What is CSR (Corporate Social Responsibility) To what is there a business case for CSR - Essay Example

?Corporate Social Responsibility Introduction Corporate social responsibility (CSR) is the concept of making innovative decisions for the benefit of business through the integration of social, environmental and economic considerations. It should be adopted by the companies, since it has several advantages. The following discussion substantiates this contention. It is a concept, wherein companies merge environmental and social considerations with their business activities. This definition is to be found in the Green Book, which is the first documentation regarding corporate social responsibility to be published in accordance with the European Union’s initiative. From this definition it becomes obvious that companies consider social and environmental issues at the time of planning and implementing their activities. However, this entire exercise is conducted on a voluntary basis. The fundamental rules of conduct for companies are enshrined in the individual laws and regulations. However, the core of social responsibility rests on the fact that companies deliberate upon these issues in much greater detail and that their conduct is at a higher level than that enjoined by legislation (Kornfeldova & Myskova, 2012, p. 90). Moreover, CSR is best viewed in terms of its pillars. These are the social, environmental and economic pillars. The last of these, namely the economic pillar affects the local, national and global economies. It can be termed the fight against corruption, the support and development of employment, and the endeavour to mitigate unemployment (Kornfeldova & Myskova, 2012, p. 91). The environmental pillar relates to company activities that are focused upon the environment. It denotes reduction in the adverse influence of company activities on the environment, the protection of natural resources, employment of environment friendly technologies, and reduction in emissions and other pollutants. The social pillar relates to education and the development of human capital, employment, benefits, equal opportunities and employment policies (Kornfeldova & Myskova, 2012, p. 91). Furthermore, organisations and companies can distinguish themselves from other entities by employing the device of corporate social responsibility. With regard to this device it is essential to realise that compliance is voluntary, as there is no legislative imperative. The ethics codes, statements or policies relating to the responsibilities of a company declare whether it adheres to the principles of CSR (Kornfeldova, 2011, p. 107). Arguments Opposing Corporate Social Responsibility Consumers will pay more for products that are the result of socially responsible outcomes of a business. For example, one research study, established that consumers noticed more value and benefit, regarding the offer emanating from a socially responsible firm. In such instances, it was observed that the consumers were agreeable to paying even an additional 10% for such products. Furthermore, social action that was distinguished by a direct effect upon the life of consumers was seen to have a greater positive effect than social action with an indirect effect (Ferreira, et al., 2010, p. 208). However, social action with an indirect effect on the lives of consumers will have a smaller positive effect. In some cases, CSR will be detrimental to corporate interests. The following discussion supports this argument. CSR has been criticised for adopting practices that serve to camouflage or divert public attention from corporate illness. It never discloses what transpires in the company on a clandestine basis. A glaring illustration of this deceit was provided by Enron, which had been described as one of the 100 Best Companies to Work for in America. This company was honoured with six environmental awards in the year 2000. Subsequently, it was disgraced and branded the most irresponsible company in the US. Enron boasted of some of the best policies relating to anti – corruption, climate change, and human rights; and its demise caused considerable consternation to the American public (Fan, 2005, p. 346). Initially, CSR had spawned a vast array of corporate practices. Several of these practices have emerged in the context of acts of responsibility. From the perspective of a high level of abstraction there are two diametrically opposed stances. The first declares that the corporate sector should eschew such responsibilities and should focus upon maximising profits. This is based upon the perception that the fundamental social responsibility of a business concern is to enhance profits. In the words of Friedman, the business of business is business, which implies disregard towards any social responsibility (den Hond, et al., 2007, p. 2). This point of view has been expanded upon by Jensen who declares that two centuries of effort in economics and finance indicate that there is a maximisation of social welfare, when every firm of the economy endeavours to maximise the total form value. From this perspective, any investment in corporate social responsibility will constitute a theft of shareholders money (den Hond, et al., 2007, p. 3). The second position states that business has to act in a manner that is socially responsible. This is the consequence of their influence upon society. The requirement of companies that they should act in a socially responsible manner is founded upon the underlying position that corporate decisions lead to moral outcomes (den Hond, et al., 2007, p. 3). As a result, it is indispensable for the corporate decision makers to seriously consider the moral consequences of the decisions that they take. Consequently, fair trade approval schemes have entered into marketing strategy. As such, an alternative marketing approach is provided by fair trade approval schemes to the small scale producers and cooperative groups of growers. This alternative approach enables them to sell their produce on trading terms that are by and large equitable. During the 1980s and 1990s, several Fairtrade labelling initiatives had been introduced in Europe. These initiatives were subsequently harmonised under Fairtrade Labelling (Robinson, 2009, p. 1016). On occasion, CSR practices results in lower profits to the corporation. For alleviating this problem, several models of corporate social responsibility have been proposed. These are explicit economic models relating to profit maximising corporate social responsibility. They promote the provision of some public or private good, or a social attribute that is appended to the customary private good manufactured by the firm. The presence of some negative outcome, such as pollution, is assumed by these models. Such outcomes are assumed with regard to the production of the private good, and these undesirable conclusions are abated by the firm, voluntarily, and not due to the requirement of formal regulation (Goering, 2010, p. 389). However, profit maximisation is a doctrine of classical economics, which constitutes the strongest argument against the assumption of social responsibility by business. From this vaunted perspective, the function of business is purely economic. Consequently, the true measures of success are provided by economic values. As the agent of the stockholders, the decisions of a manager are governed by the unswerving goal to maximise profits for the stockholders (Davis, 1973, p. 318) Argument in Favour of CSR Having acknowledged the benefits of CSR, many global entities are proactive