CHAPTER 2 CORPORATE SOCIAL RESPONSIBILITY
2.3 H ISTORICAL C ONTEXT OF C ORPORATE S OCIAL R ESPONSIBILITY
2.3.1 Dawn of the CSR Movement
Scholars generally view the 1920s as the dawn of corporate social responsibility (Walton 1967; Heald 1970; Mitchell 1989; and Post, Lawrence and Weber 2002). Hay and Gray (1977) however, move the origin of CSR to the nineteenth and early twentieth century, viewing CSR in three phases.
Profit maximization was the first among the three phases and the corporation’s social responsibility was to increase wealth. Reflecting the attitudes and needs of American society at the time, “economic growth and accumulation of wealth were primary national goals” (Hay and Gray, 1977:9). This view of CSR is echoed by Milton Friedman (1970) in his now classic work, “The Social Responsibility of Business is to increase its Profits”.
During the 1920s business leaders in America began to involve their companies in reaching out to the community and providing benefits to employees. During this era, business owners saw the problems of society and the problems of labour as something they should use their company’s power and wealth to correct. For example, unemployment had been viewed simply as a factor of changes in supply and demand and was corrected automatically by the ‘invisible hand’. In the 1920s, however, many business leaders believed that they had a responsibility to provide workers with sufficient wages and security. This urge of social responsibility by business leaders was strongly influenced by their religious beliefs, well embedded in American society.
Post, Lawrence and Weber (2002) suggest the concept of corporate social responsibility evolved from the actions of wealthy American business leaders like Andrew Carnegie, John Rockfeller and Henry Ford who were guided by the twin ideas of charity and stewardship. As an act of charity, wealthier members of society should care for less fortunate members of society through philanthropic giving. As stewards, business executives with control over vast resources should direct a company’s activities for public benefit. These moral
values were again largely derived from the religious background of American society at the time.
Carnegie demonstrated his understanding of corporate social responsibility through his benefactions to libraries and universities through his Foundation.
Rockfeller, for example, endowed the University of Chicago in 1896 and later gave $53,000,000 to help in education of Southern Negroes (Walton, 1967:
42). In 1914, Ford directly influenced the lives of his employees by raising their wages from $2.34 to $5.00 per day and in 1919 began a profit-sharing system by selling investment certificates to workers. Instead of treating workers as a cost factor in production, Ford viewed social responsibility as embracing workers in a way that no comparable large industrialist had done up to that point (Walton, 1967: 44).
By the 1930s, businessmen established pension plans, employee stock ownership and life insurance schemes, unemployment funds, limitations on hours, and high wages. They built houses, churches, schools and libraries, provided medical and legal services, and gave charity (Mitchell, 1989: 3).
These notions of social responsibility must have its roots somewhere. The strong influence of religion on American society at the time followed by the practices of religious moral values and philosophy by individuals prompted these notions of social responsibility within the corporate sector.
Kuhn and Shriver (1991) point out that during the early twentieth century calls for corporate social responsibility also came from outside the corporation in the form of unions. Although employees are now viewed as internal voices of the corporation, at that time, managers and courts treated unions as third-party outsiders who endangered corporate property (Kuhn and Shriver, 1991: 41).
Describing unions as “early models of corporate constituencies”, Kuhn and Shriver (1991) describe union efforts of railroad and mining employees to
criticize and change corporate policy. Even in its earliest form CSR had the dual character of originating both from inside and outside the corporation.
Hay and Gray (1977) describe this time in the development of CSR as trusteeship when the corporation recognized that multiple groups such as employees, customers, stockowners and creditors held competing claims. A manager became a trustee for more than just the owner’s concerns when making decisions for the corporation. Diffusion of corporate ownership through stock contributed to this situation as no single owner or even small group of owners controlled the corporation. Multiple stakeholders such as unions and government had an impact on corporations and influenced the corporation to address demands of multiple groups. This was partly influenced by the Christian notion of brotherhood in society.
Mitchell (1989) however, argues that corporate social responsibility is an outgrowth of the modern corporation’s need for legitimacy in society. In a political analysis of economic power, Mitchell (1989) promotes the idea that CSR by managers is a hedge grown to keep big government out of big business. If corporations provide some measure of social benefits, it keeps government from stepping forward to protect the public from business practices viewed as self-serving and having a negative impact on society. In essence, he argues that CSR is the way corporations have defended their power in twentieth-century America (Mitchell, 1989:154).
The current wave of interest in CSR dates from the early 1990s (Henderson, 2001). In many ways it is only the latest manifestation of a longstanding debate over the relationship between business and society. Since the rise of the corporation in its modern form in the late nineteenth century, this debate has ebbed and flowed, through periods when corporations extend their control and periods in which society attempts to regulate the growth of corporate power
and corporations attempt to re-establish their legitimacy in the face of public criticism.
The consolidation of large corporations in the United States in the late nineteenth century led to the anti-trust movement and the regulation of utilities (Richter, 2001). Demands that corporate power be reined in led major US companies to emphasize corporate responsibility as they ‘sought to demonstrate that corporations could be good without the coercive push of governments and unions’ (Bakan, 2004: 18).
The Great Depression of the 1930s contributed to a second wave of regulation, exemplified by Roosevelt’s New Deal in the United States and the nationalizations and regulations of the post-war Labour government in the United Kingdom. At the international level, the proposed International Trade Organization’s draft charter, signed at Havana in 1948, included measures that addressed international investment, employment standards and restrictive business practices; but it was never ratified by the United States (Richter, 2001).