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56 Torleiv Bilstad

4 Corporate social responsibility

The economic and institutional

responsibility of business in society

Bjørn-Tore Blindheim

Introduction

The oil and gas industry is expanding its activities in the Arctic. Corporate activ-

ity in the region has the potential to affect Arctic societies both positively and

negatively. According to the Arctic Human Development Report (2004: 10),

Arctic societies today face an:

unprecedented combination of rapid and stressful changes involving environ-

mental processes (e.g. the impacts of climate change), cultural developments

(e.g. the erosion of indigenous languages), economic changes (e.g. the emer-

gence of narrowly based mixed economies), industrial developments (e.g. the

growing role of multinational corporations engaged in the extraction of natural

resources), and political changes (e.g. the devolution of political authority).

A fundamental question is what responsibility the oil and gas companies have

to address such challenges, which are all, in some way or another, tied together as

challenges of sustainable development.

Since the 1950s, the role of business in, and the responsibility of companies

towards, society has increasingly been addressed through the concept of corporate

social responsibility (CSR). The idea of social responsibility has its modern roots

in the work of Berle and Means (1932). They documented a separation of owner-

ship from control in large United States (US) corporations, thus resulting in a:

small (managerial) group, sitting at the head of enormous organizations, with

the power to build, and destroy, communities, to generate great productivity

and wealth, but also to control the distribution of that wealth, without regard

for those who elected them (the stockholders) or those who depended on

them (the larger public).

(Mizruchi, 2004)

In line with Berle and Means’ concern that increased corporate and managerial

power could harm public interests, early definitions of CSR were tied more to

society’s interests than to those of the firm. As such, CSR built upon moral ideas

about the primacy of human interests over corporate ones and the desire to

modify many of the negative consequences of corporate power – environmental

degradation and poisoning, unhealthy products, inhumane workplaces, and more

(Logsdon and Wood, 2002). In 1953, Bowen defined CSR as the obligations of

businessmen to pursue those policies, to make those decisions, or to follow those

lines of action that are desirable in terms of the objectives and values of society.

Later, Davis (1973) defined CSR as the firm’s consideration of, and response to,

issues beyond its narrow economic, technical and legal requirements to accom-

plish social benefits, along with the traditional economic gains that the firm

seeks. Crane and Matten (2004) argue that probably the most established and

accepted conceptualization of CSR is the ‘four-part model of corporate social

responsibility’ initially proposed by Carroll (1979), who suggested CSR as a

multi-layered concept that can be differentiated into the four interrelated aspects of

economic, legal, ethical and philanthropic responsibilities. Carroll and Buckholtz

(2000) define CSR as ‘the economic, legal, ethical, and philanthropic expectations

placed on organizations by society at a given point in time’. The concept later

evolved into different approaches, covering other related terms such as social

responsiveness (Frederick, 1987), corporate social performance (Wood, 1991), the

stakeholder approach (Freeman, 1984), corporate citizenship (Crane and Matten,

2004), the ‘triple bottom line’ approach (Elkington, 1994, 1997) and corporate

sustainability (Marrewijk, 2003). In other words, CSR may be understood as an

umbrella term covering economic, social and environmental issues (Welford,

2003), wherein the relationship between business and society is studied.

Today, the idea that CSR may promote complex societal challenges and the

common good seems well established (Pogutz, 2007). Internationally influential

organizations, particularly the United Nations (UN), the European Union and the

World Bank, depict a positive relationship between CSR and sustainable develop-

ment, and point towards how CSR may promote a sustainable development path.

For example, the Brundtland Report (1987) stated that: ‘Industry’s response to

pollution and resource degradation has not been and should not be limited to

compliance with regulations. It should accept a broad sense of social responsibil-

ity and ensure an awareness of environmental considerations at all levels’ (World

Commission on Environment and Development; WCED, 1987: 222). In a similar

vein, the 2002 Report of the World Summit on Sustainable Development (WSSD)

held in Johannesburg, South Africa, stated that the business sector – pursuing its

legitimate activities – has a duty to contribute to the evolution of equitable and

sustainable communities and societies. On this background, the report calls for

enhanced CSR and accountability. In summary, at both the international and

national levels, CSR policy is developed in the context of an acceptance of CSR

as an important contributor to the wider goal of sustainable development

(Buckland, Albareda, Lozano et al., 2006).

