Corporate Social Responsibility And Sustainable Market - Coursework Example

CORPORATE SOCIAL RESPONSIBILITY and SUSTAINABLE MARKET Date Submitted: March 6, 2008 Contents Contents 2 Introduction to CSR 3 The Stakeholders 5 Corporate Social Responsibility – Current theories 7 A New Mission for Marketing 9 Are Customers Green? 11 The Principle of CSR 13 Sustainable Product Management 14 Green Product & Brand 16 Logistics 18 Communication 20 Critical Analysis and Reflection – how the theories discussed apply to practice 23 Bibliography 25 Introduction to CSR In recent years, studies carried out in the field of CSR have shown how aware the public has become about this practice. Governments, organizations, employees, stakeholders and even consumers now recognize the importance and criticality of social value towards the functioning of an economy. Stakeholders worldwide are embracing the importance of CSR and organizations are acknowledging the importance of incorporating it into business practices. This subject is being taught in academics to prepare the entrepreneurs of tomorrow to be socially responsible thus enhancing their business value and improving business performance. Moreover, investors now take into account the extent to which a company is likely to incorporate CSR in its business plans before investing in it. As a result, organizations are building socially responsible strategies and programs into their corporate culture to ensure growth, measure corporate advantage, thereby integrating social value with organizational goals. CSR is a vast topic encompassing areas such as ethics, public affairs, philanthropy, community involvement, health and safety of stakeholders, environmental protection and so on. Some of the top SCR topics include: Community Development Health & Safety Charitable Causes Education, Training & Development Human Rights Issues Business Ethics Human Rights Issues Child Labor It is also a topic that has seen much debate and criticism since its inception. The dilemma between self-interest vs. public interest and realism vs. idealism has always existed. Similarly, proponents of CSR state that it is not only ethically advisable for corporations to practice socially responsible behavior but it is now their duty to take the common good of stakeholders into account. They state that corporations need to have a broader vision, beyond short-term gain, and take into account long-term benefit of society at large. On the flip side, critics of CSR claim that such a practice is not all that important because it distracts large business tycoons from their main purpose which is to look after the best interest of themselves and their stakeholders in the form of higher sales and profits, which also reaps benefits for a nation’s economy in terms of growth and raising GDP. Critics also see CSR as an excuse by governments to put pressure on large corporations, monitor their activities and shift their developmental role onto these large corporations. Moreover, some organizations have been the target of ridicule by critics who claim that they exaggerate in portraying themselves as socially-conscious entities just to shift the focus from their operations that in fact risk the environment. Recent sources of pressure on governments and major corporations have come from personalities as Al Gore’s ‘An Inconvenient Truth’, a groundbreaking documentary highlighting the impact on the environment, in the form of global warming and climate change, as a direct result of negligent and irresponsible actions of large corporations. The Stakeholders Stakeholders are those individuals or parties that are directly or indirectly related to the functioning of a business and who are impacted from the activities of a particular business or organization. Such stakeholders are now pressurizing organizations they are associated with to be more socially responsible. The media is being leveraged by non-governmental organizations and communities for this purpose too, whereby newsmakers have a public platform to raise their concerns about the environment and emphasize the importance for companies to be socially responsible. Employees, the drivers of any organization, are now being more proactive by questioning management on their CSR practices and asking how they can get involved. Some studies show low employee turnover rates at organizations supporting CSR causes through employee training and skill development. Secondly, companies always have to look after the best interests of shareholders. The primary responsibility is higher profits. However, shareholders now view CSR as a criteria of investing in a company and associating themselves with it. Certain investors may choose to withdraw their interests from organizations neglecting this area and take their money to entities that support it. This is known as socially responsible investing. 1 Secondly, there is an increasing pressure on companies not to make any mistakes that can prove fatal for the image of the company as well as for shareholders. A recent survey carried out by ‘Environics International’ disclosed that more than a quarter stock buyers in America considered ethical activism of corporations before buying or selling their stock. 