Philanthropy, CSR and the Social Responsibility of Business

Over the next couple of weeks, we’ve asked our writers (and guests) to respond to the question "What is the Social Responsibility of Business?”  Please comment away or contact us if you’d like to offer an opinion.

The discussions about the social responsibility of business tend to focus on the ethical and economic aspects of this issue. We explore, for example, the business case for CSR, looking to find out if CSR makes sense not just morally but also financially. Yet, the problem is that CSR has a relatively vague definition, and as a result many times we call different things by the name CSR.

For example, corporate philanthropy is mistaken many times for corporate responsibility. But it is not the same, or to be more accurate, it is just one dimension of CSR, and frankly not the one we should be concentrating on when we talk and debate about the social responsibility of business.

So what should we be talking about when we talk about the social responsibility of business? To understand that, let’s try to figure out what CSR means and why it doesn’t equal philanthropy. I like to use the classification Prof. Geoffrey P. Lantos presents in his paper, The Ethicality of Altruistic Corporate Social Responsibility. Based on Archie Carroll’s four-part definition of CSR, Lantos offers three different types of CSR:

1. Ethical CSR: Morally mandatory fulfillment of a firm’s economic responsibilities, legal responsibilities, and ethical responsibilities.

2. Altruistic CSR: Fulfillment of an organization’s philanthropic responsibilities, going beyond preventing possible harms (ethical CSR) to helping alleviate public welfare deficiencies, regardless of whether or not this will benefit the business itself.

3. Strategic CSR: Caring corporate community service activities that accomplish strategic business goals.

Lantos is not the only one to make such a classification of CSR. Prof. Michael Porter provides a similar mapping, although unlike Lantos he sees the different classifications more as phases of development rather than just different types of CSR.  Porter explains that business’ first response to societal issues was philanthropy (altruistic CSR in Lantos’ terms). It was a place to start, but corporations learned that philanthropy is not enough. The next phase, according to Porter, was CSR, which he says is more than just philanthropy – it includes philanthropy, but also involves compliance with community standards (ethical and legal), citizenship activities (companies looking to be good corporate citizens) and moving towards sustainability (in Lantos' terms, it would equal ethical CSR).

In a broader sense, Porter explains, companies learned a lot from the process (moving from philanthropy to CSR) and have done a lot of good, but ultimately, there’s a next phase – creating shared value. While philanthropy and CSR were really more about taking resources from the business and deploying them to do other worthy social jobs, shared value is about capitalism itself, he adds, or in his words: “creating economic value by creating a societal value.”  This is similar to Lantos’ strategic CSR, although Porter takes a more fundamental strategic approach.

So basically we can describe CSR on three levels: philanthropic, basic (good citizenship/prevent harm) and strategic. Interestingly though, when you look at the debates around the social responsibility of corporations you see that basic and strategic CSR are not addressed as much as philanthropy. One example is the debate between Milton Friedman, Whole Foods' John Mackey, and Cypress Semiconductor's T.J. Rodgers that was published on Reason.com in 2005, where they argue about CSR, but refer mostly to philanthropy and whether it has a business-added value or not.

Mackey argues that “there can be little doubt that a certain amount of corporate philanthropy is simply good business and works for the long-term benefit of the investors.” Friedman replies that “Whole Foods Market's contribution to society…is to enhance the pleasure of shopping for food. Whole Foods has no special competence in deciding how charity should be distributed. Any funds devoted to the latter would surely have contributed more to society if they had been devoted to improving still further the former.”

The fact that philanthropy is so often mistaken for CSR is probably because it was the most common strategy businesses utilized to do good for many years. In addition, many of the basic CSR strategies, especially the early ones, looked more like acts of philanthropy. Yet, the fact is that the business world is changing and shifting its focus towards basic and strategic CSR (we still have more of the former, but the attention is right now on the latter).

Prevention of harm and integration of societal improvement into economic value creation are the key tactics business uses nowadays to redefine its relationships with society, not the donation of five percent of its profits. We should remember that the next time we’ll wonder about the social responsibility of companies.

Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the New School, teaching courses in green business, sustainable design and new product development.