responsibly — the cases of Patagonia and Nestlé are good examples — it can also have the effect of signalling that there is a best way — an elite way — to practise CSR. Arguably, the particular resources a company can apply to CSR and the needs of stakeholders vary greatly from company to company, and so the idea that there is a best way to practise effective CSR is simply wrong. For a firm to develop its own successful CSR programme, it must be free from an obsession with “best practices”.

4. Volume-oriented capitalism leads to volume-oriented CSR

Economies of scale, one of the most powerful engines driving capitalism, means that size matters. Obviously, capitalism provides advantages of scale in the output of goods and services; and maximising profit is perhaps the singular normative principle embodied in contemporary competitive capitalist economies. However, there is a limit to the value of volume, and of maximising profit; today’s world demands that firms move beyond maximising economic value to also creating social value that benefits stakeholders.

The “bigger is better” dynamic is often reflected in a corresponding volume-oriented approach to CSR, with corporations evaluating their CSR efforts by the yardstick of how much money is spent, and the public, influenced by Forbes’ ranking of companies’ charitable donations, holding a similar view. Many large companies spend large sums on philanthropic initiatives because they view it as closely related to their corporate visual identities, communications, and branding. This is a serious misunderstanding of what genuine CSR is. It is not the amount of money spent on CSR that counts; it is the effect that the CSR activities have on society.

5. One-pattern capitalism leads to one-pattern CSR

Most nations have become part of an integrated system of global capitalism. Within this broader pattern, however, are found significant differences from country to country in how business is conducted. For instance, Vogel (2019)⁴ describes Japan’s “ambivalent” version of shareholder capitalism, which does not converge on the US model of shareholder capitalism but preserves the characteristics — some would say strengths — of traditional Japanese business models, such as prioritising stakeholders over shareholders and long-term growth over short-term profits. Other Asian countries likewise exhibit strong tensions between the free-market capitalism model and more-closed Asian cultural dynamics.

Much unsuccessful CSR can be traced to ignoring the diversity among capitalist systems and business environments in which companies operate. Multinationals’ ignorance of host-country issues is a key factor in the failure of many CSR initiatives. Ignoring diversity may also lead to unethical or misguided CSR, as in cases where corporations compete based on a single universal criterion, such as the size of philanthropic donations, which disregards institutional dynamics and company size.

CSR: The way forward

Solution 1:

Base CSR on a sound ethical foundation
Beyond the question of effective CSR practices, a sound ethical stance is critical for a corporation’s survival. Kim et al. (2018)⁵ argue by investigating the Korean Air (KAL) “nut rage” scandal that the market punishes unethical business practices and businesspeople regardless of their CSR activities. The way to avoid ineffective window-dressing CSR in a “runaway self-interest” capitalist environment is clear: perform CSR from the ethical stance. A survey of business leaders around the world found that strong ethics is among the most important leadership competencies (Giles, 2016)⁶. Leaders’ demonstrations of strong ethical behaviour provide their companies with a measure of safety in the global market. Approaching CSR purely as a business strategy, without an accompanying ethical stance, can weaken public trust in businesspeople and in companies.

Solution 2:

Pursue coherent and long-term CSR
In recent years, business has come under increasing public pressure to engage with social problems and be a major contributor to addressing issues like climate change, income inequality, high unemployment, and spiralling budget deficits. Governments and international organisations are also pushing businesses to engage in solving social problems through initiatives like the United Nations’ Sustainable Development Goals (SDGs). Corporations are being pressured to reconsider roles, responsibilities, and expectations of business and to actively contribute to tackling global social challenges. Meaningful corporate efforts cannot be made under a short-term, “quarterly capitalism” approach. Long-term CSR programmes not only help a company gain public trust, they also spur innovation and fuel sustainable economic growth.

