Corporate Social Responsibility - Research Paper Example

Corporate Social Responsibility The foreign affairs and international trade department, Canada, has defined Corporate Social responsibility (CSR) as the way companies integrate social, environmental and economic concerns into their values and operations in a transparent and accountable manner. For most firms, it is integral to their long-term business growth and success as it contributes to the sustainable development of communities and entire nation from which those companies operate. The CSR include either participation or collaborating with government and NGOs organizations, civil society, academia, industries to uphold the stakeholder approach by creating and sustaining value in the community. Some of the activities that signify CSR include ethical conduct of activities; establishing stakeholder partnerships; engaging in environmentally-friendly activities; transparency in operations; complying with existing regulations and correction of social inequalities(world bank, 13) Firms participate in projects such Religious organizations; Culture; HIV / AIDS awareness , prevention and control; Sport; Support to ethnical minorities; Drinkable water; Technical training; Housing; Health ;Community development; Education(world Bank, 25). . In the following part, the paper will give insightful and exploratory explanations with few examples where companies and organizations have supported or declined to support the CSR projects. Reasons for CSR The optimistic observers see great scope for CSR to support a more open-minded form of capitalism, avoiding the worst examples of labour exploitation among other positive reasons. World Bank (23) notes that it is a way of gaining better reputation from amongst the entire stakeholder group. Furthermore, through CSR projects such as education and health, firms indirectly carries out social marketing activities with an aim of increasing its value in the community. It is also a personal commitment on part of management, executives and other shareholders participating in CSR to gain fame, respect and admiration from the public viewpoints. World Bank proposes that through CSR, there is promotion of employee relations within the same organization or between different organizations on both local and international scale. Better integration promotes strength in cultural diversity and may promote a better understanding of the community perceptions about the firms’ products, values and beliefs. This will encourage the product liking and adoption that can later increase the sales volume of the participating firm. By enhancing the relationship between the company and the community, there is a reduction in conflicts and general hostilities, thus promoting peace and harmonious co-existence between the two stakeholders. Through involvement in CSR, there is a promotion of the local brand recognition, adoption and acceptance by the community members (World Bank, 36) Some companies are culturally obliged to participate in acts of charity so that they gain recognition in the international scale. Employees volunteer as a way of giving back to the community (World Bank, 35). The adoption and implementation of IFRS by some companies that emphasizes on transparency, honesty and integrity in reporting of their financial statements has been one of the major core values pursued by the management of the company. For instance, Toyota Multinational Corporation constantly emphasizes on the International reporting standards that upholds integrity, honest and transparency in disclosure of financial information to the shareholders and to the potential investors. It leads potential investors making wise and informed investment decisions (Aaronson and Reeves). The Aaronson and Revees also argue that they get involved in CSR to achieve a fair degree of legitimacy and consistency in their operations to the external environment. The relationship between the firm and the community is consolidated from the CSR activities. As Reeve and Aaronson notes, this translates into a better public image that in turn leads to more profits (Windsor, 113). Reasons against CSR activities CSR as having no powers of sanction and have done little to affect working conditions in companies and multinationals. CSR pessimists argue against the concerns of corporate social responsibility with the following reasons. First, firms that engage in CSR gain excessive power and control of the society in their spheres of operations. Karl notes that there is a positive correlation between the amount of revenues and the incidences of corruption, violent conflicts and even civil wars. For example, in the past and even present, oil companies such as Total and Exxon have, due to their excessive revenue inflows, been involved in many deadly scandals in Nigeria delta region. They have contributed to the environmental degradation such as pollution and civil wars that have been rampant in those communities for decades. Drastic impacts have resulted in including poverty, continued hostility and even death (Auty; Fridtj; ECON,3; Ross). Second, critics argue that by participating in