Effective Corporate Social Responsibility - Research Paper Example

? Scenario No. 7 Executive Summary The purpose of this report was to researchthe claim that being more ethical and socially responsible in business increases efficiency in the workplace. The results of this report suggest that firms which are proactively dedicated and committed to ethical and social activities gain advantages in terms of acquiring and exclusively enjoying reputational capital. Furthermore, firms can not only foster stakeholder loyalty, approval and trust through proactive CSR engagement but also quell future reputational risk. Effective Corporate Social Responsibility is also an important asset to acquiring critical stakeholder resources. Consequently, firms who have greater and easier access to required resources are expected to be better positioned to exploit the cost structure benefits of organizational efficiency and thus more likely to gain a performance advantage over their respective competitors. This examination should assist CEO, manager and senior firm officers strategize for our organization in this age of social responsiveness. Most prominently, the arguments and results garnered here lend support for the organizational benefit of effective CSR. It outlines a path from ethical and social performance to financial performance superiority, and demonstrates that firm may use CSR and more specifically the intangible Corporate Social Reputation that it promotes, as a substantive element in deriving a workplace efficiency and subsequent competitive advantage. Scenario No. 7 Introduction Organizations today face increasingly multifaceted, and often competing, motives and incentives in their decision making. More and more people, including consumers and investors, feel that corporations owe something to their worker and the communities in which they operative which may entail sacrificing some profit at times. Organization’s ethically and socially responsible practices, commonly referred as corporate social responsibilities (CSR), have been shown to be advantageous. Furthermore, research has also claimed that being more ethical and socially responsible in business increases efficiency in the workplace. The Chief Executive Officer of the company has asked the author to research above claims. Therefore, the purpose of this report is to review available literature and recommend CSR policies to assist managers and senior firm officers strategize for organization. Corporate Reputation An organization can improve corporate reputation at the same time while working toward establishing CSR, whether through incorporating higher human rights standards or by addressing environmental connections in the work ethic (Gaines-Ross, 2007; Speth & Haas, 2006). Reebok found that by incorporating internationally recognized human rights standards into its business practice it achieved improved worker morale, a better working environment, and higher-quality products (Holliday et al., 2002, p. 111). Manufacturing industries adopting sustainable measures are collaborating with institutions that support sustainable guidelines and are also improving and protecting their corporate reputations (Gaines-Ross, 2007; Grayson & Hodges, 2004; Holliday et al., 2002). According to Russell (2006), organizations that save money by cutting corners at the cost to the planet will be recognized as poor performers, which will ultimately affect the organization as incidents of environmental disaster will continue to linger in the minds of consumers. For example, in September 2006, the Dutch company, Trafigura Beheer, which unloaded toxic sludge on the coast of Africa, killing 7 and making 50,000 people ill, has experienced the backlash from consumers for its poor decision (Gore, 2006; Russell, 2006). Trafigura Beheer focused on the financial cost associated with disposing of the toxic waste product and chose an easier method (Gore, 2006). The mistake made to ship the waste to Abidjan instead of processing it ethically has desecrated the company's reputation, disastrously contaminated the soil, water, and has caused serious illness and death (Gore, 2006; Russell, 2006). Gore made the analogy of the cost, which was related to the dumping of the toxic sludge, to the current state of global pollution, and indicated that the outcome will not be in miles, it will be in years. According to Leffel and Sweeney (2007), while some organizations have the ability to reverse negative impacts quickly, other organizations, such as "Dow chemical have spent decades trying to make up for the wrongs of this subsidiary Union Carbide after the tragic cyanide gas leak in Bhopal in 1984" (p. 21). Numerous organizations that have encountered similar experiences and have chosen to adopt not only ethical leadership, but CSR as well, are currently outperforming their competitors, and as a result, these organizations have experienced a turn-around in profitable, environmentally safe practices (Leffel & Sweeney, 2007). Hopkins (1999) predicted that "as this new world takes shape, large