This chapter has emphasized the importance of specific core competences and organizational identity in bridging the gap between first- and second- order values. Whether this gap is bridged also depends on the way in which second-order values are applied and managed in the business. Social capital and a relationship of exchange between individuals and the organization are also important in that they can foster the competences required for CSR.
A significant factor in the development of CSR is the growing interaction between the organization and its social, political and economic environ- ment. The erosion of the traditional boundary between inside and outside means that all the parties involved have to be clear about who is doing what and why things are being done as they are. This requires transparency within the organization and about the way in which the organization conducts its relations with its extended environment. There is a systems side to this transparency – how things are organized in the formal functional system – and a relational side – how people organize their interactions. Relations only exist between people, which implies that transparency is achieved through the actions of people in the course of their relations. A person’s actions are always value-based (one cannot act without values). The specificity of CSR thus entails a clear set of values that guide the behaviour of individuals within and across the boundaries of the organization. This behaviour is always expressed in relation to ‘the other’. The specificity of CSR is the ability of people to base their behaviour on a defined set of values.
A central value in CSR is responsibility, defined as the ability to behave properly, make the right decisions and take the right actions without having
to obtain the permission of others. Responsibility is strongly associated with response and responsiveness. Response is to do with providing an answer and responsiveness is the ability to give that answer. In the CSR debate it is common to distinguish between three types of responsibility: (1) human or social responsibility (inside and outside the organization and involving stakeholders and dialogue with these stakeholders), (2) business responsibil- ity (to run a business according to the market rules of the economic para- digm) and (3) environmental responsibility, particularly in respect of the natural environment. These can be arranged in order of importance but there should be a balance between them, although the nature of this balance and how it can be achieved are unclear. One could argue that a balance can be achieved through the exchange of responsibilities. This implies that a certain weight can be accorded to the various responsibilities, which in turn implies that they can be assessed or measured. It goes without saying that in many situations this will not be the case, and therefore the exchange of responsibilities can lead to internal and external dilemmas.
What we have been discussing here is a fundamentally different perspective on the role of organizations in contemporary society. The rational-strategic, object-oriented management approach needs to be replaced by an approach that is firmly grounded in values. We do not need new values, rather we need to agree on which are most important and to act according to them, both individually and collectively. At the moment organizations that wish to pur- sue CSR tend to do so within the scope of the market paradigm, and as long as there is no compelling market need to change that paradigm most people in organizations will continue to consider CSR as an add-on feature. This will prevent the development of the communities of work required to make the contemporary network organization operate effectively in its turbulent environment. Among the challenges facing us in the near future is to design hybrid organizations in which first- and second-order value systems are configured in such a way that a balance exists between organizational processes and the communities of work.
References
Albert, S. and D. A. Whetten (1985) ‘Organizational identity’, in L. L. Cummings and B. M. Staw (eds) Research in Organizational Behaviour(Greenwich, CT: JAI), p. 264.
Brenters, M. (1999) De organisatie als netwerk. Hoe mensen organisaties veranderen en organisaties mensen(Alphen a/d Rijn: Samson).
Castells, M. (2000a) The Information Age: Economy, Society and Culture (Malden:
Blackwell).
Castells, M. (2000b) ‘Materials for an exploratory theory of the network society’, British Journal of Sociology, 51 (1), pp. 5–24.
Cohen, D. and L. Prusak (2001) In Good Company. How Social Capital Makes Organizations Work(Boston, Mass.: Harvard Business School Press).
Cramer, J., A. van der Heijden and J. Jonker (2004) ‘Making Sense of Corporate Social Responsibility’,Journal of Business Ethics, 55 (2), pp. 215–22.
Davis, I. (2005) ‘The biggest contract’, The Economist, 26 May 2005.
Foster, D. and J. Jonker (2003) ‘Third generation Quality Management: The role of stakeholders in integrating business into society’, Managerial Auditing Journal, 18 (4), pp. 323–8.
Habisch, A., J. Jonker, M. Wegner and R. Schmidpeter (eds) (2004) CSR Across Europe (Heidelberg: Springer Verlag).
Handy, C. (1995) ‘Trust and the virtual organization’, Harvard Business Review, 73 (3), pp. 40–50.
Haslam, S. A., T. Postmes and N. Ellemers (2003) ‘More than a metaphor:
Organizational Identity Makes Organizational Life Possible’, British Journal of Management, 14, pp. 357–69.
Hastings, C. (1993) The New Organization(New York: McGraw Hill).
Hatch, M. and M. Schultz (2004) Organisational Identity: A Reader (Oxford: Oxford University Press).
Jonker, J. and D. Foster (2002) ‘Stakeholder Excellence?: Framing the Evolution and Complexity of a Stakeholder Perspective of the Firm’, Corporate Social Responsibility and Environmental Management, 9 (4), pp. 187–95.
