See

discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/4885487

The evolution of Corporate Social

Responsibility
ARTICLE in BUSINESS HORIZONS FEBRUARY 2007
Impact Factor: 1.42 DOI: 10.1016/j.bushor.2007.06.004 Source: RePEc

CITATIONS

READS

94

553

1 AUTHOR:
Philip L. Cochran
Indiana University Bloomington
25 PUBLICATIONS 2,043 CITATIONS
SEE PROFILE

Available from: Philip L. Cochran

Retrieved on: 06 April 2016

Business Horizons (2007) 50, 449454

Available online at www.sciencedirect.com

www.elsevier.com/locate/bushor

EXECUTIVE DIGEST

The evolution of corporate social responsibility

Philip L. Cochran
Kelley School of Business, Indiana University, 801 West Michigan Street, BS 4049, Indianapolis, IN 46202-5151, USA

1. CSR: My, how youve grown (and

changed!)
Over the past several decades, corporate social
responsibility (CSR) has grown from a narrow and
often marginalized notion into a complex and multifaceted concept, one which is increasingly central to
much of todays corporate decision making. To the
extent that corporate social responsibility was even
discussed several decades ago, these discussions were
confined to a small group of academics.
Among the first academics to debate the topic were
Columbia professor Adolf A. Berle and Harvard professor E. Merrick Dodd, in a series of articles featured
in the Harvard Law Review. Whereas Berle contended
that managers were responsible only to a firms shareholders, Dodd argued that managers had a wider range
of responsibilities. In a classic exchange, Professor
Dodd (1932) asked: For whom are corporate managers
trustees? (p. 1145). Answering his own query, he
posited that corporate managers were responsible to
the public as a whole, and not just to shareholders.
The crux of Dodds argument was his contention
that, in addition to the economic responsibilities they
owed shareholders, managers had social responsibilities to society because the modern large firm is permitted and encouraged by the law primarily because it
is of service to the community rather than because it is
a source of profit to its owners (Dodd, 1932, p. 1149).
This reasoning became the intellectual basis for the
E-mail address: plcochra@iu.edu

assertion that firms have a corporate social responsibility. Although many other proponents of shareholder primacy still disagree, by 1954, Professor Berle
famously declared that the argument has been
settled (at least for the time being) squarely in favor
of Professor Dodds contention (Berle, 1954, p. 169).
During the 1950s and 1960s, the United States
witnessed the birth of the modern activist movements.
The modern civil rights movement gained momentum
with the 1954 decision of Brown v. Board of Education.
The environmental movement was at least in part
sparked by the publication of Rachael Carsons (1962)
Silent Spring. Some trace the beginnings of the
modern consumer movement back to the publication
of Ralph Naders (1965) first book, Unsafe at Any
Speed. The Vietnam War of the 1960s and early 1970s
swept these and other social movements together,
permanently changing the business environment in
America and the world by ushering in an era of activist
groups and NGOs that are concerned about businesses
and business practices, and which today often attempt
to focus media attention on business practices they
consider to be unethical or irresponsible.
Unwanted media attention can seriously tarnish
corporate reputation, which in turn can lead to
decreases in sales or employee dissatisfaction. If
firms do not react appropriately, this media attention
can also lead to unwanted legislation and regulation.
In todays business environment, executives must
either embrace corporate social responsibility or risk
serious consequences.
As a result, the focus of the debate changed in the
1970s from corporate social responsibility to

0007-6813/$ - see front matter 2007 Kelley School of Business, Indiana University. All rights reserved.
doi:10.1016/j.bushor.2007.06.004

450
corporate social responsiveness. Late in the decade,
William Frederick (1978) wrote a much cited working
paper entitled From CSR1 to CSR2: The Maturing of
Business-and-Society Thought, in which he noted
that firms were no longer simply involved in an
academic debate about the ethics of different
degrees of social responsibility. Instead, they were
pragmatically responding to various social pressures.
Thus, as various activist groups began applying media
and other pressures to firms, the firms were reacting
by changing products, policies, etc.
The term corporate social performance was first
coined by Sethi (1975), expanded by Carroll (1979),
and then refined by Wartick and Cochran (1985).
Basically, the idea behind corporate social performance is the recognition that firms do have ethical
obligations and that they must also respond pragmatically to social pressures. The range of appropriate responses has, however, grown dramatically
over the past several decades.