Solution 3:

Use CSR to demonstrate inclusive leadership
Involving as many people and viewpoints as possible into CSR planning and implementation — from initiation through communication to action and evolution — is the key to CSR success. An inclusive process enables more company employees and stakeholders to help create CSR solutions. Especially, inclusive CSR strengthens employees’ loyalty to the company and broadens their perspective on business and the marketplace. The ability to establish a sense of inclusivity and belonging is one of the most important competencies a leader can have. A strong case can similarly be made that CSR should be inclusive – planned and carried out in concert with stakeholders and the community.

Solution 4:

Make CSR about values, more than business strategy
Many strategic management scholars emphasise CSR’s potential as a means of maximising profit, positioning CSR activities as an element of business strategy. A overstressed business-strategy approach to CSR may be effective in some parts of the global markets, but is not likely to go over well in the future capitalist society. Values-based CSR and business-strategy CSR should not be seen as mutually exclusive; companies do not need to choose one or the other. What is important is not to perceive (or talk about) CSR solely as a way of earning profit. CSR initiatives and programmes may well contribute to profit, but only if they are also values-based.

Solution 5:

Match CSR to the firm’s assets, capabilities, and institutional setting
“One size fits all” CSR often falls short. Furthermore, things change; the meaning and dynamics of CSR are/will be different in the present and the future from what they were in the past. Business leaders, when they envision and design CSR initiatives or programmes, must not ignore the variety that exists in institutional environments, in consumer expectations, and in how capitalism is practised in different markets. CSR must be context-driven if it is to succeed. It must fit the unique DNA in each corporation, and match specific industries, nations, and forms of capitalism.
Rather than playing follow-the-leader and trying to replicate other firms’ CSR practices, companies are well advised to build their own unique portfolio of CSR activities that matches their particular business and institutional settings. CSR is most effective when it complements a firm’s unique business character and values and meshes well with local market and institutional dynamics.

In a nutshell, capitalism and CSR interact. The roots of many less-than-successful CSR activities lie in “shortcomings” of capitalism, that is, ways that business is practised that have become unmoored from the “capitalism” described by Adam Smith (who never used the word “capitalism” himself) that works in ways that benefit business and society. It is my hope that companies will increasingly pursue CSR that is ethical, long-term, inclusive, values-oriented, and well-matched to a firm’s particular characteristics and institutional environment, for I believe that such CSR can help us to meet challenges that threaten our way of life. I hope, as well, that CSR can restore its moral legitimacy and fulfil its promise to business and society in the renewed capitalist society after COVID-19.

Excerpted and reprinted from the original paper in Business Ethics, the Environment & Responsibility (2022).
https://onlinelibrary.wiley.com/doi/full/10.1111/beer.12414

About the Author

Dr Rebecca Chunghee Kim is Professor at Ritsumeikan Asia Pacific University. As a comparative CSR scholar, she is particularly interested in the varieties of capitalism and CSR, Asian CSR, creating shared value, institutional dynamics of CSR-HRM relationships, and inclusive leadership. She has published in many leading international management and business and society journals. Rebecca was a British Chevening scholar and completed her PhD in Management Research at Strathclyde Business School, UK.

References

1. Friedman, M. (1970, 13 September). “The Social Responsibility of Business is to Increase its Profits”, New York Times Magazine (122-6). https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html
2. Barton, D. (2011). “Capitalism for the Long Term”, Harvard Business Review (March 2011). https://hbr.org/2011/03/capitalism-for-the-long-term
3. Reich, R. (2007). Supercapitalism: The Battle for Democracy in an Age of Big Business. Alfred A. Knopf.
4. Vogel, S. K. (2019). “Japan’s Ambivalent Pursuit of Shareholder Capitalism”, Politics & Society, 47(1), 117-44. https://doi.org/10.1177/0032329218825160
5. Kim, R. C., Yoo, I., & Uddin, H. (2018). “The Korean Air nut rage scandal: Domestic versus international responses to a viral incident”, Business Horizons, 61(4), 533-44. https://doi.org/10.1016/j.bushor.2018.03.002
6. Giles, S. (2016). “The Most Important Leadership Competencies, According to Leaders Around the World”, Harvard Business Review (15 March 2016). https://hbr.org/2016/03/the-most-important-leadership-competencies-according-to-leaders-around-the-world