enterprises will be more socially responsible than many governments" (p. 195). For example, Levi Strauss and Nike are heeding the sustainability call and are addressing issues of global human rights/social inclusion, environment, global development, supply chain accountability, and transparent leadership objectives. Consumers have begun to choose products, based on both product and business reputation, which were identified in more than 1,000 organizations that are working toward CSR (Grayson & Hodges, 2004; Hopkins, 1999; Leffel & Sweeney, 2007). Therefore it is important for management to differentiate the organization from its competitor by actively engaging in ethical and social activities. Firms which possess superior social reputations are thus endowed with a measure of distinctiveness which sets them apart from their competitors in the eyes of consumers (Sen & Bhattycharya, 2001). This distinctiveness is argued to contribute positively to the well-being of the organization. Company's relationships with employees, investors, and customers a. Corporate Social Responsibility and Consumers Attracting consumers may be one reason to invest in and promote organizational CSR. Research is beginning to establish links between organizational effectiveness, competition for consumers, and social performance (McWilliams & Siegel, 2001). Sen and Bhattacharya (2001) indicate that consumers may be positively or negatively impacted by a firm's CSR. A socially responsible firm creates the perception of reliability and honesty that some assume translates to high quality and trustworthiness (McWilliams & Siegel, 2001). There is some evidence that consumers respond more positively to organizations that they identify as having similar perspectives to their own (Maignan & Ferrell, 2001). A case in point is the joint venture automotive plant between General Motors and Toyota. Many customers purchased these cars in order to support the joint venture's dedication to innovation, employee-relations practices, and environmental responsibility (small, fuel-efficient cars) (McWilliams & Siegel, 2001). Webb and Mohr (1998) attempt to discover how consumers look at cause-related marketing (CRM) associated with CSR. While the research sample was small and method complicated, this research indicates that a percentage of the population responds positively to organizations that engage in CRM. These arguments suggest that Corporate Social Responsibility is an important asset to acquiring customer loyalty. Therefore, I would recommend the management to proactively engage in CSR activities because in this way organization not only foster stakeholder loyalty, approval and trust through this engagement but also quell future reputational risk. b. Corporate Social Responsibility and Investors Profitability can be related to consumers' perceptions of the organization (Stump, 1999). Investors have begun to look at the profitability of organizations with high levels of CSR and have developed investment models termed social responsible investing (SRI) (Hutton et al., 1998). In the mid 1990s, the Social Venture Network and Council on Economic Priorities estimated that approximately $600 billion was invested in socially screened investments. This has been revised recently to suggest that more than $1 trillion have been invested with social screens (Waddock & Graves, 2000). Hutton, D' Antonio, and Johnsen (1998) discovered that there is no significant difference in ROI in investing in a socially responsible firm; therefore, there is no fiscal disadvantage to selecting to invest firms that are socially responsible. This research suggests that firms should be socially responsible, but does not support the assumption that firms who are socially responsible will be financially successful. Waddock and Graves (2000) present research using Kinder, Lydenberg, and Domini (KLD) and Domini Social Fund (DSI) social investing indices. Like Hutton, D' Antonio, and Johnsen (1998), they conclude that there is no significant performance difference between traditional and socially screened investments; however, they also found that there seems to be no penalty in socially investing. Research measuring relationships among organizational effectiveness and corporate citizenship of 28 locations of a restaurant chain with more than 1,774 employees reported that organizational citizenship had an impact on profitability (Koys, 2001). Poor social performance may lead to negative financial performance such as the case of stock prices falling after the announcement of an automakers failure to meet safety standards. CSR can affect consumer and investor decision making. In approaching CSR, managers, and investors should treat these decisions as they would any other investment decision and realize that utilizing social criteria has been proven reasonably effective (Waddock & Graves, 2000). If a company can demonstrate that its social philanthropy or discretionary giving activities are making money for the company by marketing or attracting new clients, it can placate