2. From philanthropy to strategic

philanthropy
One of the pioneering aspects of corporate social
responsibility was corporate philanthropy. Although
early capitalists such as Andrew Carnegie were
renowned philanthropists, their charitable activities
were pursued as individuals and not on behalf of
corporations. The era of modern corporate philanthropy, when corporations began giving for purposes
not directly related to immediate corporate benefit,
began in 1953 as a result of Smith v. Barlow. In this
decision, the New Jersey Supreme Court cleared the
way for A. P. Smith Manufacturing Company to donate
$1500 to Princeton University without violating shareholder interest (Burlingame, 2004, p. 104). Barlow
opened the floodgates of corporate philanthropy.
In the decades that followed, the gold standard
for corporate philanthropy was for firms to make
philanthropic contributions that would improve the
overall health of the larger society. This could include
donations to universities, local operas, or any other
worthy social service cause. One major tenet of this
phase of corporate philanthropy was that it be from
the heart, rather than focused on any clear business
or bottom line gain. In fact, there was a stigma
attached to activities that also produced benefits for
the firm. Many argued that activities that also enhance
the firms bottom line should not be seen as philanthropic, but viewed strictly as business decisions.
An important intellectual tipping point occurred
with the publication of an article in the Harvard
Business Review by Michael Porter and Mark Kramer
(2002), which built a powerful argument in favor of a

EXECUTIVE DIGEST
new type of corporate philanthropy. In this piece,
the authors noted that [i]n the long runsocial and
economic goals are not inherently conflicting but
integrally connected (p. 5). Further, they pointed
out that many economic investments have social
returns, and many social investments have economic
returns. Instead of trying to keep these two types of
returns totally separate, businesses should emphasize projects that have both significant financial and
social returns. Although Porter and Kramer applied
this principle to philanthropy, it could easily be
extended to virtually any form of CSR.
The authors cited the Cisco Networking Academy
as an example. Initially, Cisco contributed networking
equipment to schools in its region, basically as a
goodwill gesture. It soon became clear, however, that
these schools did not have the expertise to manage
the donated hardware. As such, some Cisco engineers
decided to help train involved teachers to maintain
the equipment, and soon students were taking these
classes, as well. At that point, Cisco realized there
was a significant demand for such training, with over
1 million unfilled IT jobs worldwide.
In response, the company ramped up the program
and began systematically offering it in more and more
schools. Then, at the urging of the US Department of
Education, they began to focus their academies in
economically challenged communities. When the
United Nations became interested, Cisco began
opening academies in developing countries. Within
five years, the firm had established nearly 10,000
academies and graduated over 115,000 students,
more than half of whom found employment in the IT
industry. Through the relatively minor investment of
$150 million, Cisco dramatically increased the pool of
trained network administrators. This benefited not
only the students who were trained in network
administration but also Cisco, by increasing the
number and quality of network administrators.
Porter and Kramer argue that firms should not
simply throw money at good causes. If a firm has no
competitive advantage in a given philanthropic area,
it is likely that any investment it makes in that area will
have little to no long-run impact. This concept is
similar to the business strategy of sticking to your
knitting, which Peters and Waterman (1982) described when they contended that firms should
concentrate on their core competencies and not be
distracted by other apparently interesting opportunities in which they have little to no expertise.
Instead, Porter and Kramer suggest that firms use
the basic fundamentals of corporate strategy to find
those philanthropic areas that not only benefit
society, but also benefit the firm. From this viewpoint, organizations should find social needs that align
with their particular expertise. For example, it would

EXECUTIVE DIGEST
seem to make little sense for a computer manufacturer to spend funds on building homeless shelters.
This is not to suggest that the computer manufacturer
should not engage in philanthropy, but rather that
when it does so, it should engage in an activity or issue
closer to its area of expertise. In this case, a computer
manufacturer might have a goal of providing free or
low cost computing solutions for the poor, and would
be wise to leave to a construction company the
charitable provision of sheltering homeless citizens.
Companies that focus on causes in their area of
expertise will almost certainly be more efficient at
addressing social needs. In fact, Porter and Kramer
suggest that firms should exploit this synergy
between the social and the economic, rather than
try to minimize it.

