Corporate Social Responsibility as an Important Aspect of Businesses - Literature review Example

CORPORATE SOCIAL RESPONSIBILITY (Student Name) (Course Number) (University) (Date) Assignment For a business is not to generate extra income and to become rich and transfer the money abroad, but to look and evaluate what a businessman has done for the country, for the people, on whose account he or she has become so rich.’ Vladimir Putin. Introduction The increased concern over the effects of an institution on the environment and the society at large has caused many transnational companies and domestic companies as well to adopt the concept of corporate social responsibility in their operations. The ISO Working Group on Social Responsibility defines corporate social responsibility as the duty embedded on an organization for the effects of its activities and decisions on the environment and the society as a whole, via transparent and ethical behaviour while keeping in mind sustainable development and the society welfare (Cohen, 2011, p. 111). Business opinion polls provide relationships between responsibility and good businesses and many financial markets and organizations have embraced the concept of corporate social responsibility as a sign of proper management practises (Hohnen, 2007, p. 1). Implementation of corporate social responsibility in any organization takes two different forms. A company can engage its employees in dedicating their time and money to serve the society through charities and donations. The participation of companies in the welfare of the society can also be through properly devised plans to provide goods and services that serve the interests of the society. The support of business and industry associations has seen many domestic and international companies integrating CSR approaches such as strategies for improvement of environmental management standards and occupational health practises, codes of conduct, stakeholder dialogues and collaboration with NGOs, participation in labelling and certification schemes as well as company reports on social, financial and environmental issues in their management practises. Apart from the involvement of companies in the welfare of the society, organizations also put a lot of significance on the corporate profit. In most cases, business enterprises, both local and multinational are established with the main aim of making profits while serving the interests of the societies where they operate. Corporate finance, therefore, refers to the financial condition of any given company after all deductions and expenses are made. The performance of any organization within the market domain depends on the overall profit made within a particular time span, given not only by the amount of money made but also on non –monetary values such as depreciation (Zu, 2009, p. 253) Corporate profit is essential in many organizations as it is subject to analysis and indicates how the performance of a company in the market setting. A good corporate profit indicates good management strategies in a business environment, enabling an enterprise to gain a competitive advantage in the market place, thus making good profits. However, if the profits of an organization are dwindling, this may indicate bad signs causing the need for plans to be put in place to revive the organization or if need be, closure of the business Background to Corporate Social Responsibility According to Wayne Visser, the concept of corporate social responsibility has been practised in different forms and has sparked debates for the last 4000 years (Visser, 2010, p. 1-2). He further argues that the modern developments in the field of CSR can be traced back to the mid1800s with businessmen like John Rockefeller establishing charitable operations within the businesses, actions that are currently repeated even by renowned world businessmen today such as Bill Gates. Visser further notes that despite these early attempts of enterprises to be responsible for their actions, the significance of corporate social responsibility was emphasized in the 1950s following the release of books such as “The Social Responsibilities of the Businessman” and “The Silent Spring” by Bowen and Rachel Carson respectively. Visser argues that the 19th century saw the escalation of concerns about the social and environmental effects that both domestic and multinational corporations had on the local communities, hence the need for better practises of business responsibility emerged from different sources such as international organizations, non-governmental organizations,. Environmental and human rights organizations. Today, with growing customer concerns about the goods and services they purchase, there has been growing incorporation of the CSR strategies in management of many enterprises, making it a subject of debate in the recent past. . This paper explores whether organizations should focus more on corporate profit or corporate social responsibility and the effects of the global financial crisis on corporate social responsibility. Discussion Literature Review With increasing concerns about the roles played by businesses in the communities in which they operate and the globe at large, CSR field has sparked debates from philanthropists and scholars alike leading to availability of an array of literature concerning the topic. There is however, a controversy as to whether companies should put more emphasis on corporate social responsibility or corporate profit. In his argument about CSR, Paul Hohnen states that by having strict considerations on the decisions made at any time, firms have the