Commentary
When a business is conducted efficiently, effectively, and ethically, a business serves its own interests and also the society around it. Despite this comfortable collaboration, people outside those businesses continually debate about corporate America’s role in serving society. And while activities and initiatives related to Corporate Social Responsibility (CSR) have been around for ages, it wasn’t until the 1990s that CSR became popularized as a subfield in business studies—thanks in part to Dr. Archie Carroll’s 1991 publication, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders.”
As an academic in the field of management studies, Carroll sought to understand how businesses balance the interests of a firm with those of the wider community. And, in 1979, he began working on a framework to demonstrate a firm’s broader responsibilities, which later developed into the CSR Pyramid. Carroll’s CSR Pyramid has been cited as “the most well-known model of CSR” and, in recognition of his research, Carroll received the inaugural “Lifetime Achievement Award in CSR” from the Institute of Management, Humboldt University, Berlin, Germany.
The CSR Pyramid features four levels: the base is a firm’s economic responsibility and the next three levels consist of legal responsibilities, ethical expectations, and philanthropic activities. In Carroll’s earlier work, he referred to philanthropic activities as “discretionary (or volitional) responsibilities.” According to Carroll, such responsibilities “are those about which society has no clear-cut message for business… They are left to individual judgement and choice.” It seems, however, that duties Carroll noted to be discretionary back then have since evolved into an all-encompassing marketing mindset for businesses today. CSR kicked into high gear in the 2000s, developing metrics for CSP (Corporate Social Performance) and frameworks for monitoring ESG (Environmental, Social, and Governance). With this evolution in mind, it is perhaps worth revisiting Caroll’s CSR Pyramid to see how it has been turned upside down for modern day firms.
The CSR Pyramid
The CSR Pyramid was to serve as an intuitive model for categorizing business practices in relation to social responsibility. Economic responsibility is featured first for obvious reasons—to be a long-lasting business, a firm must be productive and profitable. Legal responsibilities fittingly come next since a firm must be law-abiding. The third and fourth levels, however, differ from the previous two since they are not necessarily required and are much less clearly defined. Ethical responsibilities are depicted as being expected while philanthropic activities are deemed to be desired; and actions pertaining to these upper levels may vary over time, dependent on the societal norms and the cultural context in which a firm operates.
Carroll’s framework was published just as conscious consumerism was trending upward and corporate America’s interest in cause-related marketing and the promotion of social impact activities was truly taking off. This was fortunate timing for political elites since, in 2000, the then United Nations Secretary-General Kofi Annan initiated the Global Compact with the aim of “uniting business for a better world.” Capital markets were being called upon to support the UN’s Millennium Development Goals, later updated as the Sustainable Development Goals (SDGs), and policymakers along with consumers seemingly favored the idea of business taking up the charge.
The Shift to Shared Value
The notion that business could play a greater part in social matters was well-received. Harvard Business Professor Michael Porter coined the term “shared value” to represent how businesses can meet social needs and economic needs simultaneously. This concept was quickly embraced by industry leaders eager for a higher calling and, at the start of 2011, Porter and Mark Kramer published ”Creating Shared Value: How to Reinvent Capitalism—and Unleash a Wave of Innovation and Growth.”
A bandwagon effect ensued with calls to reform business and, later in 2011, the debut of Richard Branson’s book “Screw Business as Usual.” Branson asserted that “it’s time to turn capitalism upside down and switch from profit focus, to caring for people and the planet.” Clearly Branson had latched on to the Triple Bottom Line (TBL) concept developed by John Elkington in the 1990s, which claimed that business success metrics should incorporate how a firm positively contributes to social well-being and environmental health. The “business for good” mantra was also adopted by John Mackey who co-authored, in 2009, “Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the World’s Problems.” Then, in 2013, with Raj Sisodia, Mackey published “Conscious Capitalism,” featuring four key tenets businesses should strive for: a higher purpose, stakeholder integration, conscious leadership, and conscious culture and management. Clearly, shareholder primacy was out and a stakeholder mindset was in.