3. From investing to socially responsible

investing
The modern history of socially responsible investing
(SRI) can be traced back to the activist movements of
the 1960s and 1970s. The real boost to social investing
occurred in the 1960s, with the growing number of
boycotts of firms that were doing business in South
Africa. Although but one factor in the eventual collapse
of the white minority regime, this successful social
movement provided the model for similar movements.
The central idea behind social investing is that it is
possible for groups of individuals to have an impact on
the practices and policies of firms through market
mechanisms. By not purchasing or by selling the shares
of certain firms that are engaged in practices that the
stockholder finds objectionable, he or she can make a
small difference. Acting in unison, many stockholders
can make a major difference. This is similar to voting in
national elections: while it is very unlikely that any
single individual can make a difference, the sum of all
individuals can make a substantial difference.
Today, SRI is a large and sophisticated movement.
According to the Social Investment Forum (2006),
$2.29 trillion in assets was socially managed in 2005.
This represents nearly 10% of all managed assets.
Socially responsible investing entails following one
of three broad strategies: screening, social advocacy, or community investment.

3.1. Screening
Screened funds have either negative screens or
positive screens. Those with negative screens weed
out firms that produce objectionable goods and
services, or operate in distasteful industries or
countries. Such funds run the gamut and often
exclude firms that deal in tobacco, alcohol, gambling, defense, and nuclear power. In addition, they

451
might screen out firms that operate in countries with
human rights abuses or repressive regimes, or those
that are categorized as terrorist states.
Funds with positive screens invest in firms that
are viewed as socially responsible. Examples of such
organizations include Herman Miller, IBM, Timberland, and Starbucks, all of which tend to rank near
the top of the most recent lists of ethical and
socially responsible firms. They have policies and
practices lauded by the firms employees, customers, and other stakeholder groups.

3.2. Social advocacy

A second focus of socially responsible investing is
social advocacy. One example of social advocacy is
the Investor Network on Climate Risk (INCR). The
INCR is a network of over 60 institutional investors
that is concerned with climate change. It consists of
representatives from major institutional investors, a
number of states, and over 15 countries. What unites
this disparate group is the recognition that either
their investment portfolios or their beneficiaries are
vulnerable to the risks posed by climate change. The
INCR holds conferences, funds research, and advocates in the area of climate change. On occasion, it
will also lobby for climate change legislation.

3.3. Community investment

The final strategy of SRI is community investing.
Here, funds focus their investments in areas such as
non-profits, cooperatives, small businesses, community facilities, and affordable housing. The
principle behind community investment is to make
investments that will strengthen local communities.

4. From entrepreneurship to social

entrepreneurship
Social entrepreneurship is the process of applying the
principles of business and entrepreneurship to social
problems. Social enterprises are enterprises devoted
to solving social problems. The reason for their
existence is not to maximize return to shareholders,
but to make a positive social impact. One way to
envision social entrepreneurship is to picture how an
MBA might tackle a social problem. Presumably, an
MBA facing a social problem would be concerned with
how to finance the operations, market the product,
and organize the enterprise. She would be very
concerned about measuring outcomes. She would
recognize that it will be necessary to generate funds
in order to pay for the ongoing social investments.
One of the best known social entrepreneurs is
Professor Mohammed Yunus, who founded the field
of micro lending. Professor Yunus first experiment

