The Key Function of Corporate Social Responsibility - Essay Example

Introduction The key function of business is to make profit by providing the people with goods and services. In the contemporary environment of cut throat business, its core strategy is invariably focused on meeting the changing preferences of the people through development of new products and services. Indeed, fundamental principles of business and economics are intrinsically linked to the people who are the end users. The welfare of the people therefore, becomes the major propellant for government policies and economic principles which are designed for the betterment of society at large. The dynamic relationship between society and business, thus become the most critical aspect of larger objective of not only national initiatives but also that of corporate world. Indeed, in the highly vacillating environment of transforming values and socio-economic and political paradigms, business outcome is significantly being impacted by its responsiveness to the elements of change. The emerging new model of competitive business has considerably increased risks and responsibilities of firms that need to become more accountable vis-a-vis micro and macro environmental factors that have impact on the socio-economic development of society. The corporate social responsibility has therefore becomes a vital ingredient of modus operandi of modern business. The paper would be arguing that the various factors have necessitated the need to incorporate ‘social responsibility’ within the broader umbrella of business operation for not only competitive advantage but also to serve the society. 1.1 Historical Background John Stuart Mills1 has broadly described economics as a practical science that is linked to production and distribution of wealth. He justifiably argued that economic decisions and policies help create appropriate platform for distribution channels for the needs and desires of the people. The essential principles of supply and demand are based on the requirements of the people which are met by the businesses. Homans2 believed that rational approach of people’s action is dependent on cost and benefit because ‘no exchange continues unless both parties are making a profit’. Thus, businesses were able to exploit human trait for their individual gain. But through the times, the development of society has also been accompanied by evolving database of knowledge that is accrued over time and utilized through its application in all areas of mutual interest. The advancing technology, changing value system and globalization have become few of the major factors that have introduced new challenges for the people at large. The inter-dependency of resources have become highly crucial paradigms that make it imperative for organizations to become flexible and adopt new strategies to address these emerging set of complex issues and ideas. Indeed, the changing socio-economic and political parameters have shifted the focus of corporate strategy towards the changing format of needs and requirements of people. The tangible and intangible needs of the people have become major compulsions to adopt a systematic approach to issues and desires of the people. Consumers have become key parts of corporate strategies which increasingly incorporate the wider ramifications of changing human behaviour. The inter-relationship of business and society is intrinsically linked to business goals and performance. This is critical factor that makes it necessary for business to integrate socially relevant issues within its operations3. Thus, incorporation of responsibility and accountability towards people who are directly or indirectly being influenced by the business has increasingly become part of business processes. 1.1.1 Need for Corporate Social Responsibility in Organizations In the contemporary environment of industrial and technological revolution, the pace of development across the globe has considerably accelerated. The multidimensional and multifaceted relationship of the masses with the emerging new socio-political factors has brought forth new challenges for the organizations. At the same time, the vast opportunities in the developing and underdeveloped economies of the world have also raised many untouched aspects of corporate social responsibilities. The huge gap between the rich and the poor is more visible in the developing economies primarily because only the educated and highly skilled persons get the opportunities to benefit from the economic development. The poor and the under-privileged segment of the society continue to struggle for survival. The development of society a whole has become important issue within and outside the nations as the new economies become more attractive for foreign investments and multinational companies4. The concept of social responsibilities of organizations has therefore become highly relevant in the current environment of rapid globalization. The diminishing boundaries of nations across the globe have necessitated the businesses to become proactive participants in the community development. UNIDO5 has emphasized the changing dynamics of business across the globe and asserts that new relationship between the civil society and businesses must be redefined in terms of ‘roles, rights and responsibilities of business in society. Corporate Social Responsibility (CSR), defined in terms of the responsiveness of businesses to stakeholders’ legal, ethical, social and environmental expectations, is one outcome of these developments’. 1.1.2 Role of the government in creating a conducive environment for Corporate Social Responsibility to be practicable in organizations The government plays important part in the creation of conducive environment for CSR through effective implementation measures. The government contributes to the socio-economic development through various agencies and encourages participation from all segments of the society. But the recent times, the various public scams and financial irregularities committed by the leaders of the industries across the globe have become major drivers of CSR and corporate code of conduct. The mechanisms of control and voluntary CSR have driven home the message that government needs to initiate more stringent rules and regulation for the corporate organizations for ethically delivered goals and objectives of the businesses. The social accountability of the individuals and agencies need to be incorporated as intrinsic part of one’s work culture. Schedler et al6. argue that various systems of accountability like political constraints, administrative regulations, fiscal mechanisms and legal mechanisms are internal to the state and are often referred to as horizontal mechanisms of accountability. They are vital ingredients which help to exert pressure and accountability in the correct