CHAPTER 1

SOCIAL RESPONSIBILITY FRAMEWORK

Appreciation

Ever wondered what the inherent connection between corporations and society is? It may be a
lingering question to you how these add up or work in the larger scheme of things. Let us welcome
you to the world of corporate social responsibility and corporate governance. Some may still be
foreign concepts, and even for some practitioners, this may always be a topic for polarizing views
and perspectives. In this book, we will uncover the whole schema of its importance and relevance
to our lives.

EXPLORATION

The Corporation

A corporation is a legal entity created by an individual or group of shareholders who have

ownership of the corporation (through shares of stocks issued by the corporation) to engage in
business activities. Monks and Minow (2011) defines a corporation as a structure established by
law to allow different parties to contribute to capital, expertise, and labor or the maximum benefit
of all them. Their ownership of the corporation is generally represented by their holding of
common stock(one share= one vote). Certain types of shares can have more voting rights or
dividend priority, as expressed in the company by laws. Not all corporations though are formed
with the objective of profit- making , such as charitable institutions, nonprofits, or
nongovernmental organizations (NGOs). But the majority of corporations are formed to provide a
return for their shareholders.

Since the inception of the corporation in the nineteenth century, they have been part of our daily
lives as we need the products and services from these corporations
(food, utilities, housing, and the like) to survive. It has been a popular form of business
organization because of four appealing attributes: limited liability, transferability of ownership,
legal personality, and centralized management (Clark, 1986, cited by Monks & Minow, 2011). In
cases of bankruptcy, owners of corporations may protect their assets from being foreclosed or
confiscated, and creditors can only recover debts incurred by the company through the liquidation
of remaining assets owned by the company. Individual liability is avoided.

Transferability allows a shareholder to sell his shares of stock in the market freely should he/she
decide to let go a part or all of his shares unless explicitly stated in the corporate bylaws

Corporations are legal entities and are sometimes defined as “legal persons.” Corporations are
allowed to perform functions that humans make, such as buying and selling properties, owning
copyrights, patents, trademarks, and engaging in any other business activities. Corporations have
an indefinite life span that can survive from generation to generation.
Lastly, corporations have the benefit of centralized management. An investor need not worry about
the company’s daily management and governance since these are under the jurisdiction of
executive managers and the board of directors. This also allows a company to operate efficiently
without having individual shareholders meddling with corporate affairs. Shareholders would
normally look at the stock price as a performance metric.

The Philippine Corporation

According to the 2019 Revised Corporation Code (RCC), there is no maximum number of
incorporators (directors) but shall not have more than 20, and each of the incorporators (directors)
must own at least one share of stock. Today, a corporation is granted a perpetual corporate term
(in lieu of the previous 50-year term). There is also the removal of the required subscribed/ paid-
up capital, and residency of incorporators was made to keep up with global standards. The most
significant change done was the introduction of the One Person Corporation (OPC).

The RCC focuses on four areas of reforms: enhancement of ease of doing business ion the
Philippines; fortified stockholder protection and institutionalized corporate governance provisions;
emphasis on corporate social responsibility; and improved policies and regulatory corporate
framework.

Importance of Social Responsibility and Good Governance

The way a corporation conducts its business has profound effects on individuals in the
societies they operate.Corporations have continued to grow and can sometimes influence
government policy through political lobbying.Imagine a society where drinking water becomes a
problem when its water resources are being polluted companies dumping their waste into
lakes,rivers, and oceans or when you wake up one day to find out that the bank where you have
put all your savings into collapsed overnight.Who should be accountable? How do you, as an
individual member of society, contribute to good governance? At length in the succeeding
chapters, we shall be discussing the various ways in which stakeholders contribute or do their part
in addressing this issues.

Corporate Social Responsibility

Corporate social responsibility (CSR) is a manifestation of good corporate governance, a

complementary concept that we will be discussing more in-depth in Chapter 3.CSR is the
responsibility of companies to act and behave ethically to satisfy their various stakeholder needs.
It is an ongoing commitment of organization to ensure accountability to the stakeholders their
existence impacts. The foremost authority on this subject, professor Archie Carroll, views CSR
from four different perspective as illustrated on the next page.

Caroll (1991) provided four dimensions that provide a structure or framework that
characterizes companies responsibilities within societies:
 Economic - An expectation of profit is natural when shareholders form corporations. The
lowest layer of the pyramid suggests that companies must first be profitable after they have paid
their obligations to employees and suppliers, and conform to consumers need and demands. This
is the very foundation and required of all corporations.

Legal- A corporation is created through law and, as such, must abide by the rules and
regulations imposed for fairness and justice. Much like economic responsibilities, it is required for
companies to be legally compliant as well.

Ethical- Doing what is right for stakeholders is what ethical companies should aim for.
Society expects companies to take on this responsibility beyond what is required of them legally.
We will look into the concept of ethics in more detail in the next chapter.