2 Companies cannot afford to be associated with violation of the environment or corruption scandals as they have a responsibility to uphold their shareholders’ image at all times. Even a minor slip-up can be blown out of proportion all over the media and years of good reputation can be wiped out by one episode of negative publicity. Corporate Social Responsibility – Current theories There is the constant paradox between adopting CSR purely out of moral obligation or because it brings corporate financial gain. The tricky aspect is that in a world where corporations are looking to make a ‘quick buck’ and knowing that CSR practices takes a considerably long time to reap financial gain and recognition, is it all truly worth it? This decision rests in the hands of top management though many have learned that their efforts considerably pay off in the long-run and this is worth making short-run sacrifices for. In the 2002 session of the World Economic Forum, a joint statement titled ‘Global Corporate Citizenship’ was drafted and signed by 36 CEOs of major corporations such as Coca-Cola and Siemens, in a joint effort towards making CSR a centralized key focus built into core business strategy on a global level. 3 Due to increasing efforts by the governments to ‘go green’ and encouraging corporations to do so as well through their favorable regulatory policies, many organizations find that it is in fact worth it to invest in society. It is not enough anymore for a company to simply claim that it is socially responsible. The ongoing challenge is in fact to practice transparency in their actions, and many public companies go so far as issuing CSR Annual Reports with a detailed account of their CSR targets, quantified performance appraisals, and future targets. Current issues relating to CSR are in certain areas. Firstly, there is the shrinking role of government whereby focus of government on more pressing matters, its lack of resources and distrust of regulation, has led to major corporations to step up and take responsibility in their own hands. Secondly, there is a growing demand from stakeholders on companies to be more transparent in their CSR activities. Thirdly, there is an increased customer interest in CSR and their awareness is driving sales of more socially responsible and ‘green’ products. Fourthly, investors are becoming selective in their investments, investing in more companies practicing CSR. Lastly, companies are choosing suppliers carefully, supporting those who are more socially responsible and boycotting those who are not proactive in this area. 4 Another current theory of CSR is the attempt by the European Commission to uphold their ‘Integrated Product Policy (IPP)’ in which environment-friendly products are extensively promoted in the European Union and make such products available to a large customer base. 5 A New Mission for Marketing A company’s CSR efforts need to be made public. This is where the crucial role of Marketing comes in. The mission of Green Marketing is to first have a thorough understanding of the consumer’s buying behavior, and grasp the range of environmental, political and social issues that affect consumers every day, specifically target customers. Then comes the challenge of producing products that give solutions to customers on these issues, meet their needs, requirements and standards, and offering them at affordable prices in environmentally safe packaging. The next stage is to educate customers how they will be supporting the company’s CSR efforts in the production process, by buying the product and showing brand loyalty. Companies that practice CSR have the option of incorporating CSR friendly strategies in a variety of ways such as in their manufacturing process, supply chain, human resource management, etc. However, Marketing can also become a good platform to implement and launch CSR strategies. The aim of marketing is not only to sell a product but also to sell the image of the company, whereby companies can communicate their painstaking efforts of practicing CSR to the public, thereby inviting support and acknowledgement. Public Relations can also play a major role in the form of press releases, public service statements, press conferences etc. The marketing role in CSR can also be seen as publicity for a company’s CSR initiatives, acknowledgement of its efforts, thus building greater motivation to continue with its CSR in the future. Furthermore, marketing teams have the challenge to sustain brand growth and development while at the same time practicing CSR. Marketing programs and community relation activities have to be geared towards brand growth and development as well. Corporations also use public service announcements and ads to communicate their CSR messages. It is common to see advertisements on energy saving on channels such as MTV and Discovery, in an attempt to educate the youth on the importance of going green. Companies may choose to advertise their brands on websites that promote CSR such as Emagazine.com 6 which is an online environmental magazine that keeps viewers up to date on green issues. Stretching on the topic of green marketing, another challenge that befalls on marketing is to define standards of what constitutes green. Criteria and public standards need to be defined that will clarify the lengths a company has to go to be qualified as being socially responsible. Marketing also has to create future demand for green products in an effort to support and justify green production methods. Are Customers Green? For the business