CSR in the Era of Globalization
by Catherine Rafferty | published Dec. 11th, 2019
Businesses are responsible for making money. They need to make profits to pay their workers and to continue to fund making more of their product for society. However, an often overlooked responsibility of businesses is their social and cultural impact.
Large U.S. firms have become more and more politically engaged, publicizing their stances on polarizing issues and policies, such as LGBTQ rights, climate change, geopolitics, gun control or immigration reform, in response to changing consumer expectations.
Corporate social responsibility (CSR) is the idea that businesses should be conscientious of their impact on the communities they serve and be actively seeking to benefit society at large.
There are different frameworks that companies can employ to take steps toward incorporating social responsibility into their business practices. This can help them make big decisions about when to choose profits, when to choose their values and how to balance their two competing interests.
The question is, are these efforts to be socially responsible always in good faith? Or are they just trying to improve the public’s image of the company to make even more money?
A Closer Look
The National Basketball Association (NBA) had to make an ethical judgment call in a recent debate sparked by their connection to markets in Hong Kong and China.
Daryl Morey, general manager of the Houston Rockets, had no idea that his simple seven-word tweet would spark a controversy that crossed between cultures, geopolitical spheres and corporate ethical bounds.
On Oct. 4, 2019, he tweeted, “Fight for freedom, stand with Hong Kong” — a reference to his support of the anti-extradition bill protests in the former British colony. It has since been removed from Twitter by the NBA.
The corporation backpedaled on Morey’s statement. This followed the announcement that the Chinese Basketball Association would suspend all cooperation with the Rockets. The Rockets would also lose the sponsorship of two Chinese companies — multinational conglomerate Tencent and NBA-affiliated shoe company Li Ning.
The NBA issued a formal apology, stating the tweet was “regrettable.” China is the NBA’s second largest market and, by making these attempts to repair their business relationship, critics believe they failed to stand behind a basic right to freedom of speech — a freedom that many Americans feel should have been defended.
The apology prompted bipartisan examination from American politicians who denounced the NBA for appeasing Chinese authoritarianism rather than supporting the American value of democracy.
Texas Senator Ted Cruz tweeted and condemned the sports giant for “shamefully retreating” when faced with the decision. Beto O’Rourke, former Democratic candidate for the 2020 presidential election, conceded with Cruz, denouncing the NBA for “blatant prioritization of profits over human rights.”
The NBA isn't alone in its actions, though. Other American entertainment companies are complying with Chinese censorship to protect their own business interests.
Activision Blizzard, a major American gaming company, suspended Hong Kong-based professional gamer Ng Wai "Blitzchung" Chung because of a comment supporting Hong Kong protests during an official interview after winning in the highest level of the online card game Hearthstone in early October. Blizzard argued that Blitzchung’s comment brought him into “public disrepute,” a violation of the Hearthstone Grandmasters rules.
Both incidents raise questions about how businesses must balance making profits and supporting values, whether those values be those of the organization, the country of origin or the host country in which they are operating.
Balancing Ethics with Profit
American companies that operate overseas must take into account the impact that expressing their political views has on the social environments they do business in. By voicing political opinions, corporations put themselves in difficult positions with foreign business partners, especially when they have vested interests in markets whose political forces are at odds with each other, as seen with Hong Kong and China.
Robert Barbato, a professor of management who teaches a class on business ethics, says businesses do not necessarily have to sacrifice profits to be socially aware. In fact, in order to do good business, the company should have been considering their social standing from the start.
“We want to be mindful of making sure that anybody we do business with is better off because we've done business with them.”
“We want to be mindful of making sure that anybody we do business with is better off because we've done business with them. This is the beauty of business,” he explained.
Barbato continued, stating, “This requires a moral awareness, moral sensitivity, moral imagination [and] sometimes moral courage on the part of companies. And it requires a balance, being able to understand that there are different competing tensions [and] goals that have to be addressed at the same time.”
The NBA has previously pushed back against markets that threaten its moral values domestically. The league pulled their 2017 All-Star game from Charlotte, N.C. in response to the passage of a law that would restrict transgender individuals’ access to identity-conforming bathrooms.
In the case of China, the NBA is dealing with an entirely different set of moral and ethical standards than in North Carolina. It also has a significant amount of financial assets — capital — to protect. Their operations in China alone are worth $4 billion annually.
Barbato emphasized that businesses must protect capital in order to operate properly, and if they do their jobs right, the exchange of capital should be helping people.
“You shouldn't see this as just greedy people wanting to make more and more money. This is about capital, and using capital wisely and efficiently for the betterment of the world,” he said.
"This is about capital, and using capital wisely and efficiently for the betterment of the world.”
Critics of social responsibility, such as American economist Milton Friedman, defend the idea that business’s only responsibility is to make a profit. Friedman wrote a well-known book detesting corporate social responsibility called "Capitalism and Freedom."
