The Main Principles of CSR and How CSR Activities Might Influence Customers - Coursework Example

Topic: Lecturer: Presentation: Introduction Contemporary organisations operate in a highly competitive and dynamic environment and to achieve sustainable competitive advantage they need to leverage corporate social responsibility. Today’s stakeholders are much more interested in business activities hence the need to consider the different needs of all stakeholders such as the customers, employees, suppliers, shareholders, government, competitors, and communities. Business ethics is concerned with “moral issues and individual choices of right and wrong and values of what is good and bad in conduct of business affairs” (Needles, 2010, 299). It is concerned with issues such as sourcing of raw materials, reduction of pollution, child-labour exploitation, and working conditions. In essence, it is broader than corporate social responsibility (CSR) as it encompasses all business activities and forms the framework for operation of CSR. CSR refers to “a situation where the firm goes beyond compliance and engages in actions that appear to further some social good beyond the interests of the firm and that which is required by law” (Needles, 2010, 299). It is thus about identifying the stakeholders to whom the organisation is responsible for and determining areas in which responsible actions should be taken. CSR has evolved over a long time as attitudes and values of societies change. This is because ethics which is the basis for CSR is derived from societal norms which vary across cultures and countries and with time. It has gained importance in recent years as a way of improving business performance through increased reputation and legitimacy. This essay will discuss the main principles of CSR and how CSR activities might influence customers. One of the main principles of CSR is stakeholder management especially given their diverse and conflicting interests. This principle is based on the stakeholder and legitimacy theories. The stakeholder theory is based on the idea that effective management of stakeholder relationship is the key to organisation success (Ditler-Simonsen & Wenstop, 2013). It assumes that stakeholders have a great impact on the realisation of organisation’s purpose first by influencing senior managers’ decisions and secondly, by affecting company reputation. The challenge for managers however, is identifying the organisation stakeholders in the first place and balancing their different needs and interests so as to satisfy them all (Needle, 2010, 303). This is not easy as trying to fulfil the needs of one group often results in disadvantage to others. For example, shareholders want returns on their investments, employees want good terms and working conditions such as fair pay, customers want quality goods and services at reasonable prices and the government wants compliance with laws (Needle, 2010, 302). Fulfilling the needs of customers and shareholders means cutting costs so as to increase profits and reduce prices. The most affected stakeholder by this decision is often the employee who suffers in terms of reduced wages or unemployment through job cuts. On the other hand, reducing prices aggressively is viewed as disadvantaging competitors and an unethical practice. An example is Wal-mart’s tendency to bankrupt small companies with its low pricing strategies (Needle, 2010). The extent to which stakeholders influence managerial decision especially on adoption of CSR practices was researched on by Ditler-Simonsen and Wenstop in Norway in 2007. The research which involved three stakeholder groups: board members, MSC business students and NGOs revealed that owners have the most influence on managers followed by customers, government, employees and NGOs (2013, 142). However, their opinion on what ought to be revealed that customers ought to exert greatest influence, then employees, owners, government and NGOs. This shows the growing influence of employees on CSR and the high regard given to customers in pushing for CSR. These groups motivate senior managers to adopt CSR in different ways. Customers demand socially responsible products, employees demand to be listened to while NGOs act as pressure groups thus creating public awareness through boycotts and disclosing scandals that may damage company reputation. Government creates laws and ensures compliance by threats of litigation and heavy fines which may be costly to the organisation (Ditler-Simonsen & Wenstop, 2013, 144). These activities influence customer’s purchasing behaviour as they shun away and boycott products from companies which are not ethical. The legitimacy theory stipulates that “organisations can only secure their existence if they are perceived as operating within values and norms of society” (Farache & Perks, 2010, 236). It is based on the idea that businesses have a social contract with the society which they must fulfil just like the people give consent to a government to be governed. The challenge comes in when we consider the fact that ethics is relative as it varies across cultures (Needle, 2010, 298). Farache and Perk (2010, 235-248) in their research on how companies use CSR advertising to legitimize ethical positions found out that companies in Brazil such as Banco Real where CSR is not given much importance do not put more emphasis on their ethical actions while advertising. On the