As I will argue, the contemporary discourse and conceptualization of CSR lies

largely within what may be called the ‘social activist’ (Brummer, 1991) or ethical

(Garriga and Melè, 2004) approach to CSR, implying an expanded and radical role

of business in society, compared to the more classical economic or functionalist

conceptualization of the role of business in society. My argument is that such an

58 Bjørn-Tore Blindheim

Corporate social responsibility 59

approach to CSR – postulating a positive impact on broader societal interests and

sustainable development, based upon companies’ and managers’ voluntary efforts

to address social misery – may in fact contribute to the opposite, which is to

undermine a sustainable development path. As such, this chapter offers a critical

look at CSR and its ability to further societal interests, and I agree with Blowfield

(2005) about the limits to what can be expected of business and its contribution

to the common good. On this background, I suggest a conceptualization of CSR

that both takes seriously the basic aim of every business organization (making

profit), and acknowledge the need for ‘a political order where economic rational-

ity is circumscribed by democratic institutions and procedures’ (Scherer and

Palazzo, 2007: 1097) in order to promote corporate responsible behaviour.

Towards a ‘radicalized’ role for business in society?

Since the time of Berle and Means (1932), Bowen (1953), and Davis (1973), the

field of CSR has grown significantly and today contains a great proliferation of

approaches. Several typologies and classifications have been suggested to bring

some order into the business in society literature (e.g. Frederick, 1987, 1998;

Carroll, 1999; Garriga and Melè, 2004). In order to discuss the contemporary

discourse and agenda of CSR, and in order to frame my own conceptualization of

CSR, I chose to build on the work of Brummer (1991). He suggested that the

spectrum of approaches to CSR could be ordered in the classical, stakeholder,

social demanding and social activist approaches to CSR.

Corporate social responsibility – from ‘business as usual’ to

managers as social and moral leaders

The classical approach to CSR, which can also be framed as arguments against CSR,

comes in two different variants. Building on classical Parsonian pluralism (Parsons,

1951), it could be argued that other institutions in society – like political institutions

and civil society institutions – exist to perform the types of functions required by

social responsibility (Jones, 1999). The functional theory argument largely defines

CSR along the same economic dimension as identified by Friedman (1962). His

property rights argument against CSR – above what is profitable – has its roots in

classical capitalism. This perspective maintains that managers have no right to act

other than to enhance shareholder value. To do otherwise constitutes a violation of

the management’s legal, moral and fiduciary responsibilities. In sum, the social

obligations of business are confined to satisfying legal and economic criteria.

Contrary to the classical perspective, the stakeholder perspective suggests that

responsibilities of a business extend beyond shareholders to include the

company’s stakeholders. In general, stakeholder theory is focused on those interests

and actors who affect, or in turn are affected by, the corporation (Freeman, 1984).

Stakeholders can be defined as persons or groups with legitimate interests in

procedural or substantive aspects of corporate activity (Donaldson and Preston,

1995: 67). It is their interests in the corporation that identify the stakeholders,

60 Bjørn-Tore Blindheim

whether or not the corporation has any corresponding functional interest in

them. Freeman’s stakeholder theory asserts that managers must satisfy a variety

of different individuals or groups in or outside the corporation. This could be

a ‘primary’ stakeholder like the providers of capital, customers, employees

and suppliers, but also more ‘secondary’ stakeholders like governments, local

community organizations, indigenous people and non-governmental organizations

(NGOs). Stakeholder theory implies that it can be beneficial for the firm to

engage in certain CSR activities that stakeholders define as important. Otherwise,

stakeholders might withdraw their support from the firm.

The social demandingness approach holds that corporations are responsible to

carry out those activities that society (not just stakeholders) demands and expects

of them. A foundational idea is that, since business depends on society for its

existence and growth, business should integrate social demands and expectations

into its activities so that they operate in accordance with the prevailing social

values. As such, the approach is inherently relativistic: It does not state any

specific action that corporations and their managers are always responsible to

perform. The actual content of CSR is dependent both upon time and place, that

is, what society currently defines as their societal responsibility.

