The Reasons Companies Engage in Corporate Social Responsibility - Essay Example

? Companies engage in CSR because, for several reasons, they consider it will be suitable for their profit margins” Critically discuss this view of Corporate Social Responsibility using relevant literature to support your arguments and analysis. Student’s name: University: Course: Tutor: Date: Introduction to corporate responsibility The aspect of corporate social responsibility has become popular over the years, with the debate ranging from corporation managers, the media and the school going children. The business community is, however, the sole party that social responsibility touches most. For example, Google revealed that there were more than ten million hits for searching the term. In spite of the pervasiveness of CSR, its meaning and whether it is essential for profits to the business world is quite varied. A multitude of definition of CSR exist, and the range of views on the proper scope and extent of a firm’s social responsibilities, as well. Whether CSR is about companies giving charities, taking care of the environment, being sympathetic to workers or assisting their communities with expectations of financial gains remain a controversial subject (Bacher, 2007, p 12) The right definition of corporate social responsibility becomes more difficult when real business examples are taken into consideration. For instance, was Google acting in a publicly accountable manner when it put up with the Chinese law by sieving the content found through its google .cn search engine? Was UBS Bank acting socially responsible by opting to spend investors’ money to willingly reduce its carbon emission to attend to global warming when there is no legal duty to so. Does Heineken beer firm offer costly HIV/AIDS medication to its African workers and their beneficiaries if this is not anticipated to bring financial gain to the company? In order to address these questions, it is essential to examine why firms go beyond the bottom line in an attempt to defend their CSR (Adams & Zutshi, 2004, p 32). A possible definition of CSR holds that the idea of social responsibilities presumes that the company has not only economic and lawful obligations, but also definite duties to the community, which go beyond these duties. Another explanation states that social responsibility is the duty of decision makers to take actions that guard and enhance the wellbeing of society as a whole along with their own interests. CSR is also taken to mean the continuing commitment by businesses to act ethically and contribute to economic development whilst enhancing the quality of life of the employees and their relations, the local community and the wider society, as well. Several elements found in various definitions suggest that corporations have duties that go beyond their bottom line (that, is, production of goods and services at a gain). These duties entail helping unravel significant social problems, which the business itself has helped create (Adams, 2008, p 366). Companies have a wider constituency than shareholders only. Organizations serve a broader assortment of human values than can be captured by a sole focus on economic values. Narrower points of view on CSR hold that businesses have two main responsibilities. One is to abide by the elementary canons of each day face to face civility and to seek material gain. The second duty is the fiduciary obligation to investors (owners) is the bedrock of capitalism, and free enterprise will dry up without it. As such, definitions of CSR fall under two broad schools of thought: those with the view that business is mandated only to make profits within the boundaries of minimal ethical and legal compliance. The other school of thought holds that CSR entails broader responsibilities. Numerous factors and influences have resulted in mounting attention being devoted to the role of businesses and corporate social responsibility. They comprise of sustainable development, globalization, corporate sector impact, governance, finance, communications, ethics, leadership, business tool and consistency and community. Studies from United Nations and other world bodies have established that mankind is consuming natural resources at a quicker rate than they are being restored. If this trend goes on, there will be no resources for future generations, implying that most of the present advancement is untenable. This calls for greater attention for the respect of human rights and poverty alleviation. CSR, therefore, is an entry point for comprehending sustainable progress aspects and reacting to them in a corporation’s business strategy. Economic globalization is highly augmenting concerns associated to human resource management practices, health and safety and environmental protection. CSR may play an essential role in detecting how business affects local populations and financial systems, and the steps to be taken to make sure business aids to uphold and create the public good. This is particularly significant for export oriented organizations in growing economies. Governments and intergovernmental bodies like OECD and the UN have come up with principles and guidelines outlining norms, which they value as acceptable for business behavior (Benn & Bolton, 2011, p 59). CSR instruments usually reflect globally agreed upon goals and rules with regards to the environment and human rights. The size and number of firms and their prospective to influence social, environmental