Philanthropic- To fulfill this responsibility, companies need to truly embrace philanthropy,

meaning, issues that pertain to the improvement of human lives must be addressed without
compromise. This responsibility, however, is not required nor expected but rather desired by
companies.

A Brief History of CSR

CSR can be traced back to the industrial revolution when there was a growing concern for
the well-being of workers and its effect on their productivity. The industrial revolution was
responsible for the economic growth of nations. Still, the downside of industrialization that
contributed to social problems (such as increased poverty and unfair labor practices, among others)
became advocacy for reformers. CSR started as a philanthropic endeavor of successful
businessmen who wanted to do good through their donations to help the underprivileged. A rise in
nations wealth brought about an increase in philanthropists such as Carnegie and Rockefeller in
the United States.

CSR was officially introduced in the early 1950s though American economist and educator
Howard Bowen’s (1953) seminal work on social responsibility. Bowen paved the way for the
succeeding academic research and management practice of CSR as companies started to be more
aware of their social responsibility. In the 1980s and 1990s, more companies became more
responsive to the various stakeholders due to social activism. At the turn of the twenty- first
century, CSR has become an integral part of organizational strategy and rightfully, so companies
do not exist in a vacuum.

In the Philippines, CSR started as donations from various businesses in the 1960s.
Activities from this decade were unorganized and sporadic. The 1970s saw more coordinated
efforts between companies and intermediaries. The end of the Marcos regime in the 1980s saw
more coordinated efforts between companies and intermediaries. The end of the Marcos regime in
the 1980s and its adverse effects on the economy led to a closer collaboration between donors and
done es. CSR flourished in the 1990s as companies acknowledge their role as social catalysts. And
from the 2000s onward, CSR has become an essential part of a company’s identity (Roman, 2007).
Top companies started to approach CSR as an integrative strategic management tool. CSR now is
universally accepted norm of good corporate governance.
The Business Case

Economist Milton Friedman (1970) argued that the sole responsibility of corporations is to
generate profit for the shareholders and that it is the government’s responsibility to provide for
society’s needs. Friedman’s view on CSR may be considered archaic, given the growing empirical
evidence that corporations engaging in CSR actively increase their business, thereby creating more
value for the company.

In the study of CSR, the business case has been a long- standing argument in the academe
and practice. The business case for CSR refers to reasons why businesses should support and
accept the CSR agenda. By doing so, these companies will behave more responsibly. Supporters
of CSR espouse this because studies have shown a strong correlation between CSR and corporate
financial performance (Yusoff, Mohammad, & Darus, 2013; Torugsa, O’Donohue,& Hecker,
2012)

Drivers and Barriers of CSR

How can one strengthen the propagation of CSR? And what are some of the barriers it
needs to contend with for companies to embrace it fully?

Below is an illustration of the opposing forces of CSR:

Drivers:

Regulation - Regulation and law provide framework that companies must comply with.
This is in relation to the legal dimension of Caroll’s CSR framework discussed previously. For
instance, in China, CSR is no longer a voluntary act but is mandated by the central government
( Hudtohan & Zhang, 2018).

Market behavior- Benchmarks have been established because of companies best practices
that use CSR as a builder of reputation ; how the market behaves and influences; and how
companies engage in their respective CSR initiatives and have become a source of competitive
advantage.

Social activism- How stakeholders in society react and voice out their concerns to
corporations publicly through various means (such as social media, demonstrations, lawsuits, and
the like) have impacted how organizations behave. Social activism can either be internally or
externally driven, meaning companies do not necessarily have to respond to public clamor but can
internally drive change from within the organization.
Culture - Culture is a mixture of beliefs, norms, symbols, and the heritage that a particular
country or geographic area shares and practices. This is built over time and becomes part of its
normative values. For CSR and hood governance to thrive, a culture of benevolence and
philanthropy must be ingrained or deeply embedded in an organization.
 Strategy Perhaps the most significant driver of CSR is strategy. Integrating CSR is strategy.
Integrating CSR in its planning from the different functional areas of a company fortifies the
relationship and becomes a creator of value that benefits the corporation in the long term. It is also
important that the focus and objective of company’s desired CSR initiatives must be clearly
articulated to its internal (management) and external partners (beneficiaries/ intermediaries which
will be discussed in the next chapter).

Barriers:

Limited financial resources- As with Caroll’s economic perspective of CSR, a company

needs to be profitable and take care of its own needs before it has the ability and resource to engage
effectively in social responsibility. CSR requires a long-term stance in its commitment of resources
to truly see the benefits of its initiatives.

Profit maximization- A company that single- mindedly focuses on operational efficiency

is usually driven by profit maximization. According to Kolstad (2007), most executives support
the Friedmanian view of maximizing returns to shareholders despite the growing literature on
CSR’s positive effects on corporate financial performance, persistence, and acceptance of
maximizing profits act as barriers to CSR.

