Should Companies Subscribe to Codes of Corporate Social Responsibility - Assignment Example

? Should Companies Subscribe to s of Corporate Social Responsibility? and number submitted Abstract This article discusses the linkage between social responsibility and business. It explores the different theories of ethics and their applicability in the realm of corporate affairs. The paradox of the conjunction of social and corporate interests in a single concept of Corporate Social Responsibility is discussed. The superposition of individual attributes to corporate entities is enquired about at length. A test theory is derived for the concept of Corporate Social Responsibility using understanding about the natures of different types of organizations. The question about the characteristics of a socially responsible organization is addressed using the CSR theories of Geoffrey P. Lantos (2001). The article proposes that Lantos’ formula is a CSR morality stance that all ethical theories seem to conform with. Later in the article it is claimed that there is only one, comprehensively understandable condition of CSR morality that is the bone of contention for the popular ethics theories. Different concepts related to the ethics theories including consequential and non-consequential criteria of bases for the ethics theories are explained. Later on the article discusses the differences of the sceptics with the proponents of implementation of CSR principles. Then the article discusses how the concept of Corporate Social Responsibility has evolved in the last decade, what some of the influences of advancement in technology on the conduct of the corporate world in general are and where the ethical side of corporate structure is headed. Finally the article ends with a concluding paragraph. Should Companies Subscribe to Codes of Corporate Social Responsibility? Ever since R. Edward Freeman (1984) introduced at the global stage, and elaborated the concept of ‘stakeholder’, the concept of Corporate Social Responsibility has been evolving into an independent field of social sciences. Ethics and morality are at the hub of the discourse about social responsibilities in doing business. The debate rages on with universal academic interest deepening into the issue. The Business-Society Connection Elementary interpretation of the phrase ‘Corporate Social Responsibility’ calls for an investigation into the ‘supposed’ relationship between business and society. The hypothesis that there is a tangible link between business and society is the basis for the whole issue of Corporate Social Responsibility. One comes to the conclusion that the hypothesis is not true, when business, as all business, is considered. For instance, take the example of a logistics service, of any type for that matter. For example, in the case of a grocery supplier that charges farmers for transporting vegetables to the local market, there is little relation if any between business and the society at large. At least no responsibility in this case seems to arise directly from a business of this kind. According to Carroll & Buchholtz (2001), “when we speak of business and society relationships, we usually refer to particular segments or subgroups of society or to business and some system in our society”. Why this consideration is important is because it rules out the possibility of applying any holistic theories of corporate morality and conduct to business – meaning all business. Conventional Social Responsibility Anyhow, there are businesses that can be considered to be linked to society. However a non-living body cannot be expected to ‘act responsibly’. Social responsibility is a doubtlessly well-understood term in educated communities. The description and limitations of the phrase are cemented concepts. One definition of social responsibility states that being socially responsible means “acting with concern and sensitivity, aware of the impact of your actions on others, particularly the disadvantaged” (Entrepreneur Magazine). Understandably a human can use his intelligence to empathize with other humans and control his nature to act with ‘concern’ and ‘sensitivity’. But it is not viable to use this definition of social responsibility to judge a corporation, simply because corporations and persons do not have the same attributes, like ‘sensitivity’. Hence what is conventionally understood as social responsibility is a human trait and not applicable to an abstract entity such as an organization, this is emphasized by a quote by The First Baron Thurlow [1731–1806] Lord Chancellor of England: “Did you ever expect a corporation to have a conscience, when it has no soul to be damned and no body to be kicked?” (Cited in Poynder, 1844) Hence the disparity in the natures of human beings and organizations bars us from using any approach utilising principles of conventional social responsibility to conceive an idea of social responsibility for corporations. Corporate Nature Still the nature of an organization, if understood, can be used as the basis for formulating a theory of Corporate Social Responsibility. The nature of a for-profit corporation is not hard to understand. In many cases, a description of the nature of the organization is available in the form of a written document. To put it simply, the nature of an organization is determined by its goals and objectives and is essentially tinkered only by legal restrictions. This postulation is what Milton Friedman (1996) used, to argue that an organization is socially responsible only to its owners and its responsibility in this regard is to maximize profits for its stockholders while complying with corporate law and obeying only the fundamental tenets of ethical behaviour. Strategic CSR Hence the idea of Corporate Social Responsibility derived from knowledge about the nature of for-profit organizations does not feature the element of inherent social goodwill as one of the organizations’ goals and leads to the egoistic view of CSR. Still there is a possible scenario where the ultimate goal of an organization may fall in line with social welfare. That is the treatment of Public welfare activities as part of the pursuit of the primary goals of an organization set by its shareholders. Of course this implies that social goodwill becomes a part of improving either