motivating altruism: multinational enterprises and corporate social

18 Pages·2009·0.23 MB·English

by  Leila Reid

MOTIVATING ALTRUISM: MULTINATIONAL
ENTERPRISES AND CORPORATE SOCIAL
RESPONSIBILITY

Victoria Weininger

ABSTRACT

This paper argues that the activities of modern multinational enterprise (MNE) are not
driven solely by profit maximisation, and that social contemporary norms incentivise
additional ethical and sustainable business practices. This work, never before believed to
be the responsibility of business, has become an increasingly prevalent business model. The
author explores the drivers for US-based MNEs to engage in corporate social responsibility
(CSR), and evaluates the extent to which external or social pressures, the need to maintain
or improve company profile, and philanthropic reasons contribute to a MNEs decision to
engage in CSR activities. The central finding is an apparently strong commercial belief in
the existence of a positive relationship between engagement in CSR and a company’s
profitability, as well as the mutual reinforcement of concern for company profile and
increased social awareness of and pressure for socially responsible behaviour.

Keywords: Corporate Social Responsibility; MNEs; stakeholders; shareholder profitability;

INTRODUCTION

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.1

Welfare and society are not the corporation’s business. Its
business is making money, not sweet music…In a free enterprise
system, welfare is supposed to be automatic; and where it is not it
becomes government’s job.2

The central responsibility of enterprises always was the delivery of products to
customers while attaining maximum financial returns for its shareholders. The mandate
of business then was rather simple; people wanted plentiful goods at a high quality as

1 Friedman, “The Social Responsibility of Business is to increase its Profits”, The New York Times Magazine,
September 13th 1970, p.4
2 Levitt in Sorell & Hendry, Business Ethics, Oxford, Butterworth-Heinemann, 1994, p.33
INTERNATIONAL PUBLIC POLICY REVIEW

cheaply as possible.3 Businesses sought and still seek to make profit, a rational
procedure which all citizens, not only businesses, adhere to in daily life. An economist
would argue that, in a market of perfect competition, they can do nothing else as any
effort directed elsewhere than at profit must be at a cost to the company. Thus in a
perfectly competitive market a business which occupies itself with anything other than
making profit would eventually be forced out by competitors.4 Nevertheless, we seem to
be able to observe a change in the norm, and this paper will question why the
responsibilities of business appear to have shifted from maximising the production of
goods at the minimum price, to engaging in additional ethical and sustainable business
practices at, if necessary, higher costs.

There is not yet one universal definition of CSR.5 Carroll and Buchholtz provide the
following definition: “Corporate Social Responsibility encompasses the economic, legal,
ethical, and philanthropic expectations placed on organizations by society at a given
point in time”6. The UNDP definition describes 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” 7. A major discussion has
developed around the issue of whether legal duties can be seen as a form of CSR or
whether business practices can only be described as ethical if they are voluntary
engagements. Indeed, this is the major difference between the two definitions.

The core idea of the CSR concept is that the business sector should
play a deeper (non-economic) role in society than only producing
goods and making profits. This includes society and
environmentally driven actions, meaning that the business sector
is supposed to go beyond its profit-oriented commercial activities
and increase the well-being of the community.8

In an ideal world doing the right thing would give businesses a big enough incentive to
overtake these added-on responsibilities, but in real terms following the principle rather
than profits can easily lead to economic failure. The US government began correcting the
social behaviour of firms as early as in the 1890’s, but the modern understanding of
regulation on CSR is particularly linked to the institutionalisation of societal problems in
government which began in the 1970’s.9 Only a modest amount of current literature has
engaged with US policy and regulation as a reason for companies’ engagement in CSR or

3 DeGeorge, Business Ethics, New Jersey, Prentice Hall, 1995, p.13
4 Baumol in Kitson & Campbell, The Ethical Organisation, Basingstoke, Macmillan Press, 1996
5 The research on company’s individual CSR engagements was greatly impeded through the lack of a universal
definition on CSR. Different companies had very different ideas on what corporate responsibility actually comprises
especially in relation to legal standards.
6 Carroll and Buchholtz in Henningfeld et al., The ICCA Handbook on CSR, Chichester, John Wiley & Sons, 2006, p.6
7 UNDP, First regional project launched by UNDP to accelerate implementation of CSR in 8 European Countries, UNDP
website, 2007, p.1
8 Malovics et al., “The Role of CSR in strong sustainability”, The Journal of Socio-Economics, 2007, p.7
9 Ibid, p.13-14
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lack thereof.10 Government can promote or enhance CSR through regulation and control,
and government can also exercise the arbiter role by setting minimum standards to help
society overcome free-rider problems.11

