Corporate Social Responsibility: Benefiting the Stakeholders - Term Paper Example

Corporate Social Responsibility Introduction As economic business has increasingly impacted on the lives of the people, on the environment, and on the society as a whole, and as people has increasingly become more socially informed and concerned with their well-being and with the world they inhabit, pressures for business to be socially responsible in gaining profits become stronger and more widespread, that the concept of corporate social responsibility has continuously become an integrated part of business today. And as CSR becomes more integrated into the fabrics of the business world, different issues and trends continually emerge subjecting not only the understanding of CSR but also defining best policies and practices that would make CSR truly socially responsive. CSR advocates strongly believe that the practice of CSR is indeed beneficial to all, but could it be possible when stakeholders see business from different lens as dictated by their own interest? If ever this may be true, how far does CSR satisfy the demands of the many stakeholders – the consumers, the wider community (local, regional, and international) and supply chain members? Answering these questions would surely lead us to various issues that would bring us to realise that CSR matters more than ever as socio-economic disparity widens, as transnational corporations are more and more protested, and as corporate governance scandals – from Enron to WorldCom (Hopkins 2003, p. xi) and lately the Fannie Mae and Freddie Mac scandal in US housing (Cristie, 2007) – shock the economy, harming people’s lives. But before going any further, one basic issue that needs imperative attention, as this will help put things into proper perspective, is defining CSR, as Hopkins (2007, p. 15) rightly argued, “The lack of widely agreed definition contributed to misunderstanding and cynicism towards the concept itself.” What is this CSR that rocks the business world all about? Defining CSR With many stakeholders – the consumers, wider community (local, regional, international), and supply chain members – pursuing their own interest, it is unsurprising to know that the definition of CSR in literatures vary. From among these definitions three are chosen for their distinct emphases. Werther & Chandler (2006, p. 6) defined CSR as discerned from the three words composing it: corporate, social and responsibility. CSR covers the relationship between corporations (or other large organizations) and the societies with which they interact. CSR also includes the responsibilities that are inherent on both sides of these relationships. CSR defined society in its widest sense, and on many levels, to include all stakeholder and constituent groups that maintain an ongoing interest in the organization’s operations. The authors furthered that CSR is both a means – the way by which firms carry their products/services to markets/consumers – and an end – maintaining the firms’ actions to be legitimate and socially beneficial. Common corporate practices depict the usual adage ‘the end justifies the means’ – in conflict with CSR because CSR develops the firm’s positive relationship with its stakeholders. They clarified though that CSR is not for firms to simply get involve into any issues, like for example saving the whale, but instead CSR is about issues that are economic, legal, ethical, and discretionary of which stakeholders view affect the plans and actions of the firm (p. 8, 10). Kotler & Lee (2005, p. 3) deepen their definition of CSR – as “a commitment to improve community well-being through discretionary business practices and contributions of corporate resources. What made this definition remarkable are the italicised terms, wherein the term discretionary, which refers to the firm’s voluntary commitment goes beyond business activities that are seen lawful, moral or ethical in nature – therefore expected; and the community well-being, which includes human condition as well as environmental issues, concretises what CSR should address. The above definitions reflect the two distinct approaches to CSR: the traditional approach and the new approach. In the traditional approach (pre-1990s) CSR is more of fulfilling an obligation for the firm’s positive image to the public – “doing good to look good.” Firm commitments then were more quick-fix and tended to evade issues that might be related with business products leaving an impression that the firm’s adherence to CSR is in fact self-serving. Whereas, in the new approach (early 1990s) firm’s commitment to CSR is more reflective of the firm’s values, thus strategic areas of concern fitted to the firm’s values are more considered. Here, CSR is motivated not simply by looking good but by the firm’s growing desire to do well and do good. (p. 8-9) Hopkins (2007, p. 18) in his reaction to David Henderson’s – editor of the Journal of Financial Planning and a strong critic of CSR – absolute faith in the market economy, has in fact in few words summarised the essence of CSR: “CSR is a powerful tool... for reducing the excess of the private sector while, at the same time, ensuring its profitability.” Excess here would mean any business action/practice harmful to the economy, to the people, and to the environment. Benefiting the Stakeholders The historical question “whether corporate decision makers should be concerned with issues other than profitability” (Berkhout 2005, p. 15) has been overshadowed by the benefits gained from it by many stakeholders – generally refers to any individual/group who can affect or is affected by the firm’s actions, to include, but not limited to employees, customers, suppliers, shareholders, subsidiaries and affiliates, local neighbourhood, investors, community organisations, and the environment (Mullerat 2009, p,. 