CSR Definition

In our paper we focus exclusively on this type of CSR, in order to eschew the domain in which
Friedmans critique would apply, which is every nonbusiness argument for CSR, BALDONI

Corporate social responsibility (CSR), also labelled as corporate conscience, corporate

citizenship, corporate sustainability, sustainable responsible business, social
entrepreneurship, corporate accountability has a variety of definitions.
The evolution of the theoretical thought on CSR can be synthesized in three stages: philanthropy, value creation,
and shared value.

The roots of the concept can be traced in 1953 Bowens publication Social Responsibility of
Businessmen. Here the author answers the question What responsibilities to society may
businessmen reasonably be expected to assume?, by providing the first modern definition of
the social responsibility of the businessman: It refers to the obligations of businessmen to
pursue those policies, to make those decisions, or to follow those lines of action which are
desirable in terms of the objectives and values of our society (Bowen, 1953, p.6).

At nineteen sixties, when interest for CSR began, it was regarded as an expense on philanthropy which aim was
returning profits to society. Thus, from the financial viewpoint it meant a decrease in profits for the sake of a
social or environmental end.

Philantropy

On this basis, Milton Friedman [1] wrote the famous article entitled The Social Responsibility of Business is to
Increase its Profits, where he held that those executives who imposed social expenses to the corporations they
managed should be regarded as disloyal agents to their principals, the shareholders. In fact, if profits are the
only value driver, it becomes clear that any reduction in earnings without any complementary effect, whether it
comes from philan- thropy, destroys value.

Value driver

Nevertheless, since value comes from discounting expected profits at the required rate of return, with risk
premium inside, we have to consider the impact of CSR on risk, and, therefore, on the discounting rate. Several
works, (Orlitzky and Benjamin [4]; Husted [5]; Kitzmueller and Shimshack [6]) point out that CSR hedges
social risk, i.e. the risk that comes from social activism or private politics. The logical next step is to
acknowledge that it creates value through risk reduction. Kitzmueller and Shimshack [6] also underline that
CSR is an instrument to reduce public political risk. To this extent, CSR, even if it exclusively consists of
philanthropic expenses, it creates value through risk reduction.

The main argument against Friedmans criticism has come from stakeholders theory introduced by Freeman
[7]. Corporate governance does not only take into account shareholders interests, but also the interests of other
stakeholders, like employees, customers, suppliers and communities directly affected by corporate actions.

The conceptual enlargement brought by stakeholders theory has lead to identify CSR as a value driver.

Freeman, Harrison, Wicks, Parmar, and Colle [7] make a distinc- tion between the residual concept of CSR,
focused on returning profits to society, and integrated CSR. The in- tegrated approach regards CSR as a part of
the corporate competitive strategy: it conceptualizes CSR as the inte- gration of social, ethical and
environmental concerns into the management criteria for corporate strategy. The role of managers consists of
interweaving stakeholders demands with corporate capacities in order to create value by respecting the rules that
regulate corporate be- haviour. Nevertheless, the relationship between CSR and value creation is mainly due to
the articles by Michael Porter and his co-authors Kramer and Van der Linde. Porter and Van der Linde [14]
regard expenses in reduce- ing environmental impact as an opportunity to improve competitiveness. Porter and
Kramer [15], writing on corporate philanthropy, also advocate for strategic giving, i.e. for charitable efforts that
contribute to society and improve the corporate competitive context, instead of giving pure donations that, at
most, enable cause-related marketing. The same authors [16] hold that CSR, ana- lyzed using the same
framework that guides corporate business choice becomes a source of opportunity, inno- vation, and competitive
advantage. The basis of this statement is the distinction between responsive CSR and strategic CSR. The former
is addressed to returning prof- its to society. The latter is addressed to identifying socie- tal problems that the
corporation can contribute to solve, and, as a consequence, create value simultaneously for society and
shareholders.

