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CZECH MANAGEMENT INSTITUTE PRAHA

Faculty of Management

ESCUELA SUPERIOR DE MARKETING YADMINISTRACIN BARCELONA

Doctoral Thesis

Corporate Social Responsibility in Small and Medium-Sized Companies in the Czech Republic

Doctoral Thesis in the Doctor of Business Administration Programme

Doctoral Candidate: David Polek, M.B.A.

Doctoral Advisor: Dr. Cesar Duch, Ph.D.

2010


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Table of Contents

LIST OF TABLES ............................................................................................................................ v

LIST OF FIGURES ........................................................................................................................ viii

ABSTRACT ...................................................................................................................................... xDECLARATION .............................................................................................................................. xi

ACKNOWLEDGEMENTS .............................................................................................................. xii

INTRODUCTION ........................................................................................................................... 1CHAPTER 1. CORPORATE SOCIAL RESPONSIBILITY CONCEPT ................................... 4

1.1 DEFINITION OF CORPORATE SOCIAL RESPONSIBILITY ....................................................................... 41.1.1 Defining Corporate Social Responsibility ........................................................ ....................... 41.1.2 Corporate Social Responsibility from Broader Perspective .................................................... 7

1.2 HISTORICAL DEVELOPMENT OF THE CORPORATE SOCIAL RESPONSIBILITY CONCEPT ....................... 81.2.1 Era Preceding Current Concept of Corporate Social Responsibility ...................................... 81.2.2 Modern History of Corporate Social Responsibility ............................................................. 10

1.3

WHAT CORPORATE SOCIAL RESPONSIBILITY ISNOT....................................................................... 14

1.3.1 Corporate Social Irresponsibility .......................................................... ................................ 151.3.2 Misuse and Sole Usage of Some Corporate Social Responsibility Tools .............................. 16

1.4 DEFINITION OF THE STAKEHOLDERCONCEPT AND ITS RELATION TO CORPORATE SOCIALRESPONSIBILITY............................................................................................................................... 17

1.5 CURRENT DEVELOPMENT IN CORPORATE SOCIAL RESPONSIBILITY................................................. 20CHAPTER 2. PERSPECTIVES OF CORPORATE SOCIAL RESPONSIBILITY ................. 24

2.1 ROLE OF THE GOVERNMENT IN CORPORATE SOCIAL RESPONSIBILITY CONCEPT............................. 242.2 CORPORATE SOCIAL RESPONSIBILITY IN GLOBAL DIMENSIONS ...................................................... 28

2.2.1 Role of Small and Medium-Sized Companies in Global Corporate Social Responsibility .... 302.3 CORPORATE SOCIAL RESPONSIBILITY IN EUROPE ............................................................................ 31

2.3.1 General Aspects of Sustainable Development and Corporate Social Responsibility in Europe............................................................................................................................................. 312.3.2 Corporate Social Responsibility in Europe ........................................................................... 32

2.4 CORPORATE SOCIAL RESPONSIBILITY IN THE CZECH REPUBLIC ...................................................... 392.4.1 Situation in the Czech Republic Regarding Corporate Social Responsibility and Ethics in

1990s ......................................................... ................................................................. .......... 392.4.2 Development of Corporate Social Responsibility in the Czech Republic .............................. 412.4.3 Latest Development of Corporate Social Responsibility in the Czech Republic ................... 43

2.5 CORPORATE SOCIAL RESPONSIBILITY FROM SMALL AND MEDIUM-SIZED COMPANIESPERSPECTIVEAND MAJORDIFFERENCES BETWEEN SMES AND LARGE COMPANIES IN THE CONTEXT OF CSR ..... 45

2.5.1 Definition of Micro, Small and Medium-Sized Enterprises ................................................... 452.5.2 General Features and Statistics of Micro, Small and Medium-Sized Enterprises ................. 472.5.3 Corporate Social Responsibility in Small and Medium-Sized Enterprises ............................ 51

CHAPTER 3. ESSENTIAL ASPECTS OF CORPORATE SOCIAL RESPONSIBILITY ....... 553.1 LEVELS OF CORPORATE SOCIAL RESPONSIBILITY ............................................................................ 553.2 DIMENSIONS OF CORPORATE SOCIAL RESPONSIBILITY .................................................................... 56

3.2.1 Internal Dimension of Corporate Social Responsibility ........................................................ 563.2.2 External Dimension of Corporate Social Responsibility ....................................................... 61

3.3 SIX FORMS OF CORPORATE SOCIAL RESPONSIBILITY INITIATIVES................................................... 653.3.1 Corporate Philanthropy ........................................................................................................ 663.3.2 Cause Promotions ................................................................................................................. 673.3.3 Cause Related Marketing ...................................................................................................... 683.3.4 Corporate Social Marketing ....................................................... ........................................... 703.3.5 Community Volunteering ............................................................ ........................................... 723.3.6 Socially Responsible Business Practices ............................................................................... 73

3.4 MEASURING,EVALUATING AND REPORTING ON CORPORATE SOCIAL RESPONSIBILITY.................. 753.4.1 Measuring and Evaluating Corporate Social Responsibility ................................................ 753.4.2 Corporate Social Responsibility Reporting ........................................................................... 76


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CHAPTER 4. SURVEYS ON CORPORATE SOCIAL RESPONSIBILITY CONDUCTED INTHE CZECH REPUBLIC, EUROPE AND WORLDWIDE .............................. 80

4.1 GLOBAL SURVEYS ........................................................................................................................... 804.1.1 Survey of Small and Medium Enterprises in the Global Compact (2004) ............................. 80

4.2 EUROPEAN SURVEYS ....................................................................................................................... 814.2.1 Survey on European SMEs and Social and Environmental Responsibility (2002) ................ 814.2.2 Study of Sustainable Competitiveness in Global Value Chains (2006) ................................. 834.2.3 Survey on Corporate Social Responsibility, Management Standards and Corporate

Governance (2006) .............................................................................................................. 834.2.4 Survey on Corporate Social Responsibility in SMEs in Berlin (2007) .................................. 84

4.3 SURVEYS IN THE CZECH REPUBLIC .................................................................................................. 854.3.1 Corporate Social Responsibility Complete Guide of the Topic and Conclusion of the

Survey in the Czech Republic (2004) ................................................................................... 854.3.2 Study of Social Responsibility as One of the Conditions for Entrepreneurial Success of the

Company (2006) .................................................................................................................. 864.3.3 Survey on Utilization of Corporate Social Responsibility by Small and Medium-Sized

Companies in the Czech Republic (2006) ............................................................................ 864.3.4 Study of Utilization of Corporate Social Responsibility by Small and Medium-Sized

Companies in the Czech Republic (2007) ............................................................................ 874.3.5 Survey on Corporate Social Responsibility A New Factor of Corporate Competitiveness

(2008) ........................................................ ................................................................. .......... 88CHAPTER 5. METHODOLOGY AND GENERAL RESULTS OF OWN RESEARCH .......... 89

5.1 BASIC FACTS ABOUT RESEARCH AND METHODOLOGY .................................................................... 895.1.1 Objective of the Research ........................................................... ........................................... 895.1.2 Timing of the Research ................................................................ .......................................... 895.1.3 Methodology of the Research ................................................................ ................................ 905.1.4 Questionnaire Form .............................................................................................................. 915.1.5 Software Tools Used for Processing and Analysis ................................................................ 91

5.2 BASIC FACTS ABOUT SURVEYED SMES NUMBER,SIZE,REGION,AGE,OWNERSHIP STRUCTURE,LINE OF BUSINESS, AND HIERARCHICAL LEVEL OF RESPONDENTS .................................................. 92

5.2.1 Number of Surveyed SMEs and Their Division According to Size ........................................ 925.2.2 Region of the Seat of Surveyed SMEs ............................................................... ..................... 935.2.3 Classification of Surveyed SMEs According to Years of Operation ...................................... 935.2.4 Ownership Structure of Surveyed SMEs ........................................................... ..................... 945.2.5 Classification of Surveyed SMEs According to Their Line of Business ................................. 945.2.6 Hierarchical Level of Respondents ............................................................................. .......... 95

