Corporate Social Responsibility - Case Study Example

Table of Contents Table of Contents 1 Introduction 2 2 Corporate Social Responsibility 3 3 Corporate Social Responsibility and Employees 5 4 Thames7 4.1 Corporate Social Responsibility 7 4.2 Employees as Stakeholders 8 5 Concluding Recommendation 8 6 Bibliography 9 1 Introduction Thames is displaying low levels of corporate social responsibility. This is evidenced through both its failure to upgrade and maintain its infrastructure and its treatment of employees. In relation to the first, it is important to emphasise that the industry within which Thames is located and environmental conditions, specifically decreasing levels of rainfall, require that corporate leadership display commitment to and responsibility towards the environment which it is serving. Its failure to do so, as the case study indicates, has threatened the community’s water security and has the potential to undermine their access to water. As regards the second, Thames’ decision to let employees go and its failure to keep wages stable in real terms, means that it does not regard its employees as stakeholders. Thames is failing to uphold both its corporate social responsibility and to define employees as stakeholders is not a sustainable situation. Certainly, the company is reporting profits at the moment, probably due to the fact that there is no substitute threat to their product but, in the long-run, the company will loose out and its profits will decline. It is extremely important that Thames redefine its employees as primary stakeholders and, directly connected to this, adopt a corporate social responsibility framework. Through a review of the theory on employees as stakeholders and the relation of corporate social responsibility to the stated, this research shall illustrate that there is an immediate connection between corporate social responsibility and the acceptance and treatment of employees as stakeholders, on the one hand, and between these two and corporate success on the other. 2 Corporate Social Responsibility Corporate social responsibility refers to the level of an organizations involvement in the improvement of the quality of life of its community, and its acceptance of the fact that it has an important role in improving quality of life (Margolis and Walsh, 2003). Even though there is no precise definition for quality of community life,’ since it is dependent on many factors, such as socio-political climate, the state of the economy, the type of industry attempting to identify the problems, and location of the business, among others, the fact is that it refers to the degree to which an organisation gives back to the community and regards itself as part of the community (Carroll, 1999; Margolis and Walsh, 2003). Corporate social responsibility is founded upon an organisation’s understanding of the social issues which confront the community within which it is located and which it serves. A socially responsible corporation understands the social issues and problems which confront the community and even if it does not aid in the resolving of these problems, does not contribute to them. For example, a socially responsible organisation which is committed to the community which it serves would not pollute the environment or dump hazardous wastes into it. Furthermore, as Wood (1991) continues, if an organisation becomes the source of a problem, it should display social responsibility by resolving the problem which it caused, or carrying the cost for its solution. Indeed, corporations should not solve social/communal problems which they are responsible for having caused because they are threatened with legal sanctions but because they recognise their fundamental and basic responsibility of doing so. In other words, a socially responsible corporation is not one which performs its duty towards its community, such as refraining from polluting the environment, because it fears legal sanctions and fines but, because it understands that it is a member of the community in question and, as such, has membership and citizenship responsibilities (Wood, 1991; Carroll, 1999). As regards the social issues towards which companies must display responsibility towards, they are wide ranging. Carroll (1984) argues that it is impossible to list the full range of these issues because they differ from company to company, from industry to industry and environment to environment. Donaldson and Preston (1995) disagree. As they argue, a corporation should be able to define the nature of its social responsibilities if it has accurately defined its key stakeholders and if it has maintained contact and communication with its stakeholders. In other words, a company’s social concerns are those of its stakeholders and its social responsibilities are those which it owes its stakeholders. The implication of the above argument is that corporate social responsibility emerges from the nature of corporate stakeholders’ concerns. This is the conclusion reached by several researchers. Wood (1991), Ruf, Muralidhar, and Paul (1998), Agle, Mitchell and Sonnenfeld (1999) and Hansen, Mitchell and Drope (2005) maintain that for a corporation to exercise social responsibility, it must do three things. The first is to make sure that it is a positive addition to the society within which it operates. The second is for the company to accurately identify all its stakeholder groups. The third is for the corporation to open channels of communication with its stakeholder groups so that it may understand their concerns and align these concerns with the corporation’s strategy, aims and mission. In other words, corporate social responsibility, as Margolis and Walsh (2003) emphasis, does not simply involve donating to community charities or even establishing a public park for the community’s families but, extends far beyond that to imply the integration of community concerns in a corporation’s strategy and company mission. Corporate social responsibility, from this theoretical perspective, means the company becoming and acting as a member of the community. 