The last step of the evolution of Porter and Kramer [2] thought on the relationships between corporations and
society is the concept of shared value. The corporation- centered value creation perspective gives way to a cor-
poration-stakeholders perspective. The basis of this new approach is to recognize that societal needs, not just
conventional economic needs, define markets. Ultimately corporations, by assuming shared-value strategies,
have the opportunity to turn capitalism into an environmen- tally, socially and financially sustainable economic
sys- tem. In the long run, shared value leads to a stronger and more sustainable value chain, but, in the short run
it faces the capital markets pressure for short term profits. At this point, it is worth remembering that common
stock prices reflect available information (Fama [17], although they can be distorted by noise (Black [18]),
anomalies, and bubbles (Malkiel [19]). Long term sustainability can be as- similated to information and
pressures for short term pro- fits to noise.

For this reason, a central goal of corporate

communication policy is to make investors aware of the fact that long term sustainability deserves a greater
weight than short term profits in any sensible stock value esti- mation.

To sum up, the evolution of the theoretical thought on CSR can be synthesized in three stages: philanthropy,
evolution from philanthropy to value creation, and shared value. The latter can be regarded as the whole
integration of CSR into corporate strategy. The problem with re- garding and managing CSR as a policy
exclusively aimed at returning profits to society is that, in the end, shares value would become a decreasing
function of CSR, and; thus, CSR would not be financially sustainable. The managerial challenge with respect to
CSR is to turn it from an expense into an investment (Husted and Allen [20]), to create value through it and to
make shareholders aware of this value creation.

Bosch-Badia, M. T., Joan Montllor-Serrats, J., & Tarrazon, M. A. (2013).

Corporate social responsibility from Friedman to Porter and
Kramer. Theoretical Economics Letters, 3, 1115.

We believe that CSR is a differentif overlappingconcept from

creating shared value.Corporate social responsibility is widely
perceived as a cost center, not a profit center. In contrast, shared value
creation is about new business opportunities that create new markets,
improve profitability and strengthen competitive positioning. CSR is
about responsibility; CSV is about creating value.

Certainly the phrase "doing well by doing good" covers both shared
value initiatives like the Chevy Volta new product we see as shared
valueand more traditional CSR activities such as GRI reporting that
responsible companies accept as a cost of doing business. But they
represent very different strategic and management decisions.

It's true we wrote about CSR in Strategy and Society, although we

deliberately avoided using that term in the title because even in 2006
we knew that we were trying to describe something differentwe
used the phrase "shared value" but it seemed too new, at that time, to
replace the well-accepted terminology of CSR, and we are always
reluctant to create new jargon.

The fact is we see management behavior regarding the social impact

of business changing dramatically at many leading global companies.
Whether called a "new form of CSR" or "shared value" it is
fundamentally different than the CSR activities of 5 or 10 years ago.

Kramer, 2011

the first company to actually publish a social report was Ben and Jerry's in 1989, and the first
major company was Shell in 1998 (The Shell Report 1998)
American company that manufactures ice cream, frozen yogurt, and sorbet.
.

Ben and Jerry'swas the first company to publish a CSR report in 1989, but
the reports remained fairly marginal until the first major company, Shell,
published one in 1998 (The Shell Report 1998).

The 1990s saw CSR become an established industry with major companies
such as PricewaterhouseCoopers, KPMG and BursonMarsteller entering the
CSR service provision market.
According to Baron (2001) it is the assumption and fulfillment of responsibilities
beyond those dictated by markets,

Supporting the previous critics, during this historical period social

responsibility was driven primarily by external, socially conscious
motivations, and businesses were not looking for anything specific in
return (Carrol and Shabana, 2010, p.87).
In the following years the CSR construct evolved, and a major
attention began to be dedicated to the output of social initiatives
(corporate social performance, CSP hereafter) (Wood, 1991).
According to Wood (1991, p. 693), CSP is a business organizations
configuration of principles of social responsibility, processes of social
responsiveness, and policies, programs, and observable outcomes as
they relate to the firms societal relationships. This focus on results
put the basis for the investigation of the potential link between CSR
and corporate financial returns.
Moreover, real business cases such as Enron collapse in 2002
attracted the attention on the potential costs of irresponsibility
(Petrick and Sherer, 2003), giving an impulse to the studies regarding
the link between CSR and competiveness. Thus, a new orientation
toward CSR was emerging, that can be synthesized in the well-known
expression: Doing good to do well (Vogel 2005, pp. 2021), which
refers to the possibility to reconcile business benefits and social
responsibility. The possibility to
7
pursue simultaneously social responsibility and the fulfillment of the
companys business strategy is synthesized in the concept of
strategic CSR, that will be discussed in the following section
Wood (1991, p. 695) states, The basic idea of corporate social responsibility is that
business and society are interwoven rather than distinct enti- ties; therefore, society
has certain expectations for appropriate busi- ness behavior and outcomes.