Another more specific aspect of regulation with an impact on CSR is the US company
law, which can differ depending on the state the company is based in. Whereas in some
states, company law stipulates that the interests of stockholders of public companies
and thus the maximisation of profits take precedence, other states’ legal obligation is to
stakeholders.12 The literature does highlight differences, but is yet to engage in a
discussion of whether firms are legally allowed to engage in social responsibilities if no
positive relationship between CSR and a company’s profitability exists. This paper thus
explores whether businesses have in fact become more ethical or if they have turned the
new responsibilities to their own profit. It will be argued that companies, if they want to
prosper economically and retain their present social power, must fall within the
guidelines set by society because “the business of business was, and is, decided by the
people of each society.”13

As legal regulation of businesses’ social responsibilities are still relatively low, and
considering their varying nature, I shall examine why and if most MNEs have decided to
move towards greater social responsibility than that mandatory by law. To engage with
the reasons why companies have adopted CSR practices, this research will utilise the
existing body of literature to propose seven explanatory independent variables. Each of
these will then be reviewed in turn on the basis of 29 questionnaire responses from
American Fortune 350 companies.

LITERATURE REVIEW

Existing research has had little predictive outcome on the reasons why companies
engage in CSR as it is difficult to gain an insight into the development and reasoning
behind individual business strategies. Although an extensive body of literature is dealing
with CSR, concrete and concurrent findings are modest at best and the difficulties
associates with quantifying environmental and social value creation. The research
closest to this paper is that of Matten (2006), Freeman (1997, 2001), Davis (1973),
Burke (1996) and Carroll (1979, 1991, 1996, 2000) who have equally concentrated on
the broad reasons why companies engage in CSR.

The academic discussion on CSR is mainly caught between two contrasting ideological
positions, classical economics and stakeholder theory. Classical economists assume that

10 Such as Kitson & Campbell (1996) and Davis (2005)
11 Bichta C. (2003) “Corporate Social Responsibility: A role in government policy and regulation”, CRI, University of
Bath, p.24
12 Kitson & Campbell, Op. cit.
13 De George, Op. cit., p.13
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all human behaviour, is motivated by self-interest; we are rational economic actors
making choices through cold cost-benefit analysis.14 According to theorists like Milton
Friedman, MNEs sole purpose lies in the creation of shareholder value and as no
congruent link has yet been established between CSR and a firm’s profitability,15 any
social engagement is a zero-sum trade-off with a firm’s corporate economic interests.
Social programs, they believe, add to business costs which lead socially responsible
companies to encounter competitive disadvantages. To Friedman “few trends could so
thoroughly undermine the very foundations of our free society, as the acceptance by
corporate officials of a social responsibility other than to make as much money for their
stockholders as possible.”16

The major impediment of this body of literature is that it fails to acknowledge the effects
of change in society’s expectations towards firms’ responsibilities, as well as the
possibility of a positive relationship between stockholder value and CSR. Stakeholder
theory, however, sees business as an integral part of society with responsibilities
beyond those to the stockholders. The theory thus broadens companies duties to “any
group or individual who can affect or is affected by the achievement of the organisation’s
objectives.”17 It accepts that businesses need to make a profit as the bottom line, but see
stockholders as merely one key stakeholder group, whose support has to be sustained in
exactly the same way that customer, supplier and employee support must be acquired. It
is thus a matter of balancing these interests, not choosing one at the expense of the
other.18

The work acknowledges the change in society’s expectations and supposes that if
executives ignore the interests of one group of stakeholders systematically over time,
that these stakeholders will eventually use the political process to protect their rights by
law. Davis and Arlow & Gannon posit that avoidance of further legislation is in fact the
main reason why companies engage in CSR, while Goodpaster considers companies’
realisation of the potential of CSR on consumer behaviour equally critical.19 Building on
these theories Matten suggests increased employee motivation when working for a
responsible company may also be a key driver for forms engaging in CSR.20

Porter’s “value chain” model focusses on the ways in which companies can improve the
effectiveness of their CSR activity so that “rather than merely acting on well-intentioned
impulses or reacting to outside pressures … [firms] can set an affirmative CSR agenda