5.3 GENERAL RESULTS OF THE RESEARCH ............................................................................................ 965.3.1 General Awareness of Corporate Social Responsibility........................................................ 975.3.2 Acceptance of Corporate Social Responsibility Principles ................................................... 995.3.3 Measurement of Corporate Social Responsibility ............................................................... 1035.3.4 Degree of Involvement of SMEs in Socially Responsible Activities towards Internal

Community ........................................................... .............................................................. 1045.3.5 Degree of Involvement of SMEs in Socially and Environmentally Responsible Activities

towards External Community ............................................................................................ 106CHAPTER 6. SPECIFIC RESULTS OF OWN RESEARCH: INTERNAL DIMENSION OF

CORPORATE SOCIAL RESPONSIBILITY .................................................. 1126.1 DESCRIPTION OF INTERNAL DIMENSION OF SOCIALLY RESPONSIBLE ACTIVITIES USED BY SMES 1136.2 CHARACTERISTICS OF SMESINTERNAL DIMENSION OF SOCIALLY RESPONSIBLE ACTIVITIES ..... 1186.3 REASONS FORINVOLVEMENT IN INTERNAL DIMENSION OF SOCIALLY RESPONSIBLE ACTIVITIES . 1226.4 BENEFITS IDENTIFIED BY SMES FROM THEIRPARTICIPATION ON INTERNALLY TARGETED SOCIALLY

RESPONSIBLE ACTIVITIES .............................................................................................................. 1256.5 BARRIERS TO THE PARTICIPATION ON INTERNALLY TARGETED SOCIALLY RESPONSIBLE ACTIVITIES

126CHAPTER 7. SPECIFIC RESULTS OF OWN RESEARCH: EXTERNAL DIMENSION OF

CORPORATE SOCIAL RESPONSIBILITY .................................................. 1297.1 DESCRIPTION OF EXTERNAL DIMENSION OF SOCIALLY AND ENVIRONMENTALLY RESPONSIBLE

ACTIVITIES USED BY SMES........................................................................................................... 130


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7.1.1 Involvement in Wide-Ranging Activities of External Dimension of Corporate SocialResponsibility ................................................................. .................................................... 130

7.1.2 Forms of Support of Socially and Environmentally Responsible Activities......................... 1317.1.3 Forms of Public Support of External Dimension of CSR Realized by SMEs ....................... 134

7.2 CHARACTERISTICS OF SMESEXTERNAL DIMENSION OF SOCIALLY AND ENVIRONMENTALLYRESPONSIBLE ACTIVITIES .............................................................................................................. 135

7.3 REASONS FORINVOLVEMENT IN EXTERNAL DIMENSION OF SOCIALLY AND ENVIRONMENTALLYRESPONSIBLE ACTIVITIES .............................................................................................................. 1437.4 BENEFITS IDENTIFIED BY SMES FROM THEIRPARTICIPATION ON EXTERNAL DIMENSION OF

SOCIALLY AND ENVIRONMENTALLY RESPONSIBLE ACTIVITIES .................................................... 1477.5 BARRIERS TO THE PARTICIPATION ON EXTERNALLY TARGETED SOCIALLY AND ENVIRONMENTALLY

RESPONSIBLE ACTIVITIES .............................................................................................................. 1517.6 FUTURE EXPECTATIONS ON INVOLVEMENT OF SMES IN EXTERNAL DIMENSION OF SOCIALLY AND

ENVIRONMENTALLY RESPONSIBLE ACTIVITIES ............................................................................. 153CHAPTER 8. RECOMMENDATIONS FOR SMALL AND MEDIUM-SIZED COMPANIES

HOW TO IMPLEMENT CORPORATE SOCIAL RESPONSIBILITY CONCEPT....................................................................................................................... 155

8.1 SCOPE OF CORPORATE SOCIAL RESPONSIBILITY INVOLVEMENT ................................................... 1558.1.1 Marketplace ........................................................... .............................................................. 1578.1.2 Workplace............................................................................................................................ 1588.1.3 Community .......................................................................................................................... 1598.1.4 Environment .......................................................... .............................................................. 160

8.2 TEN STEPS HOW TO ADOPT AND IMPLEMENT CORPORATE SOCIAL RESPONSIBILITY CONCEPT INSMALL AND MEDIUM-SIZED COMPANIES ...................................................................................... 161

8.2.1 Planning Phase ................................................................ ................................................... 1638.2.2 Execution Phase ............................................................... ................................................... 1748.2.3 Evaluation Phase .............................................................. ................................................... 1758.2.4 Improvement Phase .......................................................... ................................................... 181

CHAPTER 9. CONCLUSIONS ............................................................................................ 1829.1 CONCLUSIONS -THEORETICAL PART ............................................................................................. 182

9.1.1 Defining Corporate Social Responsibility ........................................................ ................... 1829.1.2 Dimensions of Corporate Social Responsibility and Corporate Social ResponsibilityInitiatives ........................................................................................................ ................... 182

9.1.3 Aspects of Corporate Social Responsibility ................................................................ ......... 1839.1.4 Corporate Social Responsibility in the Czech Republic ...................................................... 183

9.2 CONCLUSIONS -SUMMARY OF THE AUTHORS OWN RESEARCH.................................................... 1849.2.1 General Aspects of Corporate Social Responsibility in Czech SMEs .................................. 1849.2.2 Internal Dimension of Corporate Social Responsibility in Czech SMEs ............................. 1869.2.3 External Dimension of Corporate Social Responsibility in Czech SMEs ............................ 188

9.3 CONCLUSIONS -GENERAL STEPS HOW TO IMPLEMENT CORPORATE SOCIAL RESPONSIBILITY INCZECH SMES................................................................................................................................. 191

9.3.1 Considering Strategic Approach to Corporate Social Responsibility in Czech SMEs ........ 1919.3.2 Proposal of Ten Steps How to Implement Corporate Social Responsibility in Czech SMEs ....

........................................................................................................................................... 192BIBLIOGRAPHY ....................................................................................................................... 193APPENDIX ....................................................................................................................... 204

APPENDIX I: GLOSSARY OF TERMS ...................................................................................................... 204APPENDIX II: EXAMPLE OF THE QUESTIONNAIRE ON CORPORATE SOCIAL RESPONSIBILITY DESIGNED FOR

SMALL AND MEDIUM-SIZED COMPANIES ...................................................................................... 209APPENDIX III:EXAMPLES OF COMPANY VALUES AND PRINCIPLES ........................................................ 216


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List of Tables

Table 2.1: Principal public sector roles in relation to Corporate Social Responsibility ................ 25Table 2.2: Political development and milestones in CSR area at the European level................. 33Table 2.3: Main indicators of European non-financial business economy broken down by size of

a company (2004; % share of total) ............................................................................ 48Table 2.4: Key indicators for enterprises in the non-financial business economy in the EU-27 .. 50Table 2.5: Detail information on number and value added of SMEs in the Czech Republic ....... 50Table 5.1: Absolute and relative number of surveyed companies in the analysed sample, sorted

by size of the company ............................................................................................... 93Table 5.2: Absolute and relative number of surveyed SMEs in the analysed sample, sorted by

region of the seat and size of the company ................................................................ 93Table 5.3: Absolute and relative number of surveyed SMEs in the analysed sample, sorted by

age (years of operation) and size of the company ..................................................... 94Table 5.4: Absolute and relative number of surveyed SMEs in the analysed sample, sorted by

ownership structure and size of the company ............................................................ 94Table 5.5: Absolute and relative number of surveyed SMEs in the analysed sample, sorted by

line of business and size of the company ................................................................... 95Table 5.6: Absolute and relative number of persons who filled out the questionnaire, sorted by

hierarchical level and size of the company ................................................................. 96Table 5.7: Knowledge of Corporate Social Responsibility concept by the company (respondent),

sorted by size of the company .................................................................................... 97Table 5.8: Knowledge of Corporate Social Responsibility concept by the company (respondent),

sorted by hierarchical level of the person who filled out the questionnaire and size ofthe company ............................................................................................................... 98