227). The research and experience of the Business for Social Responsibility – a leading non-profit global organisation assisting businesses in integrating CSR in their business operations and strategies – reported that many companies have been benefitted in their adherence to CSR in several ways: Increased sales and market share. Strengthened brand positioning. Enhanced corporate image and clout. Increased ability to attract, motivate, and retain employees. Decreased operating costs. Increased appeal to investors and financial analysts. (Kotler & Lee 2005, pp. 10-11) These gains can be attributed to the fact that “improved efficiency and productivity gained through CSR lead to lower costs, which lead to increased sales, which lead to increased resource use and waste generation” (Berkhout 2005, p. 16). Looking back, this had been recognised earlier by Henry Ford, although in the internal operation of his firm, when he said: “treat employees well and pay them a wage that allows them to actually purchase the products they make” (p. 15). The logic of this is in fact very simple – enable employees to be happily productive and give them the purchasing power to further drive business growth. To relate this to the broader CSR would mean, in valuing people and the ecosystem, the firm’s profitability and sustainability is essentially assured, so everybody is benefitted. How could firms sell their products/services when consumers do not trust them? (Although of course this requires consumer awareness.) In fact, in their experimental study, Crever and Ross (1996) found that “the effect of corporate credibility on attitude toward the brand and purchase intention were stronger than the effect of endorser... credibility” (cited in Mohr & Webb 2001, p. 43). Not to say the negative effect on consumers of firm’s negative image. In fact even Wal-Mart – the world’s largest company – was not exempted from this, as its customers were discouraged from shopping in its stores after a series of negative campaigns and legal battles that exposing its poor record on labour rights (Reynolds & Black 2009, p. 299). In addition, companies that are proven engaging in socially responsible practices beyond regulatory compliance requirements are less scrutinised by the public locally and nationally. A case in point is McDonalds which positive community relations that it developed through its Ronald McDonald Houses and in developing employee opportunities were spared from the tremendous damaged caused by rioters in 1992 in South central Los Angeles, as these rioters refused to harm all 60 of McDonald’s franchises in the area. (Kotler & Lee 2005, p. 15) As firms adhere to CSR, consumers are likewise benefitted because firms make sure that the products/services they buy consider their well-being. For example, it is a common practice of firms today that the risks that may be posed by their products are clearly stated, leaving the decision on the consumers. Some very common examples are as follows: packs of cigarettes are clearly labelled with the warning that this poses danger to the health of the smoker; cups of hot drinks are labelled with the word ‘hot’ to warn the drinker; toxic products, unhealthy food-intakes, and environmentally hazardous products and practices are also discouraged. Furthermore, business practices have become more sensitive to national cultures promoting positive social values such as equality and respect for diversity resultantly equalising employment opportunities. As individual consumers benefit from CSR, much more importantly so does the wider community which largely benefits from the development efforts of many corporate firms, specifically the big businesses (MNCs and TNCs), either in providing monetary assistance to poverty stricken, war-torn, and hardly-hit calamity areas; in improving people’s skills through education, training, skill development, and capacity development; in tapping the world’s financial, physical and human resources; in developing new technology and skills; and in translating resources into specific outputs with their managerial supremacy. Concretely, in 2005, around US$400 million by US corporations and US$15 million by corporations in UK were donated for the victims of Asian Tsunami (Hopkins 2007, p. 4). Also, MNCs had helped rebuild the war-torn Europe and had helped develop the resources of many developing nations of which the United Nations (1970) acknowledged (cited in Fatemi, Williams, & De Saint-Phalle 1976, p. 13). These data alone support the necessity of CSR, as business leaders are in fact in a powerfully unique position to create lasting social change if they chose to do so (Students for Responsible Business 1993, as cited in Werther & Chandler 2006, p. 28), especially so that big business in fact even exceeds the wealth of nation states. As firms enjoy public support, consequentially supply chain members would naturally be benefitted since this would mean more production. Furthermore, even supply chains will be required by the firms that they supply to similarly adhere to CSR. In this case, the positive effect of CSR continues so long as the stakeholders similarly adhere to CSR. Current Issues and Trends However, although an increasing number of firms has begun adhering to CSR, many issues remain unsolved and further