History

The word “corporation” derives from corpus, the Latin word for body, or a “body of people.” By the time of Justinian (reigned 527–565), Roman Law recognized a range of corporate entities under the names universities, corpus or collegiums. These included the state itself (the populous Romanus), municipalities, and such private associations as sponsors of a religious cult, burial clubs, political groups, and guilds of craftsmen or traders. Such bodies commonly had the right to own property and make contracts, to receive gifts and legacies, to sue and be sued, and, in general, to perform legal acts through representatives. Private associations were granted designated privileges and liberties by the emperor. Entities which carried on business and were the subjects of legal rights were found in ancient Rome and the Maurya Empire in ancient India. In medieval Europe, churches became incorporated, as did local governments, such as the Pope and the City of London Corporation. The point was that the incorporation would survive longer than the lives of any particular member, existing in perpetuity. The alleged oldest commercial corporation in the world, the Stora Kopparberg mining community in Falun, Sweden, obtained a charter from King Magnus Eriksson in 1347.

In medieval times traders would do business through common law constructs, such as partnerships. Whenever people acted together with a view to profit, the law deemed that a partnership arose. Early guilds and livery companies were also often involved in the regulation of competition between traders.

The need for social responsibility among businesses is not a new concept. Ancient Chinese, Egyptian, and Sumerian writings often defined rules for commerce to facilitate trade and ensured that the wider public’s interests were considered. The primary drive for ethical business and corporate social responsibility came from the USA and Europe in the ’80s and ’90s, from campaigns run by pressure groups such as Greenpeace and Friends of the Earth. Consumer boycotts, direct action, shareholder action, ethical shopping guides, ethical product labelling schemes, media campaigns and ethical competitors became increasingly effective in changing corporate perspectives.

The mid-’90s were the watershed years for the new consciousness in international corporate polity. This was the time when two prominent MNCs were compelled by ‘ethical market forces’  to re-orient their business attitudes. In 1995, Shell dumped its Brent Spar oil platform in the North Sea. Public agitation in Europe was so intense that in Germany sales fell by 70 per cent within a fortnight. Similarly, Nike, the shoe and apparel giant, ran aground thanks to a campaign against child labour and worker exploitation in many of the 700 factories across 40 countries where Nike worked with subcontractors. That prompted the company to set up a full-scale team under a Vice President, Corporate Responsibility in 1997.In the early-’90s, Greenpeace commissioned a unit in eastern Germany to manufacture a CFC-free refrigerator. Within six months, mainstream manufacturers in Germany were manufacturing identical fridges. It was in the post-war period that the character and nature of business began to change in the western world, with proprietary firms taking on corporate structures. By 1998, there were 45 registered MNCs and the income of the top 10 MNCs was higher than the GDP of over 50 countries.

Ever since, public concern about the interaction between business and society has grown in proportion to the growth of corporate activity evidence of social activism in response to organizational actions is also in rise. It stretches back across the centuries, mirroring the legal and commercial development of companies as they established themselves as the driving force of market-based societies: Although wealthy industrialists have long sought to balance the mercantile actions of their firms with personal or corporate philanthropy as a response to social activism or other demands, CSR ultimately originates with leaders who view their role as stewards of resources owned by others (e.g., shareholders, the environment). Companies have faced a balancing act that addresses the trade-offs between the owners (shareholders) that employ them, the society that enables their firms to prosper, and the environment that provides them with the raw materials to produce products and services of value. When specific elements of society view leaders and their firms as failing to meet societal needs, activism results.

CSR has become an increasingly relevant topic in recent decades in corporate boardrooms, in business school classrooms, online, and in family living rooms. In addition to public relations fiascos that damage a firm’s sales and image, the direct financial impact of CSR failures in a society is never far behind. Widespread, long term industry practices, which may have previously been deemed discretionary or ethical concerns, can be deemed illegal or socially unacceptable under aggressive legal prosecution or novel social activism. Such violations are less likely in firms with a strong commitment to CSR. Businesses operate against an ever-changing background of what is considered socially responsible. CSR is not a stagnant concept. It is dynamic and continues to evolve as cultural expectations change. On the one hand, these ever-changing standards and expectations compound the complexity faced by corporate decision makers. These standards vary from society to society; even among cultures within a given society. Faced with a kaleidoscopic background of evolving standards, business decision makers must consider a variety of factors on the way to implementation.

Today, media and NGO activists are more likely to criticize the poor treatment of workers in developing economies by holding corporations to standards found in their home markets, especially the United States and the European Union (EU). The result is increased complexity and risk that can harm economic outcomes when CSR is lacking. On the other hand, however, the pursuit of economic gain remains an absolute necessity. CSR does not repeal the laws of economics under which for-profit organizations must operate to society’s benefit. CSR is an important component of a company’s strategic and operating perspective; however, alone, it is not enough. It certainly does not replace the need for an effective business model, and no company, whatever the motivation, can or should spend indefinitely money that it does not have. Manufacturing offshore in a low-cost environment, for example, remains a valid strategic decision, particularly in an increasingly globalizing business world. Where CSR considerations play a major role is in how such decisions are made and implemented. As societies rethink the balance between societal needs and economic progress, CSR will continue to evolve in importance and complexity. And although this complexity muddies the wealth-creating waters, an awareness of these evolving expectations holds the potential for increased competitive advantage.