14 Trevino & Nelson, Managing Business Ethics, New York, John Wiley & Sons, 2007
15 Such as Burke et al. (1996), Aupperle, Carroll & Hatfield (1985), Cochran & Wood (1984), Matten in ICCA Handbook
(2006), McWilliams & Siegel (2000), Waddock & Graves (1997) and Wright & Ferris (1997)
16 Friedman in Carroll, “A three-dimensional conceptual model of corporate performance”, The Academy of
Management Review, Vol.4, No.4, 1979, p.497
17 Freeman & Liedtka, “Stakeholder Capitalism and the value chain”, European Management Journal, Vol.15, No.3,
1997, p.286
18 Zenisek in Wartick and Cochran, “The evolution of the corporate social performance model”, The Academy of
Management Review, Vol.10, No.1,1985
19 Goodpaster, “The Concept of CSR”, Journal of Business Ethics, Vol.2, No.1, 1983
20 Matten in Henningfeld et al., The ICCA Handbook on CSR, Chichester, John Wiley & Sons, 2006
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that produces maximum social benefit as well as gains for the business.”21 The value
chain depicts all the activities a firm engages in and suggests that competitive advantage
cannot be understood by looking at a firm as a whole but rather that each of the firm’s
activities can contribute to a firm’s relative cost position or create potential for
differentiation.

Looking more broadly, Carroll sees the social responsibility of business encompassing
the economic, legal, ethical, and discretionary expectations of society on business. His
four stage model illustrates that the motives of businesses are not mutually exclusive
and can generally be categorized as primarily one of four. The first and foremost social
responsibility of business is of an economic nature, to produce goods and services
wanted by society and to sell them at a profit, while the second involves society’s
expectation for business to adhere to legal requirements. The third stage concerns
‘ethical responsibilities’ and “although the first two categories embody ethical norms,
these are additional behaviours and activities that are not necessarily codified into law
but nevertheless are expected of business by society's members.”22 Finally philanthropic
activities, which are purely voluntary and guided by a business's desire to engage in CSR
which is neither mandated, nor required by law and not even generally expected in an
ethical sense. While the model provides a certain structure, it does not clarify what
happens if one or more responsibilities are in conflict with one another.

Only a modest amount of current literature has engaged with US policy and regulation as
a reason for companies’ engagement in CSR or lack thereof.23 Government has a
potential role to play towards promoting or enhancing CSR through regulation and
control, and government can also exercise the arbiter role by setting minimum
standards to help society overcome free-rider problems.24 The US government began
correcting the social behaviour of firms as early as in the 1890’s, but the modern
understanding of regulation on CSR is particularly linked to the institutionalisation of

21 Porter & Kramer, “Strategy and Society: The link between competitive advantage and CSR”, Harvard Business
Review, HBR Spotlight, 2006, p.86
22 Carroll, Op. cit., p.501

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societal problems in government following the increase in public interest in the
1970’s.25

Another more specific aspect of regulation with an impact on CSR is the US company
law, which can differ depending on the state the company is based in. Whereas in some
states, company law stipulates that the interests of stockholders of public companies
and thus the maximisation of profits take precedence, other states’ legal obligation is to
stakeholders. 26 Both Davis and Kitson & Campell highlight differences, but do not
engage into a discussion of whether managers are legally allowed to engage in social
responsibilities, if no positive relationship between CSR and a company’s profitability
exists.

DATA COLLECTION AND METHODOLOGY

The dependent variable used for this research is termed ‘degree of engagement’. All
companies that participated in this research were included in the CSR ranking of the
Corporate Responsibility Officer (CRO), relying on data collected by KLD Research &
Analytics, which rank the best 100 corporate citizens from a list of approximately 1100
US companies every year. From the Fortune 350 companies which were contacted, 29
participated in this research: American Electric Power, Aramark, Bank of New York,
Consolidated Edison, Fidelity National, Heinz, Hess Corporation, Lockheed Martin,
Procter & Gamble, Sara Lee, Texas Instruments, Travellers, Xerox and 16 companies
which preferred to remain anonymous. The dependent variable is measured in an
ordinal fashion by classifying the companies engagement in CSR on whether the
companies were ranked in the KLD/CRO ‘100 Best Corporate Citizens 2007’ ranking,
whether they engage in CSR with or without a stated social mission, and those who have
not engaged in CSR activities.27 Companies’ survey responses will then be used to assess
the following three broad areas using seven independent variables:

Internal Pressures 1) Increase shareholder profitability - attract new shareholders
Type 1 (cid:1)(cid:1)(cid:1)(cid:1) 2) Augmentation of employee motivation /applications
3) Differentiation of the brand