complicate as “globalisation greatly empowered corporations, enabling them to expand operations on a worldwide basis, shift manufacturing off shore, reform supply chain management, and develop powerful global brands” (Werther & Chandler 2006, p. 53). Among the general issues that would surely be affected by globalisation are “transparency, accountability and governance, including corruption and corporate ethics” (Grayson & Hodges 2004, p. 64). In fact, corruption and poor governance in third world countries dampened the philanthropic efforts of TNCs/MNCs and hampered the sustainability of the projects, as direct grants coming from TNCs/MNCs simply feeds the personal avarice of the corrupt members of host governments. A case in point is Coca Cola’s experience in Mozambique where it funded the building of a hospital complete with the latest, modern equipment, only to find out after few months that the hospital was instead converted into a housing area for many homeless people with much of the equipment ‘sold’ (Hopkins 2007, p. 8). Specific issues may include CSR boundaries, which geographically vary depending on the level of development of the host countries. For example, developing countries generally tend to define CSR concerns on essentially development issues such as the provisions of safe energy, clean drinking water, health or literacy; while other countries, specifically those in Europe, North America and some parts of Asia value more opportunity issues such as job opportunities, skills training, and education. (Mullerat 2009, p.4) Added to this different level of countries’ development is the different attitude of legislators to CSR wherein majority see that legislation of CSR is imposing upon corporations ethical duties that are already beyond the statutory obligations, while in some countries some activities, especially those infringing human rights abroad are sanctioned. For example, the US Alien Tort Claims Act 1789 allows TNCs with assets in the US to be held liable for offences they commitment anywhere in the world. However, the issue on whether or not compulsory practising CSR by businesses should be legislated remains open-ended. In effect, even Courts are left without indisputable bases to have a say on CSR, except in some countries for celebrated cases of human rights violations abroad. Like for example, The UK House of Lords penalised Rio Tinto in Namibia and Thor Chemicals and Cape in South Africa. (p. 33). These differences unlevel the playing field and impede CSR’s sustainability which firms observing CSR find disadvantageous and may even jeopardise initial gains. Conclusion CSR, a very controversial issue until today, brings to fore economic, legal, and ethical issues that essentially align the primary aim of business for profitability along the general interest of humanity – sustainable development, safe environment, equal life-opportunities, etc. – and integrates business to the needs of the society from which it profits. Despite the many evidences supportive of the view that CSR is indeed beneficial to all stakeholders, CSR remains opposed by many who perceive business’ business as simply business. Other than this, many broader and development-related issues further challenge CSR practices. However, these did not negate the glaring truth that CSR is not only relevant but is necessary in a world that is markedly divided by uneven development. With the unequalled power of business comes its monumental obligation to utilize this power not to further exploit the world for greater profitability but rather to better the world. In short, bettering the world should be business’ business. Reference List Berkhout, Tom, 2005, ‘Corporate Gains: Corporate Social Responsibility Can Be the Strategic Engine for Long-Term Corporate Profits and Responsible Social Development’, Alternatives Journal, January-February, pp. 15-16. Cristie, James R., 2007, Fannie Mae and Freddie Mac scandal in US Housing, New York, Nova Science Publishers, Inc. Fatemi, Nasrollah Saifpour, Williams, Gail W., and De Saint-Phalle, Thibaut, 1976, Multinational Corporations: The Problems and The Prospects, New Jersey, A.S.Barnes and Co., Inc. Grayson, David, and Hodges, Adrian, 2004, Corporate Social Opportunity: 7 Steps to Make Corporate Social Responsibility Work for Your Business, UK, Greenleaf Publishing. Hopkins, Michael, 2003, The Planetary bargain: Corporate Social Responsibility Matters, London, Earthscan. -------- 2007, Corporate Social Responsibility and International Development: Is Business the Solution?, UK & USA, Earthscan. Kotler, Philip, and Lee, Nancy, 2005, Corporate Social Responsibility: Doing the Most Good for Your Company and Your Cause, Hoboken, NJ, John Wiley & Sons, Inc. Mohr, Lois A., and Webb, Deborah J., 2001, ‘Do Consumers Expect Companies to Be Socially Responsible? The Impact of Corporate Social Responsibility on Buying Behaviour’, Journal of Consumer Affairs, vol. 35, no. 1, p. 45. Mullerat, Ramon, 2009, International Corporate Social Responsibility: The Role of Corporations in the Economic Order of the 21st Century, The Netherlands, Kluwer Law International. Reynolds, Mark, and Black, Leeora, 2009,Corporate Social Responsibility in Enterprise Supoply Chains, In John Gattorana, Dynamic Supply Chain Alignment: A New Business Model for Peak Performance in Enterprise Supply Chains across all Geographies (pp. 287-298), England, Gower Publishing, Ltd. Werther, William B., and Chandler, David, 2006, Strategic Corporate Social Responsibility: Stakeholders in a Global Environment, CA, Sage Publications, Inc. Read More