Corporate Social Responsibility Is Profit-Driven - Research Paper Example

Corporate Social Responsibility is Profit-Driven Table of Contents 1. Introduction 1.1 Definition of Corporate Social Responsibility 1 1.2 Statement of Hypothesis 1 2. Methodology 1 3. Literature Review 3.1 Concept and Construct of CSR 2 3.2 CSR and Performance 3 4. Presentation of Primary Data 5 5. Analysis of Literature 6 6. Conclusion 7 References 8 Appendices 9 Executive Summary The definition of Corporate Social Responsibility suggests that apart from financial outcome the companies also have a responsibility towards the society. However, studies by different researchers suggest that even in discharging their social responsibility, their actions are performance-driven. The focus is more on the stockholders than on the external stakeholders. Companies will not adopt socially responsible actions unless it meets their profitability criteria. 1. Introduction 1.1 Definition of Corporate Social Responsibility Corporate Social Responsibility (CSR) is a term used often by organizations in attempting to discharge their responsibility towards the society. CSR has been defined by the British Government as being how business takes account of its economic, social and environmental impacts in the way it operates - maximising the benefits and minimising the downsides (Jones, Bowd and Tench 2009). CSR has also been defined as a ‘‘concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment’’ (Dijken, 2007). This suggests that the companies acknowledge that apart from financial performance, they have a responsibility towards the society. This includes their voluntary responsibility towards the internal and the external stakeholders. CSR is now synonymous with terms such as corporate citizenship, proactive community involvement, commitment to quality, human rights, health, safety and environment. However, CSR initiatives should be voluntary but most organizations engage in discharging their social responsibility more as a compliance with legal regulations. Lack of a universal and precise definition also reflects that CSR activities are motivated by a desire for eventual return (Frankental, 2007). 1.2 Statement of Hypothesis The corporations will not adopt socially responsible actions unless it meets their profitability criteria. 2. Methodology Data to evaluate the actions of companies has been gathered both through secondary sources and primary sources. Secondary data has been collected from academic journals presented as literature review. Primary data has been gathered to evaluate how consumers perceive the CSR initiatives of companies in general. A small survey was conducted among people that work for different organizations. This was a general survey to gather the impression that people have about CSR and its potential benefits. To gather qualitative data, questionnaire (Appendix A) was distributed to about 25 people and the results of the survey has been presented and discussed. 3. Literature Review 3.1 Concept and Construct of CSR CSR provides sustained competitive advantage, CSR enhances corporate image and CSR ensures the stakeholders’ interests are taken care of (Chen 2012). However, organizations resort to CSR either to comply with legal regulations or as a response to external constraints (Chen 2011). To demonstrate their corporate social responsibility firms also develop code of ethics, publish CSR statement and reports, and also appoint independent auditors to assess the impact of their CSR policies and practices (Buciuniene and Kazlauskaite 2012). CSR is mainly influenced by four core components – accountability, transparency, competitiveness and responsibility (Chen 2012). While accountability pertains to CSR reporting, transparency enhances the credibility of the firm’s CSR strategy. Lack of transparent reporting undermines consumer confidence in the cases of Enron and WorldCom. Through competitive social and environmental policies, top global companies have made strong impact on the minds of the stakeholders and thereby build a strong reputation. Reputation reduces stakeholders’ uncertainty and enhances the level of trust. Responsibility refers to the discretion of the business leaders in investing in CSR to satisfy the various stakeholders. This requires establishing corporate standards and ethics codes. When organizations have a CSR mandate they would be obliged to respond to the CSR at different levels – economic level, legal level, ethical level, and the discretionary level (Jones, Bowd and Tench 2009). According to the pyramid, ethics and discretion come much later after the economic and legal levels have been achieved. Economic development, profit and growth remained top priority in the UK while legal responsibility was the main concern in Germany and Sweden (Silberhorn and Warren 2007). Contradictory to this is the definition of CSR according to World Business Council for Sustainable Development (WBCSD) which states that CSR is an organisation’s commitment to a discretionary behaviour that leads to economic development and contributes to the welfare of its employees, local community and society at large (Buciuniene and Kazlauskaite 2012). This suggests that discretionary behaviour should lead to economic development but organizations tend to be autonomous in their approach to CSR as they ignore other stakeholders’ opinions to formulate strategy, according to Jones, Bowd and Tench (2009). 