3 Corporate Social Responsibility and Employees Several studies have determined that the exercise of corporate social responsibility begins with companies recognising their employees as primary stakeholders and adopting their concerns and their own. In fact, empirical evidence suggests that the inclusion of employees as primary stakeholders is an indicator of both a socially responsible corporate entity and organisational well-being (Argent, 1997). Most organisations understand, at least on the theoretical level, that employees comprise a stakeholder group. Organisations, by definition, however, have more than one stakeholder group with the implication being that they have to create a balance between different stakeholder group needs, demands and expectations. More often than not, organisations fail to establish this balance and tend to define consumers as their focal stakeholder group and marginalise employees as stakeholders. Wood (1997) argues that this is one of the most significant mistakes an organisation can make because the price attached to doing so is often very high. To avoid making the mistake of focusing on one stakeholder group to the exclusion of others and, in order to create a balance between the needs and demands of its different stakeholder groups, Wood (1997) advises that companies group stakeholders under three categories. These are the power that they have over the organisation, including the extent of their capacity to influence the firm; the legitimacy and strength of theory claims upon the firm; and the urgency of their claims upon the firm. Agreeing with Wood’s strategy for the categorisation of stakeholders according to their importance to the form, Agle, Mitchell, and Sonnenfeld (1999) insist that the implementation of this strategy for categorisation according to importance, leads to one conclusion. This conclusion is that employees are the most important of all stakeholder groups. The legitimacy and urgency of heir claims upon an organisation are not just unmatched by any other stakeholder group, but far surpass them. Added to that, as much as consumers can influence a firm’s decision and influence it, employees have a greater ability to do so because they represent the organisation’s productive assets and the quality of an organisation’s goods and services (Agle, Mitchell, and Sonnenfeld (1999). Organisations which recognise the value of their employees and which identify them as primary stakeholders are organisations with social conscious and hence, corporate social responsibility. They recognise that their employees are, ultimately, members of the community which they serve are an organisation’s link with its external environment and, are the basis of an organisation’s success. To fairly treat employees, therefore, means, among other things that the organisation values social and economic justice and is intent on maintaining constructive and positive ties with its external environment (Hansen, Mitchell and Drope, 2005). Accordingly, the identification of employees as primary stakeholders does not simply increase productivity due to enhanced organisational well-being but it is a clear indication of a company’s attitude towards the concept of corporate social responsibility. 4 Thames If Thames is evaluated according to the theories reviewed above, two conclusions can be made. The first, as earlier mentioned, is that the organisation does not have a sense of corporate social responsibility and the second is that it has not identified, or embraced, its employees as stakeholders. 4.1 Corporate Social Responsibility Thames, as is clear from the case study, has a basic social responsibility towards its environment. That responsibility is not simply the provision of water but the assurance that the infrastructure for provision of water and water storage is maintained so as to guarantee water security and avoid leakage. This is extremely important, not just because of the nature of the good and service itself but because decreasing rainfalls simply mean that this is hardly the time for water wastage. Thames, however, has not satisfied this responsibility. It has not maintained and upgraded its infrastructure and, indeed, has only agreed to do so following the threat of legal sanctions and fines. When evaluated against the theory on social corporate responsibility reviewed in the above, this is a clear indication that Thames lacks these values. 4.2 Employees as Stakeholders Thames has clearly failed to identify its employees as stakeholders, let alone as its primary stakeholder group. Under the threat of sanctions, it has agreed to the repair of the water mains and storage system but is effectively passing on the cost of the aforementioned to its employees. It is laying off employees and cutting back on its pension plans, among other things, despite the fact that its reported profits are sizeable. Instead of embracing its employees as stakeholders, it is essentially communicating its conviction that Thames’ employees are dispensable. Were, however, the company to apply Wood’s (1997) strategy for categorizing stakeholder groups according to their importance, Thames would realise that its employees are not dispensable and, indeed, are an integral predicator of the company’s success. 5 Concluding Recommendation On the basis of the theory and case analysis presented in the above, this research concludes with an emphasis on the imperatives of Thames’ reassessing its corporate strategy. It must reassess its operational strategy, identify the reasons why the company violated its basic social responsibilities to the extent that it was threatened with legal sanctions. Upon doing so, the company will realise that the stated problem is symptomatic of the company’s failure to embrace the values of corporate social responsibility. This last is especially important in light of the service which the company provides to the community. To avoid the possibility of continued failure to undertake its social responsibilities, the company needs to identify its key stakeholders, most important amongst which are its employees, and align Thames’ corporate strategy and mission with its employees’ and community’s concerns and welfare. 6 Bibliography Agle, B.R., Mitchell, R.L., & Sonnenfeld, J.A. (1999). Who matters to CEOs? An investigation of stakeholder attributes and salience, corporate performance, and CEO values. Academy of Management Journal. 5,507-525. Carroll, A.B. (1999). Corporate social responsibility: Evolution of a definitional construct. Business & Society, 38,268-295. Donaldson, T., & Preston, L.E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. Academy of Management Review, 20,65-9 1. Hansen, W.L., Mitchell, N.J. and Dope, J.M. (2005) The logic of private and collective action. American Journal of Political Science, 49, 150-167. Margolis, J.D. and Walsh, J.P. (2003) Misery loves companies rethinking social initiatives by business. Administrative Science Quarterly, 48, 268-305. Ruf, B.M., Muralidhar, K., & Paul, K. (1998). The development of a systematic, aggregate measure of corporate social performance. Journal of Management. 24, 119-133. Wood, D. (1991). Corporate social performance revisited. Academy of Management Review, 15,69 1-7 18. Read More