Corporate social responsibility - Case Study Example

The demands of CSR impacts corporations in different ways. Some are forced to compromise on profits while some project an image of addressing the CSR concerns. At the same time companies that do not adopt the CSR approach suffer heavy financial losses as in the case of the tobacco companies. Competitive business environment has exerted pressure on firms to examine their social responsibility activities. Corporate social responsibility (CSR) has been defined as a concept whereby companies integrate social and environmental concern into their business operations and interactions with their stakeholders on a voluntary basis (Perrini, 2007). Socially responsible behavior is directly related to financial performance and this is evident in many recent cases. Being socially responsible places certain demands on a company but this generally 'pays off' for a company as well as for the stakeholders and the society. At the same time, concern about CSR issues could also be a PR fashion in the market. Businesses face certain challenges when they are under pressure to adopt CSR. Through certain examples this paper would compare and contrast demands placed on a business that seeks to adopt practices reflecting Corporate Social Responsibility (CSR) with those placed on a business that does not adopt this standard. There is no legislation that imposes that CSR issues have to be addressed and if a company does not live up to the social standards, there is no law that prevents others from doing business with that company. Economist Milton Friedman states that, "The business of business is to maximise profits, to earn a good return on capital invested and to be a good corporate citizen obeying the law - no more and no less". Such neo-classical economic thinking leaves no place for CSR expenditures which in any case decreases profits, contends Robins (2008). The collective good lies in maximizing profits and leaving it at that. Managers too find the demands of CSR enthusiasts vague and difficult to accomplish. Public CSR claims do not reflect in the activities and functioning of the corporations like in the case of Wal-Mart and Coca-Cola. Wal-Mart ranks fourth in terms of social responsibility in terms of its dealings with its stakeholders but there were 4851 claims filed against it in the court (Papasolomou-Doukakis, Krambia-Kapardis & Katsioloudes, 2005). Wal-Mart claims to hold down inflation in the US (Fishman, 2003), create jobs, and has customer-centered strategy as their prices are unbeatable, but they ultimately squeeze the vendors and under-pay the staff (Heyer, 2005) with the ultimate goal of maximizing shareholder wealth. They even have an efficient supply chain and source their products from developing countries and claim to be a part of their growth. Nevertheless, employee wages at Wal-Mart are as much as 31% lower than competitors (Nester, 2006). It pays practically no benefits and very often employees have to work overtime without any additional compensation. Coca-Cola too makes tall claims that by being more efficient and more profitable, it makes businesses better for the community (Ash, 2004) but findings reveal otherwise. The lists of accusations against Coke are lengthy. They have committed as many as 179 major Human Rights violations (Cairns, 2005). Since stakeholder perception is critical to the survival of the firm, some firms try to just enhance their image by attempting to be minimizing the impact on environment. This is known as greenwashing and Coca-Cola undertook this venture only as a PR venture. To discern between the actual performance and greenwashing ratings firms like Kinder, Lydenberg, Domini Research & Analytics (KLD) grade the firms on various categories of CSR (Chatterji, Levine & Toffel, 2007). Such ratings have gained importance because investors make their decision based on such ratings. The damage to Coca-Cola's brand and image was to such an extent that KLD dropped the company from its Broad Market Social Index in July 2006. Because of this, TIAA-CREF, the biggest U.S. retirement fund, sold off over 50 million shares of Coca- Cola Co. stock immediately. Coca-Cola and Wal-Mart project an image of being socially responsible and perhaps are under pressure to address the CSR issues. This implies that the firms that are under pressure to address the CSR concerns have found that it has a direct impact on the corporate profitability. It has also been seen that firms that are under pressure to discharge the CSR incur heavy losses and hence it can dilute the firm's viability. Levi Strauss gave too much importance to CSR and lost market share to competitors Lee and Wrangler and profits decreased (Joyce, 2005). Air France and Iberia Airlines, the government-owned national airlines of France and Spain, had to be bailed out since they had been operating at a loss of several billion dollars for some years. They needed to downsize their workforce to work with profits but protection of the employees' jobs was given a higher priority than making profits. Hence CSR is philanthropy at other people's expense (Robins, 2008). Demands of the shareholders, stakeholders and investors are forcing industries to maintain a high morality in how companies conduct business. Any deviation can adversely affect the brand image, customer retention, and overall business (Robinson, 2002). McDonald usually does not disclose the nutritional information for their food and as well as the adverse health effects associated with consumption of foods considered being high in cholesterol (Ritter et al., 2003). Their advertisements entice children and lure them towards unhealthy eating habits which are considered unethical. McDonald's make the nutritional contents in food readily available on their website but not in their restaurants. This is taken as an intentional act to lure consumers because consumers are impulsive buyers, according to Schr'der and McEachern (2006). Hence McDonald's suffered when they did not comply with the demands placed on them by the stakeholders. Any company exists in a society and for the society. Thus they