As we are entering the new millennium, firms and in some cases non-business institutions are brandishing their tephrite-motto: corporate social responsibility (CSR). The layman may wonder why firms are getting more and more involved socially whereas their unique goal is to make profit. Are firms really becoming socially responsible or have they found a new way to hang on to their goal?

CSR is a mess-term. Trying to find the boundaries of this term may be as puzzling as looking for a terrorist in Afghanistan for some people. Lord Holme and Richard Watts from the World Business Council for Sustainable Development refer to corporate social responsibility as ?the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large? 1.

All firms live and operate in society and community. Therefore, they do have economic, social and environmental impacts or externalities, may they be positive or negative. CSR is all about trying to have positive externalities or limiting the negative ones. CSR initiatives are of two aspects: internal and external.

Internal initiatives aim at optimising the quality of management in order to better satisfy the internal stakeholders (individual knowledge updates for employees, more flexible work processes?). External initiatives are concerned with actions that have an impact on the community. However, all initiatives are eventually meant to improve the firm?s image vis-à-vis internal and external stakeholders.

Corporate social responsibility has become part of many a big firm?s strategy. The telecommunications giant, British Telecom, is giving 1% of its corporate profits directly to communities each year. KPMG is ?running combined programmes, which support the communities and help reduce its impact on the environment through an integrated CSR team? 2. Hewlett-Packard is talking about ?global citizenship?. Carrefour is reducing and recycling waste.

And it is thriving because it is a business strategy that works! In his book Management published in 1977, business pundit Peter Drucker wrote that ?social problems are malfunctions of society. But for the management of institutions, and, above all, for business management, they represent challenges. They are major sources of opportunity?. He was just right. Delivering a quality product or service is not enough. Chief executive officers must not only satisfy shareholders but also stakeholders. Firms must now have good business sense. Having it gives a real competitive advantage. If it was not profitable, sustainability, social responsibility and business ethics would not be the new buzzwords of many a corporate annual report and indices of socially responsible companies would not have been created by the FTSE and Dow Jones (the FTSE4Good and the Dow Jones Sustainability Indexes).

Firms integrating corporate social responsibility in their business strategy are recognised for it. ?The next big thing in brands is corporate social responsibility (it will be clever to say there is nothing different about our product or price, but we do behave well)? 3. But corporate social responsibility not only enhances brand value and reputation, it also has other obvious benefits: increased employees commitment, good relations with government and community, long-term sustainability for the firm, improved financial results ?

Thus, firms are making socially responsible investments (SRI) because the benefits are considered to outweigh the costs. It would be ludicrous for a firm to make non-profitable investments. The ultimate goal of firms is profit and not the well-being of community and society. They are not supposed to replace the Welfare State. Is CSR a sham then?

Certainly, but firms are not to be criticised. Indeed, SRI can only be beneficial to society may they be hypocritical investments. People, saying that ?the new commitment to CSR is a sham, behind which the search for profit carries on as before, leaving capitalism in good shape after all? 4, are right. But the business of businesses is business and not charity.

<I>1 Making good business sense, January 1, 2001 ? 2 www.kpmg.co.uk ?

3 The Economist, September 8, 2001 ? 4 The Economist. November 17, 2001</I>

<B>by Thiruthiraj A. Pather (Edhec Business School) </B>