and political systems relative to government and civil society pose queries on influence and accountability. Corporations are international emissaries of values and change. Their behavior thus becomes a matter of interest. Modern communications technology provides opportunities to improve partnerships in the context of CSR. Consumers and investors are exhibiting concerns in supporting responsible business practices, and are demanding more information on how firms are handling issues related to social and environmental issues. A CSR approach may help build share value, reduce capital cost and ensure superior receptiveness to markets. Several high profile breaches of business ethics leading to stakeholders’ damage have resulted public mistrust of companies. A CSR approach may help enhance corporate governance, transparency and ethical standards. Businesses are also acknowledging that embracing CSR can lower the risk of business distractions and increase brand and company name (Belal, 2008, p 18). Theoretical framework and perspectives Though there have been an increase in interest regarding CSR reporting practices, there has been a lack of any agreeable theoretical perspective to explain CSR motives and activities. Nonetheless, there are several explanations on why firms do or do not embrace in CSR. These include political economy theory, stakeholder theory and legitimacy theory. Political economy theory (PET) offers insights on compulsory social disclosures by firms. This theory is related to the works of eminent philosophers like Max Weber. The state imposes distinct requirements on organizations through legal disclosure rules. The state maintains and furthers the capitalist system by consenting companies to do what they are doing, that is, maximization of shareholders wealth. The classical political economists, however, say little with regards to CSR practice, upholding that voluntary CSR may only be the crumbs of legitimation dropped from the capitalism table and thus inappropriate, other than as another mechanism by which capital safeguards itself. Pet forms the basis in which legitimacy and stakeholder theories are derived (Belal, 2008, p 19). Legitimacy theory holds that corporations may try to legitimize their tasks by involving in CSR so as to get endorsement from society in support of their continued existence. Society rules are not enduring. They vary from time to time and companies are necessitated to be responsive to changing social expectations in order to be viewed as “legitimate”. Firms may use diverse legitimation tactics whenever faced with diverse legitimation threats like, for instance, a monetary scandal or a serious accident like an oil leak. Though legitimacy theory offers valuable insights as to CSR practices, it is viewed as underdeveloped because; there are gaps within the theory’s literature. There lacks a clear explanation as to whether a specific stakeholder group is more influenced by legitimizing disclosures than others. The hypothesis concentrates on society as a whole whilst society is made of different individuals or groups with unequal influence. Stakeholder theory fills the gaps left by the legitimacy theory by explaining which group is more significant and pertinent to the business. The basic principles of stakeholder are as follows. The organization has connections with numerous constituent groups (stakeholders), which influence and are affected by its decisions. The theory places value on the nature of these associations in terms of processes and outcomes for the company and its constituent groups. The concerns of all legitimate stakeholders have fundamental worth, and no set of concerns is understood to control others. The theory also centers on managerial decision making. Stakeholder theory has large and divergent literature developed from various disciplines like strategic management and business ethics. Its proponents developed three perspectives: descriptive/empirical, instrumental and normative. The normative view explains how management ought to deal with stakeholders. The instrumental view is associated to what happens if management treats stakeholders in a definite manner. The descriptive view focuses on the stakeholder management functions of the firm (Mock, Strohm & Swartz, 2007, p 70). Stakeholder theory has two discrete models. The first model suggests that companies are interested in stakeholders because of perceived benefits in terms of improved financial performance. The second model, also known as stakeholder commitment model holds that managerial associations with stakeholders are founded on normative and moral obligations rather than on a need to use those stakeholders exclusively to capitalize on profits. Other researchers and proponents of stakeholder theory suggest three dimensional conceptual models of CSR activity. The first aspect illustrates that a corporation would be receptive to the intensity of stakeholders’ demands. Thus, the power to influence CSR activity varies with the extent to which stakeholders control critical resources needed by the firm (Freeman, 2010, p 214). The second aspect is the strategic position embraced by the organization towards CS activities. An active corporation would employ a strategy of influencing the key stakeholders through CS activities, whilst a company adopting a passive strategic posture will less often monitor its associations with stakeholders and engage in minimal CS activities. The third aspect focuses on the past and the