The concept of “conscious capitalism” was first promoted by John Renesch back in the 1990s, and Patricia Aburdene predicted it would become a mainstream matter in “Megatrends 2010: The Rise of Conscious Capitalism”—and Aburdene was right. Conscious capitalism turned into a full-fledged movement when the nonprofit Conscious Capitalism Inc. (CCI) was formed with a “mission to reshape the purpose, practice, and perception of capitalism.” And CCI was far from being alone in such pursuits. Social entrepreneurship programs sprung up at elite universities across the United States, shaping the worldview of business students, while ethical certification systems and the creation of Benefit Corporations flipped Carroll’s CSR Pyramid on its head.
Running a business was no longer seen as an economic matter and social purpose advocates sought to supplant profit making as a firm’s core objective. Simon Sinek, famed guru and inspirational speaker for business leaders, has claimed that “The responsibility of business is to use its will and resources to advance a cause greater than itself.” And it is quite telling that this quote is prominently featured on the website for AACSB, a primary accrediting body for university business programs.
Supplanting Profit With a Higher Purpose
Many organizations and industry executives have, for decades, propagated the notion that a “new form of capitalism” is needed. Recent examples include, Marc Benioff of Salesforce published “Trailblazer: The Power of Business as the Greatest Platform for Change” (2019). Mark Bertolini, Chairman and CEO of Aetna, wrote “Mission-Driven Leadership: My Journey as a Radical Capitalist” (2019). Paul Polman, Unilever’s CEO, co-authored “Net Positive: How Courageous Companies Thrive by Giving More Than They Take” (2022). Darren Walker, President of the Ford Foundation, recently released “From Generosity to Justice: A New Gospel of Wealth” (2023). And this is only a small sample of the influential texts out there.An impressive number of corporate elites have banded together in The Coalition for Inclusive Capitalism (CIC). This organization is co-chaired by Marc Benioff, Lynn Forester de Rothschild, and other noteworthy high networth names. According to its website, the CIC was inspired “by Pope Francis’ public appeal to business leaders to respond concretely to issues of our day.”
According to the CIC’s website, Council Members “encompass heads of businesses, foundations, and nonprofits from every sector and region of the world.” Its Steering Committee alone represents $10.5 trillion in assets under management, $2.1 trillion in market capitalization, and over 201 million workers worldwide.
CIC Council Members “make actionable commitments aligned with the World Economic Forum International Business Council’s Pillars for sustainable value creation — People, Planet, Principles of Governance, and Prosperity” and work to “advance the United Nations Sustainable Development Goals.” Evidently, if Carroll were to craft his CSR Pyramid demonstrating business practices today for industry elites, he would need to feature social responsibility at the base and economic responsibility in a smaller, later stage. Such a firm may not remain “in business” very long.
Subjective Measures Can Lead to Coercive Pressures
By stripping business of its true purpose and identity (product or service providers that seek out opportunities for value creation and wealth generation), corporate executives stake their claim as social guardians instead. And while I can only speak on behalf of my own preferences, I’d rather have a business act in accordance with my needs and wants as a consumer or investor, instead of masquerading as a savior for society’s ills.These industry leaders (who, let’s not forget, have profited greatly from good old-fashioned capitalism) imposing their need for a higher calling on the rest of the business community is a cause for concern. Certification systems and rating agencies incentivize the interests of regulatory bodies which is why the creation of new standards and subjective metrics by the likes of CCI and CIC serve the aspirations of those already at the top rather than empower entrepreneurs who are working their way up from the bottom.
Businesses work best when voluntary actions are based on individual preferences and interests, not the skewed social views of an elite class. More to the point, the value of a business is neither fixed nor tangible, but an emergent process of investment and exchange. A business is only as strong as its customer base, only as secure as the property rights it holds, and only as successful as the employees and leaders that power its decisions. As such, the societal role of a business as a business is one that should be revered and rejoiced, not disregarded and debased. Indeed, the beauty of a business is that it is made up of a network of people who create, coordinate, and collaborate the means for exchange, without necessarily sharing social values—which is why capitalism doesn’t need to be changed.
From the American Institute for Economic Research (AIER)
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