External Pressures 4) Media campaigns or society’s expectations
Type 2 (cid:1)(cid:1)(cid:1)(cid:1) 5) Group pressures – other MNEs have engaged in CSR
6) Legal governmental liabilities

Philanthropy (cid:1)(cid:1)(cid:1)(cid:1) 7) Increase in stakeholder value
Type 3

27Three of the companies taking part in this research, Xerox, Heinz and a company which preferred to stay anonymous
were ranked as ‘Best Corporate Citizens 2007’. See CRO, 100 Best Corporate Citizens 2007,
http://www.thecro.com/files/ 100BestGatefold.pdf
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FINDINGS

In order to assess the reasons why many US-based multinational companies engage in
CSR, questionnaires were sent to the 350 top Fortune businesses. These companies
gross the highest annual profits in the US and were accordingly seen as good examples
for ‘functioning businesses’. This relatively large sample size was chosen due to an
anticipated low response rate, common to mail surveys. To the best of the researcher’s
knowledge, the survey technique had not previously been used to identify the reasons
why companies engage in CSR.28 This research is of a qualitative nature, with the
incorporation of some descriptive statistics.

One significant impediment to the research was the lack of a universal definition of CSR,
as well as missing efforts on behalf of some companies to centralize their data on CSR
activities. Many firms, seeing the novelty of CSR reporting, were unable to provide
concrete data on their spending, especially as involvement is spread over different
regions and departments. While CSR is new to some firms, several participants asserted
a history being engaged in some form of CSR, though they only started reporting and
ameliorating these activities in the last couple of years. This is in line with the reports of
the European CSR conference in Finland (2006) which highlighted that CSR can in many
cases be seen as a “new label for old wine.”29

INTERNAL PRESSURES

SHAREHOLDER PROFITABLITY

All businesses listed in the annual Fortune ranking share the US as their host country
and are accordingly all subject to American company law. Seeing that company law in
the US generally30 gives precedence to the interests of shareholders of public companies,
it can be hypothesised that profit maximisation is of highest concern to the majority of
these companies.31

Hypothesis 1: The Fortune 350 companies engage in CSR to increase their shareholder
profits.

28 The UN has previously used the same method for gathering data on the Global Fortune 500, however with a
different scope in research. Other papers generally used content analysis of annual reports.
29 Finnish EU Presidency Conference: CSR policies promoting innovation and competitive-ness, 2006,
http://asiakas.poutapilvi.fi/p4lite/files/125/Finnish_EU_ Presidency_Conference_ Final_Report_211206.doc
30 Company law in the US is not standardised and states vary between giving legal primacy to shareholders and
stakeholders. The majority of states opted to give precedence to shareholders.
31 Kitson & Campbell, Op. cit.
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Previous studies concerning CSR and a company’s profitability have led to few
concurrent results. Some have indicated no relationship32, while Waddock & Grave
(1997) observed a positive relationship and again another body of literature33
concluded that there was a negative relationship between the two variables.

To gain another perspective, employees in charge of their companies CSR activities were
asked to judge the relationship between CSR and a company’s profitability. 28 out of the
29 companies supposed a positive relationship between CSR and a company’s
profitability, while only one company judged the relationship to be neutral. Enterprise
Heinz explains this by saying: “Simply put, CSR makes good business sense. It helps key
audiences view Companies as good citizens and has positive financial impacts i.e. saving
money through reducing utility usage or packaging.”34

Most of the companies believed CSR to be profitable both in the long- and in the short
term, while seven assumed profitability only in the long term. From the 28 companies
assuming a positive relationship, 25 felt able to judge the extent of this relationship.
Table 1 shows that 68% of companies believed the relationship between CSR and a
company’s profitability to be either high or very high. The only company not engaging in
CSR saw that a low relationship existed between CSR and a company’s profitability.

