The Features of Corporate Social Responsibility and Ethics - Case Study Example

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). It has further been defined by Kotler and Levy as “a commitment to improve community well-being through discretionary business practices and contributions of corporate resources” (Labbai, 2007). CSR was first recognized by the owners as the rights of the employees (Idowu & Towler, 2004) but the European Commission Green Paper, of 2001 defines CSR as a ‘‘concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment’’ (Dijken, 2007). CSR is also the acknowledgement by the company that they should be accountable not only for the financial performance. Even though there is no universal definition of CSR, it definitely implies that a company is responsible for its wider impact on the society. CSR is a vague and intangible term and is an invention of the PR. The lack of precise definition reflects that it is still an evolving concept and is motivated by a desire for an eventual return (Frankental, 2007). 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). The seven stakeholders of the company include the owners or the stock holders, the suppliers, the customers, the employees, the community, the government and the competitors. Thus by having a strategic approach to philanthropy firms fulfill their responsibility to shareholders and their commitment to community (McAlister & Ferrell, 2002). There are many instances in literature where companies are trying to find a balance between CSR and the firm’s profitability and also alignment with corporate goals. CSR is used as a point of differentiation as CSR is not different from quality. Many firms implement CSR for strategic reasons like market entry while others use it as a motivating factor to address environmental issues. Some times it also happens that small firms want to compete for large projects are coerced to join in some CSR programs. Whichever are the methods but firms try to balance their CSR programs against profitability. Firms try to seek competitive advantage through philanthropic activities. It has been found that integrating operations, quality, strategy and technology can help sustain competitive advantage and strengthen the focus on doing things right. Strategies require the involvement of top management and ISO 26000 strengthens the focus on wider stakeholder base. If the ethics are not adhered to, it could results in billions of dollars of losses as has been faced by MNCs like McDonalds and Nestle (Labbai, 2007). 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). Coca-Cola has taken this seriously where they judge how well the employees manage people and look after the company’s reputation, in addition to environmental and diversity matters (Alison, 2003). These are the measures of corporate citizenship that the company has included. They claim that they have always been doing “the right things for our people and the right things for the marketplace, environment and communities in the more than 200 countries where we do business” (cited by Asongu, 2007). They continually assess whether they have been able to meet the needs of their stakeholders. It is an integral part of their mission and also helps to guide their business practices. Coca-Cola has taken the responsibility to make an impact on the communities within which it operates. As such, in India they employed 7000 citizens and believe that for every direct job, 30-40 more were created in the supply chain (Labbai). They have set up primary education projects for the children of the slums, water conservation projects to support the community-based rain water harvesting projects to restore water levels and promote conservation. The company takes a strategic view of their role in society by linking company resources and operating practices to stakeholder issues (McAlister & Ferrell, 2002). Coca-Cola focuses its energies and resources on environmental issues, where the company has an impact and expertise. Since water quality, water conservation and waste reduction are key considerations in its packaging and operational decision, they provide funds around the world to support collaborations that respond to such environmental concerns. Being a good corporate citizen is what matters and not merely making public claims. While The Coca-Cola company claims “through our actions as local citizens, we strive every day to refresh the marketplace, enrich the workplace, preserve the environment and strengthen our communities” (cocacola.com), according to one their former senior executives, they try “to encourage as many people as possible to drink as much Coca Cola as possible at the highest possible price so that the company could make even more money” (Fan, 2005). Such discrepancies can be found in the case of many MNCs and by arrogantly dismissing the concerns for the environment or the people, firms like Coca-Cola, Nestle and McDonalds have suffered by incurring losses, falling share prices, profits and the image. Perception of stakeholders is important for firm survival and performance. The Coca-Cola Company has invested millions of dollars in addressing HIV/AIDS in Africa which affects millions of people including its employees. It is the largest private sector employer in the continent of Africa. The AIDS epidemic in Africa has claimed the lives of an estimated 2 million people in the region in 2005 and is expected to continue to rise as the prevention, care and treatment efforts are not sufficient (Asongu, 2007). Even though many of its employees are affected by AIDS, The Coca-Cola Company ought to be doing more for them. AIDS activist have been staging