Jonker, J. (2003) ‘In Search of Society: Redefining Corporate Social Responsibility, Organisational Theory and Business Strategies’, Research in International Business and Finance. SI: Social Responsibility: Corporate Governance Issues, 17.
Jonker, J. and M. J. van Pijkeren (2005) ‘In Search of Business Strategies for CSR: Some reflections on the development of business strategies for corporate social responsi- bility (CSR) followed by a qualitative analysis of the actual strategies being deployed by the German DAX 30 companies based on publicly available material’, unpublished working paper.
Nohria, N. and S. Ghoshal (1997) The Differentiated Network: Organizing Multinational Corporations for Value Creation(San Fransisco, CA: Jossey-Bass).
Roome, N. and J. Jonker (2005) Whistling in the Dark: The Enterprise Strategies of European Leaders in Corporate [Social] Responsibility, ICCSR Research Paper (Nottingham: International Centre for Corporate Social Responsibility, Nottingham University Business School), pp. 1–39.
Schoemaker, M. (1998) Organiseren van Werk en Contractrelaties: Tussen Slavernij en Anarchie(Deventer: Kluwer).
Schoemaker, M. (2003a) ‘Identity in flexible organizations; experiences in Dutch organizations’,Creativity and Innovation Management, 12 (4).
Schoemaker, M. (2003b) De metamorfose van werkgemeenschappen (Nijmegen:
Katholieke Universiteit Nijmegen).
Schoemaker, M. and J. Jonker (2005) ‘Managing Intangible Assets’, Journal of Management Development, 24 (5–6), pp. 506–18.
Weick, K. E. (1995) Sense-making in Organizations(Thousand Oaks, CA: Sage).
Wenger, E. (1998) Communities of Practice: Learning, Meaning and Identity(Cambridge:
Cambridge University Press).
5
Social Capital and Corporate Social Responsibility
André Habisch and Jeremy Moon
Introduction
This chapter underlines the significance of social capital for business and the contribution that corporate social responsibility (CSR) can make to investment in social capital. We follow Adler and Kwon (2002, p. 17), who state that social capital can be ‘understood roughly as the goodwill that is engendered by the fabric of social relations and that can be mobilized to facilitate action’. It generates mutual confidence and stimulates actions that would not otherwise be possible, as noted in Putnam’s (1993, p. 167) definition of social capital as a set of ‘features of social organization, such as trust, norms and networks that can improve the efficiency of society by facilitating coordinated actions’.
Social capital is thus closely associated with the underpinnings of social relations such as trust and norms, and with their main manifestations: social institutions and networks. The fact that social capital has been deployed in explanations of both broad social problem solving and business success (see below) makes it especially suitable for consideration in the context of CSR. The latter is generally defined as the activities of a business that compensate for its social externalities and other broad social benefits. It is generally regarded as discretionary in that it goes beyond the minimum legal requirements. Traditionally CSR has been regarded as lying outside the organization’s main profit-making activity, reflecting its origins in business ethics and business philanthropy. However this dichotomy has been prob- lematized by research that sees CSR either as ‘profit-related’ (for example Moon and Sochacki, 1996) or as a business strategy (for example McWilliams and Siegel, 2002). These analytical developments have been complemented by the advent of the business case for CSR at the practitioner level. The case for CSR is therefore increasingly predicated upon the assumption that busi- ness and societal interests can be consonant.
Social capital and CSR share a number of characteristics. Both concepts are in vogue in the academic and practitioner worlds (Solow, 1995). They are
63
both relatively fuzzy. From the theory of the firm perspective, this reflects their status as intangible assets. From a purely conceptual perspective, it reflects their status as cluster concepts that overlap other equally fuzzy concepts (for example trust and ethics respectively). We have argued else- where that CSR is an essentially contested concept (Moon et al., 2004;
Habisch, 2004). The task of exploring relations between two fuzzy concepts may therefore seem a vain one from analytical and practitioner perspectives.
Our contention is that, like other concepts such as justice and democracy, notwithstanding their fuzziness they are important from the perspective of both individual actors and total systems. Moreover, their importance is not simply in isolation but also in their relationships.
This chapter rests upon the following related propositions:
● In general terms business success is dependent on functioning societies that require mutual confidence (or social capital) among individuals, organizations and institutions.
● Social capital is at risk among and within societies.
● Individual business success is dependent on the confidence (or social capital) of societies and actors therein (particularly the business’s stakeholders).
● Social capital between business organizations and other social actors is at risk.
● Large corporations have particular opportunities and incentives to invest in social capital.
● CSR offers means by which businesses can invest in social capital.
