Defining corporate social responsibility (CSR)

Editor: The late George Lodge, of Harvard Business School, once said that shareholders have the option of voting with their feet but the other stakeholders don’t have the same option.

Jaffe: That is true to a point, but in today’s environment, in a world where there is a much heightened expectation of how companies do business and relate to the community, businesses are compelled to operate under both laws and broadly defined standards of conduct.

In the United States it started with the antitrust movement and the labor movement and grew with the FDA, the SEC, the FTC, the Foreign Corrupt Practices Act and a host of other regulations.

Now, with the OECD and the UN, among other conventions, there are growing restrictions worldwide on the way corporations may operate, especially if they are U.S. registered. There are now actively enforced requirements and restrictions for workers’ rights, anti-corruption laws, and publicized standards set by non-governmental actors, such as Transparency International.

So how you do business has changed to the point where it is not just the shareholder who can walk away. Years ago exporting production to a developing country meant you bought at the least amount you could pay, with no regard to labor or social conditions.

Companies can no longer afford to do business that way and the manufacturing and apparel business made that very clear.

Good corporate governance keeps the government away; good corporate governance keeps the profits high; lack of turnover in the workforce keeps the cost of doing business low; satisfying and keeping customers and clients is a more effective way to keep your business profitable.

Broadly speaking, it is a matter of corporate self-regulation, concern for law, ethics, international norms, environment, the public sphere, for all the stakeholders in the business. At its best, it is a top down and bottom up way of doing business that includes risk management, and attempts to deal with all of the issues that affect not only profit in the short run, but also keeps the workforce, the customers and the community loyal to the corporation.

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