world, the customer comes first. Democratic and capitalist societies place substantial power in the hands of consumers. Hence, CSR efforts are made more feasible for businesses if they know their customers would appreciate and support their cause. Perhaps, the concept of ‘Green Customers’ was alien half a millennium ago. However, as the world has stepped into the Media Age and seen a rapid transfer of issues, thoughts and opinions on the global front, thus giving birth to a more informed and educated consumer society, such a concept is fast becoming popular. Now green customers can be found spread across all demographic groups, all ages, all income groups although, the Boomers are certainly more aware and proactive towards going green as they were raised in an era when the value and social impact of CSR was just being realized and placed at the forefront of debates. As a result, a plethora of websites supporting Green charities have sprouted up on the World Wide Web and green matters are being discussed by youngsters on blogs and social networking sites such as Facebook 7 , through the exchange of ideas and applications such as ‘My L’il Green Patch’. 7 Thedailygreen.com 8 is an example of a website that positions itself as the consumer’s guide to the Green Revolution, giving its viewers advice on green living and access to green products from Green Cuisine to ‘How to Green Your Home’. A growing number of customers are now going green as they are realizing the environmental and social implications of their buying choices and behavior . In a research study held by Mintel, 12% of the U.S. population is defined as ‘True Greens’, these are the consumers who are regular and loyal buyers of green products. 68% of the U.S. population is defined as ‘Light Greens’, these are the consumers who buy green products sometimes. 9 In spite of such favorable figures, some companies find that customors are not green enough, and buying patterns are uncertain and irregular not to mention inadequate to justify investment in socially responsible manufacturing practices. This leads such companies to limit the number of products to launch offering them only to niche, more greener, segments. But exactly how green are customers? Do we have solid facts to determine if the public actually supports CSR enabled companies through their actions and buying behavior? According to a Maritz Research poll, of consumer samples between ages 18 to 30, disclosed that as much as 50% of customers choose to purchase a product if its manufacturers advertise themselves as socially responsible. Another 47% of consumers claim that they would pay higher for products that are environmentally friendly while 46% claim they would visit a retailer involved in CSR causes more frequently. 10 Green customers who feel strongly about the issue are said to take into account whether or not a politician will promote such socially responsible policies before voting for them. Aside from the moral view of CSR, companies are increasingly pressurized to adopt this practice for the sake of pleasing stakeholders, mainly governments and customers. Their acknowledgement of it ensures for them government backing, in the form of subsidies for example, and customer loyalty in the form of sales, as well as favorable publicity. The Principle of CSR In view of the vast nature and value of CSR in today’s fast changing world, there is a growing need for decision-makers to devise international CSR standards that define the various angles of CSR and state a criteria to qualify an entity as being socially responsible. The need for an internationally agreed CSR standard was first raised in 2001, by the International Organization for Standardization (ISO). 11 Such a standard would benefit corporations in a number of ways such as: Increasing company attractiveness among investors Expanding customer base Lowering its insurance premiums Strengthening relations with business partners such as suppliers Strengthening relations with employees and the community at large Strengthening relations with governments and NGOs Leading to effective risk management On a higher level, standardization can be followed by certification, whereby corporations meeting the agreed upon standards can attain formal certification by the concerned authorities. Similarly, compliance to these standards is not enough. A higher step must be taken as an initiative by governments, major corporations and the like to push the limits and develop innovative technology that would contribute to the society in the long-run. Sustainable Product Management CSR poses a challenge on companies to achieve a balance between upholding the interest of their stakeholders while at the same time proving to them and other demanding parties such as the media, consumers and government that they qualify as good corporate citizens. Companies of today are striving to uphold CSR through not only integrating environmental and social considerations into product design and procurement processes, but also associating themselves with NGOs on various CSR issues. Although companies are taking greater responsibility for their actions and manufacturing processes, some issues are still not as black and white, such as the issue of child labor, and may involve greater challenges for companies to come up with a solution for it than they bargained for. In the midst of such