In contrast to the social demandingness approach to CSR, the social activist

approach to CSR holds that universal standards or values should determine

corporate and managerial decision-making and action, independent of the view of

shifting coalitions of stakeholders or expectations from society at large. Brummer

(1991: 190) summarizes the social activist approach to CSR in the following way:

It (the social activist approach to CSR) holds that executives are responsible

for pursuing social or moral goals from voluntary motives, even when doing

so compromises the firm’s profit performance (at least in the short term).

Corporations or their members are required to perform acts that benefit share-

holders, stakeholders, and the general public, both in the primary areas of their

business decision making (where the direct effects of their actions are more

likely to be noticed) and in secondary and tertiary areas as well (where the

indirect effects become more prominent). Last, in considering the interests

and welfare of others, corporate executives are to respond to the formers’ ideal

or rational interests rather than merely their expressed or current interests.

The degrees of responsibility assigned to businesses and companies in the

different approaches to CSR are summarized in Figure 4.1:

Limited

responsibility

Expanded

responsibility

Classical Stakeholder Social demandingness Social activist

Figure 4.1 The degrees of responsibility assigned to business in different approaches

to CSR.

Corporate social responsibility 61

The arrow pointing towards the right indicates increasing degrees of responsi-

bility towards society, from limited to expanded responsibility. The classical

approach to CSR falls closest to the left end of the arrow (‘the only responsibil-

ity of business is to make profit’), while we find the social activist approach at

the other end of the spectrum (‘corporate managers as moral and social leaders’).

As I will argue below, much of the contemporary discourse, agenda and concep-

tualization of CSR seems to fall within the social activist approach to CSR,

depicting not only an expanded role for business in society, but also an alterna-

tive model of societal governance that may have the potential to undermine the

institutional conditions for sustainable development.

The contemporary discourse and agenda of CSR: towards a

radicalized role of business in society and an alternative model of

societal governance?

A common feature between the classical, stakeholder and social demandingness

approaches to CSR is that the limit of business’ responsibility towards society is

largely set with the companies’ primary, and to some degree, secondary sphere of

influence or area of decision-making. Today, there is clear evidence that the CSR

agenda is widening to also encompass business responsibility for the more indi-

rect effects of their operations, or to their tertiary sphere of influence, more in line

with the social activist approach to CSR. While early definitions of the concept

emphasized that social responsibility was about minimizing the negative impact

of corporate activities on society (Blowfield, 2005), several organizations today

see CSR as a positive contribution to development and a possible answer to

complex societal challenges. The scope of CSR has been broadened to include

not only aspects of corporate conduct that impinge on social, environmental

and human rights issues, but also the role of business in relation to poverty

reduction in the developing world and to questions of development, in general

(Prieto-Carròn, Lund-Thomsen, Chan et al., 2006). This development agenda

is, for example, a very important part of the best known and largest CSR initia-

tive, the ‘United Nations Global Compact’ (Global Compact, 2005: 8), which

explicitly points towards business responsibility beyond business’ direct sphere

of influence:

By developing and implementing policies in the four areas of the Global

Compact – human rights, labour, the environment and anti-corruption –

companies are, by definition, contributing to the process of sustainable

development. In addition, by forging partnerships with other stakeholders,

businesses have the opportunity to scale up action within and even beyond

their direct sphere of influence. The full integration of the ten principles,

particularly in low-income countries ... can make companies a driving force

for development.

Similarly, the World Bank defines CSR as the ‘commitment of business to

contribute to sustainable economic development, working with employees, their

families, the local community and society at large to improve their quality of life,

in ways that are both good for business and good for development’ (Ward, 2004).

Clearly, working with employee’s families, local community and the society at

large goes beyond how the relationship between business and society has been

depicted in the past, and what has been considered as the primary responsibility

and function of business. The role of the manager is not only to be a business

leader, but – as emphasized by the social activist approach to CSR – to assume

the role of social and moral leader. As stated in a report about the role of business

in society from the World Business Council for Sustainable Development

(WBCSD, 2006: 11): ‘the challenges for business are to understand the roots and

nature of poverty ...’. The expanded CSR agenda is not only a reality in words and

definitions, but also in corporate practice. For example, oil companies now help

to build schools and hospitals, launch micro-credit schemes for local people and

assist youth employment programmes in developing countries (Frynas, 2005).