present financial performance of the firm. Financial performance determines the implicit weight of a social demand and the concentration it gets from executive decision makers (May, Cheney & Roper, 2007, p 76) Relevant literature to support arguments and analysis CSR explains the principle that corporations that companies can and ought to make a constructive input to the society. CSR is the practice of running the environmental, economic and social impacts of a corporation being receptive to stakeholders and behaving in accordance to a set of ethics that are not stipulated by the law. Stakeholders are individuals and groups who are directly or indirectly affected by the company’s decision. The phrase CSR in practice may also describe to a broad variety of actions that corporations may take, from giving grants to charity to lowering carbon emissions (Berger, 2011, p 102). Therefore, companies involve themselves in CSR for several reasons that they think will be excellent for their earnings. The company reasons for CSR emphasizes the gains to staff and consumer loyalty, reputation and the need of maintaining public goodwill. For instance, BP adoption of a strategy to place itself as an environmentalist and a socially responsible citizen on the aspect of climate change by purchasing a solar company is an excellent indication of a corporation trying to take leadership on a subject where it finds itself condemned. The emergence of anti-corporate activism over human rights and environmental issues created a change in corporate attitudes towards environmental and social matters. The 1970s 80s witnessed principal global boycotts of corporations investing in South Africa, remarkably Nestle and Barclays bank boycott. Nestle boycott resulted from the corporation’s marketing tactics in its South African division. The earth summit held in Rio, in 1992 proposed regulations for multinationals to engage in voluntary corporate environmentalism. The anti-corporate criticism culminated in 1995 as the limelight focused on Shell Company. The company was blamed for taking part in the assassination of Ken Saro Wiwa and other activists in Nigeria, and dipping the Brent spar oil podium, as well. As a result, shell provisionally lost the public and investors’ confidence. The issue also awakened most players in the business world on the need for community standings, and the capacity of their campaigners to damage them. As such, a tactic to persuade the public that companies played a significant role in society was vital. Shell became the first corporation to prepare a corporate report among leading companies. The report contained an agenda of environmental sustainability, which was vital in re-branding of Shell Corporation. This CSR report strategy was triumphant in reestablishing the company’s standing among principal decision makers and outlook formers. Therefore, CSR emerged as straight reactions by firms to anti-corporate activisms, as well as the harm to repute crusades were able to cause. CSR stands for victory for companies in bringing to life again their public image, and colonizing the subject space around the environmental and social impacts of business. Another clear proof that corporate social responsibility is used for a firm’s profitability is the Enron scandal. CSR had become a functioning industry till 2001, when the giant Enron collapsed, yet the company was a quintessence of CSR. This openly revealed how deeply a company’s claims to social responsibility may diverge from verity. Before the Enron scandal, CSR was viewed by many as a way to infuse corporations and public companies with morality and ethics senses. Enron scored high in CSR pointers and was looked at by many as an example to emulate in practicing social responsibility. The scandal repercussions were devastating for thousands of workers and small investors. Many people were tricked into believing the good intentions of Enron, which suggests that some CSR principles act as smokescreens. Enron tricked the entire globe with the aid of CSR technologies, whilst CSR is actually aimed at preventing such an incidence. The Enron scam shows that with some inventiveness and dexterity, corporations may employ instruments like CSR to avoid the responsibilities that CSR is intended to help (Bilson, 2010, para 3; Burns, J. (2000, p 568). During a global meeting on sustainable development in 2002, CSR was crowned again, where a framework was developed for firms to ensure corporate accountability, implying that firms only need to promote the best practice. CSR serves to promote the interest of the firms but not the wider society. The reason is that the nature and the structure of a company are not fit for social responsibility. Responsibility means obligation, control, responsiveness, authority, as well as duty of care. Thus, CSR is not in the appropriate context of corporations as they seek to engage stakeholders, though without involving a duty to retort (Browne & Milgram, 2009, pg 89). This implies that the scope of CSR is self distinct, rather than publicly defined. The value of CSR cannot be accurately measured, and firms arbitrary assign value to CSR for public relations in a bid to increase their profitability. Additionally, directors and the company’s management are lawfully bound to operate for the sole interest of shareholders. Therefore, they would not tackle environmental and social issues if the activities do not result in economic growth, since their key goal is profit. Corporations