implementation of policies and programs. Ackerman7 believes that principles of accountability are part of social responsiveness and need to be used before, during and after the exercise of public authority for optimal outcome. Fox8 has also asserted that ‘civil society demands for state accountability matter most when they empower the state’s own checks and balances’. Indeed when the mechanisms of social accountability and responsibility are institutionalized, transparency in work promotes higher level of civic engagement. In such a scenario, concept of accountability has huge ramifications and is often defined in ways to suit the organizational aims and objectives while taking due account of the circumstances within which it is practiced. Social accountability is intrinsic part of CSR which significantly influences the overall development processes of the society9. It is important because it helps to empower the vulnerable segment of the population so that they can become part of mainstream society and help contribute towards its development. 2. Definition and Interpretation of Corporate Social Responsibility Carroll10 has defined corporate social responsibility as important part of business strategy that takes in the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point in time. Frederick, Post and Davis11 on the other hand believe that it broadly refers to the capacity of organizations to respond to social pressure. Barclay Bank12 of UK has described CSR in terms of responsible banking and states that it ‘making informed reasoned and ethical decisions about how we conduct our business, how we treat our employees and how we behave towards our customers and clients’. Carroll has delineated CSR into four different areas each of which become significant for the productive outcome of the corporations’ vision, mission and objectives. Interestingly, in the contemporary environment, both are very relevant because they address the wider interests of all its stakeholders and not merely that of organization. A stakeholder in a corporation is any individual or group who can impact or is impacted by the wider objectives of the organization13. Thus employees, consumers, suppliers, shareholders, civil society, competitor etc. constitute various stakeholders whose interests could be significantly influenced by corporate objectives and decisions. According to World Bank14 report ‘social accountability is defined as an approach toward building accountability that relies on civic engagement, i.e., in which it is ordinary citizens and/or civil society organizations that participate directly or indirectly in exacting accountability’. The important mechanisms of effective delivery of goods and services to the target population are critical elements which need to be consistent in their efforts. They need to adopt a sensitive approach to understand the needs and requirements of the people for whom the services are designed. Hence, social accountability becomes one of the most important factors in the CSR. UK has become a sterling example of companies that have adopted CSR policies within the broader parameters of vision and mission of the companies. The mechanisms of social accountability are dependent on effective communication and dissemination of relevant information. It helps to promote trust building and at the same time understand the intricacies of social issues that have significant impact on the population and consequently on the development of the society. Hence, sustainability of mechanisms of CSR practices becomes vital part of organizational modus operandi that makes it more effective providing it with a distinct advantage in the market. The changing environment of values and work ethics has necessitated that the organizations must be responsive to the impact their decisions, actions and behaviour have on the people at large. Turnbull report and later revised guidelines for corporate governance became the guiding principles for the United Kingdom companies to reinforce internal controls to reduce risks. BP in its annual report emphasizes that ‘regular evaluation of board effectiveness underpins our confidence in BP15’s governance policies and processes and affords opportunity for their development’. These guidelines are important principles and not legal acts but promote voluntary disclosure that significantly strengthens corporate image and thereby its business goals. CSR can best be described as the earnest efforts of the corporate bodies and individuals towards designing and implementing programs that meet the interests of various stakeholders so that they can be made accountable for the effectiveness or lack of it. The consequences of the actions and the decisions of the businesses are highly relevant issues that have lasting impact on the society. European Union’s16 Green Paper asserts that it is ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’. The facilitating element of CSR greatly contributes towards improved public image and motivates them for radical changes in corporate behaviour and responsibility towards consumers and society. Therefore, CSR has rapidly become a major factor in the work ethics and part of modus operandi of the firms in all areas of operations. 3. Organizations’ perception towards Corporate Social Responsibility Bateman & Zeithaml17 are of the view that organizations need to change because the environment within which they work evolves with time. Thus, dynamic business strategies are increasingly being adopted by the corporate world to meet the challenges of emerging new issues and problems. All corporate activities directly or indirectly have social impact with wide ranging implications on the interests of its various stakeholders. The businesses have moral and ethical obligations towards all their stakeholders and not merely towards their shareholders to ensure that their welfare issues are not comprised by the business goals and operations. The corporate social responsibilities of the firms become important tool that encourages proactive participation of the firm in the overall development of the community and society at large. Porter and Kramer18 assert that corporate social responsibility can become a source of tremendous social progress, as the business applies its considerable resources, expertise, and insights to activities that benefit society. The broader framework of social responsibilities of the firms allows the firms to incorporate issues and policies that do not violate the welfare of the people. In the recent times, the corporate world has become more involved in the development issues of the community. They have become more proactive in areas like education, medical health, skill development programs for the under privileged, social issues like environment conservation, gender bias, disability etc. Tesco19 Inc has become a flagship company