‘Social investments’ constitute part of the total activity plan for social responsi-

bility activities for the Norwegian oil and gas company Statoil, although they

define development projects and social investments as outside the company’s area

of responsibility (Statoil, 2005). According to the company’s sustainable develop-

ment report (Statoil, 2005: 61), the projects supported by Statoil aim to build

local capacity, promote human rights and transparency, and improve local condi-

tions relating to health, safety and the environment. In 2005, Statoil’s social

investments totalled about US $8 million and included projects in 11 countries.

One of the projects that received support in 2005 was the Akassa development

project in the Niger Delta. Initiated in 1997, this project covers activities in the

areas of abolition of poverty, local capacity building, environment, infrastructure

and institutional capacity development. Under these headings, Statoil has

contributed to establishing – among other things – micro-credit loans, health

stations and pharmacies, nursery schools, educational units, and the building of

bridges and schools.

In a survey of global leaders in business, civil society and the media, Nelson,

Hodges, Deri et al. (2005) found evidence that development issues today are

firmly on the CSR agenda, both in the minds of business leaders and in company

practice. All of the business leaders in the study reported that their companies are

actively involved in supporting the local communities in which they invest and

market their products and services. On the question of what kinds of development

project were seen as most promising or important for business to perform, the

respondents from the private sector identified the companies’ capacity to create

jobs and build local businesses as the essential foundation for long-term development,

and the area where business could contribute the most or make the most impact.

Issues like ensuring environmental sustainability, training the country’s local

workforce, tackling bribery and corruption, investing in infrastructure, promoting

gender equality and empowering women, were also considered as important areas

62 Bjørn-Tore Blindheim

Corporate social responsibility 63

where business should play a role. Further down the list, but also recognized as

important areas where business could and should make a contribution, came

issues like combating human immunodeficiency virus/acquired immunodefi-

ciency syndrome (HIV/AIDS) and other diseases, investing in higher education

and new technology, and fostering universal primary education. Interestingly, all

respondents reported heightened expectations from society in general of the role

that business can and should play in development challenges.

Although there were concerns that the expectations placed upon business often

put too much faith in the ability of business to solve development challenges,

respondents from all groups agreed that development issues will and should play

an increasingly important role in corporate strategy in the future. Nelson, Hodges,

Deri et al. (2005: 21) note that: ‘As globalization continues, the private sector will

continue to expand into emerging markets around the world, and corporations

will consequently assume greater responsibility for the well-being of those to

whom they market their products and services’.

Together, the development from understanding CSR as being about minimizing

the negative impact of corporate activities on society, to understanding it as

a positive contribution to societal development where corporate managers take

on the role as social and moral leaders, not only fits the social activist approach

to CSR, but also indicates that a new and alternative model of societal gover-

nance is emerging. Buckland, Albareda, Lozano et al. (2006: 7) argue that the

rise of CSR must be understood in the context of the new globalized economy

and a crisis in the welfare state. This has led people and governments to look

for ‘new ways of developing and funding collective action to deal with social

demands that cannot be met by the state alone such as poverty, unemployment,

lack of economic development and social exclusion of key groups’. An important

point is that the expanded CSR agenda is seen not only as the ‘solution’ to

development challenges in the developing world, but also as a framework within

which new ways of collaboration and partnership between business, governments

and civil society are used as a mechanism for developing new models of gover-

nance to address the major social problems faced by post-industrial societies

(Buckland, Albareda, Lozano et al., 2006). In a similar vein, Salin-Andersson

(2006) argues that CSR must be understood as a mobilization of corporate

actors to assist the development aid to states. This trend, she argues, is one in

which corporations are seen as complementing and sometimes replacing states

as the primary structures and shapers of the world, implying a more active role

for business in society than before. Matten and Crane (2005) argue that compa-

nies today are involved in the administration of citizen’s civil, social and political

rights, an area and responsibility normally considered to lie within the sphere

of politics and government. Moon, Crane and Matten (2005) have suggested

two ways in which companies share in governing: first by contributing to socie-

tal governance issues outside the firm, often in partnerships with governmental

or non-governmental organizations; and, second, by administering rights within

the normal operations of the companies.

