What is Corporate Social Responsibility, abbreviated commonly to CSR?

CSR is business way to show to Society that it recognizes their interdependence and that it cares for Society’s welfare by giving over and above its usual contribution through its products & services and its other operational factors.

This giving may be seen as the result of a company’s own way of assuming its responsibility to the community local or global and can find expressions in many and various forms as it happens to us as individuals that we understand differently our responsibilities and obligations and express them in different forms as convenient.

One way for example could be when a company donates to Charity acting as a good citizen.

However this though important and praise worthy, does not constitute Strategic CSR.

What is Strategic CSR?

The diagram below exhibits a possible conception:

From this it may follow that Strategic CSR are those acts that firms do to increase Society’s welfare that have also the effect of enabling Society in return to contribute to the growth of the firm in a way that creates shared value. That is, both the firm and society grow in a mutually reinforcing give-and-take way that constantly increases company prosperity and society wealth by what is known as a multiplier effect.

A second diagram that does justice to the mutual interdependence of business and society is the Circular Flow Diagram which shows in no uncertain terms even in the normal way of doing business, the prevailing interconnection of Business and Society through the link of goods (products) and services and through the link of factors of production.

On this diagram CSR is introduced by two new additional links that connect business and society in even more direct ways, arrows A & B shown below.

The printed diagram is taken from the book Principles of Economics 6th Edition by N. Gregory Mankiw

Arrow A – Company gives so as to improve/increase Society’s welfare but selectively to that type of welfare which at the same time has positive effect on available factors that would serve as enhanced inputs for its own health and growth, shown by the bottom curved arrow.

With improved inputs the firms are enabled to produce enhanced outputs-products shown by the top curved arrow.

Arrow B – Company establishes direct sensors to identify Society’s needs with the purpose to subsequently address them and by so doing the firms produce meaningful products more in tune to society real needs, shown again by the top curved arrow.

Our model does not include some of the other factors that Porter identifies in its competitive context diamond namely that of related & supportive industries and external conditions & rivalry because first we wanted to keep the simplicity of the diagram and second those two factors left out are rather rarer areas of CSR.

The above process when set in its circular motion has the potential to create a sustainable virtuous circle of wealth creation for both the company and society and this is what could constitute Strategic CSR!

Note: For a more detailed treatment of CSR, please see HBR article on Strategy and Society – The Link Between Competitive Advantage and Corporate Social Responsibility by Michael E. Porter and Mark R. Kramer