shareholders while improving its public image (Stump, 1999). Recent evidence suggests firms that use financial and social investment strategies and measures perform better than those organizations that only use financial criteria in measuring performance (Scherreik, 2002). Even with this evidence, other research using student simulations requiring students to take on the role of investors suggests that students do not perceive CSR as a strong organizational effectiveness measure. There remain, however, numerous investment firms that concentrate on organizations with social responsible performance (Hutton et al., 1998; Scherreik, 2002). The results of recent studies on social responsibility is mixed with many of the top one hundred firms being deemed "responsible" by reputable publications such as Business Ethics, but failing to return capital ROI to stockholders (Asmus, 2003). Therefore, I would recommend management to take actions to create a ROI for stockholders while not offending stakeholders. c. Corporate Social Responsibility and Employees In addition to the impact of CSR on organization reputation on marketing, investor relations, and competitiveness (Scherreik, 2002; Stump, 1999), some research also suggests relationships between CSR and workforce development issues (Marz et al., 2003; Peterson, 2004). Throughout the workforce development process, social responsibility of the employer has an impact (Greening & Turban, 2000; Koys, 2001; Marz et al., 2003; Peterson, 2004). Many firms realize the importance and the competitive advantage of recruiting and retaining a highly skilled workforce (Pfeffer & Salancik, 1978). This is especially significant for companies that seek to attract members of the labor force (Greening & Gray, 1994; Greening & Turban, 2000). People want to feel as though their jobs are special or that the firms that they work for are special. There is evidence that current employees' image of the organization serves as a basis for employees' perception of organizational actions (Holliday et al., 2002). Organizational leaders are also becoming conscious to the increasing number of employees who opt for careers with firms that have positive reputations and positively perceived CSR, or at least more positive than similar employers the candidates are considering (Koys, 2001). The managers' role in managing this important stakeholder perception is critical (Harrison & Freeman, 1999). Research suggests relationships between socially responsible organizational behavior and employee issues such as satisfaction and turnover (Koys, 2001). Therefore, I would recommend the management to find ways of incorporating responsiveness to stakeholder needs, because a corporation cannot operate optimally without the support of its most important stakeholders. In this instance, particularly its employees. Organizational Efficiency Both resource dependency theory and stakeholder theory explicitly acknowledge that firms are dependent on both internal and external parties for essential resources. Resource dependency theory argues that the firm's prospects of survival, growth, and performance are largely contingent on the firm's ability to access critical inputs from the internal and external environment (Pfeffer & Salancik, 1978). Similarly, stakeholder theory posits that the willingness of stakeholders to cooperate and share their resources with the organization primarily determines firm well-being (Freeman, 1984). Firms require both specific product inputs and institutional legitimacy to facilitate their continued existence and organizational development (Baum & Oliver, 1992). These inputs and environmental legitimacy are accessed through the stakeholder constituents that reside in the organization's specific and extended environment. Internal stakeholders such as employees provide the firm with critical production inputs such as labor and raw materials. External stakeholders including communities, activist agencies, industry regulators and governmental agencies grant the firm approval and institutional legitimacy which positively contributes to the willingness of others to interact and cooperate with the firm (Fombrun et al., 2000). While access to stakeholder resources (both productive inputs and legitimacy) is essential for firm survival, it can also be the catalyst through which firm competitive advantages are attained. Firms achieve superior performance when they are able to more efficiently and effectively acquire and utilize critical resources compared to their rivals (Mahoney & Pandian, 1992). Hart (1995) suggests that even generic resources, if acquired more efficiently relative to competitors, can facilitate a sustainable competitive advantage. Organizational efficiency is optimized when firms are able to streamline or 'routinize' their organizational processes and value chains (Eisenhardt & Martin, 2000; Helfat & Peteraf, 2003). This is accomplished when firms not only effectively combine and coordinate their specific resources but also efficiently acquire the inputs necessary for optimal