452
in micro lending occurred in 1972, when he lent $27
to 42 families in rural Bangladesh so that each could
purchase a small inventory of items to sell for a
profit (Knowledge@Wharton, 2007). These loans
were subsequently repaid in full.
Following that and similar experiences whereby he
funded loans using his own money, Professor Yunus
founded Grameen Bank in 1976 as a trial to determine
whether it was feasible to systematically provide
credit and banking services without collateral to the
very poor (in his words, the poorest of the poor) in
developing countries. After several years of testing,
Grameen Bank was able to achieve an astounding
repayment rate of over 98% (Yunus, 2002). As of
March 2007, the institution had lent over $6.13 billion
(Grameen Bank, 2007), and earned a profit in all but
three years of its existence. Of critical significance is
that once loans are repaid to Grameen Bank, these
funds are recycled into the community by extending
more loans. For pioneering work in micro credit,
Mohammed Yunus and Grameen Bank were named
recipients of the 2006 Nobel Peace Prize.
Green Mountain Coffee represents another type
of social venture: it makes a profit, but at the same
time entertains a significant social mission. The
firm, which produces a variety of fine coffees, also
supports a wide range of social causes. The exclusive
roaster, seller, and distributor of Newmans Own Fair
Trade Certified coffees, Green Mountain gives at
least 5% of its pre-tax profits to a range of social
initiatives. In addition, Green Mountain Coffee has
been recognized by Forbes magazine as one of the
200 Best Small Companies in America.

5. From venture capital fund to social

venture capital fund
Supporting the growth in social ventures is a new type
of venture capitalist. Social venture capitalists not
only supply seed money to social ventures, but also
engage in a rigorous process of training future social
entrepreneurs. For example, Echoing Green has
supported over 400 social entrepreneurs, as Echoing
Green Fellows, in the fundamentals of social enterprise. Covering individuals for two year terms, the
company has invested $25 million in the program and
has seen its Fellows subsequently raise an additional
$938 million, representing a nearly 40-fold leverage
on the initial investment (Echoing Green, 2007).
Beyond providing seed money and training, Echoing
Green provides technical assistance, consulting help,
and networking opportunities.
Another social venture capital firm, Ashoka, was
founded by Bill Drayton. An early recipient of a
MacArthur Prize (sometimes referred to as the genius

EXECUTIVE DIGEST
grant), Drayton was in 2005 named one of Americas
top 25 leaders by US News & World Report. In 1980,
Drayton founded Ashoka with an initial investment of
$50,000. Today, Ashokas annual budget is in excess of
$30 million. Since 1981, the organization has named
over 1800 Ashoka Fellows from over 60 countries,
providing them with training, living stipends, and
networking opportunities (www.ashoka.org).

6. From an MBA to an MBA in CSR

A number of MBA programs have begun to focus on the
area of social responsibility and social entrepreneurship. For example, Indiana University now offers a
certificate program in Social Entrepreneurship for
graduate students. A joint venture of the Kelley School
of Business, the School of Public and Environmental
Affairs, and the Center on Philanthropy, the program
requires that MBA students (and others) take 18 credit
hours to prepare them to help solve social problems,
using courses from all three of these highly rated
entities.
In 1993, the Harvard Business School created an
Initiative on Social Enterprise. This plan supports
the creation, strategy, and management of social
enterprises; the governance of social nonprofit
organizations; corporate involvement in the social
sector; and social capital markets (Aisner &
Kavanagh, 1999). The Initiative on Social Enterprise
now consists of one required MBA course and seven
elective courses, involving over 40 faculty and more
than 300 students in this innovative program.
The CSR movement has now reached the point that
at least one MBA program, Nottingham University (in
conjunction with Nottinghams International Centre
for Corporate Social Responsibility (ICCSR)), grants a
degree in the field. This MBA in CSR examines the full
range of socially responsible organizations, from forprofit through public. Students apply principles of CSR
and business ethics through the spectrum of functional
courses. Ultimately, the program prepares individuals
for careers that will, at least in part, focus on CSR
issues.