contrary, companies like Chevron which operates in UK where regard for CSR is high includes details of their CSR activities and how these help the society in their adverts. All in all, both companies proved that socially responsible behaviour is key to gaining legitimacy. Various strategies such as informing stakeholders of the intention to improve performance, changing stakeholder perceptions without changing corporate behaviour, diverting attention from main problem by focusing on unrelated positive activity and changing stakeholder expectations are used to gain legitimacy. The study revealed that the most widely used means of gaining legitimacy is diverting attention of stakeholders from the legitimacy threat (Farache & Perk, 2010, 244). However, Chevron also engaged in informing stakeholders and trying to change their perceptions. They also appeal to consumer rationality and emotions to gain legitimacy. Although CSR advertising is a good channel for creating, restoring and maintaining organisational legitimacy, it is misused by companies to serve own purposes. This often leads to greenwashing whereby customers believe they are buying ethically produced goods while in real sense they are not (Needle, 2010, 311) leading to increased sales for the organisation. They take advantage of the fact that most customers now only buy those goods whose raw materials are ethically sourced and produced using green technology. In addition to stakeholder management and legitimacy, another main principle of CSR is managing reputation. The success of an organisation mainly depends on its image to the internal and external environment. Based on this, it is able to recruit and maintain best talent, retain customers, attract investors, and minimise costs associated with litigation as well as gain legitimacy from society in which it operates (Needle, 2010, 306-309). Sarbutts (2003, 342) argues that reputation is ‘insurance’ against risks such as costs, regulation and litigation. Despite its importance, few companies place reputation management at the top of their agenda. Survey by Risk Advisory group and Institute of Chartered Accountants of England and Wales indicates that reputation risk is more significant than operational or marketing risk but it is placed fourth by board management and communication directors have very little influence if any in risk decisions (Sarbutts, 2003, 342). Only 17% were found to be highly involved in risk decisions. Sarbutt advocates dialogue with stakeholder groups for successful mitigation of risks (p. 343). This is due to the fact that it is the external stakeholders that determine degree of reputation. This is especially so for Small enterprises which have direct contact with stakeholders. Since the social good provided by CSR reflects company value and behaviours, reporting on such activities is crucial. This can be done through audit reports, codes of practice, employee induction and training, ethics department and ethical investment measures such as FTSE4Good and Dow Jones Sustainability Index (Needle, 2010, 313-314).Consistency in performance of CSR activities’ is vital for success. It affects credibility of organisation and consequently customer purchasing behaviour. If an organisation is not consistent, it risks losing its customers who look to the most reputable organisations. Accepting responsibility is also part of building reputation and customer retention. The company can use CSR advertising to legitimate its ethical position if necessary by appealing to customer rationality and emotions as this helps maintain reputation (Farache, 2010, 235). In conclusion, ethically and socially responsible businesses stand to gain from improved reputation and legitimacy. Businesses do have a social contract with the society to conduct activities responsibly through ethical resourcing and producing goods using green technology. They can also benefit society by employing members and ensuring sustainable environment. Stakeholder management is crucial in balancing and prioritizing the diverse and conflicting interests of the different stakeholders. Reputation is vital for mitigating risks of increased costs, litigations and regulation hence should be managed effectively. Most importantly, CSR should aim at gaining legitimacy for the organisation to operate in the society in which it operates. Once these principles are applied, CSR activities can influence customer purchasing behaviour by appealing to their rationality and emotions leading to success. Customers have a habit of buying from organisations perceived to be responsible and these CSR activities are a good way to inform them of such behaviours. Reporting such activities and engaging in investment measures such as Dow Jones sustainability index is critical for success. WORD COUNT: 1519 References Ditler-Simonsen, C.D & Wenstop, F (2013), How stakeholders view stakeholders as CSR motivators, Social Responsibility Journal, 9 (1), 137-147. Farche, F & Perks, K.J (2010), CSR advertisements: a legitimacy tool? Corporate Communications: An International Journal, 15 (3), 235-248. Needle, D (2010), Business in context: an introduction to business and its environment, 5ed, Cengage. Sarbutts, N (2003), Can SMEs ‘do’ CSR?: a practitioners view of the ways small-and medium-sized enterprises are able to manage reputation through corporate social responsibility, Journal of Communication Management, 7(4),340-347. Read More