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Corporate Social Responsibility Brings Benefits to Business

International companies engage in social responsibility in order to to improve their reputation, be more competitive, and to gain political benefits and some degree of control over society. In Russia, however, businesses convert social investment into informal privileges granted to them by government, according to a paper by Olga Kuzina, Professor of the HSE Department of Economic Sociology, and Marina Chernysheva, postgraduate student at the same department.

Every business seeks to maximize its profit, and Corporate Social Responsibility (CSR) would seem to contradict this logic by taking away some of the company's resources. Nevertheless, Russia's major businesses normally donate 1% or 2% of their net profits to charity.

Their motives for doing so or any links between financial performance and social responsibility are not immediately obvious. Olga Kuzina and Marina Chernysheva have examined Russian companies' reasons for engaging in CSR, and in their paper 'Corporate Philanthropy in Russia: An Economic and Sociological Analysis', they explain what kind of dividends Russian companies can expect from social investments and what impact they are likely to have.

Reputation Gains

Corporate philanthropy helps to build a good corporate reputation. In other words, companies agree to do more for society than simply create jobs and pay wages and taxes with the expectation of some reward, such as a good reputation or a competitive advantage in the local market.

However, it is often hard to tell whether engaging in CSR is actually good for the company's bottom line, note Kuzina and Chernysheva and suggest instead that businesses may have other motives for operating from a CSR perspective, such as the expectation of scoring certain political and social points.

CSR Helps Smooth out Inequalities

Corporate philanthropy can serve to promote solidarity in a society where different groups agree on what is ethical and beneficial, according to the researchers. In societies built on this consensus model, CSR can smooth out the effects of economic inequality, and corporations voluntarily support public benefit projects to achieve this goal.

The main stakeholders – businesses, government and civil society – operating within a consensus model, rely on various checks and balances. Thus, businesses seeking to maximise profits are regulated by the government establishing the rules of the game and reallocating resources between different parts of society through the taxation system.

In turn, civil society players prevent corporations from infringing upon the rights of employees and consumers and work to fill the gaps in the government's social services.

Charity Helps Govern Society

However, another theory based on Marxism rejects this consensus-based model of society and focuses instead on the conflict of interests between different social groups fighting for power. Seen from this perspective, corporations may operate through charitable foundations in trying to influence society's political and economic choices.

Thus, foundations can support organisations working for social and political change and thus enable corporations to monitor emerging ideas and screen out anything perceived as dangerous, according to Kuzina and Chernysheva.

CSR Helps Camouflage Vested Interests

Handing money over to foundations, as opposed to paying taxes, allows big businesses to remove large amounts from government control so that money stays within the same business 'elites' – not just because corporate owners hire family members to manage their foundations and distribute the funds, but also because foundations may use 'public benefit' as a smokescreen for financing certain areas of particular interest to business and political elites.

If this is the case, corporate philanthropy is little more than "a nice picture masking the dominant classes’ control over society," the authors comment.

Social Engagement Brings Political Benefits

According to some experts, the long-term survival of business as an institution depends on whether or not it meets society's expectations – if not, society may deny the corporation its right to exist.

In other words, if a business "fails to direct its power in accordance with social demand, its power is lost," as other institutions will then meet society's expectations.

In addition, it should be noted that companies emerge and operate in a certain institutional environment and need to play by the rules to be seen as legitimate by their key stakeholders. The government in Russia is the single most important stakeholder, setting formal and informal rules of the game and enforcing compliance, note the authors.

Charity Can Bring Privilege

An important incentive for CSR in Russia is that companies are required to engage with government and provide support to the government's social policies through financing major infrastructure, housing and utilities projects, social institutions and public events.

In fact, corporate social policies in Russia are often 'voluntary and compulsory' at the same time, which is partially attributable to a weak civil society. According to the experts, "where regional budgets lack funds, local authorities impose an additional tax on businesses by requiring them to make social investments."

Relationships between businesses and government bureaucrats can take a number of forms, such as 'administrative coercion', 'mutual agreement' and 'non-interference' – these self-explanatory terms have been coined by Alla Chirikova (RAS Institute of Sociology), Sergei Shishkin and Leonid Polishchuk (HSE researchers). "Where the parties negotiate an agreement, it usually means that a company is making social contributions in exchange for financial or organisational assistance from government, such as support for corporate investment projects, or access to infrastructure and public procurement," add Kuzina and Chernysheva.

The Russian Model of Corporate Philanthropy

The authors use a number of different approaches to examine CSO in Russia.

A consensus-based approach helps to explain why companies prefer social investment to one-off donations, thus financing the creation of long-term public benefit with a positive impact on social policies. Their main consideration is not so much financial or reputational gain, but an understanding that by helping the development of civil society institutions, businesses can eventually free themselves from being forced to patch holes in regional budgets.

Using the Marxist approach emphasising 'class contradictions' results in an interesting finding that, in contrast to the U.S. where corporations and their owners are perceived as the dominant class, in Russia it is usually the government bureaucracy. "Where profits are produced by using the administrative resource rather than the economic capital, a company's very existence, let alone profits, may be at risk without access to the administrative resource," explain Kuzina and Chernysheva.

The institutional approach suggests that in order to be successful, business should meet society's expectations. In Russia, it is mainly the government that formulates which social expectations should be met, and companies with a reputation of being socially responsible have some kind of legitimacy with the authorities. However, the study's authors believe that this approach fails to accurately reflect the specific relationship between businesses and government in Russia and argue that the nuances of CSO in Russia should be considered from an economic and sociological perspective.

Government Determines How CSR Should Work

Examined from this perspective, the relationship between government and businesses is based on mutual economic interest and the bureaucrats' desire to convert their administrative resource into economic gain. Here, the researchers refer to Max Weber's concept of patrimonialism, a system of governance where the authority distributes privileges in exchange for loyalty. According to the researchers, a similar arrangement drives corporate philanthropy in Russia – i.e. the government offers privileges to businesses in exchange for loyalty. "Charitable donations serve as a kind of tax paid by businesses in addition to official taxes," note Kuzina and Chernysheva.

This enables bureaucrats to hit several targets at once: relieve social tension caused by the underfunding of social services, earn a reputation as good managers and also keep businesses under control, since the latter are well aware that their sustainability depends on connections with the authorities, the authors conclude.

 

Author: Olga Sobolevskaya, May 26, 2015