Tian Boon Law
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Reconciling Economic and Social Imperatives in Corporate Social Responsibility (CSR) and Social Entrepreneurship (SE)
Tian Boon Law
Introduction Tremendous attention has surrounded the concepts and practices of corporate social responsibility (CSR) and social entrepreneurship (SE) due to a normative dimension in economies at various geographical scales that highlights forms of persistent and episodic marginalization of society by various capitalistic business practices. Some has heralded CSR and SE as the messiah to better business practices that will alleviate problems of marginalization while others have reservations towards these nascent and contested ethical/moral business approaches. This essay adopts a critical approach towards CSR and SE, arguing that one main problem – the inherent tension between economic and social imperatives – continues to challenge the efficacy of both approaches in reconciling business and social objectives as a means of ethical/moral corporate practice. Some conceptual and practical solutions are later suggested. Corporate Social Responsibility and Social Entrepreneurship CSR has its antecedence in corporate social intervention or corporate philanthropy. However, what we are familiar with as CSR today has much more to do with the anticorporate activism that sought and continues to seek to reveal the ‘atrocities’ of corporate practices and behavior, e.g. labor exploitation in ‘sweat shops’, use of child labor, unethical production processes etc. CSR arose as a response to such conflicts between firms and the society (Sadler, 2004). In today’s business environment, firm success is as much about a corporation’s ability to build a sense of shared values with key stakeholders as it is about the technical quality of products and services. Corporations that achieve this will extract the maximum premium for their branded, lifestyle products, get the best employees on terms that secure their committed labor to the business, and most effectively offset criticism from increasingly globalised networks of NGOs.
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(Zadek, 2001: 8; emphasis added)
Hence, CSR can be seen as a business approach that addresses issues raised through anticorporate activism, although the exact motivation(s) behind this practice may vary across corporations and temporal dimensions. Yet CSR as a business practice faces several challenges, especially with regard to conflicting responsibilities towards shareholders and the society. For example, enterprise managers who direct income towards performing ‘social responsibilities’ actually infringe upon stockholders’ share of the firm’s residual income. And in such cases, the managers are actually more inclined to fulfill their responsibility towards stockholders who have provided the capital for business operation in the first place. Yet the negative social impacts of their operations may be undeniable, and this creates a dilemma between two groups of people that managers could feel responsible towards. Moreover, social objectives often clash with economic objectives of the firm (e.g. diverting capital to perform CSR rather than to grow the firm), resulting in superficial practices of CSR that tend to be transient and of low levels of commitment, especially during times of financial difficulties for the firm. Evidently, the challenges faced by CSR practitioners stem mainly from the established ownership structure of stockholders vis-à-vis society that receives the (negative) impacts of business operations. Seen in this light, SE can be said to be an innovative business approach that seeks to reconcile the abovementioned dilemma by starting on a clean slate. SE is about ‘social entrepreneurs’ who identify unmet social needs and seek to meet those needs through an entrepreneurial approach, i.e. starting a business with the purpose of ‘making a difference’ in society. While SE seems to be conceptually more viable in that its primary objective is to meet social needs in a sustainable manner, i.e. through a business model that generates income to
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fund the meeting of those needs, Cho (2006) criticizes it to be a business concept that is both tautological and monological. SE is tautological in that while “entrepreneurship” is well defined in most working definitions of SE, the “social” is very much left undefined. Being able, then, only to understand SE as a sustainable business approach to meeting social needs without knowing much about what exactly is ‘social’ about SE, the tautological nature of SE becomes apparent. In addition, it has been argued that SE is monological because “[s]ocial entrepreneurs have their own, divergent, subjective visions for the rest of society and rationally mobilize resources in order to enact their agendas” (Cho, 2006: 46-47; emphasis added), without taking much into account the pluralist nature of society and the multiplicity of visions different segments of the society or even different individuals have for themselves. A Key Problem – The Dialectics between the Economic and the Social From the brief account of CSR and SE above, it is clear that both business approaches face many challenges in their execution. Yet, all these challenges are merely symptoms of a more fundamental problem undergirding the execution of CSR and SE – the inherent tension between economic and social imperatives. There are some ways to resolve this tension. While it is not the intention of the paper to create a utopia or idealized capitalist world dominated by CSR and SE, it is hoped that with the realization of some or all of these proposed solutions the apparent incompatibility between profit maximization and social welfare can be reduced or resolved at best. Two of the possible solutions would be dealt with in detail here: one, strategic alliance and the other, sustainable value. Possible Solutions – Strategic Alliance and Sustainable Value
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Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Tian Boon Law