ability to contribute to their wealth in terms of profits and the overall well- being of the society (Hohnen, 2007, p. 1-2). Different authors have different opinions concerning CSR with others giving reasons why CSR techniques are used in organizations as well as the different approaches for implementation of CSR within organizations (Amato, Henderson and Florence, 2009, p. 4). There is also the concern of stakeholders, who are directly affected by the activities of an organization and stakeholder dialogues are considered important in the effective CSR implementation in business settings (Broomhill, 2007, p. 10-13). The need for in integrating sustainable development in business practises is also the concern of other scholars, with the specific requirement that companies meet the needs of the present generation without limiting the ability of future generations to meet their own needs sustainable, through justifiable environmental and social practises (Coombs and Holladay, 2012, p. 52). Emphasis on Corporate Social Responsibility Although literature has controversy on the role played by CSR strategies in the effective management of organizations, it is evident that it has many benefits for corporate entities and thus, there is the need for enterprises to put more emphasis on CSR. Broomhill (2007, p. 7), argues that one of the important reasons why more emphasis should be placed on CSR is brand differentiation. Consumers have a wide variety of products to choose from and in such crowded markets, there is the need for firms to establish strategies that offer them competitive advantage over other companies. In this century where consumers are more concern with the sustainability aspects of the goods purchased, CSR helps corporations in establishing mutual relationships with stakeholders through branding. CSR also improves reputation of a firm through adherence to the set rules and regulations and business improvements via supply chain partnerships (Sarkar, et al., 2015, p. 277). In support of CSR, Hohnen argues that the reduced market positions of some major corporations is commonly as a result of questionable behaviour, causing investment of time and money in attempts to regain the lost glory (Hohnen, 2007, p. 2). Corporations should also emphasize more on CSR because of labour management and hence the ability to hire and retain employees. Broomhill suggests that in the current competitive employee market, CSR can play a vital role in hiring and retaining employees through creation of a comfortable atmosphere. Employees, being very significant in operations of enterprises, can lead to success or failure of organizations. Bauman and Skikta (2012, p. 3-5) agree with this statement and suggest that corporations that have increased concerns over occupational health and safety, increased employee motivation and purpose at work as well as those that attract talent are likely to have better market performance than those concern only with making profits. In human resource management, CSR can help firms in developing programs to increase employee morale and thus overall organizational productivity (Lee and Kotler, 2013, p. 59-72). Focusing more on corporate social responsibility can also help businesses in management of risks associated with their operations. According to Hohnen (2007, p. 21) market stability and supply security can only be improved through the proper management of environmental, social, legal and economic risks in the market environment. He recognises CSR as an important tool in the detection and management of risks. Environmental accidents and corruption issues can also destroy a firm’s reputation hence drawing attention from the media, government as well as regulators. CSR helps companies in engaging in right practises hence avoiding such risks (Broomhill, 2007, p. 7) Organizations should also focus more on the corporate social responsibility because it is of importance in enhancing innovation, competition and creating a market advantage. For the prosperity of corporations in any given business sector, there is the need for companies to be competitive and establish a good market niche. This means that companies should do things differently to remain relevant in the currently competitive global market. Corporate social responsibility helps enterprises in grabbing the existing opportunities as well as avoiding the risks that may occur (Horrigan, 2010, p. 34). Another reason why corporations should focus more on corporate social responsibility is because it improves management strategies through the promotion of better leadership skills. David Crowther and Guler Aras (2008, p. 121) argue that CSR plays an important role in organizational leadership. They further argue that motivation is an important aspect of leadership, thus in any organization, leadership involves primarily dealing with people in an attempt to achieve the goals of an organization. The concept of CSR also increases transparency and accountability in leadership and organizational management hence the need for companies to focus on it. Firms are also encouraged to greater practise CSR in management practises as it increases the savings and improves the operations of an organization. In explaining the significance of CSR practises in companies, Rajak (2011, p. 45) notes that corporations that overlook the need for CSR implementation mostly lose a lot of revenue through unsustainable practises. Through CSR, companies are able to improve their operations and hence increase savings. For instance, conducting environmental assessments can help firms to reduce clean-up costs by reducing waste