The European Commission (2002) defined the CSR as "a concept

whereby companies integrate social and environmental concerns in
their business operations and in their interaction with their
stakeholders on a voluntary basis"1.
The Worldbank defined the CSR as a commitment of businesses to
behave ethically and to contribute to sustainable economic
development by working with all relevant stakeholders to improve
their lives in ways that are good for business, the sustainable
development agenda, and society at large".
A notion similar to "voluntary behavior" can be found in definitions

1
"Communication from the Commission concerning corporate social responsibility: A
business contribution to sustainable development", July 2002, COM (2002) 347 Final,
p.5.
of CSR that refer to either "beyond compliance" such as those used by
McWilliams and Siegel (2001), who characterize CSR as "the
fulfillment of responsibilities beyond those dictated by markets or
laws", or to "self regulation" as suggested by Calveras et al. (2006)
among others.
situations where the firm goes beyond compliance and engages in actions
that appear to further some social good, beyond the interests of the firm and
that which is required by law (McWilliams, Siegel and Wright, 2006).

in order to capture its complete economic relevance, this view of CSR

is in line with Baron (2001) in that CSR can be market driven or
"strategic" as opposed to McWilliams and Siegel (2001), who equate
CSR only with social or environmental performance "beyond market
forces".
Business case for CSR and Strategic CSR are now widely used in the management
literature, to identify business practices which yield benefits for the environment and the
society at large, and also private benefits for the firms (see Porter and Kramer, 2002). From
this perspective, Strategic CSR is a distinct phenomenon than traditional charity or
philanthropy, from which firms do not expect any return.2

Baldoni F. (2009), A dynamic model of internally-driven corporate social

responsibility and enlightened profit maximization, University of Bologna, Working
Paper.

Corporate Sustainability is a business approach that creates long-term

shareholder value by embracing opportunities and managing risks
deriving from economic, environmental and social developments.
[SAM Group, 2009]
The social responsibility movement was born in US, where other
social movements, including civil rights, womens rights, consumers
rights and the environmental movement, spread out.

CSR is closely linked with the principles of Sustainable Development, which

argues that enterprises should make decisionsbased not only on financial
factors such as profits or dividends, but also based e immediate and long
term social and environmental consequences of theiractivities , especially
taking into consideration the needs of future generations.

CSR can mean different things to different people:

For an employee it can mean fair wages, good working conditions etc.
For a shareholder it can mean making transparent decisions.

For suppliers it can mean receiving payment on time.

For customers it can mean good quality products, delivery on time.

For local communities it can mean taking measures to protect the

environment from pollution.

For NGOs it can mean disclosing business practices and performance on

issues such as global warming, human rights etc.

For a company however CSR can simply be seen as responding to the

needs

and concerns of people who can influence the success of the company or
whom the company can impact through its business activities, processes and
products.

is a form of corporate self-regulation integrated into a business model.

These attempts to dene CSR reveal two basic conceptual features:

First, CSR manifests itself in some observable and measurable
behavior or output. The literature frequently refers to this outcome
dimension as Corporate Social or Environmental Performance (CSP
or CEP).
Second, the social or environmental performance or output of rms
exceeds levels set by obligatory regulations or standards enforced by
laws20. In essence, CSR is corporate social or environmental behavior
that goes beyond the legal (regulatory) requirements of the relevant
market(s) and/or economy(s).
Business sustainability is defined as the ability to conduct business with a long-term goal of maintaining
the well-being of the economy, environment and society (Hassini et al., 2012).

The ability to learn faster than

your competitors, may be the
only sustainable competitive
advantage.
[Peter Senge, 2005]

Two important notions of this denition should be noted: First, it is

independent of any conjecture about the motivations underlying CSR.
While Baron (2001) takes the (normative) view that "both motivation
and performance are required for actions to receive the CSR label",
we propose that linking a particular motivation to the respective
performance is required for the action to receive the correct CSR
label21.
Second, in order to capture its complete economic relevance, this
view of CSR is in line with Baron (2001) in that CSR can be market
driven or "strategic" as opposed to McWilliams and Siegel (2001),
who equate CSR only with social or environmental performance
"beyond market forces".