Table 5.9: Knowledge of Corporate Social Responsibility concept by the company (respondent),sorted by region of the seat of the company .............................................................. 98

Table 5.10:Acceptance of basic idea of Corporate Social Responsibility concept by the company(respondent), sorted by size of the company ............................................................. 99

Table 5.11:Acceptance of basic idea of Corporate Social Responsibility concept by the company(respondent), sorted by region of the seat of the company ...................................... 100

Table 5.12:Acceptance of basic idea of Corporate Social Responsibility concept by the company(respondent), sorted by hierarchical level of the person who filled out thequestionnaire ............................................................................................................ 100

Table 5.13:Acceptance of basic idea of Corporate Social Responsibility concept by the company(respondent), sorted by ownership structure of the company .................................. 101

Table 5.14: Knowledge of documents or organizations (particularly non-profit) dealing with CSRby the company (respondent), sorted by size of the company ................................. 101

Table 5.15: Need for generally accepted and transparent methodology how to implement CSR inthe company, sorted by size of the company ........................................................... 102

Table 5.16: Overview of companys personnel authorized/responsible for the coordination of CSRactivities, sorted by size of the company .................................................................. 103

Table 5.17: Measurement and evaluation of CSR by the company, sorted by size of the company.................................................................................................................................. 103

Table 6.1: Percentage of SMEs involved in wide-ranging activities of internal dimension of CSRin 2008, sorted by size of the company and including an average for all SMEs ...... 114


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Table 6.2: Percentage of SMEs involved in supporting of employees and/or family members invarious activities of internal dimension of CSR in 2008, sorted by size of the companyand including an average for all SMEs ..................................................................... 116

Table 6.3: Forms of further education of employees supported by SMEs, sorted by size of thecompany and including an average for all SMEs ..................................................... 117

Table 6.4: Comparison of SMEs with/without strategy for internal dimension of CSR andwith/without corporate strategy in 2008 including an average for all SMEs ............. 119Table 6.5: Degree of importance of socially responsible and ethical behaviour towards

employees for SMEs, sorted by size of the company and including an average for allSMEs ........................................................................................................................ 120

Table 6.6: Analysis of SMEs for which socially responsible and ethical behaviour towardsemployees was very important, sorted by ownership structure and line of business121

Table 6.7: Major drivers for implementing of socially responsible and ethical behaviour towardsemployees, sorted by size of the company and including an average for all SMEs 123

Table 6.8: Major benefits for SMEs arising from implementing socially responsible and ethicalbehaviour towards employees, sorted by size of the company and including an

average for all SMEs ................................................................................................ 125Table 6.9: Major barriers for SMEs for implementing socially responsible and ethical behaviour

towards employees, sorted by size of the company and including an average for allSMEs ........................................................................................................................ 127

Table 7.1: Percentage of SMEs involved in wide-ranging activities of external dimension of CSRin 2008, sorted by size of the company and including an average for all SMEs ...... 130

Table 7.2: Forms of support of socially responsible activities used by SMEs in terms of externaldimension of CSR, sorted by size of the company and including an average for allSMEs ........................................................................................................................ 132

Table 7.3: Forms of support of environmentally responsible activities used by SMEs in terms ofexternal dimension of CSR, sorted by size of the company ..................................... 133

Table 7.4: Forms of public support the SMEs* have received during last 3 years (2005 2008)for their external dimension of CSR, sorted by size of the company ........................ 135

Table 7.5: Degree of importance of socially responsible and ethical behaviour towardsenvironment and community for SMEs, sorted by size of the company and includingan average for all SMEs ........................................................................................... 136

Table 7.6: SMEs strategic approach to socially and environmentally responsible activities(external dimension of CSR), sorted by size of the company and including an averagefor all SMEs ............................................................................................................... 136

Table 7.7: European SMEs strategic approach to socially and environmentally responsibleactivities (external dimension of CSR), sorted by size of the company and includingan average for all SMEs ........................................................................................... 137

Table 7.8: Percentage of SMEs with and without strategy for external dimension of CSR* in2008, sorted by size of the company and including an average for all SMEs .......... 138

Table 7.9: Manner, how SMEs carry out socially and environmentally responsible activities(external dimension of CSR), sorted by size of the company and including an averagefor all SMEs ............................................................................................................... 138

Table 7.10:Acceptance of idea that SMEs can more effectively apply CSR on a local level thanlarge and multinational corporations, sorted by size of the company and including anaverage for all SMEs ................................................................................................ 140

Table 7.11:Awareness of local issues and willingness of SMEs to offer help in solving theseissues, sorted by size of the company and including an average for all SMEs ........ 140

Table 7.12: The most influenced groups by SMEs CSR activities*, sorted by size of the companyand including an average for all SMEs ..................................................................... 141


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Table 7.13: Degree how SMEs provide information about companys CSR activities*, sorted bysize of the company and including an average for all SMEs .................................... 142

Table 7.14: Major drivers for implementing socially responsible activities* towards externalcommunity, sorted by size of the company and including an average for all SMEs 144

Table 7.15: Major drivers for implementing environmentally responsible activities* towardsexternal community, sorted by size of the company and including an average for allSMEs ........................................................................................................................ 146

Table 7.16: Major benefits for SMEs arising from the support of socially responsible activities*aimed at external community, sorted by size of the company and including anaverage for all SMEs ................................................................................................ 148

Table 7.17: Major benefits for SMEs arising from the support of environmentally responsibleactivities* aimed at external community, sorted by size of the company and includingan average for all SMEs ........................................................................................... 150

Table 7.18: Major barriers for SMEs for implementing CSR activities (both social andenvironmental) towards external communities, sorted by size of the company andincluding an average for all SMEs ............................................................................ 152

Table 7.19: Future involvement of SMEs in external dimension of socially and environmentallyresponsible activities, sorted by size of the company and including an average for allSMEs ........................................................................................................................ 154


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List of Figures

Figure 1.1:

Pyramidal Structure of Corporate Social Responsibility ............................................. 12

Figure 1.2: The Continuum of Business Behaviour, from Corporate Social Irresponsibility toCorporate Social Responsibility .................................................................................. 15

Figure 1.3: Stakeholder Model ...................................................................................................... 19Figure 2.1: Two contrasting models of Corporate Social Responsibility ...................................... 26Figure 2.2: Division of enterprises in the EU according to their size (in % from total) .................. 47Figure 2.3: Division of enterprises in the EU according to number of employed persons, sorted

according to their size (in % from total) ...................................................................... 49Figure 3.1: Three Fundamental Levels of Corporate Social Responsibility .................................. 55Figure 3.2: Relations among cause related marketing, marketing, corporate community

investment, philanthropy, and Corporate Social Responsibility ................................. 69Figure 5.1: Hierarchical level of the person who filled out the questionnaire (in relative value) ... 96Figure 5.2: Percentage of SMEs involved in internal dimension of CSR in 2008, sorted by size of

the company including an average for all SMEs ...................................................... 105Figure 5.3: Percentage of SMEs involved in internal dimension of CSR in 2008, sorted by region

of the seat of the company including an average for all SMEs ................................ 105Figure 5.4: Percentage of European SMEs involved in external dimension of CSR in 2001, sorted

by size of the company including an average for all SMEs ...................................... 106Figure 5.5: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by size of

the company including an average for all SMEs ...................................................... 107Figure 5.6: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by region

of the seat of the company including an average for all SMEs ................................ 107Figure 5.7: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by sector

of the company including an average for all SMEs .................................................. 108Figure 5.8: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by

age/years of operation of the company including an average for all SMEs ............. 109Figure 5.9: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by

ownership structure of the company including an average for all SMEs .................. 109Figure 5.10:Percentage of SMEs involved in external dimension of CSR in 2008 based on ISO