in promoting its practices. For example, State governments, activists, companies and international institutions have combined forces, in order to promote improved CSR. An instance of this is the Global Reporting Initiative, which emerged from the joint initiative of the US Coalition for Environmentally Responsible Economies and the United Nations Environment Programme (Detomasi, 2007, p. 330). It is has been frequently noticed that CSR practices enhance the sales of the corporation. As such, an annual increase of 20% was noticed in International Fair Trade sales. Fair Trade has cornered a significant market share in several of the European nations. Moreover, there has been a 40% per year increase in the sale of Fair Trade products in the Pacific Rim and North America (Kim, et al., 2010, p. 589).These statistics prove that CSR practices have considerable impact upon sales. McDonalds is an example regarding the practice of CSR, across the world, through its chain of operations. Moreover, McDonald’s has made substantial contributions to the promotion of health and well – being of its guests, across the globe. This has been viewed by many as an important CSR initiative. This company has implemented stringent ethical practices in its supply chain. Moreover, it has proved to be a strong votary of the conservation of sustainable forests (Roy, 2007). Consequently, the situation obtaining in the contemporary global supply chains can be chiefly attributed to the market led strategies of the business enterprises. Another contributing factor is the compulsion to achieve competitive advantage, which has a major bearing upon the design of production systems. Any system that relies on voluntary initiatives by the global supply chains, in order to promote fair and ethical trade, relies to a significant extent upon the self – governance of corporations. To a certain extent, the retail sector can influence the global supply chains and the life of the developing countries’ workers. However, the major influence on these supply chains is exerted by the corporate sector (Robinson, 2009, p. 1023). It is in this milieu that corporate compliance assumes tremendous importance. CSR gained importance in the context of containing the problem of domination by the corporate sector. As such, CSR is a notion regarding the obligation of corporations towards the constituent groups of society (Crane, 2008, p. 34). Moreover, the objective of good corporate governance is to ensure that corporations are effective, sustainable, responsive, accountable and legitimate. The appraisal and reporting of information related to the influence of an entity and its activities upon society, has been described as social responsibility accounting. The latter could also be defined as a means of illustrating the degree to which an organisation lives up to its declared social and ethical objectives (Effiong, et al., 2012, p. 112) A marked contrast to such thinking was witnessed in the Ford Pinto incident, wherein the executives of the Ford Motor Company concluded that the compensation amounts to deceased or burned victims of their car would be much less than the cost of recall and redesign. This was an immoral decision, and it also proved to be economically disastrous, due to the loss of reputation (Crowther & Rayman – Bacchus, 2004, p. 209). Consequently, the primary responsibility of a business enterprise is to continue in business as a properly functioning economic entity. This is the first layer of corporate social responsibility, which is also the basis for the rest of the responsibilities (Crane & Matten, 2007, p. 49). Therefore, every corporation has to fulfil its economic and social obligations. CSR will enhance the financial performance of a company. For example, the empirical evaluation of the correlation betwixt financial performance and corporate social responsibility, which was conducted by researchers over the past 30 years, disclosed that this relationship was by and large positive. CSR is fundamentally perceived as ameliorating financial performance by improving a firm’s associations with its major stakeholders. Such improvement in trust serves to reduce transaction costs. Moreover, improved stakeholder relationships generate new investment opportunities and customers. This makes it feasible for the firm to become profitable (Lai, et al., 2010, p. 460). At present many companies are adopting CSR practices, in order to improve their financial prospects. As such, CSR is a paradigm that has been increasingly adopted by companies. In the financial markets of the UK and the US, a rapidly increasing interest in ethical investment and sustainability has been discerned. With regard to North America and Europe the growth rate is around 70%. In the UK, ethically screened funds vary from ?50 to ?100 billion, and the socially screened funds are around US$2 trillion. In addition, global indexes such as the Dow Jones assess the performance of companies. This evaluation relates to the companies that adhere to the globally norms of CSR, and such measurement facilitates investment in these companies (Lo & Sheu, 2007, p. 347). Consequently, any intervention that furnishes information, which alerts a firm to its social responsibility, constitutes a measure for inducing good corporate governance. An example of a medium for achieving this is provided by social responsibility accounting. The momentum generated by good corporate governance has propelled the business enterprises to adopt social responsibility accounting (Effiong, et al., 2012, p. 114). CSR benefits all the stakeholders associated with a business. In this regard, CSR had been described as the notion that corporations have an obligation towards the constituent groups of a society other than the stockholders. Moreover, this obligation extends beyond what has been stipulated by a union contract or the law (Mitchell, et al., 1997, p. 856). CSR proves to be beneficial towards the sustainability of the environment. As such, environmental responsibility is intricate and involves several aspects. It brings under its ambit, a number of corporate practices, the management of natural resources, issues related to waste generation and disposal, recycling, marketing environmentally friendly products, and the prevention and control of pollution. There is significant diversity between the corporate impact upon the environment and the efforts made by firms to reduce the harm caused (Vogel, 2006, p. 110). Conclusion CSR exhibits more advantages than disadvantages. Several companies have adopted its practices, with the objective of reaping benefits from business. CSR will boost the sales and improves the economic performance of the corporation. Many global giants are adopting these practices to enhance their profits. Consequently, it can be surmised that social responsibility accounting has substantially influenced corporate governance and the corporate image. Therefore, stakeholder relations are accorded greater importance, and there is a greater investment of resources into the environment and human capital. The result of these investments is improved company image, enhanced competitiveness, better productivity and higher profits. In accordance with the above discussion, it can be concluded that CSR provides good governance, which is beneficial for business, and the stakeholders. Hence, CSR should be adopted by all business entities, with a view to improving themselves in all aspects and to benefit society at large. References Crane, A., 2008. 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