3.2 CSR and Performance CSR is defined by narrow business interest which curtails the interests of the external stakeholders (Banerjee, 2008). While corporations claim that being socially responsible is good for business, corporations have been found to be solely obsessed with profits. When Henry Ford decided to use the dividend money for company expansion, instead of paying dividend to the stockholders, the court order was in favor of the stockholders stating that a business organization carries on for the profit of the stockholders. Thus CSR is an ideological movement designed to consolidate the power of the larger corporations. Buciuniene and Kazlauskaite (2012) evaluated the linkage between CSR, HRM and performance. Based on a survey of 119 medium and large-sized organizations, the study found that firms where HRM has a strategic role, have better CSR policies. Consequently, this has a positive outcome on organizational and financial performance outcomes. However, results on whether CSR enhances financial performance, is mixed primarily because of lack of appropriate statistical controls or due to the ways in which corporate financial performance and CSR has been defined (Choi, Kwak and Choe 2010). It could also be due to stakeholder misalignment problem which can arise when the company is unable to weigh which sub-dimensions of social performance are perceived to be of importance or value by its stakeholders. If an organization is able to identify which aspect of social responsibility is more important to its stakeholders and accordingly direct its social initiatives, it will tend to improve financial performance. Friedman’s agency theory postulates that CSR pertains to an organization’s obligation to maximize profits in compliance with the laws and with minimum ethical restrictions. In addition, WBCSD states that CSR does not provide any benefit to the organization. On the contrary, resources are directed towards non-commercial activities which have a negative impact on shareholder value (Buciuniene and Kazlauskaite 2012). Silberhorn and Warren (2007) contend that CSR has evolved from philanthropic focus and CSR is now a comprehensive business strategy based on transparency, accountability and responsiveness. This is because of the stakeholder pressure and performance considerations. A study of British and German firms (Appendix B) revealed that CSR in most firms is value-driven and performance-driven, and very few have stakeholder-perspective as the motivating factor. The CSR strategy is now aligned with the overall business strategy, making business and CSR integration a norm for the future. 4. Presentation of Primary Data The questionnaire was distributed to among the people and their responses gathered. Only 14 people returned the questionnaire with valid responses. Others were either incomplete or garbled and hence discarded. Out of the fourteen respondents eleven of them were aware that companies engage in CSR activities. The most common names that came up were Johnson & Johnson, Levi’s, McDonald's, and Motorola. Johnson and Johnson was mentioned because of its energy conservation policy as they have installed light and water sensors at their new commercial complex, which turns on only when needed. Some of the respondents were also aware of the socially irresponsible behaviour demonstrated by companies such as Enron. One respondent also mentioned about the unethical behaviour of McDonald's in using beef extract for their French Fries and thereby deceiving millions of people. The CSR activities that the respondents were aware of, included environmental concerns, education for the underprivileged, medical facilities that some companies provide, grants and scholarships for higher education. According to the respondents the companies do engage in CSR activities but they are geared towards enhancing their reputation. The large companies may continue philanthropic activities such as providing education for the local community but they also discharge affluent in the local water body. If they shift the affluent to a distance before discharging, it would enhance their costs of operations. So to retain higher profit margins, they do not invest in enhancing the affluent disposal system but to keep the local community happy, they provide them with facilities such as medical aid and education grants. Thus, the primary data give the impression that companies will engage in any socially responsible behaviour when it suits their goals. Most agreed that profit maximization is the only goal of almost all companies. However, most respondents agree that profits have to be considered when designing the CSR policies but profit should not be the only goal, and profit should be shared with the stakeholders including the employees and the community in which the business thrives. About seventy percents of the respondents do not agree that companies take into account the interest of all the stakeholders. The impression that they have gathered through reading and listening to different episodes, conveys that stockholders remain the primary concern of most organizations. Other stakeholders such as employees, consumers and community are relatively less important. None of the respondents in the survey had any personal experience of being aggrieved by any company as far as CSR is concerned. However, most believe that the purpose of socially responsible acts is only to enhance reputation of the company. 5. Analysis of Literature While CSR is supposed to be a voluntary act aimed at benefitting the different stakeholders, the literature suggests that all actions, initiatives, polices and code of ethics ultimately are meant to maximize profits. It is true that a business is set up for making profits but a business exists in the society and hence has a responsibility towards the society as well. Organizations should engage in CSR without any expectations of rewards or returns but at the same time they cannot compromise with the interests of the different stakeholders. However, their interactions with the different stakeholders, their CSR strategy aligned with the overall business strategy are all aimed to enhance profits. CSR enhances brand image and this in the long-term is meant to achieve higher returns. Hence, the ultimate goal appears to be to meet their profitability criterion. Whether it is transparent reporting or developing competitive and social environmental policies, the aim is to build strong reputation in a bid to attract more consumers or enhance sales. Again, the aim is to maximize profitability as consumer trust increases. Therefore, CSR initiatives actually conform to Friedman’s contention that the only goal of any business is to make profits. Companies respond to CSR at different levels but the priority has always been the economic and the legal levels as in the case of Ford. Organizations seldom pay attention to the interests of the external stakeholders and the focus remains on maximizing stockholders’ interest. Even when CSR code of ethics and policies are designed the focus is always on financial performance. To avoid stakeholder misalignment, the directors ensure they are able to identify which sub-dimensions of social performance are important to their primary stakeholders. However, this effort is also directed at enhancing financial performance. 6. Conclusion CSR has evolved from being merely a philanthropic act and is now an integral part of the overall business strategy. However, it is far from voluntary or without expectation of any returns. The advantages of CSR are many and companies thrive on these advantages which include enhancement of brand image, enhancement of corporate reputation and the like. CSR is linked to performance and all policies and code of ethics clearly demonstrate that CSR is performance-driven. While the companies claim that CSR activities are stakeholder-driven, the external stakeholders remained largely ignored. The focus is on the stockholders and on the profitability. Both the secondary and the primary data confirm that the corporations will not adopt socially responsible actions unless it meets their profitability criteria. Works Cited Banerjee, Subhabrata B. "Corporate Social Responsibility: The Good, the Bad and the Ugly." Crit Sociol 34 (2008): 51 Buciuniene, Ilona and Kazlauskaite, Ruta. "The linkage between HRM, CSR and performance outcomes". Baltic Journal of Management 7.1 (2012): 5 - 24 Chen, Chih H. "The major components of corporate social responsibility." Journal of Global Responsibility 2.1 (2011h ): 85-99 Choi, Jong-Seo, Kwak, Young-Min and Choe, Chongwoo. "Corporate social responsibility and corporate financial performance: Evidence from Korea." Australian Journal of Management 35.3 (2010): 291-311 Dijken, Frank. "Corporate social responsibility: market regulation and the evidence." Managerial Law 49.4 (2007): 141-184 Jones, Brian, Bowd, Ryan and Tench, Ralph. "Corporate irresponsibility and corporate social responsibility: competing realities." Social Responsibility Journal 5.3 (2009): 300 - 310 Silberhorn, Daniel, and Warren, Richard C. "Defining corporate social responsibility A view from big companies in Germany and the UK." European Business Review 19.5 (2007): 352-372 Appendix A Questionnaire Are you aware that companies engage in socially responsible actions? Can you name a few companies that you feel demonstrate socially responsible behavior? What sort of initiatives do you associate with CSR? To what extent do you believe that they discharge their responsibility honestly? Do you believe that profit maximization is not their goal when engaging in CSR activities? Do you think profits have to be considered when designing CSR policies? Do think that the code of ethics and CSR policies consider the interest of all the stakeholders? Have you ever been aggrieved at the cost of other stakeholders? Appendix B Primary CSR Principle Source: Silberhorn and Warren (2007) Read More