that has linked its social commitment to its business objectives. It continuously strives for creating a balanced scorecard through proactive participation in social issues. It follows a multi dimensional approach to sustainable development and at the same time creates an encouraging work environment through diversity in its workforce. There has been increasing awareness that government alone is not equipped to meet the challenges of socio- economic development of the society. The governments’ initiatives in providing the guidelines and policy parameters of development in core areas must be accompanied by proactive participation of corporate world, society and social activists. Various drivers of change necessitate integration of CSR within the business strategy. The sustainable development, globalization, advancing technology and environment are few of the most vital aspects of changing environment that are closely linked to the people. They have also been recognized as key issues by the corporations as they significantly impact business outcome20. CSR issues have become important part contemporary businesses and they are being made part of long term corporate strategy. It is seen as an essential part of organizational culture and promotes sustainable development at myriad levels through delivery mechanism of its strategic goals and objectives. The ethical business practices and social responsibilities of the firms have increasingly become essential ingredients of success that promote trust and credibility of businesses amongst its legitimate stakeholders. Hence, CSR has today emerged as part of business strategy and is intrinsically linked to the ‘modus operandi’ of business. 3.1 Is there a universally accepted description of Corporate Social Responsibility? Corporate social responsibility of corporation is broad based perspective and business decisions about issues that impact community. It assigns a new role for the management because it needs to be addressed at various levels of managerial initiatives. UNRISD21 has emphasized that ‘The forces and actors promoting corporate responsibility vary in different national contexts; and it is important to conduct research to clarify the roles of different stakeholders, as well as the types of pressures and opportunities that might promote corporate social and environmental responsibility’. Thus, CSR cannot have a universal definition. But the wider implications of CSR are important paradigms that could have contextual consequences and therefore need to be addressed as per the demands of the situations and issues. The fundamental principle of CSR is to encourage business practices that take into considerations the changing requirements of the society. While development of new products and services are business compulsions, the CSR activities within the business operations inculcate ethical business practices which greatly boost the credibility of the organizations. In the current environment of highly competitive business, they become major element of competitive advantage. The consumers have become more discriminatory and their purchasing decisions are increasingly being influenced by the socially responsible actions of the firms. Hence firms which exhibit responsibility towards wider interests of the public are liable to become more popular amongst the masses and thereby do better business. The sustainable approach highlights the needs of the present population without endangering the interests of future generation vis-a-vis natural resources. Today, the broader expectations of society from the business are not only confined to better working environment but also encompass issues like clean air, safe and environment friendly products, fair-trade practices, affirmative actions, proactive participation in community development etc. The companies have therefore huge opportunities to choose their area or areas of social commitment that they can focus and earn the trust of the people to enhance their market position. Some issues like climate change, environment conservation etc transcend national and regional boundaries become critical factors that are needed to address by everyone across the board. It needs to provide more benefits to the society at large than just the profits to few shareholders. It has a responsibility towards all its stakeholders who are part of environment within which it operates to gain market credibility and make considerable economic gain. 3.2 Actions by organizations and decisions on the modus operandi of the Corporate Social Responsibility initiative The moral and strategic perspectives of CSR are important drivers of change in corporate culture. The organizational implications of integrated approach not only act as catalyst of social changes but it also provides the firms to rationalize its CSR strategy as vital tool of gaining significant leverage in the market. It gives the corporation an opportunity to expand their business across wider areas of demographic segment. At the same times it provides them with a rational platform to incorporate sustainable business model which would ensure long term successful performance outcome. CSR imperatives have huge implications on the productive outcome of the businesses. They more and more highlight the increasing necessity of businesses to incorporate social commitment as intrinsic part of business operations. The sustainable development, rapid globalization and technology have emerged as major challenges for players and actors across the board. The government, business and the civil society encompassing individuals and pressure groups all need to come together to promote for cohesive approach for long term sustainability of world resources. The identification and evaluation of internal and external drivers of social changes in the organization have been recognized as significant issues for engaging in CSR activities22. Social responsiveness to community based issues has increasingly become integral part of modern business activities. Its inclusion within the strategic goals of business provides it with huge potential to not only increase its brand legitimacy but also build trust based relationship which is sustainable over a long period of time. The technology and globalization have transformed business dynamics. They have provided the businesses with wide scope of opportunities to expand across geographical boundaries. But they have also globalized the social issues and spread their relevance over larger areas of impact. Climate change, environmental concern and equity amongst the various stakeholders have escalated into major parameters of CSR criteria that can raise the bar for business success in the global and regional forum. The consumers have become more empowered as they are endowed with more information which they are applying in their purchasing decisions. Thus, the