How Might Corporate Social Responsibility Impact on an Organisation - Term Paper Example

Corporate Social Responsibility Introduction Corporate Social Responsibility is the responsible relationship borne by business entities towards their stakeholders, community, and the environment. The stakeholders include customers, suppliers, employees, investors, and the communities. CSR is realization of business contributions to sustainable development goals (World Bank, 2007), through alignment of business operations with social values (Coors and Winegarden, 2005). Broadly, CSR can be measured by its contribution to the society through its core business activity, social investment, and philanthropic activities. In business parlance, CSR is often termed as Corporate Citizenship. Corporate Social Responsibility emerged as a field of management studies in 1950s (Banerjee, 2007). It is increasingly being accorded importance worldwide. CSR is important because an enterprise uses public money and survives on public money. As such, it has to invest a measure of its profits in the public. This investment in physical infrastructure and social capital has become a necessary part of doing business. CSR promotes fairness and justice in the society. Corporate Social Responsibility promotes sustainable development by bearing greater accountability towards issues of environmental and societal importance. CSR—A Core Business Activity CSR has come to be adopted as a sound business practice for small and large organizations. A company’s social responsibility and the activities carried out thereof are well-documented in the CSR reports that are often released along with Annual Reports. Nourick and OECD (2001) point out that socially responsible behaviour is not limited to multinational organization alone, but is as relevant to SMEs (Nourick and OECD, 2001). Corporate Social Responsibility is different from other philanthropic activities like charity, making donations, employee welfare, etc. Corporate Social Responsibility far transcends the traditional methods of doling out donations and making charities used to carry a more public savvy image. Mohr, Web and Harris (2001) cited by Uddin, Hasan, Tarique (2008) view CSR as an initiative that minimizes harmful aspects and maximizes beneficial features of the business. The CSR initiatives include Human Resource Training, employment generation, developing supplier base and its management, microfinance and capital formation (World Bank, 2007). Thus Corporate Social Responsibility is born out of enlightened self-interest that is a result of sustainable global economy. There is a growing realization in the corporate world to undo the negative impacts of consumerism, capitalist production system, and industrialization on the society, and the earth. CSR includes socially responsive and environmentally sustainable activities. CSR underpins the importance of carrying out socially responsible roles to build dependable and sustainable relations in the community. Significantly, the community in which a company operates also constitutes a group of stakeholders. The companies, thus, seriously pursue activities that promote community and employee welfare and aid in sustainable living and sustainable development. CSR action is guided by the principles adopted by the company. Often, companies depute special CSR teams. Every large corporation has Corporate Social Responsibility team. In other cases, CSR activities are carried out by the employees or other stakeholders on part time basis. CSR— Different From Core Business Activities CSR is an ethical activity that stands distinguished from other organizational activities, which have profit-making as their core motive. Corporate Social Responsibility is based upon principles of social studies, environmental activism and sustainable development. CSR is viewed by European Commission (cited at Nourick and OECD, 2001), as a business led initiative, as important as quality. Since CSR is more or less a voluntary activity, the sincerity with which it is carried out differs from company to company (World Bank, 2007). Drivers of Corporate Social Responsibility The reasons for investing in Corporate Social Responsibility vary from philanthropy to legal compliance, from creating brand image to developing sustainable and effective supplier base and supply chains (World Bank, 2007). CSR becomes more important in globalised trade conditions due to global markets, global supplier bases and worldwide networking (Nourick and OECD, 2001). This is due to lack of global governance models (Nourick and OECD, 2001). The changing socio-economic and political condition warrant less tax control regimes and social spending. The onus of responsibility for social welfare, thus, shifts to liberated enterprises (Nourick and OECD, 2001). Responsible organizations make accountability, transparency, and corporate social responsibility part of their regular agenda and annual reporting. In wake of growing concerns for social and environmental factors, profit-making no longer remains the sole motive of the business organizations. At times, corporate social responsibility is spurred by governmental action through enactment of labour welfare or community welfare, and environmental conservation laws. CSR is a commitment of public service imposed on private institutions by the governments. The government according to Nournick and OECD (2001) imposes the public service commitments on private institutions. Taxation benefits are also key motivating factors for the corporate world to adopt a more socially responsible role. Carrol (1991) cited by Uddin et.al (2008) interprets CSR in four dimensions: ethical, legal, economic, and philanthropic. Corporate Social Responsibility is based on the ideology that economic institutions can impact social outcomes (Banerjee, 2007). Corporate Social Responsibility emerged as the ‘soul’ of the corporate entity in obligation to its duties towards the society (Banerjee, 2007). As a concept, it is interlaced with the very fibre of the organization. It is also necessitated by the fact that public wants greater transparency in conduct of the affairs of business. The companies basing their strategies on openness and transparency can report publicly on their performance in social and environmental arenas. Others like Hess, Rogovsky, and Dunfee cited at Kotler and Lee (2005) attribute it to growing realization of ‘moral marketplace factor’. Corporate social responsibility helps the companies to carry out only those actions that are not only economically viable, but also promote well-being, and sustainable development of the communities, it operates in. Increasingly, companies are incorporating corporate social responsibility in their business strategies. Special budgetary provisions are made to carry out corporate social responsibility activities. Of late, the trend has emerged wherein companies weave corporate social responsibility into their business strategy (Fiorina cited at Kotler and Lee, 2005). Nevertheless, it has come to be accepted as a healthy and ethical business practice. It best serves to undo the adverse influences created by day to day functioning of the organization over its stakeholders including the environment. CSR Models According to World Bank (2007), CSR can be further bifurcated into Social Investment Model, and Economic Linkages model. The Social Investment Model seeks to improve the lot of the community in which an organization functions. Economic Linkages model works on the business drivers of the organization to improve productivity. Advantages of CSR Corporate Social Responsibility increases the prestige and image of a company in the eyes of the investors and customers. This positively impacts the business prospects of an organization. The competitiveness of businesses has adversely affected the quality of lives of those directly involved in it and the communities at large. Since businesses operate due to the customers, they have to think in larger interests of the environment, people and the future generations. According to Uddin et.al (2008), CSR incorporates the needs of the stakeholders in its business thus making it more competitive. Through formalized procedures, CSR becomes integral to the normal functioning of the organization (Uddin et.al, 2008). Uddin et al. (2008) lists four stakeholders; the consumers, suppliers, the employees, and the communities who would wish to deal or work for an organization that displays more socially responsible attitude. Even the Non-Governmental Organizations (NGOs) show a preference to work with companies that are inclined for feasible and innovative solutions of common concern. (Uddin et.al, 2008). Corporate Social Responsibility integrates community improvement practices into the core business activity and embeds communities in the supply chains of the organizations (World Bank, 2007). These activities also help in evolution of traditional supply chains into value chains. CSR promotes dialogues amongst various employees, their representatives, and unions to meet the shared objectives of the organization. Corporate Social Responsibility enhances the image of an organization manifold. The Corporate Social Responsibility assumes importance in context of the triple bottom line (TBL) of economic, social and environmental parameters. The major benefits, of CSR, listed by Kotler and Lee (2005) are growth in market share, better organizational image, greater motivational levels and performance of the human resources, decreased costs and more investments through an improved corporate image. These factors make the organization more competitive and its operations more viable thus positively contributing to its functioning Since corporate social responsibility leads to higher retention rates, it decreases the cost of training on human resources. Furthermore, CSR minimizes the negative fallout of the company’s operations on the environment and communities (Nourick and OECD, 2001). CSR—Global Trends Corporate Social Responsibility according to Uddin. et.al (2008) is affected by three trends: 1. Changing Social expectations 2. Increasing affluence 3. Globalization. In the developing world, Corporate Social Responsibility is directed more towards poverty alleviation, education, healthcare and sanitation. In the developed world, the Corporate Social Responsibilities are oriented towards cessation of environmental degradation, pollution check, sustainable living, and care for the children, old, and differently enabled. Corporate Social Responsibility is also dictated by the nature of business. For example, a part of CSR of Tesco Plc is carried out amongst the farming community to promote sustainable agriculture and amongst its suppliers in the third world countries. Microsoft, through the Melinda Gates Foundation, carries out welfare programmes for the AIDS affected. Levi Strauss demonstrates its commitment to CSR by acting more responsibly in third world countries (Nourick and OECD, 2001). Till a few years ago, British Petroleum (BP) practiced a policy of controlling a situation arising out of emergency. Today, a company like it integrates socially responsible and ethical conduct in its code of practice (Nourick and OECD, 2001). Corporate social responsibility increases the prestige of an organization thus projecting a positive impression in the