A Powerful Tool with the Business Competition - a Code of Corporate Social Responsibility - Term Paper Example

 A Powerful Tool with the Business Competition - a Code of Corporate Social Responsibility Introduction Corporate Social responsibility (CSR) is not a new concept in the corporate world. The business organizations across the globe, both small and big have realized the significance of being socially responsible from the past experiences of many socially unsuccessful companies such as Enron. It has been well acknowledged by the corporate community that companies that seriously take care of CSR are more likely to sustain than those who do not. CSR means and includes all the efforts that a firm takes in identifying the social, economic and environmental problems of a society in which it operates and finding solutions to those problems in such a way that they are firm’s problems too. The European Commission defines CSR as “a concept whereby companies integrate social and environmental concerns in their business operations and their interaction with their stakeholders on a voluntary basis.” (A Business Contribution to Sustainable Development. n.d.) In an article by John Richardson (2008) pointed out that a company is said to be socially responsible if “it conducts itself reasonably with respect to: the workers it employs around the world; its investors as manifested in its corporate governance practices; local communities in which it operates; how it conducts itself ethically ion its domicile country and in other countries around the world; the environment” (section 2). The CSR is also advocated by authorities mainly because of the fact that CSR principles are in conformity with social justice. The essence CSR lies in the fulfillment of social justice to the various stakeholders. The companies, therefore, are socially obliged to deal with the societal, ecological and economical issues so that all the stakeholders including shareholders are satisfied and eventually results in economic sustainability. A firm which has obligations only towards its shareholders is socially irresponsible and will no longer continue to exist in the modern corporate environment. It has also been acknowledged that CSR conscious corporations have more chance to attract customers than one which is not. Therefore, it is wise to say that CSR has become a strategic tool to compete competition both from domestic and international market. Significance of Going Socially Responsible Conforming to the social and ethical corporate practices results in not only corporate citizenship but it offers a numerous benefits as well. Consumers always prefer to buy products of those who are at the helm of CSR. In an article from Practical advice for Business, the relevance of being CSR conscious is illustrated as, “sales of "environmentally friendly" products continue to grow - and these products often sell at a premium price. Ben & Jerry's ice cream became as famous for its approach to responsible business as for its products.” ( Corporate Social Responsibility, n.d.) The benefits of CSR companies as an entity of society are manifold. They include Economic, Social, and Ecological Benefits. Besides, company’s overall performance including financial performance can have a multiplier effect. However, to discuss the topic in detail, the various stakeholders are benefited out of CSR in the following ways: Comply with legal requirements Good reputation and Brand Increased return to shareholders, thereby improved firm’s value Easy Employee recruitment and retention Highly motivated and productive employees Further research on new and viable business opportunities Low risk of damage on account of competition The changing face of CSR Gradually companies have started to realize that CSR is much more beyond charity and much more than mere construction of schools, hospitals and temples. The definition of CSR is undergoing sea change in the last few years. Now-a-days it has been considered as a tool to contribute directly or indirectly to the company’s bottom line and also ensure its long term sustainability. Experts have identified the closeness between CSR and financial performance, sustainability, market value of shares and customer loyalty. Relationship between Corporate Financial Performance and CSR The closeness of corporate economic performance and CSR has been a topic of debate among the scholars and practitioners for years. Many studies have been conducted across the globe since the inception of the concept CSR to find whether any relationship exists between financial performance and CSR. Perhaps, all might have come out with positive results, though a very few responded in the negative. Majority of the studies argue that there is positive correlation between corporate financial performance and CSR. When companies become CSR conscious, they are offered a plenty of benefits (discussed above) that eventually contribute to augmented profit. Supporting this argument, Canadian Business for Social Responsibility (CBSR) defines CSR as “a company's commitment to operating in an economically, socially and environmentally sustainable manner, while recognizing the interests of its stakeholders, including investors, customers, employees, business partners, local communities, the environment and society at large”. (Berkhout Tom, 2005) CSR and Sustainability One of the challenges facing a company that wants to operate under the principles of CSR is determining how to balance its social and environmental responsibilities with its more clearly defined economic responsibility to earn a profit. It is important for promoters of CSR to acknowledge that at some point the cost of being socially and environmentally responsible outweighs the benefits. When this happens, most firms will cease to engage in new initiatives. In essence, CSR has a built-in social and environmental glass ceiling that is dictated by the dominance of the firm's economic commitment. “If society's evolving norms and rules determine what constitutes acceptable corporate behavior, one can argue that CSR's glass ceiling is merely a reflection of society's expectations. As society's expectations rise, so will the range of economically feasible CSR initiatives”--a scenario that sounds remarkably similar to Adam Smith's "invisible hand". (Berkhout Tom, 2005) A number of corporations have begun to see strategic value in CSR beyond improved public relations or the short-term bottom line. Employee development and the wellness, waste reduction, donation to local community groups and improved environmental performance are all examples of CSR actions that may cost