While the new global ‘soft-law’ regulatory regime of CSR may be understood

as a criticism of corporations, the trend of corporations as ‘development agen-

cies’ does not reflect such criticism, but rather builds on the view of corporations

as strong and legitimate players in building a ‘global welfare state’ (Salin-

Andersson, 2006). For example, Dunfee and Hess (2000) argue that ‘private firms

are uniquely positioned to provide significant relief to the misery that pervades

the developing world’ and that private firms have a ‘competitive advantage’ over

nation-states and NGOs in the provision of aid. Then the question becomes: what

is the potential outcome of such a ‘radicalized’ role of business in society?

My argument – outlined in the next section – is that it may contribute to under-

mining and not promoting societal interest and sustainable development. It may

do so by undermining what can be called the institutional conditions for sustain-

able development.

The potential impact of CSR on sustainable development

The question I address in this section is how CSR may impact on society in

general and on sustainable development in particular. An analysis of the relation-

ship between CSR and sustainable development is, however, full of complica-

tions. Although sustainable development has regional and local implications (see

Chapter 2), it is first and foremost a macro-level concept and its challenges are

global in character. CSR, on the other hand, operates at the micro-level and, as

argued by Zadek (2001: 122), has to do ‘with keeping an organization going and

at best doing some good in the process and not too much harm’. Further, we do

not know enough about the system to understand the critical aspects of the rela-

tionship between the decisions and activities of a business organization and its

impact on the whole (Zadek, 2001). Understanding what decisions and actions

really make a contribution to sustainable development in the long run is – on this

background – not easy. Still, our argument is that the very foundational ideas and

the expanded agenda of CSR may undermine what can be called the institutional

condition for sustainable development.

The institutional condition for sustainable development

In this book, we mainly build on the interpretation of sustainable development as

suggested by the Brundtland Report (WCED, 1987) (accounted for in length in

Chapter 2), which identified economic prosperity, social equity and environmen-

tal integrity as the three principles that ground the concept. The direction towards

sustainability is, however, not easily identified. Being the result of an optimiza-

tion process for independent but interacting targets (i.e. economic development

and environmental protection), it necessarily does not have a single, clear-cut

solution, but includes a range of options to choose from (Spangenberg, 2002).

However, building on the Agenda 21 (UN 1993), Spangenberg (2002) suggests

that sustainable development not only has economic, social and environmental

dimensions, but also an institutional dimension, important in its own right, that also

64 Bjørn-Tore Blindheim

functions as a condition to address the challenges within the other dimensions of

sustainable development.

In general, the institutional dimension of sustainable development (in econom-

ics referred to as ‘social capital’) covers the systems of rules governing the

interaction of members of society (Czada, 1995). As a condition for sustain-

able development, the institutional dimension provides the means for societal

decision-making, determining the form of economic and social activity, thus

also influencing the impact of social and economic activity on the physical

environment.

Building on the Brundtland Report (1987), and with respect to the institutional

requirements for sustainable development, public policy and the design of laws

may be characterized as perhaps the most important mechanism for obtaining a

sustainable development path. The Brundtland Report is very clear about the need

for increased state responsibility and legal means to address the challenges of

sustainable development (WCED, 1987: 330):

legal regimes are being rapidly outdistanced by the accelerating pace and

expanding scale of impacts on the environmental base of development.

Human laws must be reformulated to keep human activities in harmony with

the unchanging and universal laws of nature.

Corporate social responsibility: undermining the institutional

condition for sustainable development

Sustainable development rest on an institutional condition (Spangenberg, 2002): the

power and capability of the states and political institutions to shape and implement

national and international policy, laws and regulations for more sustainable forms of

development. CSR has the potential to undermine this condition. The central reason

is that CSR may imply increased power to business in society at the possible expense

of political and civil society power. At the same time, the foundational features of

capitalism may work against using this power to integrate broader social and envi-

ronmental considerations voluntarily in business decision-making and activity.

Corporate social responsibility: a defence against governmental

regulation and public criticism

Originally, and although early definitions of CSR were tied more to society’s

interests than to those of the firm, the concept never intended to serve broader

societal interests and the common good. Rather, the concept was intended to

protect business from criticism from civil society and against mandatory state

regulations. The origins of business and societal thinking and the concept of CSR

had two interconnected causes (Frederick, 1987). First of all, the late nineteenth

and early twentieth centuries were a time of intense concern and fear about the

economic and social consequences of the power of the giant corporations being

Corporate social responsibility 65

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