society, in general and amongst the investors in particular. Corporate Social Responsibility is not a threat to the business prospects, but provides an opportunity in economic development that increases the global competitiveness of the company. Corporate social responsibility is a commitment to improve community well-being through discretionary business practices and contributions of corporate world (Kotler and Lee, 3, 2005). The World Business Council quoted at Kotler and Lee (2005) broadens the definition of Corporate Social Responsibility to include sustainable economic development. Corporate Social Responsibility assumes more importance in wake of increasing gap between the rich and the poor, the developed and the underdeveloped countries, and the environmental degradation around the globe. On the other hand, potential lack of skilled staff drives companies to be more responsive and better oriented toward the needs of the society. Corporate Social Responsibility helps in hiring and retaining qualified and competent human resources. CSR—Drawbacks Corporate Social Responsibility, at times, may deviate the attention of the employees and the stakeholders from their real motive of business enhancement and profit maximization. The financial inputs, in carrying out Corporate Social Responsibility, are an unnecessary expenditure that burdens the budget. Companies are, at times, not in position to pinpoint socially responsible action and they end up putting in their resources and energies into a wrong cause. Corporate Social Responsibility programme, thus, ends up wasting money on causes that have little or no value. One of the main drawbacks of corporate social responsibility is that it may induce managers to develop false pride of their contribution to the enterprise (Johnson, 1958 cited by Banerjee, 2007). Johnson (1958) cited by Banerjee (2007) claims that companies can carry out ‘green washing’ under the garb of Corporate Social Responsibility. In ‘green washing’ a company presents a more responsible public image while reality may be different. Another criticism of corporate social responsibility arises from the viewpoint that it seeks to carry out socially responsible activities at the cost of the investors. This results in wastage of resources, time, and energy. Often, poor communities get ignored from reaping benefits of CSR, due to lack of access and lack of knowledge of business and accounting practices (World Bank, 2007). Coors and Winegarden (2005) argue that the corporate social responsibility towards the customers is nothing more than a publicity gimmick and a method to advertise products. CSR dims the difference between advertising a company’s socially responsible behaviour and conventional advertising. Both are, Coors and Winegarden (2005), stress, methods to drive up sales and profits. Corporate Social Responsibility comes with additional costs to the business. These costs lower the companies’ profits resulting in hike in prices, lowering of salaries and consequentially decrease in number of employees hired (Coors and Winegarden, 2005). One of the major disadvantages of corporate social responsibility is an apparent increase in costs. Not all stakeholders especially management, in some cases, may not approve of it. This could result internal tensions between various stakeholders. CSR lacks in implementation in developing economies due to bureaucracies in business activity, poor governance models and limited capacities of the business organizations (World Bank, 2007). Conclusion Corporate Social Responsibility is increasingly being adopted in the business world, both out of compulsion, as well as a voluntary activity. On the whole, the positive consequences of CSR far outweigh its negative outcomes. Though Corporate Social Responsibility may not directly impact the balance sheet, yet, its true benefits accrue over the years to positively affect the bottom-lines of the companies. In order to check the misuse of corporate social responsibility, it is also advisable that the companies develop dedicated teams for its implementation. Theorists and practitioners can develop suitable metrics that may help the managements to gauge the efficacy of their CSR programmes. These metrics can help in keeping the disadvantages of CSR in check, while promoting it as a cause of sustainable growth. Despite its criticism, CSR, is set to become a core business activity in future. It is in fitness of things that the business leaders and managers of tomorrow learn its basics today (Uddin, et.al, 2008). Banerjee, S, B., (2007) Corporate Social Responsibility: The Good, Bad and Ugly, Edward Elgar Publishing UK. Kotler, P., Lee, N., (2005) Corporate Social Responsibility, John Wiley and Sons UK. Uddin, M, B., Hassan, M, R., Tarique, K, M., (2008) Three Dimensional Aspects of Corporate Social Responsibility, Journal of Business and Economics, Vol 3, No.1, January 1st 2009, Retrieved January 1st 2008, < http://www.daffodilvarsity.edu.bd/library/b&e/v3n1j8/13=Mohammed%20Belal%20Uddin.pdf> Coors, A, C., Winegarden, W., (2005) Corporate Social Responsibility—Or Good Advertising, Retrieved January 1st 2009, http://www.cato.org/pubs/regulation/regv28n1/v28n1-noted.pdf World Bank (2007), Social Development Department, Beyond Corporate Social Responsibility: The Scope for Corporate Investment in Community Driven Development, Retrieved January1st 2008, http://siteresources.worldbank.org/EXTSOCIALDEVELOPMENT/Resources/244362-1164107274725/3182370-1164201144397/Beyond_CSR_CDD_Summary.pdf Nourick, S, Organisation for Economic Cooperation and Development (2001) Corporate Social Responsibility: Partners for Progress, OECD Publishing, UK. Read More