Corporate Social Responsibility - Coursework Example

Corporate Social Responsibility Corporate Social Responsibility CSR involves investment by organizations into infrastructure and communities to improve sales and gain positive reputation through practices that benefit the wider community (McElhaney, 2013: p42). Potential benefits in relation to costs for stakeholders and the business include gaining a positive corporate image and reputation. For instance, Marks & Spencer introduced “Plan A”, a CSR strategy divided into five aspects: fair trade, raw materials, climate change, health, and waste. One benefit received was product differentiation on the basis of ethics. This gave the company an appeal factor with a study indicating that 88% of consumers were willing to buy from organizations benefiting the community (McElhaney, 2013: p52). The strategy’s publicity enhanced the company’s competitive advantage, while also increasing loyalty of existing customers and attracting new customers. In turn, the company makes more profit that could eventually cover the costs of implementing the strategy. Marks & Spencer’s workforce will also be more motivated and happier through some of their programs. “Ready to Work”, one of the projects under Plan A, has helped more than 500 homeless people gain mentorship opportunities and work experience (McElhaney, 2013: p53). In addition, they also award jobs to at least 30% of those working on successful projects. The project was the result of market research, which informed Marks & Spencer’s strategy to build good relationships with the society, suppliers, and especially employees. In addition, a survey of four hundred employees at the company indicated that 76% of those interviewed felt the project was successful in making for a great work place atmosphere and improving their skills (McElhaney, 2013: p53). This will result in motivated staffs that have a good relationship with other workers, leading to lower staff turnover. One definitive aspect of adopting CSR is its importance relative to other corporate objectives. The priority of corporate objectives change with time and, in the long term, the success of the firm will depend on their ability to meet the society’s needs (Gawel, 2013: p65). The underlying corporate objective for most organizations is profit, which is more important than other objectives. The shareholder value theory elevates the prioritization of profit, which means that most will consider the costs of CSR against impact on shareholder and company profits. A good example is Primark, which offers low prices via the exploitation of cheap overseas labour. Becoming CSR compliant would force Primark to give up their competitive advantage by increasing prices due to more labour costs, resulting in decreased profits (Gawel, 2013: p66). This shows that most companies will rarely implement CSR strategies if it harms their profit opportunities. However, CSR’s importance cannot be overlooked, especially for large organizations willing to compete in global markets with low growth. Failing to prioritize CSR, especially sustainability targets, could threaten the business’ viability (Gawel, 2013: p67). CSR is increasingly becoming a key driver of innovation and has become more of a priority and as, an organizational objective. The current economic environment shows that businesses are entering a period of low growth, especially in developing nations, which will force organizations to evaluate importance of profit in the long term. P&G is one example with its sustainability vision to reduce their use of materials derived from petroleum by a quarter, while also sourcing 30% of its power needs from renewable sources and reducing packaging by a fifth (Gawel, 2013: p69). This, in the long term, will reduce business costs and increase their profit margin. While majority of organizations accept some of CSR’s aspects, they are not receptive of all of them, especially if they are costly and do not impact positively on the customer. One factor that determines the probability of an organization accepting various responsibilities is legislation. Some of CSR’s provisions are covered with regulations and laws and have significant impact on the business’ willingness to implement some CSR aspects (Jonker & White, 2014: p51). For example, McDonalds had to increase their employee’s wages to at least $4.92 an hour after the National Minimum Wage Act of 1999. In addition, the Health and Safety law of 1996 forced McDonalds into improving the working conditions of its employees. McDonalds also changed their policy of giving free toys to young children by requiring the children take healthy food first in order to tackle obesity, in compliance with the Food Safety Act (Jonker & White, 2014: p53). McDonalds also began to recycle cups, boxes, and cupboards in order to adhere to the Environmental Protection Act, allowing them to maintain their image and reputation. The interests of the stakeholders also influence the decision to accept some CSR aspects. Customers, for example, are important to an organization’s bottom line and, as such, responsibilities that increase foot traffic to the business will be more acceptable (Jonker & White, 2014: p54). For example, McDonalds realizes that fast foods are a contributor to obesity and other health problems, which informed their decision to launch a national campaign urging for healthy eating. Because they are one of the largest fast food companies, improving brand loyalty and reputation is crucial to further growth in profits. Shareholders also influence the acceptance of responsibilities. This is because they are essential to further investments for growth, especially with regards to the franchisees that need to gain profits to invest more in their chains. An example is shareholder pressure on McDonalds to survey the amount of pesticide used in growing potatoes that make French fries (Jonker & White, 2014: p55). Although this and the subsequent actions was a costly undertaking, McDonalds had to satisfy its shareholders. The overall extent to which an organization will incorporate CSR is dependent on the minimum values of CSR they have set. Companies that have higher minimum standards are more likely to incorporate emerging CSR aspects than those without any culture of social responsibility (Ravi & Lipschutz, 2010: p37). For example, Nike has been a socially responsible organization for a while, which means that they are more open to more innovative strategies of CSR like recycling cardboards used to pack shoes to make inner-soles for the shoes. Extent of CSR acceptance is also affected by whether an organization operates in the private or public sector. Organizations in the private sector, such as