protests round the world against the company because of lack of sufficient action on the part of the global soft-drink giant. There are allegations that they have neglected the workforce and give importance to the profits over the lives of the workers. Under pressure they stepped up their charitable and community work in Africa. They created The Coca-Cola Africa Foundation was created to combat the spread of HIV/AIDS through partnership with governments, UNAIDS, and other NGOs. They then provided comprehensive healthcare benefits to their employees in Africa along with antiretroviral drug coverage to all of its 1200 employees in Africa. Despite all their efforts to spend money and be philanthropical, they continued to receive allegations. What is important here is that it is not enough to make tall claims or have a CSR program. The company needs to understand stakeholders concerns. Even though the company may have the financial resources to handle it alone, they require collaboration and cooperation of the stakeholders in executing their CSR programs. They first need to get the cooperation of their critics because big companies become easy prey for the NGOs. These attacks can be damaging to a firm’s reputation. A strategic communication program becomes important because all the actions taken have to reach the masses and specially the critics. Besides, the company failed to respond when the crisis arose and responded only when they were attacked. Ash (2004) too confirms that the CEO of Coca-Cola makes tall claims that by being more efficient and more profitable, it makes businesses better for the community 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). The union leader was shot dead at the Columbia bottling plant. Turkish and Indonesian workers face mass firings for their union activity. Multination Monitor, an American non–profit organization, listed coke amongst the worst ten companies in US. In India they are diverting potable water from local residents for the production of soft drinks. During the processing of soda pop in India, Coke has contaminated soil and underground water with toxic cadmium, which was found in the sludge. They have also been charged and found guilty of bribing the Pollution Control Board in South India. They are accused of inflating profits, selling contaminated beverages and violating contracts. All these are against the basic ethics of business. It also demonstrates lack of social responsibility on the part of coke. 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. 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. The rationale for ethics in business stems from the fact that when corporations collapse the society in general loses – the shareholders lose, the customers, the employees, the community, the creditors, the family – all lose. Hooker (2003) argues that ethics exist because ethical behaviour does not always pay. If ethical behavior were always rewarded, there would be no need for ethics. In the long run, however, morality pays. Unethical people do run into trouble even if they have reaped profits for some time. Ethical companies develop a brand image; investors come forward and support it in times of trouble. Above all, it brings financial rewards with it. Thus, even though firms have been attempting to relate their CSR with their corporate objectives and missions, very often discrepancies are found in their actions. It is also important to respond to the demand of the situation and the environment before allegations are hurled at the company. The perception of the stakeholders is important for survival and what has been done needs to be conveyed through the right medium. Companies need to take care not to engage in greenwashing but to actually serve the very society in which they thrive. CSR should be used as a strategic tool to enhance the brand image and the profits. It pays to be ethical because being unethical is a short term strategy with short-term profits. References: Alison, M. (2003). Tools to build a reputation: CORPORATE SOCIAL RESPONSIBILITY. Financial Times. London (UK): Jan 20, 2003. pg. 10 Ash, J. (2004). Coca-Cola CEO talks ethics. Available from http://www.yaledailynews.com/article.asp?AID=25539; accessed 14 May 2008 Asongu, J. J. (2007). Coca-Cola’s Response to HIV/AIDS in Africa: A Case Study on Strategic Corporate Social Responsibility. Journal of Business and Public Policy. Volume 1, Number 1 (2007) Cairn, S. (2005). Economics or Ethics? Available from http://www.viewmag.com/viewstory.php?storyid=3420; accessed 14 May 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 14 May 2008 Dijken, F. (2007). Corporate social responsibility: market regulation and the evidence. Managerial Law Vol. 49 No. 4, 2007 pp. 141-184 Fan, Y. (2005). Ethical branding and corporate reputation. Corporate Communications: An International Journal Vol. 10 No. 4, 2005 pp. 341-350 Frankental, P. (2001). Corporate social responsibility - a PR invention? Corporate Communications: An International Journal Volume 6 . Number 1 . 2001 . pp. 18-23 Hooker J, 2003, Why business ethics? Available from http://web.gsia.cmu.edu/ethics/whybizethics.pdf; accessed 14 May 2008 Idowu, S. O. & Towler, B. A. (2004). A comparative study of the contents of corporate social responsibility reports of UK companies, Management of Environmental Quality: An International Journal Vol. 15 No. 4, 2004 pp. 420-437 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 14 May 2008 McAlister, D. B. & Ferrell, (2002).The role of strategic philanthropy in marketing strategy. European Journal of Marketing. Vol. 36. No. 5.6. pp. 689-705 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. Read More