Availability of human resources- No matter how good the intentions are in promoting CSR
in organization, it will need efficient mobilization through employee involvement and
engagements in the programs. Without the support of human resources in its implementation, CSR
activities will be lackluster.

Measuring CSR

The purpose of measurement is to understand what is being measured better and lay the
groundwork for improvement. CSR is a management concept that is not easy to measure. Unlike
other functional areas where tangible measurements have been developed for quite some time,
market share, customer satisfaction, attrition rate, turnaround time, financial ratios, goodwill,
loyalty, and social/environmental impact are just some CSR concepts that cannot be accurately
measured. But all these intangibles can be translated into measurable variables that can provide
indications of relationship and outcomes. Measuring CSR provides several benefits, such as
helping organizations make better decisions on allocating resources with the greatest impact,
improving processes that will make CSR initiatives more efficient, providing more support for the
business case.

Kaplan and Norton’s (1996) Balanced Scorecard is an example of an integrated strategic

measurement system. Illustrated below is the authors’ framework by which companies can include
both tangible and intangible measurements that can identify if goals are met in each of the four
dimensions (financial, customer, processes, and learning and growth). Metrics must be carefully
identified for each objective. Application of this scorecard is also dependent on the specific need
or circumstance of a company and may be adjusted accordingly.
 Triple Bottom Line (also commonly called the three Ps: people,planet, and profit) is an
accounting framework that describes three evaluation perspectives that contribute to creating
greater value for the organization. The increasing pressure from the government and society to
manage and assess the results of their operations gave way to scrutinizing companies from their
economic (profit), social (people), and environmental (planet) impact (Elkington, 1998).

In recent years, with the growing emphasis on employee happiness and good corporate
governance, ideal results such as employees’ well-being, ethical behavior, another factors have
been considered as part of a company’s “bottom line”, and these contribute to multiple bottom-
line reporting. As human development continues to prosper in the future, the traditional look at the
bottom line (profit) is already a thing of the past.

Leadership

Leadership has a key role in influencing CSR. Both CSR and leadership are founded on
concepts of service, integrity, and inspiration to others. The relationship between them is mutually
empowering and transforming (Guarneri & Kao;2008). Employees and managers as members of
organizations are naturally concerned about, contribute, and react to their organization’s social
consciousness ( Rodrigo & Arenas, 2008), particularly to their leaders’ commitment to CSR.
Leader perceptions provide evidence regarding their CSR attitude and acts of the leaders can
trickle down to affect employees’ subsequent attitude, behavior, and actual engagement through
volunteerism.

A leader must also be able to communicate their CSR stories internally and externally
effectively. These stories through internal memos, press releases, social media, and others
contribute to companies’ reputation. Usually, large companies have a corporate communications
group to assist the leadership in their CSR efforts. It is therefore critical that whatever
accomplishments have been made by their initiatives and programs, have to be made known to the
various stakeholders for CSR to thrive and progress even further in the long term.

In a study by Ng and Rivera (2018), the Filipino concept of “kapwa” (fellowship) is

considered to be an essential component of effective leadership. Church and Katigbak (2002)
defines “kapwa” which “embraces both the categories of outsider’ (ibang tao), and pne of us’
(hindi ibang tao)” ( Enriquez, 1986, p. 16) and sparks genuine concern. The cultural basis of
Philippine CSR may be viewed from the concept of fellowship, which has parallel conceptual
foundations with leadership.

Future of Philippine CSR

“Corporate Social Responsibility has become integral for most companies as it becomes
an opportunity to wholly and directly engage stakeholders, creating shared value for both the
organization and the communities it serves. It goes beyond profit. It becomes about serving the
Filipino, and is clear reflection of the values that your company stands for. With the current global
trends on sustainability and community she is aware of the concept of CSR, and has a general idea
of how it works but needs guidance on how to start on her CSR journey in a meaningful and
sustainable manner. Mrs. Suntay also specifically wants to strategically approach her engagement
as she wants her company to continue to grow and help in national economic development.

Reflection

Questions for discussion:

1. What do you think were the reasons Mrs. Suntay is interested in participating in CSR? Relate
Carroll’s framework and/or leadership in your response.

2. Were should the CEO focus her CSR efforts? How should she prioritize her desired
engagements?

3. Does the TBL concept apply in the case of Storage Solutions? Why or Why not?

Action

Be Socially Responsible

1.You just graduated from the university and landed a job as a management trainee in a
multinational FMCG (fast-moving consumer goods) company. Write a personal plan on how you
can initiate your participation in the company’s CSR engagements.

2. As a senior executive (Corporate Communications) in a commercial bank, you were

asked by the CEO to take over the CSR program due to the resignation of the previous
manager. The bank is currently engaged in three different initiatives:

A. Planting trees as part of your environmental engagement in collaboration with a local

NGO

B. Providing free education for deserving scholars directly managed by your foundation

C. Participating in feeding programs for the poor in depressed areas, also in collaboration
with a local NGO