concerns, sustainable product management proves to be a concern among top management. CSR and sustainable growth can also be carried out with a group of organizations joining hands and collaborating towards a commitment to corporate citizenship. This way they can form strategic partnerships to address CSR issues. This method would also place external pressures on companies to align their CSR strategies internally within their organization and educate their employees about it, as it is not solely in the hands of CEOs to show results of CSR involvement. Then there is the concept of long-term wealth creation 12 which is a school of thought focused on long-term planning and sustainability by organizations for the betterment of stakeholders and society at large. For example, an invention that poses a new idea on how to protect the environment from damage (such as Solar-energy automobiles) or provides a substitute to a scarce resource, etc. is seen as the creation of long-term wealth. To remain competitive, organizations must develop flexible business models geared towards rapidly adapting to change, better research & development, and efficient operations with cost control. This usually requires management to focus on short-sighted decision-making and short-term gain to uphold market share and profits. However, companies with broader vision that aim to invest in the future choose to dedicate their time and money unfailingly on certain innovations that could contribute in ‘saving the planet’ tomorrow, so that even if that company goes under today, its invention would continue to exist for the betterment of society. Sustainable product management can be held through the unique selling proposition of brands which can give them a separate identity from other competing products in the market. CSR can play a role towards giving a product its identity and advertising that advantage in the minds of consumers, thus inviting customer loyalty. Commendable efforts by brands such as The Body Shop are based on ethical values. This brand is against animal testing and condemns the brutal treatment of animals in the experimenting phases of developing commercial products. Although high-priced to give the brand a novelty factor, Body Shop products have a large following and customers across generations support its cause. The theory of CSR has fast become so widespread that companies have now produced software that assist decision-makers in their CSR practices. One such example is SoFi 13, a software being used by major organizations such as ABN Amro Group and the World Economic Forum, to store and track their CSR data in an effort to quantify their CSR best practices. Green Product & Brand With the topic of CSR ever on the agenda, companies are now being compelled to look into manufacturing items that are environmentally friendly in a socially responsible manner. One of the earlier examples that we saw was the alarm raised about aerosol products such as air fresheners and hairsprays that were designed towards harming the Earth’s ozone layer. Following this, companies were pressurized not to produce such negligent products and develop new, more innovative and less harmful processes in manufacturing goods. This saw the emergence of aerosol-free products in the market and the use of more natural ingredients and extracts in sprays. From this arose the movement of green products and technology, and responsible products and services. In the sector of agriculture, critics have raised concerns on the dangers of the heavy use of agro-chemicals and fertilizers in the cultivation of crops. Use of such chemical fertilizers are not only harmful to the environment but also adversely affect the public that purchases and consumes these food items. Coffee, which is consumed on a large scale, is one such example of a crop that has come under scrutiny from traders for its growing methods. It seems that farmers are using potent chemicals to enhance crop yield to meet the growing demand. As a result, in an attempt to promote Green farming methods, coffee traders are considering imposing certification on coffee growers which would lead to a rise in its retail price and weed out small farmers who are struggling to survive. 14 The recent success of the ‘organic food’ movement suggests that certified organic coffee, though expensive, is likely to be purchased by the informed consumer. Green products are not just in the form is FMCGs (fast-moving consumer goods) but can also be in the form of services. A prime example of this is in banking. The Co-operative Bank, a UK based bank known for its ethical practices in lending and investment, has reported record-breaking profits this year, breaking the £ 100 million for the first time in its history. 