Certification, sorted by size of the company and including an average for all SMEs 110Figure 5.11:Percentage of SMEs involved in external dimension of CSR in 2008 based on defined

corporate strategy and including an average for all SMEs ....................................... 111Figure 6.1: Percentage of SMEs with and without strategy for internal dimension of CSR in 2008,

sorted by size of the company and including an average for all SMEs .................... 118Figure 7.1: Percentage of SMEs that have received public support (incentive/subsidy) for their

external dimension of CSR during last 3 years, sorted by size of the company ...... 134Figure 7.2: SMEs plans regarding participation in external dimension of CSR for the next three

years, percentage of all SMEs .................................................................................. 154Figure 8.1: Three levels and four areas of corporate social responsibility ................................. 156Figure 8.2: Diagram how to implement corporate social responsibility concept in SMEs in ten

steps ......................................................................................................................... 162


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Figure 8.3: Example of a list of stakeholders associated with four different areas of corporatesocial responsibility ................................................................................................... 164

Figure 8.4:An explanation and overview of the roles played by the stakeholders throughout thefour stages of the CSR implementation process ...................................................... 166

Figure 8.5: Stakeholder influence and dependency matrix (the so-called Stakeholder Matrix) . 167Figure 8.6: Examples of interests of different types of key stakeholders in corporate social

responsibility key issues ........................................................................................... 169Figure 8.7: Examples of tools and techniques a company can use for stakeholders engagement

.................................................................................................................................. 170Figure 8.8: Examples of key company (corporate) values .......................................................... 172Figure 8.9: Examples of companys corporate social responsibility objectives categorized into

four CSR areas ......................................................................................................... 173Figure 8.10:Examples of specific corporate social responsibility activities that are related to the

accomplishment of planned corporate social responsibility objectives .................... 174Figure 8.11:Examples of indicators used for the evaluation of results of a companys corporate

social responsibility activities .................................................................................... 175Figure 8.12:Examples of reported results of the companys corporate social responsibility

activities .................................................................................................................... 177Figure 8.13:Examples of improvement measures for the companys corporate social responsibility

activities .................................................................................................................... 181


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Corporate Social Responsibility in Small and Medium-SizedCompanies in the Czech Republic

Doctoral Candidate:David PolekDoctoral Advisor: Dr. Cesar Duch, Ph.D.

CZECH MANAGEMENT INSTITUTE PRAHA

Faculty of Management of

ESCUELA SUPERIOR DE MARKETING Y ADMINISTRACIN BARCELONA

Abstract

This dissertation paper focuses on corporate social responsibility (CSR) in small and

medium-sized enterprises (SMEs) operating in the Czech Republic. Theoretical part

provides an overview on CSR including definition of CSR, history and development of

CSR in the Czech Republic, Europe, and in other parts of the World, characteristics of

CSR in SMEs, levels and dimensions of CSR, CSR initiatives, and essentials of

measurement and reporting on CSR. This part also summarizes recent global, European

and Czech surveys on CSR. Practical part was motivated by the ambition to extend thepresent research outcomes on CSR through the authors own survey exclusively oriented

on SMEs operating in the Czech Republic. Authors own research explores specifics of

internal and external dimensions of CSR in SMEs operating in the Czech Republic and

presents interesting and valuable conclusions. The paper concludes that CSR in SMEs

operating in the Czech Republic has been well rooted, nevertheless it lacks strategic

dimension. The practical part also provides a general guide to responsible business

(introduction of engagement concept, how to implement CSR in Czech SMEs), which

includes steps, how to identify and apply principles of corporate social responsibility inmicro, small, and medium-sized companies.

Key words: corporate social responsibility (CSR), external dimension of corporate

social responsibility, internal dimension of corporate social responsibility,

small and medium-sized company (SME), stakeholders


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Declaration

I declare that this thesis is my own work and has not been submitted in any form for

another degree or diploma at any university or other institute of tertiary education.

Information derived from the published and unpublished work of others has been

acknowledged in the text, and a list of references is given. Used information sources and

background materials are quoted in the enclosed list of bibliography.

_______________________________

David Polek, M.B.A.10 October, 2009


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Acknowledgements

At the beginning, I would like to express my appreciation to Dr. Cesar Duch, PhD. for his

great advice during my doctoral research endeavour for the past one and a half year. As

my doctoral advisor and supervisor, he has constantly forced me to remain focused on

achieving my goal. His observations and comments helped me to establish the overall

direction of the doctoral paper and to move forward with investigation in depth.

Sincerely I would like to thank to Prof. Ing. Ji Dvoek, CSc., a former dean of the

Czech Management Institute Praha - Faculty of Management of Escuela Superior de

Marketing y Administracin Barcelona, who helped me to start my doctoral dissertation

and provided me with insight into managerial finance and business management during

his courses of these subjects.

I also thank to all teachers and staff from the Czech Management Institute Praha for their

support during my doctoral study.

Last, but not least, I would like to dedicate this thesis to my family, my fiance Jaroslava

Pibilov and son Adam, for their love, patience, understanding, and for allowing me to

spend most of the time on this thesis.


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Introduction

Businesses worldwide are increasingly worried about the impact of their business

activities on society. They also recognize that the world they live in presents a growingarray of demands, pressures and risks that are not signalled through markets or the

traditional political processes on which they have relied for a very long time. Thus, many

have implemented into their operation the so-called corporate social responsibility

(hereinafter also CSR) that aim to balance their operations with the concerns of internal

and external stakeholders such as employees, customers, suppliers and business

partners, labour unions, local communities, non-governmental organizations (hereinafter

also NGOs) and governments. By its very nature CSR is a complex, multiform

phenomenon emerging as the interface between enterprises and society. Social and

environmental consequences have started to being weighed against economic gains and

short-term profit against long-term prosperity by the businesses in order to maintain long-

term sustainable growth and development.

With growing sensitivity towards social and environmental issues and shareholder and

owner concerns that can be effectively addressed through internal and external

dimension of CSR, businesses are increasingly striving to become better corporate

citizens, i.e. appropriately grasping and implementing CSR concept.

But whilst many agree that CSR is the right thing for businesses to implement and follow,

proponents often grow uncomfortable when explaining the business case for doing

good. The costs associated with CSR programmes are clear but the positive correlation

with better financial performance is often hard to prove. In any case, proponents may

argue and are finding a solid ground that the objectives of CSR go beyond short-term

economic gains and are mainly focused on a long-term prosperity and sustainability of

enterprises.

It is also important to mention a significant role of governments in fostering social justice

and environmental protection and ensuring social development. Hence, we have to avoid

a tendency to replace role of the government with role of companies. In this respect CSR

should be seen as extra opportunity for companies in competitive markets. On the other

hand also companies can, and in the authors opinion should, undeniably complement

and supplement the efforts of governments at social and environmental development

because these matters concern all citizens, governments, entrepreneurs, companies,

and all kinds of organizations.

For Czech people as well as Czech companies, ethical and corporate social

responsibility issues are relatively new, when as less than two decades ago Czechs


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made the first half-hearted attempts in order to set up their own private businesses and

build their own careers as entrepreneurs after a fall of the communist regime at the end

of the year 1989. Since then corporate social responsibility has made a great progress

and found a solid ground amongst Czech companies and entrepreneurs.

This doctoral paper is focused on issues of corporate social responsibility in micro, small,

and medium-sized companies (hereinafter also SMEs) operating in the Czech Republic.

SMEs took the center of attention in this study since they form a backbone of the

European Unions economy, employ 67 % of European employees and create 57 % of

European value added. According to the Eurostat, there was registered around 23 million

enterprises in the European Union in 2005, of which 91,4 % formed micro, 7,3 % small,

1,1 % medium, and only 0,2 % large companies. According to the CEVRO Institute1,

SMEs in the Czech Republic employed more than 62 % of all employees and made more

than 53 % of value added in 2007.

Despite SMEs eminent position in the European economy, a majority of research and

professional literature were focused on CSR concept as such and on activities and

relations of large and multinational companies. This paper was motivated by the ambition

to extend the present research outcomes on CSR through an own survey exclusively

oriented on SMEs operating in the Czech Republic.