sustainability of corporate success has become more competitive and complex. The inter-dependency of resources demands closer relationship building with stakeholders. Various companies like Bodyshop, Centrol Waste Management Company, British telecom, Barclay Bank, Boots, BA etc have successfully incorporated contextual model of CSR within their business. Companies have realized the importance of CSR paradigms and have started perceiving them as long term investment which gives them sustainable business success over a longer period of time23. Hence, businesses are become more proactive in showcasing their responsible social behaviour through inbuilt CSR activities. The companies have been consistent in their policy of environment conservation by diligently ensuring effective carbon footprint. They have ensured the success of their various proactive decisions and policies by actively following its principles in the daily routine and encouraged participation in the environmental preservation by forging alliances professional partnership with companies that worked towards environment conservation. 4 Literature review In the current era of dynamic business activities, CSR has become a decisive factor in the sustainable future of the firms. It broadly describes the business’ impact on society at large and the way it addresses the need of each of its various stakeholders. The accountability of actions and delivery of its goals and objectives through socially responsible behaviour and ethical code of conduct are key imperatives of CSR. They demonstrate organization’s honourable agenda to link its business operations with the wider interests of the society. 4.1 Principles of Corporate Social Responsibility The fundamental principle of CSR is linked to public good. The commitment to sustainable development underlines the myriad aspects of CSR which go beyond the precincts of profits and individual gain. CSR is a relatively new concept that reflects a firm’s concern for the society within which it operates. It also introduces the idea of corporate citizenship that is endowed with multiple roles and responsibilities that extend beyond the confines of organizational profits. The various social scientists claim that CSR reflects the fundamental shift in the organizational culture and primarily relies on moving from economic driven concern to mutually benefiting value based relationship24. The evolving organizational culture realigns the organizational values and decision making processes with the development issues that have significant impact on the society. The CSR principles become essential propellants of ethical business practices that respond to the social compulsions and societal expectations. In the contemporary times, need to integrate CSR within broader organization’s strategic goals become critical because their survival and growth relies society and people who are consumers of their goods and services. Indeed, if people do not find them trustworthy, the very existence of the business is in peril. The constraints of transforming social values and imperatives of social consciousness of the corporate world are intricately linked. Thus, the basic principles of CSR endorse development of close relationship with various stakeholders through ethically delivered performance outcome. 4.2 Rationale underlying Corporate Social Responsibility The rationale for integrating CSR within business activities is focused on the fact that continuity of business and exponential growth cannot be limited to economic gain of the organizations. The various macro and micro environmental elements of change have become significant factors that need to be addressed by the business community if they have to survive. They must widen their vision to include their responsibility towards society which serves them to achieve their organizational goals and objectives. Protecting the interests of the people and consumers through operations that ensure the well being, organizations display responsible behaviour. Some authors have rightly asserted that business interests are interwoven with that of society because society possesses invaluable assets in the form of land and natural resources, human capital etc. which businesses utilize to achieve their business goals. The tangibility and intangibility of resources need to be considered as privileges that businesses are obliged to return through CSR activities25. Indeed, organizations are morally and ethically bound to preserve the natural resources that they have been using without evaluating its long term repercussion on society and its future. CSR provides businesses with means to repay their obligations to society in a more meaningful way. 4.3 Advantages of Corporate Social Responsibility Various social scientists are of the view that CSR activities strongly support the interests of the businesses and they are increasingly being included in the business strategy to gain competitive advantage26. Effective implementation of CSR policies and programs considerably impact the goodwill of the organizations amongst its many stakeholders with huge returns vis-a-vis enhanced credibility, long term sustainability through increased database of customers and economic benefits. Effective CSR strategies greatly add value to the products and thereby provide the companies with unique differentiation to gain leverage against their rivals. The CSR activities which are embedded within the strategic goals of the corporations empower them to innovate and improvise their business operations for higher returns. The different dimensions of CSR factors can become vital source of internal strength especially when the social responses of the firms are strategically aligned to the core competencies of the business27. The business must ensure that its CSR policies do impact the welfare of society and it does become its legitimate beneficiary. Hence, while the businesses may expand across globe, their CSR policies must address the needs and requirements of local community within which it is operating. 5. Conclusion Thus, it can be concluded that in the changing landscape of business compulsions, effective CSR policies enable the organizations to contribute to the sustainable development of society. It has considerably developed from just being a theoretical perspective to a management reality that thrives on innovative measures of CSR initiatives. Across the globe, especially from UK and EU, the CSR based leadership initiatives of the companies have clearly shown the multifaceted advantages of integrated approach. As part of core business strategy, CSR reflects the growing necessity of fruitful relationship between the community and business. The transforming value system and obligations of businesses towards societies can no longer be ignored. 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