Corporate Stakeholder Responsibility

Editor's Note: The following article was written by David Chandler, Assistant Professor of Management and Co-Director of the Managing for Sustainability Program at the University of Colorado Denver. David is an expert on Corporate Social Responsibility (CSR) and stakeholder theory -- related fields in management theory that focus on understanding the role and expectations of for-profit firms in society. He is also author of the Strategic CSR blog and co-author of Strategic Corporate Social Responsibility: Stakeholders in a Global Environment. This article draws on excerpts from the third edition of the book, which will be published in the Fall, 2013.

In this article, David argues that the concept of CSR should be expanded to include the responsibility of all stakeholders to hold firms accountable for their actions. From a Systems of Exchange perspective, his vision for CSR infuses the Price System's traditional business model with considerations that reflect the logics of the Moral and Communal Systems. He explains that firms can best meet the needs of their stakeholders, broadly defined, when stakeholders create a framework of market-based incentives for acceptable processes and outcomes. In this way, firms can pursue the instrumental goals of efficiency and profit maximization while attending to the substantive goals of their stakeholders. 


 

Who, exactly, is responsible for CSR? The focus of much of the CSR debate (and captured by the term ‘corporate social responsibility’) is the assumption that for-profit firms have a responsibility to pursue goals other than profit maximization. But, where does the motivation for socially responsible behavior come from?


Many CSR advocates urge firms to act proactively out of a social, moral, or ethical duty (Strategic CSR – Moral Limits). Critics talk about the social responsibility of corporations without realizing that, often, there are no meaningful consequences for firms that do not act responsibly. On the contrary, firms are often rewarded economically for not pursuing CSR. Should corporations act responsibly because they are convinced of the moral argument for doing so (irrespective of the financial implications of their actions) or should they act responsibly because it is in their self-interest to do so (Strategic CSR – Mandatory vs. Voluntary)?


Perhaps the CSR community expects too much of firms. Our understanding of markets suggests that firms react to change much more effectively than they initiate change. As such, if society decides it wants greater corporate social responsibility, then perhaps it is the firm’s stakeholders (and its consumers, in particular) that have an equal, if not greater, responsibility to demand this behavior. In other words, to what extent do a firm’s stakeholders have an obligation to help design the society in which they want to live and work? To what extent do stakeholders have a responsibility to demand specific actions by firms and, more specifically, be willing to sacrifice to some degree in order to get it? To what extent are we willing to subjugate our individual freedoms in favor of our obligations to the commonweal (Strategic CSR – Human Nature; Strategic CSR – Rights vs. Responsibilities)?


The idea of Corporate Stakeholder Responsibility shifts the focus of the CSR debate away from a responsibility that is borne solely by corporations, to a broader focus on the shared responsibilities of corporations and their stakeholders. This distinction is more than semantic. If society decides it does not want its jobs outsourced to low-cost economies, for example, then consumers must be willing to pay the higher prices that result from protecting domestic jobs. Equally importantly, they also need to be willing to punish those firms that continue to source abroad by shopping elsewhere. Incorporating an understanding of corporate stakeholder responsibility into the debate leads to a broader definition of CSR.

 
Corporate Social Responsibility
A view of the corporation and its role in society that assumes a responsibility among firms to pursue goals in addition to profit maximization and a responsibility among a firm's stakeholders to hold the firm accountable for its actions.
 

Firms that provide services that are not in demand will adapt or fail. With CSR, as with most aspects of business, the market does not reward firms for being too far ahead of the curve. If consumers, for example, demonstrate a willingness to pay a price premium for CSR behavior (rather than reporting in surveys that they think firms should be more ethical, but basing their purchase decisions mainly on price), firms will adapt quickly. If, on the other hand, firms produce products that consumers are unwilling or unable to purchase, the best intentions in the world will not stop those from going bankrupt (see: Strategic CSR – Jevons Paradox).


There is no incentive for firms to introduce a CSR perspective that fails to align their interests with those of their stakeholders. Even more pertinent, what should we expect firms to do when stakeholders demand non-socially responsible behavior? What should firms do if consumers want to purchase a product that is not only bad for them (e.g., tobacco, alcohol, or fast-food), but is also bad for society (e.g., has greater health or resource implications)? What should they do when consumers’ primary concern is the lowest price to the exclusion of all other concerns, such as the conditions in the factories where the product is made? If firms can be successful without implementing a CSR perspective, does this mean that CSR does not matter? Or, does it mean that the primary responsibility to ensure socially optimal outcomes lies more with the firms’ stakeholders than with the firms themselves? If consumers began demanding specific minimum standards from firms and took their custom elsewhere if they failed to comply, firms would be forced to change their practices and change them quickly. How can we expect businesses to implement CSR proactively, when doing so means they have to try and interpret their consumers’ intentions—stated opinions that often contradict the criteria those same consumers use to make their purchase decisions? Rather than conspicuous consumption, we need informed consumption (Strategic CSR – Conspicuous Virtue).


The strategic argument for CSR assumes that firms act most effectively when they are incentivized to do so. It assumes that firms are conservative—that they are most responsive to external stimuli and are less able to initiate change proactively when there is little evidence that their actions will be rewarded in the marketplace. It assumes that companies are much better at reacting to market sentiment than predicting future market patterns. Importantly, it assumes that CSR maximizes both economic and social value when the firm’s goals and society’s expectations are aligned (Strategic CSR – FREE ‘free markets’). This is achieved most directly when all stakeholders act to demand specific actions from firms. It is true for employees who refuse to work for abusive employers; it is true for suppliers and distributors that promote transparency and accountability throughout the supply chain; it is also true for governments that introduce effective legislation and then enforce it uniformly; and it is true for NGOs that work with firms to secure mutually beneficial outcomes, while reserving the right to campaign against those firms that fail to respond to reasonable demands.


At present, discussions around CSR focus almost exclusively on the responsibilities of businesses, while ignoring the responsibilities of stakeholders. In contrast, I believe there is a dual responsibility that is essential for CSR to introduce meaningful change. The first responsibility lies with companies to meet the needs and demands of their stakeholders, broadly defined. It is in firms’ best interests to do this because it helps secure the legitimacy necessary for long-term survival. The second responsibility lies with stakeholders to hold firms accountable for their actions. If stakeholders are unwilling to hold firms to account, only a small percentage of firms will alter their behavior sufficiently. If we are going to talk about a corporate social responsibility (the responsibility on firms to act in accordance with stakeholder needs) and, in particular, if we are going to talk about the business case for CSR, we also need to be talking about corporate stakeholder responsibility (the responsibility on a firm’s stakeholders to hold that firm to account). Both aspects of responsibility are equally essential to the extent that, without one, we are unlikely to see enough of the other.


This expanded definition of CSR does not absolve firms of responsibility, but elevates the responsibility of their stakeholders. It recognizes that for-profit firms add considerable social value in producing products and services that are in demand. It also recognizes that the relationship between firms and society is symbiotic and, as a result, the responsibility to ensure socially responsible outcomes is shared. To the extent, therefore, that all stakeholders (and especially consumers) remain vigilant, educate themselves about specific issues, and are willing to act against firms that fail to meet expectations, meaningful change regarding CSR is more likely. In the same way that we deserve the politicians we vote for, we also deserve the companies we purchase from. This stakeholder emphasis is often absent from the CSR debate. Yet, in terms of CSR advocacy, more would be achieved that much faster if an equal emphasis was placed on corporate stakeholder responsibility as on corporate social responsibility.