The quest to understand CSR as a novel economic phenomenon began

by asking (1) whether it exists, (2) when and to which extent it can be
ecient, and therefore, (3) whether and when it should exist. While
the fundamental former proof of existence, (1), must be established
empirically, the latter two issues, (2) and (3), t the theory agenda
well. In light of the neoclassical rm paradigm, economists
immediately translated (2) and (3) into one question, namely whether
rms do have any social responsibility other than employing peo- ple,
producing goods or services and maximizing prots. Although a
simple yes or no seems within easy reach, a thorough answer will
have to build upon an understanding of the mech- anisms and
incentives underlying CSR. Generally, such incentives derive from
shareholder and/or stakeholder preferences and their role in
determining rm behavior. This allows us to categorize CSR as
strategic (for-prot), non strategic (not-for-prot) or even the result
of market failure (here moral hazard)22. Once this distinction is
established, the dierent mechanisms underlying each form of CSR
can be analyzed. The focus, however, will be on market driven,
strategic CSR.

In parallel with its explosion, strong opponents to this concept began

to arise. Thomas Levitt (1958) was worried about the danger of
corporate social responsibility, fearing that CSR could have detracted
attention to profits. Friedman (1970) objected to the raising concept
of social responsibility that in a free economy (society) there is one
and only one social responsibility of business to use its resources
and engage in activities designed to increase its profits so long as it
stays within the rules of the game, which is to say, engages in open
and free competition without deception and fraud (Friedman, 1970,
p.126).
Supporting the previous critics, during this historical period social
responsibility was driven primarily by external, socially conscious
motivations, and businesses were not looking for anything specific in
return (Carrol and Shabana, 2010, p.87).
In the following years the CSR construct evolved, and a major
attention began to be dedicated to the output of social initiatives
(corporate social performance, CSP hereafter) (Wood, 1991).
According to Wood (1991, p. 693), CSP is a business organizations
configuration of principles of social responsibility, processes of social
responsiveness, and policies, programs, and observable outcomes as
they relate to the firms societal relationships. This focus on results
put the basis for the investigation of the potential link between CSR
and corporate financial returns.
Moreover, real business cases such as Enron collapse in 2002
attracted the attention on the potential costs of irresponsibility
(Petrick and Sherer, 2003), giving an impulse to the studies regarding
the link between CSR and competiveness. Thus, a new orientation
toward CSR was emerging, that can be synthesized in the well-known
expression: Doing good to do well (Vogel 2005, pp. 2021), which
refers to the possibility to reconcile business benefits and social
responsibility. The possibility to
7
pursue simultaneously social responsibility and the fulfillment of the
companys business strategy is synthesized in the concept of
strategic CSR, that will be discussed in the following section.
Strategic CSR
The concept of strategic philanthropy emerged in response to the
increasing criticism to CSR, accused not to create value for the
company and its shareholders. The concept was defined by Logsdon
et al. (1990) as the process by which contributions are targeted to
serve direct business interests while also servicing beneficiary
organizations (p.95). In 2002 Porter and Kramer in their study
concerning The Competitive Advantage of Strategic Philantropy
discuss the existence of an area of convergence of interests between
social and economic benefits. Companies can obtain this convergence
focusing philanthropic investments on the key success factors of the
competitive context: for example, they can use donations to train local
human resources in developing countries, thus obtaining both an
improvement of local educational rate and economic development,
and the availability of skilled work force. Cause-related marketing
initiatives, that consist in associating the companys products to a
social or environmental cause, is another example of profit-
maximizing CSR(Baron, 2001).
Porter and Kramer in 2006 extended this discussion from strategic
philanthropy to strategic CSR, looking not only at the strategic impact
of donations and sponsorships, but the whole perimeter of possible
CSR initiatives. They analyzed the link between competitive
advantage and corporate social responsibility. In their study the
authors encourage companies to adopt an operational approach to
CSR, that evolves from a responsive approach to a strategic one.
Responsive CSR consists in good corporate citizenship and reducing
the negative impacts of the company activities. Strategic CSR goes
even further. it is about choosing a unique positiondoing things
differently from competitors in a way that lowers costs or better
serves a particular set of customer needs and consists in a small
number of initiatives whose social and business benefits are large and
distinctive (Porter and Kramer, 2006, p. 11).
This advantages are achievable if the company CSR is linked to the
company strategy: the more CSR initiatives are central with respect to
the company business, the more they can provide business advantages
(Burke and Lagsdon, 1996). On the other hand, the more closely tied