CSR projects, the company will have deviated from its main mission or goal of creating wealth (economic motives). This implies that to critics, engaging on corporate social responsibility slashes the profit pies through increased operating costs. According to report by World Bank (34), the higher operating cost translates into decreased productivity thus impairing the profit margins of those companies. Examples include the closure of shell operations in 1995 after years of social unrest from the consumers because of increased degraded environments, fuelling of civil wars and encouraging of the corruption in oil rich industry in Niger Delta. World Bank Report (pp 34-35) notes that another risk of CSR is the increased regulation of those firms that in turn squeezes their space and autonomy. This has led to a heightened increase in conflicts between the government and executives. In the end, the companies’ name is tarnished. As pointed out, CSR responses directed at the macro level, such as disclosure of investments in host countries may expose companies to risk for sanctions from host countries (Gulbrandsen and Moe). In addition, fully exposure of financial data might reveal the companies weakness or otherwise the strength thus exposing its strategic intents to their competitors. This act of ‘too much honesty’ may be detrimental in the company’s execution of its business operations (Gulbrandsen and Moe). In today’s cut- throat competition and the ever-increasing demand for sophisticated high quality products with shorter life cycles, there is an increasing demand from various stakeholders. For instance, customers are increasingly demanding high quality products while at the same time preferring cheaper ones. On the other hand, shareholders are demanding an increase in share of their equities. The management and shareholders are in a constant conflict arising from the agency problems. This in turn reduces time and other resources devoted to improving the lives of the community (World Bank, 36; Gulbrandsen and Moe) Too much involvement in CSR activities has an adverse impact on the quality of products. This is attributed to slashed investment budget in modern technology, sophisticated tools and equipment, hiring of personnel that are more skilled and instead devoting much of its resources in CSR involvements. The quality suffers as much concentration is diverted to community projects (World Bank). The company may create a competitive disadvantage if it lacks a clear and concise strategic approach to all its missions. Conclusion CSR concerns promote the reputation of the firm, reduce the tax charged by the federal governments and improve the value of life of the communities around those companies. The youth, disabled and elderly have all benefitted from the education grants all over the world, improvement in the health facilities; environment conservation and provision of safe drinking water have all been pursued with an aim of enhancing the quality of life of the community. In the end, there has been a resultant viable relationship between the firm and the customers, most of who come from those communities. Acting as a social marketing tool, it promotes the customers’ perception about the firm that in turn translated into higher profit margins and more wealth for shareholders. However, it is an expensive undertaking as it increases the operating costs that have reduced the revenue of the firm. It has also adversely affected the quality of products as investments and concentration is diverted to CSR activities. Having considered all the pros and cons of CSR, will propose the involvement on CSR activities as the business world of today needs to satisfy all the stakeholders for survival, growth and profitability. Work cited Aaronson, S. and Reeves, J. “The European Response to Public Demands for Global Corporate Responsibility”, National Policy Association,2002. www.bitc.org/docs/NPA_Global_CSR_survey.pdf accessed on 8th march, 2012 Auty, R. M., Resource Abundance and Economic Development. Research for Action 44. UNU World Institute for Development Economics Research, 1998. BP. BP Business Policies: What we stand for.2001. Retrieved March 8th, 2012 from ECON. Nature, Power and Growth. ECON-Report 3, Oslo, Norway: ECON Centre for Economic Analysis, 2000. Estrada, J., Tangen, K. And Bergesen, H. O., Manageable or revolutionary? Environmental challenges confronting the oil industry. London, UK: Wiley & Sons, 1997 Fridtjof Nansen Institute/ECON. Petro-states — Predatory or Developmental? Lysaker, Norway: FNI-Report 11/2000, and Oslo, Norway: ECON-Report 2000 Foreign affairs and international trade, Canada, 2010 Accessed on 8th March 2012 http://www.international.gc.ca/iwglobal/utilities/FileProcessor.aspx?file=/images/template/dfait-maeci-eng.gif&version=20091217101206 Jennings, J., The millennium and beyond – some issues that will shape our Future. London, UK: Shell, 1996 The World Bank, Business perspectives about CSR. Development Communication Division ,World Bank, 2006 Windsor, D., “Corporate Social Responsibility: Three Key Approaches”, Journal of Management Studies, 43(1):93-114.2006 . Read More