The investigations into the practice of SMEs utilizing to various degrees CSR concept

may serve, among others, as a rich source of information and suggestions for other, in

this respect, less developed SMEs that might decide to adopt or increase their

involvement in CSR. The paper did not attempt to provide SMEs with a detailed and

guaranteed list of CSR activities that would suit to each and every individual SME

company, since it is almost impossible to comprehend all specifics of each and every

company. Rather the paper concentrates on general principles and tried-and-true

approaches to CSR concept that can be grasped and used by Czech SMEs as a

springboard towards excellence in CSR. The paper also provides a guide to responsible

business, which includes ten steps how to identify and apply principles of corporatesocial responsibility in micro, small, and medium-sized companies. The author believes

the introduced CSR implementation concept can enrich Czech SME business community

and bring also competitive advantages for those SMEs, which would like to engage

themselves strategically in CSR or have already been involved.

The paper is divided into eight main chapters and each of them is further divided into

several subchapters. The theoretical background of CSR including a summary of recent

1CEVRO Institute is part of the CEVRO - Liberal Conservative Academy, officially registered in Prague in 1999. The

Institute is focused on education and lifelong enhancement of the knowledge and skills, free exchange of experience andknowledge on domestic and international levels, breaking through the barriers between political, academic,entrepreneurial, media and civil spheres as well as among various groups of the population.


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surveys on this topic forms the content of the first four chapters. The following four

chapters are focused on summarizing results of the authors own research and

introduction of engagement concept how to implement CSR in Czech SMEs.

The more detail structure of the paper is as follows. Chapter 1 consists of five main

subchapters and it defines concept of CSR including its historical and current

development, defines stakeholder concept and its relation to CSR and tries to explain

what CSR is not. Chapter 2 is divided into five main subchapters and it elaborates on

perspectives of CSR, particularly role of government in CSR, global dimension of CSR,

characteristics of CSR in Europe and Czech Republic, and corporate social responsibility

from SMEs perspective. Chapter 3 is composed of four principal subchapters, which

deal with three fundamental levels of CSR, internal and external dimension of CSR, and

six forms of corporate social responsibility initiatives, and provide general information on

evaluating and reporting on CSR. Chapter 4 consists of three main subchapters and it

presents a brief overview of surveys on CSR that were conducted in the Czech Republic,

Europe and worldwide between years 2002 and 2008. It has to be stressed that this

overview is not exhaustive and does not include all surveys that were executed in these

years. Chapter 5 is composed of three main subchapters, which describe methodology of

the authors own research on corporate social responsibility in Czech SMEs that forms

the pivotal part of this paper, and present general results of this research. Chapter 6 is

divided into five principal subchapters and it provides specific results of the authors own

research focused on internal dimension of CSR. Chapter 7 consists of six key

subchapters and it provides specific results of the authors own research focused on

external dimension of CSR. Chapter 8 is divided into two main subchapters and provides

a guide to responsible business including steps how to identify and apply principles of

corporate social responsibility in micro, small, and medium-sized companies. Finally,

Chapter 9 provides conclusions of the whole dissertation paper. At the end of the

dissertation paper part Bibliography offers a review of used information sources and

enclosed Appendix provides necessary supporting materials and information including aglossary of selected terminology.


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Chapter 1. Corporate Social Responsibility Concept

1.1 Def ini t ion of Corpo rate Social Respons ibi l i ty

1.1.1 Defining Corporate Social Responsibility

Defining Corporate Social Responsibility (hereinafter also CSR) has not been and will not

be an easy task as there the most likely will not be a generally agreed definition. There

seems to be an infinite number of definitions of CSR, ranging from the simplistic to the

complex ones, and a range of associated terms and ideas. In some cases the definition

has been distorted by researchers so much that the concept becomes morally vacuous,

conceptually meaningless, and utterly unrecognizable or CSR may be regarded as the

panacea, which will solve the global poverty gap, social exclusion and environmental

degradation.2

One of the key challenges in studying and implementing responsible business practices

has been the lack of commonly agreed definition of CSR. The term CSR is often used

interchangeably with others, including corporate responsibility, corporate citizenship,

business in society, social enterprise, sustainability, sustainable development, triple

bottom line, societal value-added, strategic philanthropy, corporate ethics, and in some

cases also corporate governance.3 There are also clear links between these terms and

those relating to socially responsible investments, community investing, social capital,and collaborative governance. In the business community, CSR is alternatively referred

to as corporate citizenship, which essentially means that a company should be a good

neighbour within its host community. The experts in each of these areas can offer sound

reasons, why their term is different from the others. However, it is not within the scope of

this dissertation to review all these different definitions and their mutual connections, but

to provide a summarized opinion on CSRs definition and its synonyms.

A solid ground for a modern definition of CSR can provide the United Nations Global

Compact's ten principles in the areas of human rights, labour, the environment and anti-corruption. These principles enjoy universal consensus and basically have been derived

from the Universal Declaration of Human Rights, the International Labour Organization's

Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on

Environment and Development4, and the United Nations Convention against Corruption.

2Thomas, G., Nowak, M. (2006), GSB Working Paper No.62, Corporate Social Responsibility: A definition, available at:

http://www.cbs.curtin.edu.au/files/GSB_Working_Paper_No._62_Corp_Social_Resp_A_definition_Thomas___Nowak.pdf3

Nelson, J. (2004), The Public Role of Private Enterprise: Risks, Opportunities, and New Models of Engagement,available at: http://www.hks.harvard.edu/m-rcbg/CSRI/publications/workingpaper_1_nelson.pd4 A short document produced at the 1992 United Nations Conference on Environment and Development and informallyknown as the Earth Summit. The Rio Declaration consisted of 27 principles intended to guide future sustainabledevelopment around the world.


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The Global Compact asks companies to embrace, support and enact, within their sphere

of influence, a set of following core values in the following areas:

Human Rights:

o Principle 1: Businesses should support and respect the protection of

internationally proclaimed human rights; and

o Principle 2: make sure that they are not complicit in human rights abuses.

Labour Standards:

o Principle 3: Businesses should uphold the freedom of association and the

effective recognition of the right to collective bargaining;

o Principle 4: the elimination of all forms of forced and compulsory labour;

o Principle 5: the effective abolition of child labour; and

o Principle 6: the elimination of discrimination in respect of employment and

occupation.

The Environment:

o Principle 7: Businesses should support a precautionary approach to

environmental challenges;

o Principle 8: undertake initiatives to promote greater environmental

responsibility; and

o Principle 9: encourage the development and diffusion of environmentally

friendly technologies. Anti-Corruption:

o Principle 10: Businesses should work against corruption in all its forms,

including extortion and bribery.5

Often quoted definition of CSR provides Philip Kotler. In his view, CSR is a commitment

to improve community well-being through discretionary business practices and

contributions of corporate resources6. A key element in his definition is the word

discretionary, which refers to a voluntary commitment a business makes in choosing and

implementing socially and environmentally responsible practices and making

contributions. The term community well-being, according to Kotler, includes human

conditions as well as environmental issues. Kotler also uses the term corporate social

initiatives to describe efforts under the CSR umbrella and offers the following definition:

Corporate social initiatives are major activities undertaken by a corporation to support

social causes and to fulfil commitments to corporate social responsibility.6Causes that

5The United Nations Global Compact Office (2008), Corporate Citizenship in the World Economy, available at:

http://www.unglobalcompact.org/docs/news_events/8.1/GC_brochure_FINAL.pdf6

Kotler, P., Lee, N. (2005), Corporate Social Responsibility Doing the Most Good for Your Company and Your Cause ,New Jersey, USA, page 3-4


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can be supported through these initiatives are those that contribute to: (a) community

health, safety, education, and employment; (b) the environment; (c) community and

economic development and other basic human needs.

Sir Geoffrey Chandler, a former Shell executive, defined CSR as transparent business

practices that are based on ethical values, compliance with legal requirements, and

respect for people, communities, and the environment.7 Thus, beyond making profits,

companies are responsible for the totality of their impact on people and the planet.

People in Chandlers definition constitute the companys stakeholders.

The International Labour Organization (ILO) described on its website CSR as a way in

which enterprises give consideration to the impact of their operations on society and

affirm their principles and values both in their own internal methods and processes and in

their interaction with other actors and further specified CSR as a voluntary, enterprise-

driven initiative, which refers to activities that are considered to exceed compliance with

law8.