a social issue is to the companys business, the greater the
opportunity to leverage the firms resources and capabilities, and
benefit society (Porter and Kramer, 2006, p.11). According to this
new approach the interests of all the companys stakeholders and its
shareholders are no more in contrast (Kurucz et al. 2008; Tencati
8
and Zsolnai, 2009) and the creation of value for society is
simultaneously the creation of business value (Berger et al, 2007).
This concept of shared value creation has been explicitly restated in
the recent work of Porter and Kramer (2011), where they define it not
as social responsibility, philanthropy or even sustainability, but [as]
a new way to achieve economic success (Porter and Kramer, 2011, p.
65). Moreover, it has been formalized by the European Union, which
explained in the renewed EU strategy 2011-14 for CSR, that the aim
of CSR is: maximizing the creation of shared value for their
owners/shareholders and for the other stakeholders and society at
large (European Commission, 2011, p.6).
Two major streams of research emerged from the concept of strategic
CSR. Firstly, academics investigated the integration of CSR into
business strategy, which is necessary to obtain major business
advantages from CSR commitment. Secondly, they focused on the
possibility to reconcile CSP and corporate financial performances
(CFP hereafter), understanding the strategic relevance of using CSR
as a driver of innovation in order to reconcile CSR commitment and
competitiveness. The following section goes into details of these two
topics and underlines the open issues still existing in literature.
The integration of CSR into strategy
The strategic approach to CSR opened a wide debate on how to
integrate CSR issues into corporate strategy. The European
Commission pushes companies in this direction. In 2001 Green Paper
Promoting a European framework for corporate social
responsibility, the European Commission defined CSR as a concept
whereby companies integrate social and environmental concerns in
their business operations and in their interaction with their
stakeholders on a voluntary basis (European Commission, 2001). A
decade after, in the renewed EU strategy 2011-14 for CSR, the
Commission again stresses this necessity to integrate CSR and
strategy: Enterprises should have in place a process to integrate
social, environmental, ethical, human rights and consumer concerns
into their business operations and core strategy in close collaboration
with their stakeholders, with the aim of: maximising the creation of
shared value for their owners/shareholders and for their other
stakeholders and society at large; identifying, preventing and
mitigating their possible adverse impacts (European Commission,
2011, p.6).
Thus, scholars and practitioner face the difficult challenge to
understand how such integration can be reached. As a consequence,
this process of strategization of CSR (as defined by Sharp and
Zaidman, 2009), has been widely discussed in literature.
9
Scholars proposed different frameworks that illustrate the path
companies should follow to reach the integration between CSR and
strategy (Dentchev, 2005; Porter and Kramer, 2006; Maon et al,
2009). All these frameworks agree on the necessity to identify an
overlapping between the companys most critical stakeholders needs
and its core competencies and key success factors. On the basis of this
overlapping, the company can develop an explicit CSR strategy which
should be coherent with its mission, and identify KPIs that inform the
achievement of CSR objectives driving a process of continuous
improvement.
Analyzing these frameworks, what still remains unclear is the role
that formal tools used in the implementation of CSR (i.e. as ethical
codes, sustainability report, certified management systems, quotation
on ethical ratings, etc.) can play in the integration of CSR into
strategy. Perrini and Minoja (2008) empirically investigated this
process of integration within a medium family-owned enterprise.
They describe the shift from a sunken to a more formalized
approach to CSR as step in this process, that occurs in four
dimensions: value contagion and formalization, reporting,
communication and control and certification. Other authors defined
the formalization of CSR values and principles (Porter and Kramer,
2006), the communication of CSR efforts through sustainability
reports (Maon et al, 2009) or the adoption of certified management
systems (Waddock and Bowen, 2007) as steps in the integration of
CSR into strategy.
However, these tools have also been strongly criticized for their
scarce managerial utility (Perrini, 2006), for having only a cosmetic
function (Porter and Kramer, 2006; Hooghiemstra, 2000), or for even
reducing companys efficiency since they require a major
bureaucratic effort (Miles and Munilla, 2004). According to Fassin
(2008, p.375) formalization can even be counterproductive in
achieving the integration between CSR and strategy.
Thus, the first open issues I found in the literature debate regarding
the broad topic of strategic CSR concerns the role played by formal
tools related to the implementation of CSR in the integration of CSR
into corporate strategy.
The role of innovation
The strategic approach to CSR also gave raise to numerous
contributions trying to assess the impact of CSR performance on the
firms competitiveness and financial performance. The literature
reviews made by Margolis and Walsh (2003) and Orlitzky (2003),
however, underline that authors did not reach a shared conclusion
regarding the topic.
10