RyanAir, are dependent on profits and, since CSR requires additional costs, the extent to which they adopt CSR is influenced by their profit objectives. In addition, because reporting requirements are less stringent for private companies, it is more difficult for the public to judge their CSR adherence, which reduces the need for them to become socially responsible (Ravi & Lipschutz, 2010: p38). However, for companies like Nike that are PLCs, they are legally required to publish results, which increases the extent to which they will adopt CSR strategies. Economic activity sector and size of the organization also influence the likelihood of an organization to be familiar with CSR aspects and implement them. For example, larger companies are more likely to be aware of CSR and will tend to implement it, while smaller organizations will be less likely to know about CSR, decreasing the chances of these organizations’ social responsibility (Ravi & Lipschutz, 2010: p40). Compared to organizations in the commercial sector, services and financial sector companies will most likely be familiar of the concept, although this will not affect the extent to which they are socially responsible. However, organizations in the construction and transport industries will be less likely to adopt social responsibility. Finally, market leading companies like HP and PLCs are more likely to be aware of CSR because their environment is concerned about major environmental and social issues, which means they are more likely to be socially responsible (Ravi & Lipschutz, 2010: p41). As part of CSR strategy, social reporting is important as a process of communicating the environmental and social impacts of a firm’s economic activity to the community and society. With regards to decision making by shareholders and stakeholders, social reporting is valuable as it allows them to take decisions that are informed by public and media views (Gray et al, 2012: p29). In addition, financial accounts are only prepared for shareholders; they do not go far enough in allowing stakeholders to be aware of the wider issues affecting the organizations. Social reporting also provides a way for the organization’s stakeholders to compare the firm’s performance with its social responsibility objective and aims. Social reporting also assists potential shareholders in making ethical investments. For example, a pension fund contemplating investing, will prefer firms that are socially responsible, which is an advantage to CSR compliant firms that give reports on their social responsibility strategies and success (Gray et al, 2012: p31). Also, extensive social reporting by Marks & Spencer in its Plan A project offers more transparency and assurance about the business. However, social reporting also has some limitations. For example, it varies broadly with regards to quality and relevance since there are no internationally acknowledged standards for the measurement of social responsibility performance and its reporting (Gray et al, 2012: p32). There is also the chance of green-washing, in which statements and claims by a firm about its CSR strategy could be deliberately misleading or inaccurate. In addition, small and medium sized enterprises are not required to publish relevant information on their business, while most social reports are released by investor and marketing relationships departments, which could be involved in PR and spin management. Also, social reporting results in higher overhead costs related to reporting, compliance, and monitoring (Gray et al, 2012: p32). Finally, there is a risk that, the targets set could be too soft, with the aim of making reports seeming more successful. The government, which is elected by the people, has the responsibility to ensure that organizations respect the rights of employees, customers, the wider community, and preserve the environment, thus necessitating involvement in the implementation of CSR requirements (Lozano, 2013: p60). The above are achieved through; legislations and tax concessions, subsidies, and grants for companies to invest in R&D for social responsibility aspects like environmental and social sustainability. However, this has to be done against the backdrop of maintaining the competitiveness of organizations in their countries. There are several reasons for the government to be involved in CSR, such as the need to make for-profit organizations, conduct business with socially responsible strategies. The government also steps in where small businesses are vulnerable to exploitation from large organizations when dealing with their customers. For example, Tesco’s use of its power as a retailing giant to reduce prices paid for goods to suppliers, as well as they time large organizations take to pay debts to suppliers so as to increase cash flow at the suppliers’ expense requires government intervention (Lozano, 2013: p61). However, the main case against intervention in CSR by the government is the damage it causes to free market economies (Lozano, 2013: p64). Government influence in CSR could result in additional costs for organizations and subsequent decline in profits, reducing the tax base and affecting their ability to spend. Legislation put, in place, to enforce some aspects of CSR may also lead some businesses to fail. For example, legislation requiring minimum wage increases in the UK would cause organizations in the EU to steal a competitive advantage over UK companies. Therefore, while government intervention in some cases to enforce aspects of CSR is required, it should be to a limited extent to avoid harming the UK’s free market economy. There should be a balance, in which governments set minimum CSR requirements to be met by organizations with penalties for those that fail to comply (Lozano, 2013: p65). References Gawel, A. (2013). Corporate social responsibility standards and objectives driving corporate initiatives. [Toronto, Ont.], Pollution Probe. Gray, R., Owen, D., & Maunders, K. T. (2012). Corporate social reporting: accounting and accountability. Englewood Cliffs, Prentice-Hall International. Jonker, J., & Witte, M. C. D. (2014). The challenge of organizing and implementing corporate social responsibility. Basingstoke [England], Palgrave Macmillan. Lozano, J. M. (2013). Governments and corporate social responsibility: public policies beyond regulation and voluntary compliance. Basingstoke, Hampshire [England], Palgrave Macmillan. Ravi, Raman, K., & Lipschutz, R. D. (2010). Corporate social responsibility: comparative critiques. Basingstoke [England], Palgrave Macmillan. McElhaney, K. A. (2013). Just good business the strategic guide to aligning corporate responsibility and brand. San Francisco, Berrett-Koehler Publishers. Read More