Commentaries | Aug 21,2021
September 26 , 2021
By Bereket Alemayehu ( an adjunct lecturer at Addis Abeba University and a Market Access and Trade Policy Officer at the UK Department for International Trade in Ethiopia. The views contained in this article are those of the author and do not represent any institution he is affiliated with. He can be reached at firstname.lastname@example.org. )
To effectively benefit society and themselves, businesses in Ethiopia need to adopt a comprehensive approach to CSR, embracing its economic, legal, ethical and philanthropic aspects, writes Bereket Alemayehu, an adjunct lecturer at Addis Abeba University and a Market Access and Trade Policy Officer at the UK Department for International Trade in Ethiopia. The views contained in this article are those of the author and do not represent any institution he is affiliated with. He can be reached at email@example.com.
The role of businesses in society has been extensively discussed, typically involving various arguments and positions. Policymakers, academics and business leaders have long been pondering and debating the exact responsibilities of businesses in society. It is undeniable that companies have to earn a profit since they are for-profit in purpose. Hence, the debate focuses on whether businesses have responsibilities other than generating profit.
In this regard, two theories have quintessentially formed the bases of the debate, which have also led to middle ground positions on the issue. The stockholder theory, mainly advocated by Milton Friedman, states that the only social responsibility of businesses is to make a profit, nothing more or less. Managers of firms should, thus, be concerned with and toil for only maximising shareholder value.
In contrast, the stakeholder theory, propounded by such scholars as Edward Freeman, asserts that as businesses’ operations impact many stakeholders other than its stockholders, they have responsibilities towards all stakeholders, including their owners. Employees, the environment, local communities, suppliers and financiers are some of the stakeholders. The idea of the “triple bottom line” that denotes businesses’ responsibility to their owners, people and the planet is based mainly on this theory. The stakeholder theory has generally garnered acceptance, albeit its specific application can vary in each context. The notion of “corporate social responsibility” (CSR) is also based on this theory.
Although CSR can have various connotations, it generally signifies that a business has responsibilities to society beyond its obligations to its owners. According to the widely cited “Carroll’s CSR Pyramid” (named after the scholar who developed the Pyramid – Archie Carroll), the responsibilities are broadly categorised as economic, legal, ethical and philanthropic, which are put in a bottom-up order in a pyramid diagram. While economic responsibility demands businesses to make a profit to survive in the market, legal obligation refers to their duties as required by laws, such as complying with environmental standards and paying taxes. Ethical responsibilities are what businesses are ethically expected to do even though they are not legally required to do as such. Philanthropic obligations are those that companies carry out because of their altruism.
CSR has been endorsed in various international and national instruments, demonstrating its importance as a social instrument to serve different policy objectives. At a global level, the UN Global Compact promotes CSR through its 10 principles that guide the operation of companies, focusing on human rights, labour, the environment and anti-corruption. The UN Sustainable Development Goals (SDGs) also recognise the crucial role of businesses in meeting the Goals, which are pertinent to CSR. Many bilateral investment treaties (BITs), including some of the treaties Ethiopia has signed with other countries (for example, Brazil), also explicitly require or encourage investors to discharge their CSR. There are national laws and non-binding instruments besides these.
It is worth noting that the effective discharge of CSR, aside from its extensive benefits for society, has also been found to be beneficial for businesses themselves. Many studies, such as Paul Hohnen’s work, reveal the positive relationship between a company’s discharge of CSR and its enhanced profitability, such as through building its reputation in the market. This is commonly referred to as the “business case for CSR”. There is as such a financial incentive for businesses to engage in CSR, apart from its benefits to non-owner stakeholders.
CSR has also reached Ethiopia. These days, many Ethiopian businesses, particularly the big ones, talk of it. However, their view mainly focuses on its philanthropic dimension, a narrow interpretation of the concept. This is evident from their statements, where they say they are discharging their social responsibility when they engage in charitable donations. A look at the “CSR” section of the websites of Ethiopian businesses, if they have a functioning one, also reveals that they equate it with philanthropy. While philanthropy is no doubt a component of CSR and can help promote social welfare, CSR transcends it.
A broad view of the concept is interestingly espoused in the new Investment Proclamation. The Proclamation obliges investors to comply with laws and give due regard to social and environmental sustainability values, including environmental protection and social inclusion. Other societal values in Ethiopia that can fall in the CSR framework of the Proclamation, which businesses can champion, include honesty, fairness and benevolence. Although the Proclamation does not apply to all companies, the fact that it came up with an explicit mandatory CSR requirement is commendable since it can be the basis for further promoting social responsibility in all businesses across different sectors of the economy.
Firms based in Ethiopia, thus, need to adopt a comprehensive approach to CSR, embracing its economic, legal, ethical and philanthropic aspects. Economically, they have to continue to ensure their profitability as their primary responsibility. This is because it is impossible to talk about their other obligations if businesses do not sustainably operate in the market.
However, when they work for profit, they must comply with their wide-ranging legal obligations, including complying with environmental standards and creating decent working conditions. They also need to discharge their ethical responsibilities to ensure that they have honest and fair business practices, such as providing quality goods and services, refraining from unjustly and excessively increasing prices and using environmentally-friendly equipment and methods. Moreover, they have to give back to society as part of their philanthropic duties by engaging in activities such as community development.
It is also invaluable for businesses to prepare tailor-made CSR objectives and strategies in advance as part of their overall plans and implement them accordingly. This can spare them from engaging in CSR haphazardly. Having a clear strategy can enable them to earmark money (like a percentage of their annual net profit) and human resources for implementing it. It can also serve them as a road map for their CSR engagements.
Adopting a comprehensive strategy to CSR and strictly executing it will benefit businesses and society. While it can help businesses increase their reputations and profitability, it can also enable them to make a meaningful contribution towards improving living standards (including their employees’) and achieving sustainable economic development. This will amount to, as the Ethiopian adage says, “hitting two birds with a stone.”
PUBLISHED ON Sep 26,2021 [ VOL 22 , NO 1117]
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