earnings or sustainability. This is referred to by Geoffrey P. Lantos (2001) as Strategic Corporate Social Responsibility and is also fundamentally in agreement with Friedman’s theories. All major CSR theories have concordance with the ethical righteousness of a firm pursuing a welfare agenda for its close and distant stakeholders if it is helping the firm in its actual interests. Elementary Breakdown of CSR But why is there not consensus among ethics theorists about the legitimacy of a corporate social welfare activity that the corporation does not benefit from? To answer this question one needs to understand the bases for the popular CSR theories. Archie Carrol (2001) identifies four areas of responsibility at the heart of all popular CSR theories: (1) Profitability for shareholders and benefit of direct stakeholders (2) Compliance with the law (3) Righteousness and fairness in doing business and (4) Positive contribution towards society through use of resources. Using Carrol’s description Lantos has formulated a three tier characterisation of Corporate Social Responsibility: CSR based on larger corporate interests; subservience of ethical and moral norms; and pure philanthropy. Duty-based Theory of Ethics Where there are differences among theorists relates to the last described form of CSR - apparently selfless welfare initiatives by organizations. Morality researchers contend that for a publicly owned company, this kind of activity is illegitimate. That is because by letting the community at large utilize the resources of the organization, the organization is looting its stockholders who may not consent or even know about their organizations CSR activities for a publicly owned company. Additionally the stockholders may not belong from the affluent class so they might be heavily dependent upon their shares of the organization for income. A utilitarian perspective, which John Stewart Mill (2000) describes as seeking the most amount of benefit for as many people as possible, would deem this kind of public welfare ethical, as the most amount of people in consideration for a CSR policy would always belong to the community at large. Hence the rights of stockholders would always be neglected. Therefore in this scenario a non-consequential, principle-based ethics theory would provide for a more reasonable evaluation of the moral legitimacy of the CSR policy, and deem it immoral and unethical. However, if an employee of the company like a manager spends his personal resources on behalf of a publicly owned company, the value of the company’s shares is not affected and such welfare activities are deemed legitimate. Similarly there is no objection to the use of its resources by a privately-owned company for any kind of philanthropy. Religion in CSR and Absolutism It is pertinent to mention that gauging CSR policies by religious moral standards is avoided by moral theorists for large or multinational organizations. In fact absolutist ethical standards rarely apply to modern organizations because of globalization, however some religious beliefs which are shared by the dominant religions of the world like the belief that ‘one of the purposes assigned to man by God is to help his fellow human beings’ play a vital role in defining the CSR policies of some corporations and also provide for very altruistic CSR policies. In fact modern secular discourse about incorporation of CSR practices acknowledges the fact that while ethical behaviour proves to be profitable in the long run, such a pragmatic consideration is not sufficient to motivate a person of ethical character (Lantos, 1999). Rawlsian Theory From the perspective of society as a whole, perhaps the best principles of moral standards that can be employed in CSR policy are those presented by John Rawls who has been touted as the greatest political philosopher of the twentieth century. Rawls stressed on the consideration of fairness as being synonymous to justice. With respect to CSR his theories on ethical righteousness call for provision of basic liberties by the corporation to its employees and to the people of the community it affects and the provision of equal access to opportunity to occupy any role in society to everyone. Rawls was one of the leading proponents of implementation of equal opportunity employment practices by organizations. He held the view that two persons in similar or same social circumstances having the same amount of “native talent and the same ambition” had an equal chance of succeeding in competition. Market research suggests that equal opportunity employers are performing better than their competitors and market competition will eventually drive out discrimination (Arneson, 1989). Criticism of CSR In spite of there being theoretically, goodwill and profit-sacrifice gestures in the CSR charters of numerous organizations, a large section of the Managerial Sciences fraternity is composed of scholarly critics of the CSR initiatives. These scholars argue against the standard notion of CSR, asserting that it is nothing more than a PR tool for companies who are looking towards new horizons to grow their businesses. Until the recent acknowledgement of CSR as one of the facets of a corporation, the general belief was that the only sellable quality of a product other than value-for-money is reliability; and to build a reputation for reliability companies go to great lengths. But now a new factor has come into play which is the company’s public image. Those who aspire to build market sustainability of their enterprises might term CSR incorporation a priceless tool. An example of a company going to great lengths to rebuild its public image is that of British Petroleum (BP) which has spent millions of dollars trying to appease environmentalists and consumers after its causing the Deepwater Horizon oil spill. "The real fallout is not financial; the real fallout is trust" says James S. O'Rourke, a professor at the University of Notre Dame, regarding BP’s perspective of the consequences of the oil spill. This is a case which seems to suggest that even adherence to CSR by a company is only an extension of the means of seeking its ultimate goal. N. J. Mitchell (1989) contends that terms like corporate citizenship, corporate social responsibility and corporate sustainability are only tools for large