perceived as the best corporate citizens are far-off from being publicly responsible (Carroll & Buchholtz, 2011, p 106). CSR ought to be a win-win situation where both the society and the company benefits. Nonetheless, the benefits that a corporation gets in CSR usually outweigh that of the society. Thus, CSR has a clandestine motive, usually to profit the firm. One of the corporate philanthropies of CR is giving donations, which is the investor’s money, and firms can only do so if they see a prospective gain from the donation. Corporations give away shareholders’ money in a bid to enhance their reputation by connecting themselves with a cause, to counter the views of pressure groups, or to take advantage of cheap advertising. However, the company does this with an underlying motive, so that it gains more than the charity (Corporate watch, 2012, para 3). CSR enables corporations to create brand loyalty and grow an individual connection with their clients by appealing to their customers’ desires and conscience. Most of the charity tie-ins by corporations enables them gain access to potential markets and engagement in charity offers greater powers to the company’s message. Corporations are taking advantage of the current media saturated culture to search for more ways to give away their message, thus offering many prospective avenues for guerilla marketing, ingeniously reaching customers. CSR also helps to greenwash a company’s repute, usually covering up negative impacts by filling the media with positive descriptions of the corporation credentials. This helps businesses claim of their development, regardless of the lack of proof of demonstrable change. Because most of the CSR cases for business vary on companies being viewed to be good citizens, CSR will persist being more than public relations, so long as it is simpler and inexpensive to twirl than to change (Seo& Creed, 2002, p 235). These are like British American tobacco, shell, BP, Toyota and Alcoa. For instance, Alcoa is constructing a plant for smelting aluminum in Iceland, in the face of extraordinary resistance by the locals. The plant will be sourcing its electricity supply from the hydro–electric dam that will flood vast sheathes of the last faultless wilderness of Western Europe, yet the company claims that it is socially responsible. Toyota, which consistently tops the CSR table, is the second largest automaker in the globe. Toyota hangs its environmentalist reputation on its Prius hybrid model that emits less greenhouse gases compared to the standard car. However, the company’s SUV model, which is a fuel guzzler and whose sales outnumber that of Prius hybrid is an environmental pollutant. One question that lingers is that, if these are the CSR leaders, what does those lagging behind do (Ethical consumer, 2007, para 3; Sims, 2003, p 89). Nike is another ideal case that clearly demonstrates this point by firms to use CSR for profitability reasons. In 2002, Nike was prosecuted over a deceptive public campaign by activist Kasky Marc. The supreme court of California ruled that the company had no right to lie, in preserving itself against condemnation. The ruling awakened the CSR movement. Nike defense was founded on the first amendment of the constitution on the freedom of speech. The court on its part ruled out the defense, asserting that Nike was not shield by the first amendment. The reason is that the speech in question was a commercial speech. The case moved from California Supreme Court to the US Supreme Court. Surprisingly, the legal briefs were forwarded by the finest media groups, public relations and advertising trade groups, as well as leading multinationals. These groups defended Nike’s action, holding that if a corporation’s statements on human rights, social and environmental issues are lawfully necessitated to be true, then corporations will not go on to make statements on these subjects. Specific brief from Microsoft, ExxonMobil, bank of America and Monsanto held that company speakers will find it tricky to address matters of civic concern incriminating their products, services or business processes; if a company’s each press release, consumer mailing, correspondence to the editor or website posting can be the foundation of civil and criminal actions. This case openly strengthens the analysis that CSR is nothing more than public relations exercise to increase a company’s profitability. Companies would be alarmed about prospective legal actions if they placed value on transparency, truth and accountability as seriously as they state. The briefs to the court indicate how vital it is for corporate to defend them against a legal verdict that would make it more intricate for corporations to make misleading claims to safeguard their reputation (Corporate watch, 2012, para 4-7). In a research by carried out by (Lundblad, Bell & College, 2011, p 18) on CSR report by ExxonMobil, the results showed that CSR reports differ from reality. The oils giant hit the Bligh reef and deposited around 11 million gallons of crude oil into the pure waters of Alaska in March 24, 1989. The company was sued on behalf of fishermen and other parties claiming to have been harmed by the spill. The company was awarded heavy damages by the jury, though it willingly paid to clean up the damage. The Valdez accident had gigantic environmental, economical, social and psychological effects on the residents of Alaska, many of which are still being felt today. ExxonMobil suffered from many years