The European Union drew up its own definition of CSR. The Green Paper of the

European Commission published in 2001 provides basically two definitions of CSR. In

the introduction it is stated that corporate social responsibility is essentially a concept

whereby companies decide voluntarily to contribute to a better society and a cleaner

environment. Further in the Paper CSR is described as a concept whereby companies

integrate social and environmental concerns in their business operations and in their

interaction with their stakeholders on a voluntary basis.9

Whereas moral philosophers such as for instance Scot David Hume, Immanuel Kant, A.

J. Ayer tend to approach term responsibility as a quality of human conduct, the EUs

concept of CSR can be understood as an attempt to reconcile the freedom of companies

with the quest for social, economic and environmental welfare. This approach is

supposed to contribute to sustainable development as defined by the Brundtland

Commission.

In European perspective CSR strengthens mutual trust and confidence betweenbusiness and society. The relationship between both can be qualified as a symbiotic.

Moreover, being socially responsible means not only fulfilling legal expectations, but also

going beyond compliance and investing more into human capital, the environment and

the relations with stakeholders.9

7U.S. Agency for International Development (2002), What is Corporate Social Responsibility? 8 Questions and Answers,

available at: http://www.rhcatalyst.org/site/DocServer/CSRQ_A.pdf?docID=1038

International Labour organization (2007), Corporate Social Responsibility, available at: http://www.ilo.org/public/english/employment/multi/corporate/index.htm9 European Commission Directorate General for Employment and Social Affairs (2001), Promoting a European frameworkfor corporate social responsibility, Green Paper (COM(2001) 366 final), available at: http://ec.europa.eu/employment_social/soc-dial/csr/greenpaper_en.pdf


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The European approach finds ground in real life. The experience with investment in

environmentally responsible technologies and business practice has suggested that

going beyond legal compliance can contribute to companies competitiveness. Going

beyond basic legal obligations in the social area, e.g. training, working conditions,

management-employee relations, can also have a direct impact on productivity. It opens

a way of managing change and of reconciling social development with improved

competitiveness. Nevertheless, CSR should not be seen as a substitute to regulation or

legislation concerning social rights or environmental standards, including the

development of new and appropriate legislation.

1.1.2 Corporate Social Responsibility from Broader Perspective

Closely related to corporate social responsibility and often quoted as its final objective isthe idea of sustainable development. The principle of sustainable development isnt too

old. In 1987 the Brundtland Commission10 offered its initial definition of Sustainable

Development, which is: "Development that meets the needs of the present, without

compromising the ability of future generations to meet their needs."11 In general terms,

sustainable development refers to large global problems, like population control, global

climate change, pollution of the environment, water shortage, and human rights issues.

Essentially, it's about systems and limits. Sustainability in the corporate context refers to

what corporations can contribute to solving these global problems. And one of the mostimportant means that a company can utilize in fighting global issues and directing

company to sustainable development is CSR concept.

Shortly after the idea of sustainable development became more rooted in the business

environment, the idea of sustainable growth has emerged. Today business world does

not speak about quantitative or qualitative growth, but rather about sustainable growth.

Lets quote Chad Hollidays, former Chairman and CEO of DuPont corporation, definition

of sustainable growth: As we think about the new century, we have determined that our

central focus must be on sustainable growth. By this I mean, we must create bothshareholder and societal value while we reduce our environmental footprint. And, this

must be viewed along the entire value chains in which we operate. Sustainable growth is

our operational definition of sustainable development. However, we believe business

10The Brundtland Commission, formally the World Commission on Environment and Development, named by its Chair

Gro Harlem Brundtland, was convened by the United Nations in 1983. The Commission was created to address growingconcern about the accelerating deterioration of the human environment and natural resources and the consequences ofthat deterioration for economic and social development. In establishing the Commission, the UN General Assemblyrecognized that environmental problems were global in nature and determined that it was in the common interest of all

nations to establish policies for sustainable development.11

World Commission on Environment and Development (1987), Report of the World Commission on Environment andDevelopment: Our Common Future, available at: http://www.un-documents.net/ocf-02.htm


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growth is every bit as essential in this equation as is sustainability. In the 21st century,

we will not have one without the other. Economic growth will remain a central element of

successful corporations and successful societies, but the environmental aspect of growth

in the future must be different than in the past.12

Anthony Corsano, holder of the Ernst & Young Metro New York Entrepreneur of the Year

2008 Award, sees corporate responsibility in part of every business decision the

company makes. Corsano argues, Whether its analyzing energy consumption to reduce

carbon footprint, or simply improving the communities in which employees work,

behaving like a good corporate citizen is critical to creating a sustainable business

model. Regarding benefits, he adds: It saves money, it engenders employee loyalty, it

attracts better employees and in every way it makes us a better business.13 According to

Corsano, business managers have to include into their decision-making process CSR

aspects as well in order to make their business sustainable, i.e. survive in constantly

changing, developing and sometimes hostile business environment.

Some authors use instead of the term Corporate Social Responsibility the collocation

triple bottom line to describe CSR from a broader perspective. However, in my opinion

and in opinion of other authors, the phrase triple bottom line relates more or less to

reporting only than to the whole CSR agenda. According to John Elkington, author of the

book Cannibals With Forks and the inventor of the term, triple bottom line (or in other

words "People, Planet, Profit") captures an expanded spectrum of values and criteria for

measuring organizational (and societal) success: economic, environmental and social. In

practical terms, triple bottom line accounting means expanding the traditional reporting

framework to take into account environmental and social performance in addition to

financial performance.14

1.2 Histor ical Developm ent of the Corpo rate SocialRespon sib i l i ty Concept

1.2.1 Era Preceding Current Concept of Corporate SocialResponsibility

The desire to create positive social change in the corporate world is not necessarily a

new phenomenon, although current social, political, economic, and ideological conditions

inflect it in specific ways today. Questions regarding the nature, scope, and impact of

12Chad Holliday (2000), Business Growth and Sustainability Challenges for the New Century, Chairman and CEO of

DuPont, at the Nikkei Ecology Magazine Anniversary Symposium of the Global Roundtable on Environment and Business,Tokyo, available at: http://www.wbcsd.ch/includes/getTarget.asp?type=d&id=ODg5NQ13

Anthony Corsano (2008), Speech: On the Right Thing to Do, CEO of Anvil Knitwear, Inc., Available at:

http://www.bsr.org/resources/BW_2008CSRSection.pdf14

Brown, D., at al. (2006), Triple Bottom Line: A business metaphor for a social construct, Document de Treball nm.06/2, available at: http://www.recercat.net/bitstream/2072/2223/1/UABDT06-2.pdf


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organizations have been present in various forms for centuries, ranging across the

classical, medieval, mercantile, industrial, and corporate eras. Although seldom

acknowledged, the corporate form and the modern labour union both grew out of late

medieval guilds.15

An important milestone in the history of CSR was an Industrial Revolution (late 18th and

19th centuries) and industrialization in 19 th and 20th century generally. In that time large-

scale corporations began to emerge with their activities increasingly affecting their

communities, society, and environment. This fact evocated and intensified debates on

the appropriateness of their actions. As the result of these debates new legislations

became enacted regulating formation of trusts, use of child labour, labour safety, etc.

As the reaction to the public critics on system of factory labour, industrialists developed

industrial welfare programmes that provided education, recreation, and socialization of

workers, and were seeking to produce simultaneously good workers and good citizens.

