2.

THE
PRINCIPLES OF
CSR
Accountability

Transparency

Sustainability
2.1 Introduction

In the last chapter we outlined the three main principles upon which CSR is
based. As we explained, this gives a basis for the measurement and
evaluation of performance while also giving flexibility for an organisation to
consider its own socially and environmentally significant factors and plan
accordingly without being compared favourably or unfavourable with
organisations with different priorities. In this chapter therefore we are going
to look at these principles in more detail.
2.2
The Prominence of CSR

It is quite noticcable how much more prominent corporate social responsibility (CSR) has
become-not just in the academic world and in the business world but also is everyday life. We
can highlight a lot of factors which have led to this interest - such things as:

- Poor business behaviour towards customers

- Treating employees unfairly

- Ignoring the environment and the consequences of organisational action.

Climate change has increased public consciousness, influencing CSR concerns about greenhouse gas
emissions, particularly carbon dioxide. Nowadays, people are more aware of their carbon footprint size, a
concept that was not widely understood three years ago.

Concerns have grown over the supply chain of businesses, particularly in developing countries, particularly
regarding exploitation of people, particularly child labor and sweatshops, by other companies and suppliers.

Companies must no longer deny responsibility for suppliers' conditions, as customers demand accountability.
High-profile retail companies have publicly apologized and taken steps to change this unacceptable behavior.

Companies' popularity increases after admitting problems and correcting them, demonstrating honesty and
customer reasonableness. Individual customers expect honesty, transparency, and companies to change
behavior and solve CSR problems.
2.3 Changing emphasis in
companies

Companies themselves have also changed. No

longer are they concerned with greenwashing -
the pretence of socially responsible behaviour
through artful reporting. Now companies are
taking CSR much more seriously not just
because they understand that it is a key to
business success and can give them a strategic
advantage, but also because people in those
organisations care about social responsibility.
2.3.1 Sustainability Page 04

The third principle of CSR is that of sustainability and this is a term which has suddenly become so common as to be ubiquitous for
business and for society. Every organisation mentions sustainability and most claim to have developed sustainable practices. A lot of
this is just rhetoric from people who, we would claim, do not want to face the difficult issues involved in addressing sustainability.
There is a danger therefore that sustainability has taken over from CSR itself as a target for greenwashing. Nevertheless although the
relationship between organisations and society has been subject to much debate, often of a critical nature, evidence continues to
mount that the best companies make a positive impact upon their environment.

Furthermore the evidence continues to mount that such socially responsible behaviour is good for business, not just in ethical terms
but also in financial terms in other words that corporate social responsibility is good for business as well as all its stakeholders. Thus
ethical behaviour and a concern for people and for the environment have been shown to have a positive correlation with corporate
performance. Indeed evidence continues to mount concerning the benefit to business from socially responsible behaviour and, in the
main, this benefit is no longer questioned by business managers. The nature of corporate social responsibility is therefore a topical
one for business and academics.
2.3.2 Recognising CSR Page 04

Most people initially think that they know what CSR is and how to behave responsibly - and everyone claims to be
able to recognise socially responsible or irresponsible behaviour without necessarily being able to define it. So there is
general agreement that CSR is about a company's concern for such things as community involvement, socially
responsible products and processes, concern for the environment and socially responsible employee relations (Ortiz-
Martinez & Crowther 2006).

Issues of socially responsible behaviour are not of course new and examples can be found from throughout the world
and at least from the carliest days of the Industrial Revolution and the concomitant founding of large business entities
(Crowther 2002) and the divorce between ownership and management or the divorcing of risk from rewards
(Crowther 2004). According to the European Commission CSR is about undertaking voluntary activity which
demonstrates a concern for stakeholders.
2.4 Environmental issues and Page 04
their effects and implications

When an organisation undertakes an activity which impacts upon the external environment then this affects that
environment in ways which are not reflected in the traditional accounting of that organisation. The environment
can be affected either positively, through for example a landscaping project, or negatively, through for example
the creation of heaps of waste from a mining operation.

These actions of an organisation impose costs and benefits upon the external environment. These costs and
benefits are imposed by the organisation without consultation, and in reality form part of the operational
activities of the organisation. These actions are however excluded from traditional accounting of the firm', and
by implication from its area of responsibility. Thus we can say that such costs and benefits have been
externalised. The concept of externality therefore is concerned with the way in which these costs and benefits are
externalised from the organisation and imposed upon others.
 Page 04
2.5 Externalising costs

As far as the externalisation of costs in concerned it is important to recognise that these can be
externalised both spatially and temporally.

2.5.1 Spatial
externalisation
Spatial externalisation describes the way in which costs can be transferred to other entities in the current time period. Examples of
such spatial externalisation include:

Environmental degradation though such things as polluted and therefore dead - rivers or through increased traffic imposes costs
upon the local community through reduced quality of life;

• Causing pollution imposes costs upon society at large;

 Page 04
Waste disposal problems impose costs upon whoever is tasked with such disposal;

Removing staff from shops imposes costs upon customers who must queue for service;

• Just in time manufacturing imposes costs upon suppliers by transferring stockholding costs to them.

In an increasingly global market then one favourite way of externalising costs is through transfer of
those costs to a third world country. This can be effected by a transfer of operational activities, or at
least those with environmental impacts, to such a country where the regulatory regime is less exacting.
In this respect it should be noted that the arguments regarding reducing labour costs are generally used
for such a transfer of operational activities but at the same time less exacting regulatory regimes also
exist.
 Page 04
2.5.2 Temporal
externalisation
The temporal externalisation of costs describes the way in which costs are transferred from the current time period into another the
future. This thereby enables reported value creation, through accounting, to be recorded in the present. Examples of temporal
externalisation include:

Deferring investment to a future time period and so increasing reported valuc in the present;

• Failing to provide for asset disposal costs in capital investment appraisal and leaving such costs for future owners to incur;

Failure to dispose of waste material as it originates and leaving this as a problem for the future;

Causing pollution which must then be cleaned up in the future;

Depletion of finite natural resources or failure to provide renewable sources of raw material will cause problem for the future viability
of the organisation;
2.6 The Social Contract Page 04

It is impossible that such governments as have hitherto existed in the world, could have commenced by any
other means than a total violation of every principle sacred and moral

The Rights of Man (Paine 1792)

In 1762 Jean-Jacques Rousseau produced his book on the Social Contract which was designed to explain and
therefore legitimate the relationship between and individual and society and its government. In it he argued
that individuals voluntary gave up certain rights in order for the government of the state to be able to manage
for the greater good of all citizens. This is of course a sharp contrast to the angry rhetoric of Tom Paine, shown
above. Nevertheless the idea of the Social Contract has been generally accepted.
More recently the Social Contract has This can be depicted
gained a new prominence as it has thus:
been used to explain the relationship
between a company and society. In
this view the company (or other
organisation) has obligations towards
other parts of society in return for its
place in society.
Fig 2.1 The Social
Contract

This in turn led to the development of

Stakeholder Theory, which we will
consider in the next chapter.
2.7 Conclusions

As we have seen. CSR has gained in prominence in recent years. It

has also changed in nature as different issues have become more
prominent. We have considered these changes and looked in
particular at environmental issues and the way in which the effects
and associated costs can be externalised away from the company
itself. This is of particular significance when we consider
stakeholders in the next chapter.
THANK
YOU