According to a recent interpretation, the positive influence of CSR on

competitiveness can be explained recurring to a broad view of CSR
(as defined by Carrol and Shabana, 2010). This view, consistent with
the syncretic model proposed by Berger et al (2007), does not only
value CSR if it provides direct financial benefits (narrow view), but
also take into account the indirect influence that CSR can have on
financial performance. CSR, for example, can positively affect
customers trust, which in turn can have a positive influence on
corporate financial performance (Pivato et al, 2008).
The role of mediating variables in explaining the relation between
CSP and CFP have been deeply investigated, particularly with respect
to innovation. McWilliams and Siegel (2001) have empirically
demonstrated that the contradictory results obtained regarding the
relation between CSR and CSP are due to the existence of an omitted
variable, positively related both to CSP and CFP, that is innovation.
This mediating effect of innovation implies the existence of a positive
relation between CSR and the innovation performance of the firm.
The reasons for this positive link can be traced back primarily to
company strategy. CSR can be interpreted as part of a differentiation
strategy that also implies an investment in research and development.
As noted by McWilliams and Siegel (2001, p. 608), many firms that
actively engage in CSR are also pursuing a differentiation strategy,
involving complementary strategic investments in R&D. More
specifically, investments in CSR can generate a push towards
innovation with the aim to enhance the socially responsible
attributes (Cumming et al, 2005; Pavelin and Porter, 2008; Wagner,
2010) of the companys products and services. These new products
and services, that have [...]some sort of social purpose [...] and are
[...] driven by values for the creation of social products and
services (MacGregor and Fontrodona, 2008. p. 14) are labelled in the
literature as CSR-driven innovations. This concept refers to the use
of social, environmental or sustainability drivers to create new ways
of working, new products, services and processes, and new market
space (Keeble et al, 2005: 3).
CSR-driven innovations can explain the positive impact of CSR on
profits (Maxfield, 2008). Hull and Rotemberg (2008), for example,
showed that corporate social performance enhances financial
performance by allowing the firm to differentiate, and that this effect
may be moderated by innovation. Surroca et al (2010) examined the
effects of a firms intangible resources (innovation, HR, reputation
and organizational change) in mediating the relationship between
corporate responsibility and financial performance.
11
Also the European Commission underlines the role of CSR as a driver
of innovation and its consequent positive role in contributing to
achieving the strategic goal decided in Lisbon in 2000: to become
the most competitive and dynamic knowledge-based economy in the
world, capable of sustainable economic growth with more and better
jobs and greater social cohesion. In the Renewed EU strategy
2011-14 for Corporate Social Responsibility as presented at the end
of October 2011, the Commission encourages companies to explore
the opportunities for developing innovative products, services and
business models that contribute to social wellbeing and lead to higher
quality and more productive jobs (European Commission, 2011,
p.6). According to the Commission, this approach to CSR is
fundamental for maximizing the creation of shared value (European
Commission, 211, p.6) for both the shareholders and stakeholders of
the company.
The previous literature review underlines the importance to translate
CSR commitment in the development of new products, services and
processes, that are able to create a social or environmental benefit
while contributing to the companys competitiveness. Despite the
strategic relevance of this issue, I found a second gap in academic
literature: within the numerous studies regarding the implementation
of strategic CSR, no investigation addressed the problem of how to
manage and organize CSR activities in order to favor the generation
and development of CSR-driven innovations.

Table 1: the Genesis of the Concept of Corporate Social Responsibility

3(a) Arguments in favour corporate social

responsibility: