The Basic Idea of Corporate Social Responsibility - Essay Example

Topic: Lecturer: Presentation: Introduction  “The basic idea of corporate social responsibility is that business and society are interwoven rather than distinct entities; therefore, society has certain expectations for appropriate business behaviour and outcomes” (Wood, 1991:695). There is a tendency to treat a corporation like an individual entity distinct from society and which behaves like an individual. However, Solomon Robert (2004) in his article “Aristotle, Ethics and Business Organizations” argues that corporation just like individuals are part of a larger community hence is communities themselves. One cannot thus separate a corporation from the community in which it operates and as such, whatever it does should be for the collective good of that communities for happiness to be achieved. A corporation in this case is itself a citizen and has an intrinsic responsibility as a social entity; that is, it should be socially responsible. This is in contradiction to economists such as Milton Friedman who viewed corporations as individual entities whose sole responsibility was to make profits. Corporate social responsibility (CSR) was traditionally associated with philanthropy and charity but later came to be associated with stakeholder interests. Carroll and Shabana consider it a post-World War II phenomenon defined as the “economic, legal, ethical and philanthropic expectations that a society has of organisations at a given point in time” (2010: 89). For McGuire (1963), CSR extends beyond those four expectations such as reputation and company image. Whatever the case, success of CSR depends on commitment from senior management as well as low-level staff and its implementation varies from company to company depending on its context. The aim of this paper is to critically discuss and evaluate an environmental issue that an organisation addresses using the framework presented by Wood (1991). In this case, the orgnisation to be discussed is Wal-Mart Stores, Inc. The first section will give a brief background of the organisation. The Second section will be a brief background of CSR. Third section will discuss the business case for CSR followed by analysis of the environmental issue using the corporate social performance model and finally, a brief summary will be given. Company Background Wal-Mart Stores, Inc is the world’s number one retailer with 100 million U.S. shoppers a week visiting their stores. It was founded in 1962 with a commitment to make a difference in the lives of its customers. It has 11,000 stores with 71 banners in 27 countries and e-commerce in 10 countries. It employs 2.2 million associates worldwide and in the fiscal year 2014, it boasted of $473 billion in sales. Its mission is to help customers “to save money so that they can live better” (Walmart.com, 2014). It is committed to acting with integrity and in compliance with the laws of the community in which the company operates. As its founder Sam Walton said, “it starts with each one of us” hence each individual is accountable for organization’s success. To ensure a sustainable CSR, the organization operates a global compliance program headed by the global chief compliance officer. The compliance objectives are set by the Audit Committee of Board of Directors and senior management and apply to all levels of organization. The company is committed to environmental concerns of the community and had many initiatives in regards to that. One the environmental issue the company has been trying to address over the years is reduction of Green House Gas (GHG) emissions hence ensure healthy communities and become sustainable. Corporate Social Responsibility (CSR). CSR is a very complicated subject to define and has many definitions as there are researchers. Some associate it with business ethics, and public relations. For Juholin (2004: 22) CSR is the “openness and transparency of companies and taking into consideration the will and expectations of stakeholders.” This means firms’ CSR is driven by the interests of stakeholders as well as the interests of the business. This is supported by Carroll and Shahana (2010: 89) who argue that CSR is the “economic, legal, ethical and philanthropic/discretionary expectations that society has of organizations at a given point in time”. It is these stakeholders who give legitimacy to the business by evaluating its progress according to its fulfillment of these expectations. A firm cannot just operate while ignoring what the stakeholders want as this would be futile. In the end, it is these stakeholders who consume the products of such firms and who are affected by its operations and thus have the right to decide whether to support the firm or not. However, different stakeholders have different opinions and needs thus it is the role of the firm to balance these expectations. For Davis (1973) CSR is more than just the four expectations as it also involves accomplishing social benefits. From these definitions, we can deduce that CSR is more about responding to the needs of both internal and external stakeholders of the company hence corporate social responsiveness is vital. Milton Friedman (1962) would disagree with them as he believed the sole role of firms or managers was to maximize profits hence solving social problems was not a domain of businesses. However, the fact remains that firms are always under the scrutiny of different stakeholders who expect to gain something from it. These include: shareholders, employees, customers, government, Non-Governmental organizations (NGOs), media, special interest groups and the public in general. CSR is believed to have originated in Europe in 18th century during industrialization and was linked to management evolution that emphasized on the increased autonomy of management or the separation between management and ownership (Juholin, 2004). This was in the belief that management had other objectives than maximizing profits as stipulated by Friedman. Firms then offered such benefits as accommodation, schooling, healthcare and religious services as part of social responsibility and as recruitment and retention strategy. A study of Finnish Global Companies (Juholin 2004) reveals that CSR developed in three phases. The first phase was industrialization in the 18th and 19th century up to the 1960s as part of welfare state. The state thus provided essential services or public goods to the society through the taxes collected from companies. As such, CSR for companies was through taxes but they could also offer health benefits to employees but this was voluntary. This means CSR during this period was about compliance with rules as opposed to responding to societal pressures. The second phase was 1960s to 1990s a period when social changes were taking place (Juholin 2004; Carroll & Shabana, 2010)). In fact for Carroll and Shabana, CSR was a post-WWII phenomenon which gained importance in the 1960s. Spector (2008) on the other hand, argues that it was a strategy to fight against soviet communism and defend free-market capitalism. Societal expectations led to formation of social movements that started pressurizing companies to respond to their needs. One such movement was the environmental movement demanding for more responsive environmental policies and systems and this was achieved in 1990s. Others demanded employee empowerment and other social benefits. The civil rights, women rights and consumer rights movement were also crucial in bringing about this change. One critic of this approach however, was Theodore Levitt who warned businesses of the danger of engaging in social responsibility instead of leaving to government to deal with it (Carroll & Shabana, 2010). The third phase was globalization that gave multinational companies power to make decisions hence apply discretion in dealing with social issues. According to Carroll (1979) discretion is a voluntary social involvement of companies in fulfilling economic, legal and ethical responsibilities. In this case, companies are not compelled to be socially responsible nor prohibited in doing so. MNCs management could chose to solve social issues. However, the MNCs had no power to control activist groups or media and as such, in one way or another were compelled to be responsive in addition to paying taxes. The MNCs also discovered that such efforts led to success of the company hence it was beneficial for the company to engage in CSR activities and not only philanthropy and charity works. This phase was regarded as corporate social responsiveness by Frederick and occurred in 1970s (Frederick 1978). He also argues that in the 1980s, values and ethics to responsiveness became vital. Since then, companies are more involved in social issues and solving community problems. Business Case for CSR This involves justification by businesses of why they should engage in CSR. In other words, what do they stand to gain by being socially responsible? It is also about what society stands to gain in the process or the outcomes of CSR. There are many arguments for and against CSR for those who believe it is a government duty like Friedman and Levitt and for those who see value addition in it. Those opposed to it argue that businesses do not have the skills to handle social problems and that it only adds to the already excess power businesses have (Carroll & Shabana 2010). Others view it as a dilution of business’s primary purpose of profit maximization. Those in favour argue that it is a means to ward off government regulation, ensure long-term profits, and that businesses should be left to experiment on it (Bernstein 2000; Carroll 1979; Davis 1973). Various theories thus are advanced to pursue the business case. According to Koronis (N.D) the instrumental theories consider CSR applications and logic; political theories consider social impact of organizations; ethical theories are about what companies “must” do while integrative approaches combine both instrumental and political theories. The bottom line is; the impact on CSR on businesses and the community as a whole. Study on Finnish companies (Juhonis 2004) revealed that most companies linked CSR to more efficient management and leadership hence top management commitment was critical in success of CSR. Such companies also expected the suppliers to be responsible and offered training to employees and partners about their values. This is also the case with Wal-Mart whereby the supply chains are expected to adopt same values as Wal-Mart and training is given at all levels to internal and external stakeholders on the value of being socially responsible (Wal-Mart, Global Responsibility Report, 2014). Finnish companies also believed CSR improved competitiveness by becoming good corporate citizens (Juhonis 2004). Since too much pressure is mounted on companies by stakeholders to be socially responsive, the companies which accomplish this are more competitive than those who do not. CSR thus is used as a differentiation strategy by firms and also to improve brand value, corporate image and reputation (Juhonis 2004; Kurucz et al. 2008). However, building reputation could be sometimes dangerous as some companies do not do what they portend to do practically thus leading to greenwashing especially when it concerns environmental issues. For example, for those executives interviewed in the Finnish study, and who claimed they wanted to ensure good state of health, 3 of the companies were responsible for environmental disasters that attracted national publicity (Juhonis 2004: 26). For competitive advantage to occur, the company should develop a unique CSR strategy (Carroll & Shabana 2010: cited in N.Smith 2003: 67). Wal-Mart is the world leading retailer and this can be to some extent be attributed to its CSR strategy of ensuring better lives for communities thus justifying its engagement in various CSR activities especially on matters environment. Another case for CSR is that it is an economic responsibility. It is the responsibility of businesses to produce goods and services for sale in order to make profit. However, it should be acceptable profit and the goods desired by the society otherwise they would not be bought. For Solomon (2004: 1025) altruism is self-sacrifice and this using Aristotelian ethics is not desirable and is not demanded by ethics. Wal-Mart claims to offer the lowest prices for its goods and this is made possible by cutting down costs through environmentally responsible ways such as recycling waste (Walmart.com, 2014). Besides it partners with farmers and other stakeholders in the area to ensure it produces desirable products. Businesses also need to engage in CSR as a legal requirement or to comply with laws and regulations (Carroll & Shabana 2010). This gives the business legitimacy and mitigates the risks of litigation. Furthermore, it reduces the risk of having many regulations placed on it by government since it is believed to be compliant and also goes beyond compliance. It is also a means to build reputation and brand image if the company engages in independent monitoring and complies with vendor standards (Kurucz, 2008). Compliance also involves disclosure of information and this leads to transparency and increased reputation. Wal-Mart does engage in corporate reporting on environmental performance especially on green house gas emissions and this gives it credibility and repute. Environmental Auditing is done to measure progress and though this is a compliance issue (companies are supposed to reduce GHG emissions) it is an advantage to the company in terms of cost reduction and company image. Compliance also is a tax advantage as a result of decreased regulations. CSR is also linked to corporate financial performance. In organizations studied (Juhonis 2014; Carroll & Shane 2010) a positive correlation was observed between CSR and CFP. Responsible companies do attract the best staff, investors and also customers leading to value addition. Furthermore, companies that engage in philanthropic activities have a high chance of building customer loyalty and also improved marketing hence cost reduction. Corporate Social Performance (CSP) The business case for CSR is that it leads to benefits for both business and community hence measuring CSP is a good way to proof this is being accomplished. CSP is difficult to measure as some activities are not measurable but at least the outcomes can speak for themselves. One way of measuring CSP is the Kinder, Lyndenberg, Dumini (KLD) social performance index that measures environmental, social, governance, and controversial issues (Carroll & Shabana 2010; cited in KLD Research Analytics, Inc 2009). Environmental issues which are the main concern of this paper include climate change, products and services, operations and management. The Global Reporting Initiative (GRI) also is used for sustainability reporting. For this purpose, the model developed by Wartick and Cochran 1985 and presented by Wood (1991) will be used. This involves interaction of the principles of CSR, processes of corporate social responsiveness (CSR1), and outcomes of corporate behaviour. CSP however, is not treated as distinct from business performance and is linked to unspoken values. Principles The principles of CSR include the four categories outlined by Carroll (1979): economic, legal, ethical and discretionary responsibilities. These constitute the motivations of companies towards social responsibility and are not principles themselves. Out of these responsibilities, 3 principles emerge: institutional level: legitimacy; organizational principle: public responsibility and individual principle: managerial discretion. At institutional level, it is the society that gives legitimacy and power to business. Businesses are supposed to use this power effectively or risk losing legitimacy (Wood 1991). The business is responsible to government, consumers, competitors, environmental advocates, owners, employees and suppliers. Wal-Mart as a legitimate company strives to be responsible to its stakeholders while at the same time satisfying its self-interest through efficient resource use. It thus has a compliance department to ensure all obligations are met such as compliance with laws, provision of goods and services at reasonable prices, creating jobs (2.2 million employees), is ethically responsible and integrity is emphasized at all levels including supply chains, and most of all the company gives a lot back to the community by initiating projects especially for women and helping in disaster affected areas (Walmart.com). At organizational level, public responsibility is required. This involves dealing with issues arising out of the business and which affect the society (Wood 1991). They are also responsible for helping to solve issues related to business operation and interests. For example, a company is responsible for managing pollution or reducing carbon emissions in the environment. The issue addressed by