7. Corporate social responsibility and

profitability
Several hundred academic studies have attempted
to analyze the relationship between corporate social
responsibility and profitability. A recent metaanalysis suggests the cost of having a high level of
corporate social responsibility is minimal and that
firms may actually benefit from socially responsible
actions (Wu, 2006, p. 168). This finding is similar to
results of earlier studies, such as Abbott and Monsen

EXECUTIVE DIGEST
(1979), and should not be surprising. Examining the
marketing or the research-and-development literature, like conclusions can be found. Although higher
levels of both marketing and R&D are often
associated with higher profits, the actual relationship is very difficult to parse out in empirical studies.
In fact, it is undoubtedly a function of the specific
industry and the environmental conditions faced by
any specific firm at any given point in time.
Nonetheless, it is possible to find mechanisms by
which CSR might enhance profitability by examining
the impact of social responsibility on various
stakeholders. It is important to understand this
does not mean that firms which engage in socially
responsible activities will always be more successful. It is rare when a single factor can explain why
any specific organization is successful or unsuccessful. In fact, the overall success of any organization is
a result of its entire portfolio of management
practices and policies, combined with industry and
economic conditions, plus a certain degree of luck.

7.1. Employees
Firms that have good employee relations are likely to
have significantly lower turnover rates and a substantially more enthusiastic workforce. Consider the fact
that, in 2007, Google was named by Fortune magazine
as the best company for which to work. In addition,
many would claim the firm is one of the most fun for
employees: it offers free meals, a spa, and free medical care on site (Fortune, 2007). Moreover, engineers
at Google are allowed to spend up to 20% of their time
working on projects of their own choosing. As a result
of all these perks, Google can choose from the best of
the best when hiring staff members; the company of
6000 employees receives over 1300 rsums a day.
With an exceptionally low turnover rate and very high
employee morale, factors such as these are likely to
enhance Googles bottom line over time.
In an important empirical study of this phenomenon, Turban and Greening (1997) demonstrated that
a firms CSP may provide a competitive advantage in
attracting applicants (p. 658). The authors went on
to argue that firms develop a competitive advantage
by being perceived as great places to work. Clearly,
Google falls into that category.

7.2. Customers
An excellent customer experience is a core element
for most successful firms. Howard Schultz, chairman of
Starbucks, argues that [w]ith more than 40 million
customers per week worldwide, Starbucks must
continually find ways to surprise and delight customers
by offering the highest quality products and services
(Business Wire, 2006). Customers who are delighted

453
are likely to be repeat customers. As a result,
Starbucks can charge five to ten times as much for a
cup of coffee than does the local convenience store, in
part due to the quality of the customer experience.

7.3. Governments
Strong government relations can also help companies
in a number of dimensions. For example, such firms
are less likely to see seriously onerous regulations
imposed on their industries, and are more likely to be
able to anticipate and react to new regulations.
Importantly, they are expected to be able to help
mold new regulations in ways that are less likely to
damage their basic business practices. In a study of
how firms can acquire strategic advantage through
political means, Schuler, Rehbein, and Cramer (2002)
found that firms with access to those who make
public policy enjoy competitive advantage (p. 659).

7.4. Media
Positive media relations can be absolutely critical to
organizations in todays media rich environment.
Firms that are seen as socially responsible will have
an edge over other firms, particularly those with
socially irresponsible reputations. Companies of
good repute are much more likely to be believed,
and reporting on their activities will generally be
significantly more positive. Organizations that do a
poor job with media relations risk damaging their
reputation (Motion & Weaver, 2005).

8. The bottom line

Perhaps the most important intellectual breakthrough regarding modern conceptions of CSR is
that socially responsible activities can, and should,
be used to enhance the bottom line. The corollary is
that most, if not all, economic decisions should also
be screened for their social impact. Economic
returns and social returns should not remain
quarantined in isolated units. Firms that successfully pursue a strategy of seeking profits while
solving social needs may well earn better reputations with their employees, customers, governments, media, et cetera. This can, in turn, lead to
higher profits for the firms shareholders.