15 Logistics Logistics can play a vital role in adopting CSR practices. A recent trend among large influential companies is to support under-developed communities simply by giving them their business and involving them on a professional level into their networks, even on a global scale. For example, Marks & Spencer has developed a trade network in South Africa promising fair-trade to the community in exchange for quality raw materials. Similarly, Bono, the lead singer of Irish band U2 and a celebrity who has been at the forefront of eliminating third-world debt and known for his social development work in Africa, has recently launched his clothing business ‘Edun’ 16 that produces garments in places such as Kenya, Uganda and India, while teaching their workers in these places how to grow raw materials and use processing machinery. This is an ideal example of how influential entities and renowned celebrities are now realizing the importance of CSR on a global scale and actually taking on the challenge upon themselves by proving to be hands-on. The business scene is witnessing rapid shifts in logistics, with firms increasingly outsourcing their products, such as in the examples discussed above. Companies based in the West are looking to countries such as China, India and Africa for some of their outsourcing to achieve economies of scale in manufacturing and buying in an attempt to cut overheads. This is creating a new supply chain for companies who want to act socially responsible but cannot necessarily control the working conditions and practices in the countries they do business with. In such a case, companies need to be more involved in every aspect of their operations, even in other countries, and set up efficient linkages between every stage of their supply chain process. They need to account for matters such as child labor, working conditions, environmental preservation etc. in countries they’re doing business with as their name and reputation is associated with such countries. This will also allow for smoother and thorough risk management. Furthermore, the role of the logistics and transportation sector is coming under intense scrutiny to improve its systems to respond quickly to CSR related demands and disaster control. The areas of concern fall under traffic congestion, energy waste, safety and security, access to trade and enterprise opportunities and sustainable infrastructure. This sector is seen as playing a critical role for society as it has the infrastructure and interface in place to take care of damage control and also to enhance CSR as a whole. Further improvements in logistical functioning can be a valuable asset towards accessing and developing lower-end societies, extending aid and opportunities to them in the form of fair trade, and in the case of global logistical networks, adding to global development and communication. It also opens up gateways to connect countries and companies and encourage global trade. In essence, logistics is important in the development of economies and therefore, governments and decision-makers must invest in them to enhance them further. Communication CSR Communication enables a company to set the record straight to the public on its CSR activities and initiatives. Such communication takes place from the company to its stakeholders and to the public. It is essential for such transfer of information on a sensitive topic such as CSR to be clear and executed in a transparent manner in order for organizations to win the trust of stakeholders. The development of a CSR communication strategy is essential, a strategy that focuses on dialogue and transparency and addresses the three-way network between the company and society, the company and stakeholders and the importance of CSR as a branch of business ethics. Over the years, three effective communication channels have been identified. These are social reports, websites and advertising. Additional channels may take the form of social and thematic reports, codes of conduct, stakeholder consultation, prize ceremonies and events, cause-related marketing, green product packaging, interventions in the press and on TV, point of sale communication. Furthermore, in order for the communication to be two-way, organizations may choose to hold surveys and obtain feedback from stakeholders on whether or not they think the organization is meeting its CSR targets, how it can improve performance and enhance its CSR objectives. As mentioned, the sole responsibility of CSR is not in the hands of top management but the organization as a whole. To ensure that the entire organization is on the same page when it comes to strategic CSR initiatives, it is the responsibility of top management to communicate the message internally down the chain of command to the lowest level staff member. This can enable employees to take ownership, comply with policies, report malpractice and act on stakeholder concerns. However, top management must first itself be clear on the details and direction of its involvement in CSR, before communicating it systematically to employees and internal stakeholders in order to portray any vague messages. Second, organizations must provide stakeholders with tools on how they can play a role, how to engage management teams, let them know what is expected from them and help them in developing tactics to implement CSR policies. For most companies, such communication to the public takes the form of annual CSR or sustainability reports. Although it is not compulsory on them by law to issue such detailed reports, companies find that it is the best way to declare their efforts and receive acknowledgement for them. Companies that have committed themselves to issuing such corporate reports tend to follow a set of guidelines specified under the Global Reporting Initiative drafted by the Coalition for Environmentally Responsible Economies (CERES) in 1997. 