Table 1: Degree of Engagement in CSR and the relationship between profit and CSR in percentages
Extent of positive relationship: profit/CSR Total

Degree of Engagement
Low Average High Very high

4 0 0 0 4
No social mission and no CSR

0 12 8 0 20
No social mission but CSR

0 16 36 12 64
Social mission

0 0 12 0 12
Best Corporate Citizen 2007

4 28 56 12 100
Total

The employee of the company not engaging in CSR explained their position as follows:

“I have yet to see strong evidence that companies that commit great time and
resources, especially financial resources, see a payback from many of these
efforts…
we have yet to see a significant level of willingness on the part of consumers
to pay adequately for higher-cost products ... They expect the "socially
responsible" company to give that to them for free. That, to us, is a considerable

32 Such as McWilliams & Siegel (2000) and Aupperle, Carroll & Hatfield (1985)
33 Such as Wright & Ferris (1997)
34 Heinz, Response to questionnaire, 2007
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disconnect between reality and the perceived notion that corporate social
responsibility pays dividends.”35

It is surprising to see that this company did not opt for a negative relationship between
CSR and a company’s profitability, but instead believed the positive relationship to be
low. This example illustrates that engagement in CSR is less likely to occur when
companies see no or a very low relationship between CSR and profitability. It may
further be assumed that companies will only engage in CSR if it does not lead to
additional costs to the business.

Hypothesis 2: Companies will not engage in CSR if the engagement results in additional
costs to the company.

Employees were asked directly whether their company would engage in CSR at
temporary financial losses. Of the 19 companies answering this question, 69% stated
that they would at times engage in CSR even at temporary financial losses, while 21%
stated that this would never be the case. While this could lead us to reject the second
hypothesis, it has to be kept in mind that employees are likely to respond in a manner
that they believe to be socially desirable. An indication of this could be that only two
companies said they would ‘always’ engage in CSR irrespective of temporary financial
losses.

Profitability is, not surprisingly, an important reason for companies’ engagement in CSR
and while it is possible that companies would engage in CSR even with temporary
financial losses, the likelihood of this happening seems to be relatively low.

There are a growing number of forums and indexes solely concerned with ethical
investments, and companies were therefore asked to judge the importance of CSR for
potential shareholders. Of the 16 companies which had gathered enough data to answer
the question, 69% assumed low or no importance of CSR for potential shareholders. This
could lead us to conclude that investors have not yet established a link between CSR and
a company’s profitability.

AUGMENTATION OF EMPLOYEE MOTIVATION / APPLICANTS

Both Davis (2005) and Baron (2007) believe that engagement in CSR can improve the
productivity of a firm, as employees are often willing to work harder if their social
values are in line with the company’s. CSR, when found on a company’s ‘value chain’,
typically suggests that employees are offered safe working conditions, fair wages, job
training, health care and other such benefits.36 This leads us to suggest that employees

35 Company X, Response to Questionnaires, 2007
36 Porter & Kramer, Op. cit.
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and prospective job seekers are increasingly paying attention to a company’s social
profile.

Hypothesis 3: Companies which have a high social engagement are more likely to have a
motivated workforce.

Hypothesis 4: Applicants are increasingly paying attention to a company’s engagement in
CSR when making the decision to apply.

The majority of the companies judged their workforce to be more motivated since the
business began engaging in CSR, while only 3 companies could not observe any change.
Table 2 illustrates that the companies ranked as ‘Best Corporate Citizens’ believed that
their workforces’ motivation had improved. In turn, two of the three companies who
saw no impact still engage in CSR but have not formulated a social mission.

All employees in charge of their firm’s CSR activities believed that a company’s CSR is
taken into account by prospective job applicants. From the 26 MNEs who replied to the
question, 35% believed applicants consider the company’s CSR activities to some
extent, 46% believed applicants to regard the activities highly and the remaining 19%
believed the company’s CSR engagement is taken into account very highly by job
applicants (see Table 2).

The findings therefore suggest a positive relationship between a company’s degree of
CSR engagement and the motivation of its workforce. It is also apparent that MNEs are of
the opinion that applicants are increasingly aware of a company’s CSR activities when
making the decision to apply. Two companies specifically mentioned employee
motivation and attracting and retaining employees as drivers for their engagement in
CSR activities.

DIFFERENTIATION OF THE BRAND

By engaging in differentiation strategy, firms seek to be unique in its industry in one or
more attributes that are perceived as important by its clientele.37 Participating firms
were therefore asked whether they believed CSR to be a way of differentiation. 92% of
participating MNEs assumed a link between CSR and differentiation from its
competitors. One of the two exceptions was in fact the company not engaging in CSR.

The company believed this to be explained by their particular working sector (housing),
as clients were not willing to pay additional costs when buying a home. This implies that
CSR as a method for differentiation is dependant on the company’s product and the
sector, while social engagement is more likely to occur when a company can generate
advantages from the commitment.

37 Porter, Competitive Advantage: Creating and Sustaining Superior Performance, New York, Simon & Schuster, 1998
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