Wal-Mart here is reducing GHG emissions which arise out of business operations. In this case, it engages in production of clean energy using renewable resources such as solar energy, wind power, and green power from sugar mills. By the end of 2013, it had started 335 renewable energy projects globally. Through use of refrigerants, it cuts GHG emissions by more than 8% annually (Walmart.com). Through this initiative, it also cuts its costs by reducing energy bills and operating efficiently and also it becomes a steward of environment. In this case, the company satisfies its interests as well as those of the society. Individual principle: managerial discretion is whereby managers are entrusted with acting responsibly as moral actors (Wood 1991). They are not prohibited or demanded to act responsibly but it is by choice. In other words, they choose what societal problems to solve individually or in collaboration with society. These actions are not prescribed by corporate procedures or formal job definitions. For example, at Wal-Mart the management decided to cut costs by recycling waste material in landfills. By doing this, the management solved a problem for the community by cleaning up the landfills that emit gases. It also uses low-polluting technologies such as decreasing the use of plastic bags and sustainably sourcing agriculture products thus lowering carbon footprint. By the end of 2013, it had reduced waste by 38% and it reduces 10 billion plastic bags annually (Walmart.com, 2014). The company is also engaged in “Nature is Speaking Campaign” in collaboration with Conservative International to conserve environment and in agricultural yields, GHG emissions, water usage and sustainable agriculture. Processes These include environmental assessment, stakeholder management and issue management. As concerns environmental assessment, Wal-Mart operates in a dynamic internal and external environment. Social pressures from various groups to act ethically and provide green products are high and also from environmentalist advocates. It also operates globally hence prone to political and legal influences in different countries hence it may be forced to apply different strategies in different countries as opposed to forcing corporate culture on them. For example, in developing countries, regulatory environment is not high hence sometimes the company is accused of paying low wages (Walmart.com). It is also under pressure to produce environmentally responsible consumer goods hence its involvement with communities in agricultural activities. Stakeholder management involves managing public affairs and multiple stakeholders (Wood 1991). Wal-Mart engages with multiple stakeholders as a global company hence has to strategize on how to manage all of them yet remain socially responsible and successful at the same time. One of the ways it manages this is through Global Responsibility Reports that indicates its level of compliance and what it has achieved every financial year (Walmart.com, 2014). The company also encourages collaborative problem solving hence ensuring sustainable products. For example, it collaborates with farmers and by giving them tools and also collaborates up and down the supply chain to ensure its goals especially (GHG emissions reduction) are achieved. It also partners with various agencies such as Environmental Defense Fund to gain buy-in and create accountability. Issues management involves policies in place to solve social issues (Wood 1991). Wal-Mart has a global ethics office that ensures a culture of integrity is maintained and which develop policies for ethical behaviour for all stakeholders. It also has a global compliance program whose decisions are made by top management and followed by all stakeholders across the supply chain. These objectives entailed in the compliance program are set by the Auditing committee of Board of Directors in collaboration with senior management (Walmart.com, 2014). Objectives involve people, policies, processes and systems. It also has a team of compliance monitors in all its retail international markets to ensure standards are adhered to. Outcomes CSP has various outcomes for the company social impact, policies and programs. The social impact of CSP in Wal-Mart is reduction of GHG emissions. This is indicated in company compliance reports every year and monitored to see if progress is being achieved. This is measured though use of sustainability index and indicates number of metric tons reduced per year. Programs and policies are also developed to ensure GHG emissions are reduced and that the company is environmentally sustainable. It has a goal compliance program and also began developing policies in collaboration with outside professionals to ensure it is sustainable and applicable in all its retail stores now and in future hence institutionalization (Walmart.com, 2014). Conclusion Corporate social responsibility is an idea that treats corporations not as individual entities, but as part of a community and as such responsible for that community. The business case for CSR includes cost and risk reduction, competitive advantage, reputation and legitimacy as well as financial performance. Corporate social performance is linked to corporate financial performance as indicated by research from various companies. CSR operates under the principles of legitimacy, public responsibility and individual responsibility and result of using such principles is increased responsiveness for companies. However, to succeed CSR strategy should be fitted with organizational values and core strategy. References Bernstein, A. (2000). 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