the company more in the short-run but make it arguably more competitive in the long run. CSR and Market Value of Shares Many Studies have been done to analyze whether there is any relationship between the stock price and the economic performance. “The Business and Society Review's Reputational survey has found a negative relationship between social performance and stock price changes. The majority of other studies have not supported these findings. In fact Moskowitz's (1972) own study, over a much shorter 6 months time frame, reveals a positive correlation between social performance and stock price.” (Blackburn V.L., M.Doran & C.B.Shrader, 1994, p.no. 195+). And now corporates the world over have accepted the fact that “Corporate Social Responsibility Can Be the Strategic Engine for Long-Term Corporate Profits and Responsible Social Development” (Berkhout 2005, p.no.15). As business guru Peter Drucker explains in his article, The New Meaning of Corporate Social Responsibility, "the proper 'social responsibility of business is to tame the dragon that is to turn a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs, and into wealth." (Berkhout Tom, 2005) CSR and Market The stakeholders in the market include customers, financial analysts and shareholders. Shareholders and financial analysts enjoy a symbiotic relationship with the later often influencing the decisions of the former. Companies need to take a long-term view when they integrate social responsibility concerns with their marketing strategy. They need to be careful while choosing their path. Product related issues need to satisfy both business needs and social requirements. “A classic example is Toyota. Increasing automobile emissions is a global concern. Automotive companies are spending a large part of their research dollars in developing technologies that cause lesser pollution. It was, however, Toyota, which anticipated this need of the market, invested in alternative technologies and developed Prius, the first hybrid car. After successive iterations, The Prius has emerged as the best selling hybrid car in the world (Fortune, February 2006). This not only meant enhanced image for the company but also created industry standards in the sector. Today, Toyota's advertisement repeatedly focuses on the point how being environmentally responsive has led it to develop the popular car Prius” CSR and the workplace As the saying goes, charity begins at home. Taking good care of employees is the first and foremost responsibility of companies. This often goes beyond traditional HR practices. For manufacturing companies, this means ensuring safe working conditions for all the levels of employees. For environmentally disruptive industries like chemicals, mining and oil, it assumes significant importance. One of the key features in the social responsibility reports published by companies in these sectors is the number of safety related accidents. A nondiscriminatory and equal opportunity employment practice is the first step towards ensuring CSR in the workplace. A responsible attitude towards employees is often overlooked when we discuss CSR. We often forget that it is the small details that have big impacts. Whistle blowers are generally employees who can smell a rat from a distance. There is also a positive fall out of treating employees well. It helps in the end to attract better talents to the company and create a company-wide culture of giving and sharing. Many of the global companies operating in Africa provide free treatment for all the employees affected with AIDS. It makes business sense in the region. With the largest number of HIV infected people, companies operating in Africa are apprehensive that they might run out of labor force in the next 15 - 20 years! When CSR strategy flows from such real, business concerns, the programs are far more meaningful for both the company and the society at large. Strategic Social Responsibility CSR and business strategy can be independent for a small company. A school here and a hospital there act as a soothing balm for the shareholders. But as the company grows in scale and scope, it reputation risk increases. The case in point is Mittal Steel. Much of the opposition to Mittal Steel's bid for Arcelor stems from the treatment it gave to its employees. Governance and social responsibility have become issues that Mittal has to fight with. In the international steel community, the group does not score very highly on both these accounts. Mittal quickly brandished employee statements in support of its CSR programs. Surely, Tata Steel would not face this issue if and when it goes to Europe. Agreed that SSR may not set the cash registers ringing at the outset, but Toyota, with its Prius brand, has showed that good sense can be good business too. While mapping a CSR strategy a company would do well to map how it influences its market, the environment, community and the workplace. Its footprint will increase with its size. Decision-making in the area of CSR will become more complex. But done with due diligence, such processes can reap rich dividends in the future. Conclusion Being a good Corporate Citizen is increasingly a crucial task among the corporates to achieve sustainability. Achieving sustainability is not as easy as many think. It is a tough task and includes all the efforts to balance the social and environmental responsibilities with the firm’s conventional economic responsibility. Over the years the necessity of being CSR conscious is increasingly felt owing to high expectations of key opinion formers, customers and the public on company’s compliance with CSR guidelines. Many succeeded, a few fallen and the rest could find a balance between the cost of CSR and the economic benefits. Successful companies like Google and Johnson and Johnson always support the CSR dimension of business. Global giants have realized one thing that getting a good score in the minds of the stakeholders on CSR can not only augment company’s current year’s profit but can be taken as a competitive weapon in future. Reference A Business Contribution to Sustainable Development: Corporate Social Development, (n.d). Retrieved on 28 November 2008 from http://europa.eu/scadplus/leg/en/lvb/n26034.htm Berkhout Tom (2005). Corporate Gains: Corporate Social Responsibility Can Be the Strategic Engine for Long-Term Corporate Profits and Responsible Social Development. Publication Date: January-February 2005. Page Number: 15+. COPYRIGHT 2005 Gale Group. Corporate Social Responsibility. (n.d.), Retrieved on 28 November 2008 from http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1075408491 Read More