generation at the source through reuse and recycling of materials. Focusing on energy use in firms can help in turning wastes into energy, reducing energy purchases and hence increasing savings. While discussing the importance of corporate social responsibility in organizations, Hohnen further argues that CSR enhances the ability of an organization to address changes that may occur in the market environment. He notes that change is inevitable and it is the duty of an organization to keep at the same level with changes that occur in the market. Many companies today use CSR as a tool in the detection of emerging market trends. Also, by keeping an ear on the ground through dialogues with stakeholders, companies have the ability to detect and respond to changes that may occur socially. Legally, economically and environmentally (Hohnen, 2007, p.22). Emphasis on corporate profit Although the concept of corporate social responsibility has a lot of benefits to the corporations, opponent argue that the sole reason for the establishment of a firm is to make profits, hence corporations should not forget the sole reason for their existence. Proponents of corporate profits, therefore, argue that businesses should aim to make profits rather than taking care of the needs of the society. Arguing in favour of corporate profits, Elhauge (2005, p.4-10) gives the analogy of a timber industry and questions whether or not the management should clear-cut its forest and gain profits from it although it is in considered irresponsible as far as environmental issues are concern. The views of Milton Friedman, which are still relevant today and are echoed in arguments concerning corporate social responsibility and corporate profits, form the basis of such arguments in literature in many instances. Although many authors have rejected his sentiments, they still have a bearing for many private corporations that are not willing to embrace CSR. In his article to the financial times, Friedman argued that the one and only mandate of enterprises is to make profits because the work of corporations can only be felt in the market, not in social programs that should be run by governments (Friedman, 1970, p. 1-6). The author further considered the businessmen that practise corporate social responsibility as dummies that deter societal freedom. His sentiments are echoed by Mullerat and Brennan (2011, p. 216) who suggest that profit maximization is important for businesses as it helps in improving business plans in the competitive market environment. This way, corporations are able to invest back in the business rather than focusing on the public affairs hence fastening their growth. Another reason why corporations should focus on corporate profit is because it aids in detecting if an investment is worth undertaking. In attempts to sustain businesses and make more profits, corporations commonly invest in other businesses. Gossling (2011, p. 67) indicates that intelligent corporate managers commonly put money into other businesses, thus encouraging the growth of the business. However, opponents such as Paul Hohnen argue that for a company to maximize profits, it must gain competitive market advantage by engaging in the societal activities. The 2008 Financial Crisis The worst financial crisis to ever hit the world after the Great Depression of the 1930s was the 2008 Financial Crisis. Global recession during that period affected many business institutions resulting in very poor economic performance, which some countries are currently recovering from. The genesis of the financial crisis was in the United States, spreading quickly to the global markets and affecting the world as a whole. Among the institutions adversely affected were the mortgage companies, the banking sector, insurance companies and the loaning and saving enterprises. In many areas of the world, the housing sector was greatly affected, causing massive employment rates, house evictions and collapse of many banking institutions. The 2008 Financial Crisis was caused by the expansion of the housing sector in the United States which resulted in decreased security values for the housing corporation thus impacting negatively on the financial sector. Bearing in mind that the prices of houses would increase during that period, policies were put in place that encouraged the ownership of houses, overvaluation of mortgages and increased access to loans, proliferated by the set policies. There was also the lack of financial capacity by the corporate institutions to meet the financial commitments made during that period. Other causes of the 2008 Financial Crisis were the complexity of the financial products, the market itself, lack of proper regulations, unidentified conflicts of interest as well as the high risks taken by corporations and institutions during that period. Effects on CSR According to Christine Jacob, the capability of an organization is determined during financial crises. Since financial crises commonly infer uncertainties in businesses, there is the need for firms to establish remedies that help them to remain in the market, failure of which can cause the collapse of the organizations. In many cases, the remedies that are used by companies during such times include; laying off of employees to reduce the financial burdens, postponing investments and reducing the levels of consumption (Jacob, 2012, p. 1-3). CSR is therefore considered an important aspect of management and mishandling it in instances such as financial crises can damage the reputation of the firms involved. The 2008 Financial Crisis had a range of impacts on the CSR