corporations for consolidating their power. Banrjee (2008) points to the fact that in the 1800s, U.S. state-issued chartered specified what an organization could and could not do, when it would cease to exist, and how it would take active part in serving the public interests. He says that in the legal framework in place at that time, a state could easily revoke a charter that it had issued to a company and doing so was customary practice. This legal situation is what is supposed to exist for a company once it has been incorporated by law. Banrjee contends that there is a clash of interest in the very naming criterion of the concept of ‘Corporate Social Responsibility’, a clash of ‘Corporate’ interests and ‘Social’ interests. A ruling in the court case titled ‘Dodge v. Ford Motor Company’ in 1919 declared that A business organization is organized and carried on primarily for the profit of the stockholders. Directors cannot shape and conduct the affairs of a corporation for the mere incidental benefit of shareholders and for the primary purpose of benefiting others A literal interpretation of this verdict seems to imply that it is illegal to be socially responsible. In the U.S. and in most of Europe, incorporating socially beneficial practices into organizational work is discretion of the managerial staff, nowhere is it required by law. Empirical Study While the sceptics continue to treat CSR agendas with a degree of suspicion, the fact of the matter is that many organizations have suffered a loss of profitability because of CSR practices but continue to practise them. Firms employing CSR policies have also seen growth and profits but the “market for virtue” is a limited one. A study has shown that the success of an organization upholding CSR practices depends on its customer awareness about the company (Servaes, 2013). The same study also shows that increase in customer awareness for firms having a bad reputation prior to adopting CSR policy caused an adverse reaction in the marketplace. CSR is also having an overall positive impact on the transparency of corporate practice around the world. CorporateRegister.com reported that in 2011, more than 5,500 firms around the globe issued sustainability reports, compared to only about 800 a decade ago. One of the biggest companies of the world, General Electric, has started a program (Ecomagination) to link economic growth with environmental protection, giving it a competitive edge over its competitors purely because of image building. By 2012, GE’s revenues from this program were topping 25 million U.S. dollars. PricewaterhouseCoopers, the world’s second largest professional services firm conducted a survey in which 88 percent of 20 to 30 year olds stated that they would choose employers based on their social responsibility value and would consider leaving when these values no longer met their expectations. Every year the sales of fair trade products grow by close to 30% while the overall Domestic Product growth rate was only 2.9 per cent in 2013. Conclusion Regardless of the current conditions of Corporate Social structures around the world, Corporate Social Responsibility is an issue that ought to be advocated. By most contemporary definitions, CSR is the “duty of every corporate body to protect the interest of the society at large” (Holme & Watts, 1999). It is not only a responsibility of corporations to keep a check on the potential environmental damage they might be doing but after the recent boom in communication systems it is becoming an ever larger necessity for organizations as people learn to care more about the world and its inhabitants. A simple rule to follow for publicly owned companies is to obey the principles of what Geoffrey P. Lantos calls ‘Ethical’ and ‘Strategic’ Corporate Social Responsibility and leave out those of ‘Altruistic’ CSR. This classification of CSR by Lantos is derived from the theories of ethics of duty (non-consequential). It is easy to see that the only condition in which CSR adherence is to be avoided is when it curtails the rights of the shareholders. As the human race moves towards greater organizational transparency in general and ever greater public access to information, indicators of greater influence of morality on the profitability of corporations are getting ever profounder. References Arneson, R. J. (1989). Equality and equal opportunity for welfare. Philosophical studies, 56(1), 77-93. Banerjee, S. B. (2008). Corporate social responsibility: The good, the bad and the ugly. Critical Sociology, 34(1), 51-79. Carroll, A. B. (2001), “Ethical Challenges for business in the new millennium: corporate social responsibility and models of management morality,” in Business Ethics 01/02, Richardson, J.E. (Ed), Dushkin/McGraw-Hill, Guilford, CT, pp.198-203. Carroll, A. B., & Buchholtz, A. K. (2011). Business & society: Ethics and stakeholder management. CengageBrain. com. Edward, F. R. (1984). Strategic Management: a stakeholder approach. Boston: Pitman, 46. Friedman, M. (1996), “The social responsibility of business is to increase profits,” in Rae, S. B., and Wong, K.L. (Eds), Beyond Integrity: A Judeo-Christian Approach, ZondervanPublishingHouse, Grand Rapids, MI, pp. 241-245. Holme, R., & Watts, P. (1999). Corporate Social responsibility. Geneva: World Business Council for Sustainable Development. Lantos, G. P. (1999). Motivating moral corporate behavior. Journal of Consumer Marketing, 16(3), 222-233. Lantos, Geoffrey P. (2001), “The boundaries of strategic corporate social responsibility,” Journal of Consumer Marketing, forthcoming. Mill, J.S. (2000), “Utilitarianism,” in Sterba, James P.(Ed), Ethics: Classical Western Texts in Feminist and Multicultural Perspectives, Oxford University Press, New York, pp. 115-121. Mitchell, N.J. (1989) The Generous Corporation: A Political Analysis of Economic Power . Yale University Press: New Haven. Poynder, J. (1844) Literary Extracts: Volume 1. London. Rawls, J. (1999). A theory of justice. Belknap Press. Servaes, Henri, and Ane Tamayo. "The impact of corporate social responsibility on firm value: The role of customer awareness." Management Science 59.5 (2013): 1045-1061. Social Responsibility. Entrepreneur Magazine. Retrieved November 7, 2013, from http://www.entrepreneur.com/encyclopedia/social-responsibility. Read More