of legal and financial payouts, and damage to its reputation, as well. In order to establish whether ExxonMobil reported on the continuing impacts of the Valdez accident on the environment and the Alaskan population, Lundblad, bell and college looked through all CSR reports from 2002 to 2008, with the phrase “Valdez” being the key search name (Bilson, 2010, para 5). This was in a bid to set out if the corporation offered voluntary disclosures with regards to the “dreadful news” incident on an attempt to provide impartial reports in accordance to CSR literature. Amusingly, the 2002 did not reveal anything from the whole incident. Thus, one may question whether anything happened in during the year that stakeholders would consider material and essential for completeness criteria. This was against the stakeholder’s theory of corporate responsibility, further proving that CSR is just a gimmick for public relations to increase sales and eventual profitability (Hond, Bakker & Neergaard, 2007, p 73). An element that surfaces frequently in considerations of CSR is whether or not there is a verifiable connection between a firm’s social responsibility and its financial performance. Endeavors to measure this relationship have continuously been hampered by problems in measurement of variables. Several measurements of financial performance are subject to debate, thus there is no appropriate criterion. Additionally, there is no accurate measurement of social responsibility. Recent studies on the correlation between social responsibility and economic performance have yielded mixed results. Schmidt, Orlitzky and Rynes comprehensive meta-analysis of thirty years of research on the relationship conclude that social performance and financial performance are positively related. A recent study by Peloza asserts that there is small, though positive relationship between corporate social performance and corporate financial performance (Hawkins, 2006, p 96). A study by Forbes magazine on ethics in practice on whether there is a market for sustainable hamburger reveals that Burgerville not only sells burgers, but also good works. Burgerville was founded in 1961 in Washington, and has 39 outlets in two states. Burgerville started losing sales in its national chains in the 1990s, prompting its chief executive to differentiate the products. He decided to sell “burgers with a soul”, that is, combining good food with good works. The company started building its differentiation strategy around three key terms: local, fresh and sustainable. The organization followed this strategy through partnerships with farms, local businesses and producers. This strategy led to recognition of Burgerville as the home of the nation’s freshest fast food in 2003. The company’s website upholds that conducting business responsibly means conducting business sustainably. One CSR commitment for Burgerville is purchasing 100% local wind energy, which equals to the energy use of all its corporate office and all its outlets. The firm buys electricity from local windmills, and uses sustainable agriculture, implying that their meats and produce are free from genetically modified seeds the organization purchases its antibiotic and hormone free beef from local producers. In addition, the organization provides meals for children and offers the good works to its staff. Burgerville extends its good deeds to its workers by paying 95 percent of the health insurance for its workers. Being a good corporate citizen is costly; Burgerville margin is closer to ten percent, in comparison to fifteen percent for McDonald’s (Innes & Norris, 2005, p 86). Conclusion Three perspectives emerge from this research. One perspective is the belief that socially responsible companies are more financially profitable than their peers. To firms advocating the concept of social performance, it is evident that they take social performance as a driver of financial performance and, eventually, profitability and reputation. If there could be an accurate demonstration that socially responsible companies are financially flourishing and have superior reputations, this would reinforce the corporate social performance outlook, even in the eyes of its opponents. The second perspective asserts that a company’s financial performance is a driver of its CSR activities (Schwartz, 2011, p 106). This viewpoint is founded on the belief that SR is a fairweather impression. This implies that companies witness high levels of social performance whenever they have financial successes. In short, this perspective supports the view that the relationships between social-financial performance associations are best expounded by funds availability (positive synergy). The final perspective holds that there is an interactive association between and among financial performance, social performance and corporate reputation. This implies that that the three elements influence each other, and that it is not simple to ascertain which factor is driving the process. In spite of the perspective taken, every view supports an essential role for corporate social performance. There is a general indication that companies are starting to gain from their CSR activities (Sankar & Bhattacharya, 2004, p 13). This may be drawn from such evidences like constructive media profile, for instance in winning awards and surveys of stakeholders’ satisfaction from CSR driven business activities (Werther & Chandler, 2010, p 141). 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