The concept of strategic alliance is not a novelty in the financial sector. One notable example of strategic alliances can be found in the aviation industry, in which corporate alliances between airliner companies such as Star Alliance, SkyTeam, and Oneworld are forged. Adopting the concept in the practices of CSR and SE, alliances between business enterprises (BE) and SEs can be forged as well. In reality, alliances between SEs are common but not those between them and the BEs. The main reason behind the common SE alliances is the ease of receiving state funds. Governments or related agencies of countries such as Egypt, India, and the United States are known to support and finance SE alliances instead of individual SEs (Wei-Skillern, Austin, Leonard, and Stevenson, 2007: 191-201). The formation of alliances between BEs and SEs would serve to incubate the latter. Financially, the SEs can be leveraged and, in the course of being so, possess the initiative and the opportunity to expand its scale and scope. The BEs can share with the SEs their business networks, branding as well as marketing strategies during the latter’s incubation period. It resolves the tension between profit-making and social-involvement by allowing both the BEs and the SEs to focus on their respective missions. The CSR of the BEs is to incubate the SEs, much to the BEs’ own image promotion. The BEs can focus on their profit-making business while incubating the SEs, which in turn would harness their attention and resources on addressing and meeting social needs. The sustainable value framework comprises primarily two main values, namely the stakeholder and the shareholder values. Sustainable value occurs only when a company creates value that is positive for its shareholders and its stakeholders. Sustainable value is not about creating stakeholder value at the expense of shareholder value (Laszlo, 2008). It would be a misconception to think that companies destroy shareholder value when they contribute to society and the environment. With regard to sustainable value, both the BEs and the SEs can create this in their respective company missions. For instance, a positive branding effect or
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image can be fostered by incorporating the concept of CSR into the company mission. The elevation of social responsibility and brand reputation bears a favorable effect on the brand equity of the involved firms and hence an overall increase in business revenues. The importance of brand image to a company should not be undermined. It has led to the concept of brand equity which can be defined as the added value a given brand name gives to a product beyond the functional benefits provided (Keller, 2004). A comparative advantage is provided when the brand name stands for quality, and consumers are often willing to pay a higher price for a product with brand equity. Therefore, although it may cost to attain a social value in operations and production, there are “hidden benefits” to be derived from the deal. For one, Wal Mart has placed its focus on environmental issues and hence manages to claim its fair share of patrons or consumers who are in support of environmentalist movements, but it also faces much criticism on how it has been operating on the exploitation of cheap labor in the developing countries. Other examples include DuPont, The Body Shop, and United Colors of Benetton. In particular, The Body Shop deserves special mention. Initially, The Body Shop refuses to venture into China’s consumer market as China requires all products of any cosmetics companies to practice animal testing before they can be released into the market, very much against its doctrine and mission. However, Loreal bought over The Body Shop and practices animal testing itself, capturing both its traditional market share and a new pool of consumers from the other end of the spectrum. In any case, this justifies the concept of profit-making by incorporating CSR into the company mission and hence eases the seemingly irreconcilable tension between economic and social imperatives for both the BEs and the SEs. A new dimension has to be added, however, if this is to be successful in the long run. Harvesting the social capital involves the attainment of proper recognition of CSR in the firm by state-approved agencies. Such agencies would award a license to firms practicing CSR to
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Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Tian Boon Law
label their products a logo indicating the practice. Firms practicing CSR or SEs would then experience a rise in their social visibility and hence popularity, especially amongst consumers who are concerned with environmental and social issues. A higher demand for their products may result and this creates the bacon or incentive for both BEs and SEs to practice CSR in consideration of commercial motivations and market forces, if CSR alone is not enough to offer it. This is one way of how economic goals can reconcile with social imperatives. Conclusion In short, economic and social values in enterprises are not always antagonistic to each other. It is possible to achieve CSR without compromising the profits required to remain in competition and opposition. It offers not just a risk but an opportunity as well to explore and carve out new market shares while staying socially visible and responsible. Solutions in the form of sound business strategies may well do the trick for firms which are genuinely interested in making profits and enhancing their social role at the same time. The sense of incompatibility and hence the enduring tension between the economic and the social imperatives of firms are built upon the assumption that the BEs practicing CSR and the SEs would fail to generate enough profits to sustain themselves on a long term basis, but such conventional wisdom has to be altered and make way for a more progressive approach in our discussion of business ethics and corporate responsibility. The utopia of a market economy consisting of only SEs would be absurd, but having a higher proportion of them around is realistic and can contribute to the construction and subsequent support of social institutions geared towards the welfare of the marginalized, the stigmatized, and the victimized.
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Bibliography Cho, A.H.B. (2006). Politics, Values and Social Entrepreneurship: A Critical Appraisal. Social Entrepreneurship. New York: Palgrave Macmillan. Keller, K.L. (2003). Strategic Brand Management: Building, Measuring and Managing Brand Equity. Upper Saddle River, NJ: Prentice Hall. Laszlo, C. (2008). Sustainable Value: How the World’s Leading Companies are Doing Well by Doing Good? Stanford, California: Stanford University Press. Sadler, D. (2004). Anti-corporate Campaigning and Corporate Social Responsibility: Towards Alternative Spaces of Citizenships? Antipode, 36 (5): 851-870. Wei-Skillern, J., Austin, J.E., Leonard, H., Stevenson, H. (2007). Entrepreneurship in the Social Sector. Los Angeles, California: Sage Publications. Zadek, S. (2006). The Civil Corporation: The New Economy of Corporate Citizenship. London: Earthscan.
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Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Tian Boon Law
Global Initiatives Symposium in Taiwan 2009