There are numerous indicators of a decline in social capital in Western and developing societies and between those societies. While these indicators are complex, society-specific and highly contingent some generalizations are possible. First, in many Western countries people are behaving in a less associative or participatory fashion. This is illustrated by declining political participation, as evidenced by reduced electoral turnout and declining membership of traditional political organizations,1 and there are growing complaints about certain groups being marginalized from the benefits that democratic citizenship is supposed to offer. Second, and more generally, there is evidence of a decline in wider forms of civic association. This is illustrated by declining membership of a range of associations, from churches to sport- ing clubs, and is vividly captured by the title of Putnam’s (2001) analysis of the decline of sociability in America: Bowling Alone. Third, opinion polls indi- cate a fall in popular confidence in the capacity of political leaders to address basic societal problems. Although these trends do not specifically apply to business, our proposition is that business requires functioning societies for its overall survival and prosperity. This is captured in the maxim ‘a healthy high street depends on healthy back streets’ (Economist, 20 February 1982).
Fourth, and critically from our perspective, the general reduction in trust is illustrated by declining confidence in the probity of business leaders, and in the responsibility of multinational corporations in particular. This is in part a reflection of cyclical bad news about business, ranging from the negative environmental and health impacts of business, such as the Exxon Valdezand Bhophal disasters, and corrupt business practices, such as Robert Maxwell’s misappropriation of employee pension funds, to more recent accounting frauds such as that by Parmalat. Following the Enron and Worldcom scandals it was reported that whilst Americans retained great faith in each other, their trust in ‘CEOs and big business priests’ was in decline: 70 per cent distrusted the CEOs of large corporations and 80 per cent believed they would take improper action (USA Today, vol. 16, no. 7 2002). More widely, a 15-country study of trust conducted for the World Economic Forum found that whilst 56 per cent of respondents trusted NGO leaders, only 33 per cent trusted the executives of multinationals.
Moreover, there is growing suspicion of the will by national and suprana- tional governments, multinational corporations (MNCs) and international economic institutions (for example the International Monetary Fund and the World Trade Organisation) of the developed world to deal fairly with the developing world. This has been illustrated by the activities of NGOs and the increased reluctance of developing country governments to agree to the developed world’s terms of trade. The atmosphere of growing distrust between business and NGOs and between developed and underdeveloped countries is hindering further improvements to global trade and the integra- tion of global markets. Thus the issues dealt with here apply to future eco- nomic development on a global scale.
The significance of the fourth and fifth indicators needs no elaboration if it is accepted, as we shall demonstrate below, that trust within and among businesses and between business and society is vital to business success.
The finding that trust in the fabric of modern society is declining corre- sponds with structural and institutional analyses. In the late nineteenth and the early twentieth century – in some countries more than others – national governments became key players in solving collective problems. Governments provided public goods such as roads and bridges, as well as providing legis- lation and controlling and punishing law breakers. Citizens contributed by paying their taxes and participating in the public life of democratic society.
With globalization and the growing international division of labour, however, the social contract of the industrial society no longer prevails. The experiences of the late twentieth century show that even in developed countries many problems – unemployment, a decline in public education, infrastructure and health care, family dissolution and so on – can no longer be satisfactorily addressed by twentieth century means (see Moon, 2004).
This governance deficit is even greater in transitional and developing countries, where a predatory state is often part of the problem rather than its
solution. Lack of trust corresponds to a lack of cooperation between different groups in society, between business and society, between the public sector and business, and between the public sector and NGOs. In this perspective even the development problem can be framed in terms of lack of trust within the society of a developing country. Overregulation and the depression of entrepreneurial activities on the one hand and ‘hit-and-run’ strategies such as tax evasion on the other constitute a behavioural equilibrium of mutual distrust that has to be overcome if development is to be fostered (Habisch, 1998).
We argue that business, and MNCs in particular, should not take a victim’s perspective on this state of affairs; rather they are well-equipped to contribute to the renewal of social capital. First, large corporations are not only complexes of contracts but also manifestations of very extended networks of trust. Second, large corporations have numerous resources that are pertinent to investment in social capital: not simply the wealth they can bring to bear in market and non-market activities but also their extended networks with each other and their even wider networks with a whole range of businesses and governmental and social stakeholders. Third, large corpo- rations are increasingly regarded as key players in social governance as governments withdraw from, seek assistance with or simply never had the capacity to meet social expectations of good governance (Moon, 2002;
Moonet al., 2004). Fourth, by virtue of their increasingly conspicuous status in new national and global politics, MNCs have most to lose if trust in business in general declines (Habisch, 1999).
It should also be noted that there is a collective action issue here. If, as the secretary general of the OECD recently concluded, ‘[r]estoring market integrity is essential to winning back public confidence and to helping economies grow’ (Johnston, 2003), who is responsible for investing in social capital to that end? Whereas in the twentieth century capitalists were content to rely on governments to meet their collective interest in maintaining social stability, given the current decline in trust in govern- ment and the fall in governance capacity, particularly on a global scale, this looks as though it will not be a sufficient solution in the twenty-first century. Thus the imperative for MNCs to address social capital is all the more pressing.
The following sections elaborate on the concept of social capital and relate this to business.