cannot be independent of the society and hence have responsibilities towards the stakeholders that are directly or indirectly affected by the company. The stakeholders are those individuals or groups that have an interest in or are affected by the performance of the company or the way it uses its resources (Joyce, 2005). By being socially responsible and adhering to the ethical principles, a company's brand image is enhanced, and it is able to attract and retain employees. Other benefits that they can achieve are increased market share, lower operating cots and easier to attract investors (Labbai, 2007). Companies that do not adopt CSR practices have huge financial demands placed on them and incur heavy losses. Philips Morris, Reynolds and other leading tobacco companies had to pay $246 billion over a period of 25 years to victims of lung cancer and other fatal illnesses related to cigarette smoking as the courts held that the tobacco companies had intentionally withheld the information from the public that cigarette contains nicotine (Joyce, 2005). Dow Corning, the largest breast implant manufacturer, had to settle claims worth $3.2 billion under court direction to women who were injured under defective breast implants. Exxon Valdez had to pay $3 million in damages when they spilled 11 million gallons of oil and polluted 2,600 miles of shoreline along Alaska's Prince William Sound. Thus actions can be taken by any of the stakeholders like the environmentalists, government and the consumers. These actions can threaten the existence and stability of the company apart from huge losses that have to be paid for. Nestle too suffered as they did not believe in adopting the CSR standard. Sometimes executives are under pressure to achieve targets and find no discomfort in either engaging child labour to cut costs or conceal product information. They derive their bonus and move on to 'better prospects' for a better 'pay packet' leaving the company to 'face the music'. Hooker (2003) cites the example of Nestle Corporation who wanted to capture the infant formula market in parts of Africa and employed nurses in local clinics to educate the mothers about the advantages of using their product. They even went to the extent of convincing the mothers that it was sophisticated and western to use the formula instead of breast feeding. Unfortunately, the water that was available to prepare the milk was unhygienic and the babies were falling ill. This did not deter the executives from withdrawing the product or even warning the mothers. It was only when there was a boycott by the consumers worldwide did the company relent but in the process they suffered damage to reputation and financial losses. It thus demonstrates that even though CSR is not a mandatory requirement, it should be addressed by the corporations. Those that relent under pressures, do so only for the sake of PR or fashion. In other words, they do nothing for the stakeholders or the society as in the case of Wal-Mart and Coca-Cola. Again, firms should not be under pressure to adopt the CSR and suffer huge losses as in the case of Levis or Iberia Airlines. At the same time, totally ignoring the social responsibility can be detrimental to the long-term interests of the firm as in the case of the tobacco companies and Exxon. When executives are under pressure to achieve targets as in the case of Nestle, they are concerned only with self interest and no other stakeholders. Thus, firms should not be under any pressure or demand to adopt the CSR standards or achieve certain targets or forgo certain amounts of profits to attend to socially responsible activities. For a long-term survival of the organization it is essential to address the CSR concerns but making it mandatory for every organization does not yield the desired results. References: Ash, J. (2004). Coca-Cola CEO talks ethics. Available from http://www.yaledailynews.com/article.asp'AID=25539; accessed 25 July 2008 Cairn, S. (2005). Economics or Ethics' Available from http://www.viewmag.com/viewstory.php'storyid=3420; accessed 25 July 2008 Chatterji, A. K. Levine, D. I. & Toffel, M. W. (2007). Do Corporate Social Responsibility Ratings Predict Corporate Social Performance' Available from http://faculty.fuqua.duke.edu/'ronnie/bio/ChatterjiLevineToffel_01-31-07.pdf; accessed 25 July 2008 Fishman, C. (2003), The Wal-Mart You Don't Know. Available from http://www.fastcompany.com/magazine/77/walmart.html; accessed 25 July 2008 Heyer, S. F. (2005), Objectivity and Action: Wal-Mart and the Legacy of Marx and Nietzsche, UW-L Journal of Undergraduate Research VIII Hooker, J. (2003) Why business ethics' Available from http://web.gsia.cmu.edu/ethics/whybizethics.pdf; accessed 25 July 2008 Joyce, W. B. (2005). ACCOUNTING AND SOCIAL RESPONSIBILITY, Journal of Accounting and Finance Research Vol. 13, No. 3. pp. 1-8 Labbai, M. M. (2007). Social Responsibility and Ethics in Marketing. Available from http://dspace.iimk.ac.in/bitstream/2259/392/1/17-27.pdf; accessed 25 July 2008 Nester, M. (2006). Strengths, Weaknesses, Opportunities, and Threats of Wal-Mart in the United States. Available from https://kuscholarworks.ku.edu/dspace/bitstream/1808/1043/1/Nester%2C+Michelle+EMGT+Field+Project.pdf; accessed 25 July 2008 Papasolomou-Doukakis, I. Krambia-Kapardis, M. & Katsioloudes, M. (2005). Corporate Social Responsibility: the way forward' Maybe not! European Business Review Vol. 17 No. 3, 2005 pp. 263-279 Perrini, F. (2007). Encouraging CSR in Italy: The enabling role of government in mandating, motivating, and supporting responsible business practices, Corporate Social Responsibility initiative, Working Paper no 35. Cambridge, MA. Robins, F. (2008). Why corporate social responsibility should be popularised but not imposed. CORPORATE GOVERNANCE. VOL. 8 NO. 3 2008, pp. 330-341 Robinson K (2002), "The importance of being good: the Enron scandal has put the spotlight back on ethics. Banks can no longer ignore the issue of social responsibility and those which do may not survive.(Brief Article)." The Banker 152.914 (April 2002): 16(5). 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