In a 1970 New York Times op-ed, he wrote, “Only people can have responsibilities. A corporation is an artificial person and, in this sense, may have artificial responsibilities, but 'business' as a whole cannot be said to have responsibilities, even in this vague sense.”
Friedman explained social responsibility does not work because corporate executives would become “civil servants” and would be using their employer’s money to carry out their individual social responsibilities or serve a general social interest when he should be acting as an agent of the stockholders of the company.
However, businesses have been employing these non-market strategies — strategies that do not contribute to the financial interest of the company — for years. They are able to gain soft power by engaging in these activities. A lot of firms choose to take a stand on political issues because they can lobby, endorse political candidates and fund political campaigns to shape public policies in their favor.
The difference with CSR is that the audience of the corporation’s view on controversial topics is not only politicians and public officials, but also the employees, customers and public at large.
There are some instances when companies try to be socially responsible and it goes wrong. Ethics — what an individual or organization values — is what's most important. They can vary from place to place and can change over time depending on a variety of factors. Americans value free speech, like in the case of Morey’s tweet, and many would have preferred for the NBA to have defended this value on the global stage.
Barbato believes the company needs to have respect for the other country’s culture while still sticking to their own moral standards. He argues it would be “moral imperialism” for the NBA to assume that their values are superior to any other markets’ values.
However, they should not become “moral relativists” and simply accept that the values of one of their global markets without stopping to consider if the organization was going to benefit from them in the long run. Barbato believes moral progress comes with the understanding of other people’s morals in relation to one’s own and finding a way to balance the two.
“We have to try to navigate the sweet spot that properly balances the competing tensions. This is what being in a moral dilemma is all about,” he said. “But hopefully what results from this is we make progress.”
Social and ethical responsibility are also connected to the sustainability of a company. Companies may make business choices to preserve their business and the world for generations to come.
In 2015, the U.N. proposed the Sustainable Development Goals that highlight 17 key areas of sustainability. Many of these goals include social elements, like “decent work and economic growth” and “responsible consumption and production.”
Companies are starting to see the importance of social responsibility to their consumer base. Research shows that engaging in social responsibility pays off.
According to a study by Nielsen, 48 percent of U.S. consumers say they would “definitely or probably change their consumption habits to reduce their impact on the environment.” Another study done by University of Toronto sociologist Josée Johnston found that nearly two-thirds of consumers resonated with the statement, “shopping is a powerful force for social and environmental change.”
Gretchen Wainwright, senior lecturer in the Department of Civil Engineering Technology, Environmental Management and Safety, explained that businesses are now issuing CSR reports. There are two main frameworks in place for companies who want to be more sustainably minded — becoming a certified B-corporations or issuing a GRI report.
Certified B-corporations, according to their website, have aims for “reduced inequality, lower levels of poverty, a healthier environment, stronger communities, and the creation of more high-quality jobs with dignity and purpose.”
Smaller firms apply for B-corp certifications because they see it as a marketplace differentiator. All by “harnessing the power of business,” the company is able to pursue its non-economically driven goals without harming profits because the certification builds the consideration of stakeholder impact into the legal structure of the company.
GRI Sustainability Reporting Standards, which are designed for larger corporations, is the first and most widely adopted global standard for sustainability reporting. They collect data on a corporation’s impact on critical sustainability issues such as climate change, human rights, governance and social well-being.
Wainwright said that before these new standards, companies didn't fully commit themselves to social change.
"They weren’t necessarily standing up or supporting some of the big social issues and social change that needs to take place."
“They weren’t necessarily standing up or supporting some of the big social issues and social change that needs to take place. Especially when it comes to governments, democracy and freedom," she said. "They were essentially just paying lip service to it.”
These reports are not only good for the consumers of the products or the people living in the environment of the company, but also for the health of the employees of the company.
In a study published in Strategic Management Journal, researchers Caroline Flammer and Jiao Luo found that companies employ CSR to “(1) improve employees’ productivity, (2) differentiate themselves from their competitors, and (3) decrease employees’ dissatisfaction associated with firms’ stigmatized image.”
“It’s important to have your social obligations and your social position known,” Wainwright said. “Think about someone who works for the NBA — maybe someone whose family is from China or Hong Kong ... what’s he supposed to think now that it’s more important for the NBA to make money than for them to support his countrymen or people that he knows are being attacked by police in Hong Kong?”
CSR is more important now than ever before, especially in the era of globalization and the internet. Consumers not only welcome corporations to take a stand, but are expecting it. According to a 2018 study by Global Strategy Group, 77 percent of Americans believe that corporations have a responsibility to take action on important issues.
Barbato pointed out that the controversy within the NBA raises society’s awareness of the implications of social media.
“This is something that we never would have imagined in the early years of social media, that we would have created a call-out culture like this, and a bunch of social justice warriors were just waiting for somebody to do something wrong,” he said.
Businesses should be wary of how their core values impact their business strategies and how the public views them, for their sake and our own.