References
Abbott, W. F., & Monsen, R. J. (1979). On the measurement of
corporate social responsibility: Self reported disclosures as a
method of measuring social involvement. Academy of
Management Journal, 22(3), 501515.
Aisner, J., & Kavanagh, A. (1999). Business school honored for
social enterprise activities. Harvard University Gazette

454
Retrieved June 14, 2007, from http://www.hno.harvard.edu/
gazette/1999/12.09/hbs_award.html
Berle, A. (1954). The 20th century capitalist revolution. New
York: Harcourt Brace.
Burlingame, D. F. (2004). Corporate giving. In D. F. Burlingame
(Ed.), Philanthropy in America: A comprehensive historical
encyclopedia, Vol. 1 (pp. 104105). Santa Barbara, CA: ABC
CLIO.
Business Wire. (2006). Starbucks annual meeting of shareholders
starts over a cup of coffee: Companys impact now extends well
beyond stores four walls. Retrieved June 14, 2007, from
http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irolnewsArticle_Print&ID=814454&highlight.
Carroll, A. B. (1979). A three-dimensional conceptual model of
corporate performance. Academy of Management Review, 4
(4), 497505.
Carson, R. (1962). Silent spring. Boston: Houghton Mifflin.
Dodd, E. M., Jr. (1932). For whom are corporate managers
trustees? Harvard Law Review, 45(7), 11451163.
Echoing Green. (2007). About us. Retrieved June 14, 2007, from
http://www.echoinggreen.org/index.cfm?fuseaction=Page.
viewPage&pageId=56
Fortune. (2007). 100 best companies to work for 2007. Retrieved
June 14, 2007, from http://money.cnn.com/magazines/
fortune/bestcompanies/2007/snapshots/1.html
Frederick, W. C. (1978). From CSR1 to CSR2: The maturing of
business and society thought (Working Paper 279). Pittsburgh,
PA: University of Pittsburgh Graduate School of Business.
Grameen Bank. (2007). Grameen Bank at a glance. Retrieved June
14, 2007, from http://www.grameen-info.org/bank/GBGlance.
htm
Knowledge@Wharton. (2007). Microfinance 2.0. Retrieved
June 14, 2007, from http://www.forbes.com/2007/04/10/
microfinance-grameen-bank-ent-fin-cx_kw_0410whartonmicro.html

EXECUTIVE DIGEST
Motion, J., & Weaver, C. K. (2005). The epistemic struggle for
credibility: Rethinking media relations. Journal of Communication Management, 9(3), 246.
Nader, R. (1965). Unsafe at any speed: The designed-in dangers of
the American automobile. New York: Pocket Books.
Peters, T. J., & Waterman, R. H. (1982). In search of excellence:
Lessons from Americas best-run companies (1st ed.). New
York: Harper & Row.
Porter, M. E., & Kramer, M. R. (2002). The competitive advantage of
corporate philanthropy. Harvard Business Review, 80(12), 5668.
Schuler, D. A., Rehbein, K., & Cramer, R. D. (2002). Pursuing
strategic advantage through political means: A multivariate
approach. Academy of Management Journal, 45(4), 659672.
Sethi, S. P. (1975). Dimensions of corporate social performance:
An analytical framework. California Management Review, 17
(3), 5864.
Social Investment Forum. (2006). 2005 report on socially responsible investing trends in the United States: 10-year review.
Retrieved June 14, 2007, from http://www.socialinvest.org/
areas/research/trends/SRI_Trends_Report_2005.pdf
Turban, D. B., & Greening, D. W. (1997). Corporate social
performance and organizational attractiveness to prospective
employees. Academy of Management Journal, 40(3), 658672.
Wartick, S. L., & Cochran, P. L. (1985). The evolution of the
corporate social performance model. Academy of Management Review, 10(4), 758769.
Wu, M. L. (2006). Corporate social performance, corporate
financial performance, and firm size: A meta-analysis. Journal of American Academy of Business, 8(1), 163171.
Yunus, M. (2002). Grameen Bank II: Designed to open new
possibilities. Retrieved June 14, 2007, from http://www.
grameen-info.org/bank/bank2.html