initiatives in both domestic and multinational company. One of the negative impacts of the financial crisis on CSR was the laying off of employees. Jacob suggests that the stakeholders that were adversely affected by the crisis were the employees. According to Bauman and Skikta (2012, p. 3-5) CSR enables corporations to focus on employee satisfaction by promoting talent and occupational health and safety as well as motivation of the employees. However, during the financial crisis, many corporations lacked the capacity to properly take care of the employees hence resulting in massive layoffs and unemployment in many sectors. In other cases, the employees agreed to have salary cuts and ensured that none of them was laid off. The financial crisis hence had a negative impact on the human resource management of many organizations and in the process impacting CSR. While still basing her argument on the effect of the global crisis on the human resources of organizations, Jacob (2012, p.12), cites that the financial crisis also led to an increased employee burden in the working environment. The author further notes that due to the increased layoffs to reduce financial burden for firms, there was increased work load for the remaining workers. In essence, CSR does not encourage the overworking of employees, but in the event of the financial crisis, many employees had to be laid off causing the remaining few employees to increase their productivity. Christine Jacob further suggests that another impact that the 2008 Financial Crisis had on CSR was expenditure cuts on community activities. Prior to the crisis, many companies had devoted part of their money, as well as employee time and money to charitable community activities. However, the crisis led to employee salary cuts and bankruptcy of some organizations, leading to reduced works of charity within the organizations. Although CSR advocates for the involvement of enterprises in community affairs, the period of the crisis saw the collapse of many businesses and those that survived had limited amount of money, hence there was the need for participation of the corporation in community affairs to be reduced (Jacobs, 2012, p. 11-15). The financial crisis also had profound effects on different stakeholders in corporations. Among the people affected by the crisis were the investors. The reduced share prices affected the investors causing cancellation of investments that were underway. However, investors had the choice of whether or not to invest in any company at that time. The crisis also affected customers, who had to wait for longer periods of time before delivery of the ordered goods. In other instances, the orders were cancelled, while other customers went bankrupt and could no longer pay for the goods ordered hence negatively impaction corporate profits. The other effect of the financial crisis on the corporate social responsibility was on risk management. During this period, in most companies that faced liquidation, reputation was difficult to control due to leakage of information from the companies resulting from social media and the use of technology in passing information from one person to another. According to Christine, social issues such as the environmental effects of corporations, human rights and labour practises and prices became more evident thus causing reputation management to be difficult. Although the financial crisis impacted negatively on corporate social responsibility, it undoubtedly had some positive impacts that the companies embraced and are still in use today. One of the positive impacts of the financial crisis on corporate social responsibility is increased communication through stakeholder dialogue. In an attempt to overcome the negative impacts of the crisis, many companies involved the stakeholders in investor relations conferences, meetings and surveys to keep the stakeholders abreast with the problems that occurred during that period, the proposed solutions as well as the strategies to implement them. This way the companies were able to maintain trust between them and the stakeholders even in such hard times. Through increased stakeholder dialogues, the firms are able to anticipate looming risks and act accordingly (Hopkins, 2007, p. 9-12). Another positive impact that the global financial crisis had on corporate social responsibility is improved morals and ethical considerations in conducting businesses. An important factor in CSR which is not commonly utilized by corporations is the personal ethics. Literature reveals that the cause of the financial crisis was irresponsibility in the manner in which individuals and corporations conducted business. Driven by greed, people had the desire to get more of something, ultimately making a lot of corporate mistakes and leading to the financial crisis. However, since the global crisis in 2008, many companies have changed the manner in which they conduct businesses, assuming more responsibility in their activities than before. In the banking sector for instance, the pricing values have been increased enabling them to cope with the aftermath of the financial crisis (Dorsey et al.2011, p. 22-25). Conclusion From the above discussion, it is evident that corporate social responsibility is an important aspect of businesses since the existence of enterprises cannot be separated from the society. Although there is the need for institutions to take care of the needs of the local community through engaging in charitable activities, the requirement by an organization to make profits should not be ignored. 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