17 Critical Analysis and Reflection – how the theories discussed apply to practice Having understood the importance of CSR and incorporating it into best practices, the challenge now arises for companies’ top management to implement these concepts into their corporate mission through strategies. Choosing to support random unconnected charities and organizing irregular and sporadic social activities is not enough. Solid and measurable results of CSR practices will not be witnessed unless companies adopt a coherent and comprehensive approach to implementing and benchmarking CSR policies. The primary responsibility of designing coherent and integrated CSR initiatives befalls on top management and Board of Directors of any organization. Top management can take ownership of this concept as a controlled and centralized initiative rather than a sporadic and vague imposition that they “have to” oblige with. Secondly, managers can assess what they can do differently or more effectively to support CSR in how they do business. Perhaps, they can adopt more environmentally friendly practices into their manufacturing process to prevent pollution and minimize waste or responsible waste disposal procedures. They can choose to do business with suppliers who are socially responsible and boycott those who are negligent in this area. They can develop packaging that is recyclable and safely disposable. For example, the French supermarket chain Geant have started charging customers a small fee on the use of plastic bags at checkout counters, and instead encourage their customers to bring their own shopping bags. This is a bold and effective statement by one of the leading supermarket chains in promoting CSR and one that will hopefully be replicated by others in the industry. Furthermore, they could adopt CSR into their human resource development as well. Multinational Companies, especially operating in third-world countries, are now realizing the need to bring up their under-privileged employees by means of training and development, and even developing micro-franchising models, providing them to capable employees and supporting them in starting up a business by means of micro-franchising and operational facilitation. Moreover, when a company designs a new product range that caters to a low-income consumer segment, this initiative is also regarded as being socially responsible. However, as discussed, CSR initiatives hold more value to corporations and bring more sustainable growth when they can be quantitatively measured and their benefits are translating into facts and figures. Furthermore, the series of CSR initiatives have to be aligned into corporate strategy for it to be a legitimate and ongoing company function. In turn, any initiative by corporations or governments must be coherently geared towards the betterment of society. Corporations must understand that this is a long-term effort that needs constant monitoring in order for it to reap tangible results in the public and lead to sustainable growth and development. Painstaking care must be put in to effectively select the charities or CSR programs to get involved in so as to ensure continued commitment. Bibliography 1 Wikipedia, the Free Encyclopedia March 5, 2008. http://en.wikipedia.org/wiki/Corporate_social_responsibility#Approaches 2 International Institute for Sustainable Development: Business & Sustainable Development: A Global Guide 2007 http://www.bsdglobal.com/issues/sr.asp 3 World Economic Forum: Global Corporate Citizenship Initiative 2007 http://www.weforum.org/en/initiatives/corporatecitizenship/index.htm 4 International Institute for Sustainable Development: Business & Sustainable Development: A Global Guide 2007 http://www.bsdglobal.com/issues/sr.asp 5 International Institute for Sustainable Development: A Global Guide 2007. The European Union Green paper on CSR (IPP) http://www.bsdglobal.com/issues/eu_green_paper.asp 6 The Environmental Magazine. Copyright 1995 – 2004 http://www.emagazine.com 7 Facebook 2008 www.facebook.com 8 The Daily Green: The Consumer’s Guide to the Green Revolution Copyright © 2008 Hearst Communications, Inc. http://www.thedailygreen.com/ 9 Mintel International Group Ltd : Consumer, Media and Market research http://www.mintel.com/press_release.php?id=221456 10 Green Customer News: Sustainable Business Newsletter 2008 http://www.greencustomernews.com/gcn/index.cfm/page/engagecustomers/find-and-engage-customers.cfm 11 International Institute for Sustainable Development: A Global Guide 2007: An International Standard for CSR http://www.bsdglobal.com/issues/reporting.asp 12 Allen L. White, Senior Advisor Business for Social Responsibility: What is Long-term Wealth? September 2007 http://www.bsr.org/reports/BSR_AWhite_Long-Term-Wealth.pdf 13 SoFi Software: Corporate Sustainability http://www.sofi-software.com/?gclid=CLaSr5CA95ECFRfgXgodqjYMog 14 From Bean to Cup: How Consumer Choice Impacts Upon Coffee Producers and the Environment Published by Consumers International in December 2005 http://www.iied.org/SM/eep/documents/CI%20coffee%20report.pdf 15 International Institute for Sustainable Development: A Global Guide 2007. In the News http://www.bsdglobal.com/news.asp 16 Entertainment News Editor 2008. The Earth Times: Bono’s wife launches clothing line Posted: 20 Jun 2007 http://www.earthtimes.org/articles/show/74760.html 17 International Institute for Sustainable Development: A Global Guide 2007: An International Standard for CSR http://www.bsdglobal.com/issues/reporting.asp Read More