firm performance. Acquisition of resources is therefore a substantial component of organizational efficiency and ultimately competitive advantage. Consequently, firms who have greater and easier access to required resources are expected to be better positioned to exploit the cost structure benefits of organizational efficiency and thus more likely to gain a performance advantage over their respective competitors. Positive and superior Corporate Social Reputation is built upon constructive and dedicated stakeholder-firm relationships. These relationships, unlike infrequent, arms-length market transactions, are characterized by increased levels of dedication, personalization, trust and partner affinity (Hillman & Keirn, 2001). The firm, by actively and consistently addressing stakeholder needs, engenders not only positive stakeholder perceptions but also a distinct atmosphere of stakeholder reciprocity (; Hillman & Keirn, 2001). The reward is posited to be a willingness on the part of stakeholders to grant the firm greater accessibility to the resources they are capable of providing. Examples include increased employee commitment and performance (Greening & Turban, 2000), legitimacy from environmental agencies (Klassen & Mcl.aughlin, 1996), and government concessions (Fombrun et al., 2000). Firms across the industry are collectively in competition for these same stakeholder resources. Significantly however, stakeholders are premised to reserve the greatest and sometimes exclusive access to these critical resources, to firms who have demonstrated effective CSR (Greening & Turban, 2000). This fact places firms with effective CSR at a distinct advantage relative to their competitors; an advantage that as noted above can be leveraged to promote organizational efficiency and ultimately sustainable performance superiority. Superior Corporate Social Reputations also promote the social desirability of firms, an additional attractor to would-be stakeholder partners. For example, Turban and Greening (1997) and Greening and Turban (2000) argue and empirically demonstrate that most prospective job seekers wish to be affiliated with firms that are generally perceived as being credible, legitimate and socially reputable and are thus more likely to apply and join firms with positive Corporate Social Reputation. This leads to both an increased applicant pool as well as a more qualified workplace which translates into a competitive advantage for socially reputable firms (Turban & Greening, 1997). These arguments suggest that effective Corporate Social Responsibility is an important asset to acquiring critical stakeholder resources. I would recommend the organization to actively involve in CSR activities because the enhanced accessibility the firm achieves via its social involvement consequentially contributes to an organizational efficiency advantage that the firm can leverage to gain and sustain performance superiority over its competitors. Conclusion In conclusion, research reviewed in this report support the claim that being more ethical and socially responsible in business increases efficiency in the workplace. The results of this report suggest that firms which are proactively dedicated and committed to ethical and social activities gain advantages in terms of acquiring and exclusively enjoying reputational capital. Furthermore, firms can not only foster stakeholder loyalty, approval and trust through proactive CSR engagement but also quell future reputational risk. Effective Corporate Social Responsibility is also an important asset to acquiring critical stakeholder resources. Consequently, firms who have greater and easier access to required resources are expected to be better positioned to exploit the cost structure benefits of organizational efficiency and thus more likely to gain a performance advantage over their respective competitors. This examination should assist CEO, manager and senior firm officers strategize for our organization in this age of social responsiveness. Most prominently, the arguments and results garnered here lend support for the organizational benefit of effective CSR. It outlines a path from ethical and social performance to financial performance superiority, and demonstrates that firm may use CSR and more specifically the intangible Corporate Social Reputation that it promotes, as a substantive element in deriving a workplace efficiency and subsequent competitive advantage. References Asmus, P. (2003). 100 Best Corporate Citizens: Companies that serve a variety of stakeholders well. Business Ethics CSR Report, 17(1),6-10. Baum, J. A. C. & Oliver, C. (1992). Institutional embeddedness and the dynamics of organizational populations. American Sociological Review, 57, 540-559. Eisenhardt, K. M. & Martin, J. A. (2000). Dynamic Capabilities: What Are They? Strategic Management Journal, 21, 1105-1121. Fombrun, C., Gardberg, N. & Barnett, M. (2000). Opportunity platforms and safety nets: Corporate citizenship and reputational risk. 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