One such pioneer was Robert Owen, who in the early 1800s set up a series of social

villages around his textile mills in Scotland. These villages catered for the education of

employees and their children as well as providing health care, food cooperatives,

banking facilities and leisure activities. The doctrine of Owenism became so popular

that it was soon exported across the Atlantic to the USA where similar practices were

introduced in a number of cotton farms.16

Together with origins of CSR was also striving for its place in everyday business the

philosophical study of moral values and rules - ethics. The idea of ethics in business is

not new. It can be traced back to 19th century philanthropists, such as the early socialist

entrepreneur Robert Owen, as already mentioned, and various Quaker-owned

businesses.17, 18

In 1920s Henry Ford believed he ought to pay his workers enough to afford to buy the

cars they produced. That policy appeared to place him at disadvantage, since the wages

and job security at his plants were well in excess of the norm in the auto industry at the

time. But his decision ultimately benefited Ford Motor Company by making it an attractiveemployer and by stimulating demand for its products.19 Nevertheless, what is more

important, at the same time, Fords move benefited wider society by raising the bar for

15May S., Cheney G., Roper J., (2007), The debate over corporate social responsibility, Oxford University Press, Oxford,

page 416

Kreis, S. (2004), Lectures on Modern European Intellectual History (Robert Owen) , available at:http://www.historyguide.org/intellect/owen.html17

The Religious Society of Friends is a movement that began in England in the 17th century. Members of this movementare informally known as Quakers.18

Hopkins, M. (2003), The Planetary Bargain Corporate Social Responsibility Matters, Earthscan Publications, Ltd.,

London, page 2419

Martin, R. (2002), The Virtue Matrix: Calculating the return on Corporate Responsibility, in Harvard Business Review onCorporate Responsibility (2003), Boston, page 89


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pay and labour practices across the auto industry. Thus, perhaps unwittingly, Henry Ford

used simple CSR tools without ever knowing anything about CSR concept.

Hand in hand with the above mentioned development, economic theories also moved

forward from Adam Smiths rule of invisible hand of the market and preference of profit

above people via the Alfred Marshalls theory categorizing economics as a moral

science enrooted in ethics20 to Elton Mayo emphasizing social and psychological factors

and their impact on work and also to Peter Drucker stating that profit is not the primary

goal, but rather an essential condition for the company's continued existence. The

business theorist of Norwegian origin, Thorsten Veblen, wrote about the concept of

enterprise accountability back in the 1920s in his widely quoted book, The Engineers and

The Price System.21 Another father of early corporate social responsibility theory was the

German economist Karl William Kapp who published his most acclaimed work, The

Social Costs of Private Enterprises in the 1950s, in which he openly criticised the lack of

social and environmental conscience of American enterprises.22

1.2.2 Modern History of Corporate Social Responsibility

Even though CSR has to be understood and explained as a compact complex

encompassing both internal and external dimensions and social and environmental

aspects, for a better understanding this subchapter is divided into two streams social

and environmental. Such separation finds also support in an underlying fact that socialand environmental issues had a little different historical development and they were not

always seen as two sides of the same coin.

1.2.2.1 Social Aspects of Corporate Social Responsibility

The 1950s saw the start of the modern era of CSR when it was more commonly known

as social responsibility. In 1953, Howard Bowen published his book, Social

Responsibilities of the Businessman, and is largely credited with coining the phrase

corporate social responsibility and is perhaps the father of modern CSR. Bowenadvocated that CSR was industrys obligation to pursue those policies, to make those

decisions, or to follow those lines of actions which are desirable in terms of objectives

and values of society.23 Bowen took a broad approach to business responsibilities,

20Perrieni F., et al., (2006), Developing Corporate Social Responsibility A European Perspective, Edward Elgar

Publishing, Inc., Northampton, page 1-221

Metrovi, S.G. (2003), Thorstein Veblen on Culture and Society, e-book by Google, available at:http://books.google.com/books?id=-EcqVNbTfIEC&hl=cs22

On-line (2008), Biographical Information K. William Kapp, available at: http://www.kwilliam-kapp.de/index.html23 Bowd, R., et al. (2003), CSR A Schools Approach to an Inclusive Definition: Setting the Scene for Future PublicRelations and Communications Research, Centre for Corporate and Public Affairs, Manchester Metropolitan University,available at: http://www.cipr.co.uk/groups/special/csrnetwork/special16e_3.htm


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including responsiveness, stewardship, social audit, corporate citizenship and

fundamental stakeholder theory.24

Another thinker, management guru Peter Drucker was one of the first to explicitly

address CSR, including public responsibility as one of the eight key areas for business

objectives developed in his 1954 book, The Practice of Management. While Drucker

believed that managements first responsibility to society involved making a profit, he felt

it was also most important that management consider the impact of every business

policy and action upon society.25

Bowens and Duckers as well as others conceptions were based on classical Greek

philosophy represented by Socrates and Plato. Particularly relevant is Socrates opinion

that managers should treat with entrusted property, as it was their own.26

A landmark in modern CSR was 1971 when the Committee for Economic Development27

(hereinafter also CED) in the USA published the report Social Responsibilities of

Business Corporations. As a code of conduct, the CED outlined a three-tiered model of

CSR:

The inner circle: the basic responsibilities an organisation has for creating profit

and growth;

The intermediate circle: an organisation must be sensitive to the changing social

contract that exists between business and society when it pursues its economic

interests; and

The outer circle: the responsibilities and activities an organisation needs to

pursue towards actively improving the social environment.28

Theoretical improvement of CSR concept ensured economist Carroll. He categorised

CSR along four layers, which he labelled economic, legal, ethical and discretionary

responsibilities. The four classes reflect that the history of business suggests an early

emphasis on the economic and then legal aspects and a later concern for the ethical and

discretionary aspects. In 1991, Carroll first presented his CSR model as a pyramid, as

shown in Figure 1.1: Pyramidal Structure of Corporate Social Responsibility on the

following page. It was suggested that, although the components are not mutually

exclusive, it helps the manager to see that the different types of obligations are in a

24Thomas, G., Nowak, M. (2006), GSB Working Paper No.62, Corporate Social Responsibility: A definition , available at:

http://www.cbs.curtin.edu.au/files/GSB_Working_Paper_No._62_Corp_Social_Resp_A_definition_Thomas___Nowak.pdf25

Thomas, G., Nowak, M. (2006), GSB Working Paper No.62, Corporate Social Responsibility: A definition, available at:http://www.cbs.curtin.edu.au/files/GSB_Working_Paper_No._62_Corp_Social_Resp_A_definition_Thomas___Nowak.pdf26

Xenophon (380 BC), Economics, available at: http://www.perseus.tufts.edu/cgi-bin/ptext?doc=Perseus%3Aabo%3Atlg%2C0032%2C003&query=init.27

The Research and Policy Committee of the Committee for Economic Development was a consortium of business

leaders, academics, consultants, and government leaders who called for re-examination of businesss role in society.28

Sbarcea, K. (2007), The evolution of CSR, available at: http://thinkingshift.wordpress.com/2007/03/27/the-evolution-of-csr/


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constant tension with one another.29 Very important is that the model has been

empirically tested and largely supported by the findings and that it incorporates and gives

top priority to the economic dimension as an aspect of CSR.

Even though CSR is well rooted in todays business environment, CSR had in its modern

history and still has opponents. One of the most influential opponents was famous

economist Milton Friedman who advocated 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, which is to say,

engages in open and free competition without deception or fraud.30

Figure 1.1: Pyramidal Structure of Corporate Social Responsibility

Source: Figure based on lecture of Bakhsheshy, A. (2007), Corporate Citizenship, Social Responsibility,Responsiveness, and Performance, available at: http://home.business.utah.edu/mgtab/BS-02.ppt

Even though Friedman was a strongly against CSR concept, today, we can extend his

famous opinion on CSR and in this way transform his disapproving view. Important

words in his definition of staying within the rules of the game in 1970 extended only to

the basic free market principles, but nowadays the list of rules of the game would bemuch longer. Societys expectations of business increase every year, and no firm can

hope to be successful without taking into account of those expectations - whether it is a

reduction in pollution, detailed contents labelling, or additional health benefits.31 The

frameworks that have built up around CSR can help companies to make sense of these

29Visser, W. (2005), Revisiting Carrolls CSR Pyramid: An African Perspective , available at: http://www.waynevisser.

com/chapter_wvisser_africa_csr_pyramid.pdf30

Friedman, M. (1970), The Social Responsibility of Business is to Increase its Profits , The New York Times Magazine,

available at: http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html31

Cooper, S. (2007), CSR Milton Friedman was right, available at: http://www.bathconsultancygroup.com/documents/CSR%20-%20Milton%20Friedman%20was%20right.pdf


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expectations, and achieve a balanced approach to their responsibilities. A lot has

changed since Friedman wrote his article. Today, companies are learning they can

increase profits as a result of their CSR efforts, not despite them.

1.2.2.2 Environmental Aspects of Corporate Social ResponsibilityHuman beings do not only assimilate with their surroundings but actively adjust them

according to their needs. The intensity and kind of such an influence followed the

development of civilization (e.g. invention of iron enabled to make tools enabling

agriculture in less convenient areas). These human beings actions had both positive

and negative impact. Thomas Robert Malthus (1766-1834) ranks among the pioneers

investigating the disproportion between the growth of population and available natural

sources. With growth of pollution, extinction of some species, and appearance of other

environmental problems more scientists and politicians started paying attention to theproblematic and realized, the problems are not only on the local level but have global

character (e.g. R. Carson in book Silent Spring (1962), General Secretary of the United

Nations U Thant).

The establishment and work of the association called the Club of Rome in 1968 meant

a significant step in the environmental problematic, crossing boundaries by including

more than 30 scientists from 10 countries into the project. Foundation stone to the

environmental politics was laid in 1972 in Stockholm at the 1st United Nations

Conference on the Human Environment (also known as the Stockholm Conference).32

The formulation of the idea of sustainable development is considered as the most

important conclusion of United Nations activities in 1970 th and 1980th. The United

Nations was aware that the global progress cannot be stopped but must meet the needs

of the present without compromising the ability of future generations to meet their own

needs.33 Sustainable development can be conceptually broken into three constituent

parts: environmental sustainability, economic sustainability and socio-political

sustainability. Further United Nations summits concluding in more or less successful

results followed:

Earth Summit in Rio de Janeiro in 1992 concluding Rio Declaration on

Environment and Development, Agenda 21, Convention on Biological Diversity,

Forest Principles, Framework Convention on Climate Change.34

32United Nations Environment Programme (1972), Report of the United Nations Conference on the Human Environment,

available at: http://www.unep.org/Documents.Multilingual/Default.asp?DocumentID=9733

United Nations General Assembly Resolution 42/187 (1987), Report of the World Commission on Environment and

Development, available at: http://www.un.org/documents/ga/res/42/ares42-187.htm34

Kvasnikov, D., et al. (1998), Environment, Complementary Text to Basics of Ecology, Fragment, Havlkv Brod,page 6-7


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Earth Summit in Johannesburg in 2002 adopting the Johannesburg Declaration

that built on earlier declarations made at Stockholm in 1972, and in Rio de

Janeiro in 1992.

Traditionally, environmental protection has been considered to be in the public interest

and external to private life. Governments have assumed principal responsibility for

assuring environmental management, and have focused on creating and preserving a

safe environment. They have directed the private sector to adopt environmentally sound

behaviour through regulations, sanctions and occasionally, incentives. When

environmental problems have arisen, the public sector has generally born the

responsibility for mitigation of environmental damage. In this approach, some have

contended that unrestricted private sector behaviour has been considered as presenting

the environmental problem. However, the roles of sectors have been changing, with the

private sector becoming an active partner in environmental protection. Many

governments and businesses are now realizing that environmental protection and

economic growth are not always in conflict.

An earlier emphasis on strict governmental regulations has ceded ground to corporate

self-regulation and voluntary initiatives. As a result the environmental aspect of CSR can

be defined as duty to cover the environmental implications of the companys operations,

products and facilities; duty to eliminate waste and emissions; duty to maximize the

efficiency and productivity of used resources; and duty to minimize practices that mightadversely affect the enjoyment of the countrys resources by future generations.35

Today in the global economy, where the Internet, the news media and the information

revolution shine light on business practices around the World, companies are more

frequently judged on the basis of their environmental stewardship. Increasingly business

partners, governments and consumers want to know what is inside a company. This

transparency of business practices means that for many companies, environmental

aspects of CSR, are no longer a luxury but a requirement.

1.3 What Corpo rate Social Respons ibi l i ty Is Not

What CSR is has already been stated above and in a more detail is further elaborated in

subsequent chapters. However, sometimes CSR is misconstrued or wrongly understood

or mistaken for sole corporate philanthropy or elementary compliance with the law. An

important question in this respect is what CSR is not. What CSR is not can be grouped

35Mazurkiewicz, P. (2004), Corporate Environmental Responsibility: Is a common CSR framework possible?, available at:

http://siteresources.worldbank.org/EXTDEVCOMSUSDEVT/Resources/csrframework.pdf


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into two main areas or clusters: social irresponsibility and misuse or sole usage of some

CSR tools (or initiatives).

1.3.1 Corporate Social Irresponsibility

As CSR is sometimes difficult to define, business managers some while looked at the

problem in terms of what companies should not to do, i.e. corporate social

irresponsibility. According to J. S.Armstrongsdefinition, a socially irresponsible act is a

decision to accept an alternative that is thought by the decision maker to be inferior to

another alternative when the effects upon all parties are considered. Generally this

involves a gain by one party at the expense of the total system.36

As Armstrong suggested, a key element of corporate social irresponsibility is the

exploitation of negative externalities. The externality is situation in which the private costsor benefits to the producers or purchasers of a good or service differs from the total

social costs or benefits entailed in its production and consumption. An externality exists

whenever one individual's actions affect the well-being of another individual, and can be

either positive or negative.37 Innovation is an example of a positive externality, fitting

within notions of CSR that focus on benefits of commercial activity accruing to society.

But negative externalities are also an inevitable reality of commercial activity. Negative

externalities effectively transfer companys costs to unwilling or unwitting recipients,

benefiting the company at the expense of the total system.

Figure 1.2: The Continuum of Business Behaviour, from Corporate Social Irresponsibility toCorporate Social Responsibility

Source: Based on Clark, T. S. (2008), What CSR is not: Corporate Social Irresponsibility, Critical Management StudiesConference of University of Southern California, available at: http://group.aomonline.org/cms/Meetings/Los_Angeles/Workshop08/tsc.doc

36Armstrong, J. S. (1977), Social Irresponsibility in Management, Journal of Business Research, (September, 1977),

available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=649087#37

Johnson, P. M. (2005), Externality, A Glossary of Political Economy Terms, available at:http://www.auburn.edu/~johnspm/gloss/externality


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It has to be stressed that a border between CSR and corporate social irresponsibility is

vague. On the other hand a border between legal and illegal actions and behaviour can

be defined usually precisely.

However, as Figure 1.2: The Continuum of Business Behaviour, from Corporate

Social Irresponsibility to Corporate Social Responsibility on the previous page depicts,

behaving in accordance with the law does not necessarily mean behaving responsibly. It

only means behaving legally. Corporate social responsibility is more as it goes beyond

the common framework of the law.

Another example of social irresponsibility is insistently sticking to stockholder model

without considering any other interest groups and environment. The stockholder role

advocates that the manager distributes rewards to maximize the returns to the

stockholder. Since the market is generally imperfect, decisions to maximize the benefits

to the stockholder can often be accomplished at the expense of the other interest groups.

Consider the case of air pollution; the local community provides a resource (clean air) to

the company and, in return, it receives dirty air. The stockholder gains in this transaction,

and the local community loses. As a result, the manager following the stockholder role is

encouraged to take action that will reduce the effectiveness of the free market. The

stockholder role encourages the manager to create situations where one party gains at

the expense of another.

In contrast to the stockholder role, the stakeholder role suggests that the manager

serves more masters, more interest groups. The manager is responsible not only to

shareholders but to more interest groups. Thus market imperfections can be overcome

and a company can behave responsibly not only to shareholders but to a specific set of

interest groups and environment.

1.3.2 Misuse and Sole Usage of Some Corporate SocialResponsibility Tools

Similarly as irresponsible behaviour pure philanthropy is not CSR. Corporatephilanthropy is an integral part of CSR but definitely not CSR as such. Companies that

are generous in their giving, in their philanthropic activities do not necessarily have to be

also socially responsible. CSR goes beyond philanthropy as it is a part of corporate

strategy defined by the top management and implemented through