Importance of a Corporate Social Responsibility - Essay Example

? Corporate Social Responsibility. Many firms have lately been struggling to adopt appropriate social policies as a part of their social responsibility. The need for social responsibility arises when a company has to set its business mission and strategies. The impact of society on business and vice versa is becoming increasingly propagated each year. A firm’s consumers, products, markets, equipment, productivity and public image are all directly influenced by the social policies of a firm. A firm’s social policy must be incorporated into all strategic-management activities and most importantly in the development of mission statement. When determining strategies, it is important to integrate social issues as an element of a business’s social responsibility to further instill social realignment of businesses. A firm must implement those social business practices that have economic benefits. The business must carry out its operation in a socially responsible manner which reflects its commitment to corporate social responsibility. Do for the society which is legally required and also benefits the business. Firstly, the business must be able to make enough profits so that future costs can be covered and social responsibility met (Fred R, 2005. Corporate social responsibility can be defined as a form of corporate self-regulation incorporated into a business model. The concept first came into use after the advent of many multinational firms after 1960s. The self-regulated conduct of businesses must abide by the law, ethical standards and international customs. The goal of CSR is to basically endorse the firms to take responsibility for their actions and must not negatively impact the environment, consumers, employees, stakeholders and communities. The must make sure not to harm the public in any way and promote their interest by encouraging community development. It instills the concept of ‘triple bottom line’ that is; people, planet, and profit by including public interest in the decision-making of firms. The businesses have to bring some much-needed changes into their mission statements to comply with the social responsibility. Many businesses have started to introduce the concept of social accounting which emphasizes the need for corporate accountability, that is; developing appropriate measures and reporting techniques to those who the firm is accountable to. There are some standards and frameworks which the business can use as a guideline for their auditing and reporting like AccountAbility’s AA1000 standard. CSR requires firms to produce ethically strong annual financial report and sustainability report so that their social, economic and environmental performance can be measured (Visser, 2008). A business might have to forgo short-term financial benefits when adopting CSR strategy, but there are many long-term advantages that help a business in future, other than financial ones. By adopting CSR, the recruitment and retention can improve. The recruits are more likely to enroll in a firm which follows CSR. The morale of the employees is also lifted when they are asked to participate in social activities like payroll giving, fundraising programmes and community volunteering. A company’s decade old reputation and goodwill can be easily damaged by socially irresponsible actions like corruption scandals or environmental accidents. Negative reactions from media, government, courts and regulators can affect the public image of a firm. CSR also helps build consumer loyalty by practicing distinctive ethical values. Successful businesses such as The Body Shop and American Apparel have a strong reputation for integrity and best practice and therefore maintain a strong brand loyalty. The Body Shop strictly opposes product testing on animals and support community trade with developing countries. Companies easily get a license to operate in many countries when they follow Corporate Social Responsibility. There is also a great argument of insincerity and hypocrisy attached to CSR. Some people believe that CSR is an unnecessary hurdle in the business’s nature and purpose and the opportunity to free trade because abiding by CSR, the level of profits reduces initially, and the company is unable to give maximizing returns to its stakeholders. They say it is not a company’s responsibility to look for the needs of the society except abiding by the rules and laws of a country that the company operates in. perhaps they don’t realize the long-term benefits of future profitability like employee engagement and brand reputation. It is argued that many profit-maximizing firms like McDonald’s and British American Tobacco just use the concept of CSR for the sake of it, to gain commercial benefits and consumer popularity when they truly do not follow it or consider public interest in mind. It is complete insincerity towards ethical values. Such companies are eventually hit by scandals which give them a bad reputation. It is evident how the consumers of today are aware of what is morally and rationally right or wrong in terms of buying habits. Ethical marketing is believed to be good marketing, because it satisfies and help develop a good relationship with customers. Being dishonest and misleading to customers will only result in short term profits but not assist in building a successful business. Consumer’s decisions are also influenced by ethical codes of conduct practiced by businesses. If a firm is known for its illegal business practices degrading the environment, wasting limited natural resources, increasing land and noise pollution, harming the endangered animals and marine life and illegal control of land, it will earn a very bad reputation amongst consumers. The firm must pay more heed to issues like reuse and recycle and cater towards green marketing or producing ecologically safe products. Consumers are eager to pay more for a green product, for example when Toyota launched their hybrid cars; it became popular and successful among people. Mostly multinationals are criticized for not abiding by the corporate social responsibility. From a critical point of view, it is argued that multinationals give way to pollution to save their own money, ignore poor working conditions where labor is exploited by working in intolerable condition for long hours on a very low wage rate, encouraging child labor and add to unequal distribution o wealth. But the positive impact they bring upon countries is even greater. They give vital capital and wealth to international markets. Foreign direct investment is brought into a country which can further attribute to improving infrastructure, investing money in research and development organizing equal distribution of income and wealth amongst the poor members of a country. UNDP favors multinationals in promoting sustainable development. Although this issue has been debated regarding the environmental degradation they add up to, by building new factories and using up limited natural resources. They encourage water and air pollution by dumping industrial waste and emitting dangerous chemicals from factories. The availability of more jobs has resulted in more and more people to migrate into cities. This growing urbanization again leads to more pollution in the atmosphere by using more cars and public transport and energy resources. When new factories set up, they require land area and more lumber for factories. This way forests and woodland areas are cut down. Deforestation can have harmful effects on the environment. If deforestation continues to occur at a rate of 3 to 4% a year in countries like Sierra Leone and Thailand, then all tropical forests will become extinct in around 30 years. The point is to regulate new environmental laws to restrict these problems rather than forcing investment and multinational firms out of one’s country. Multinationals those are set up in under developed countries like Vietnam or Kenya, give poor working conditions to cheap labor that they employ. The labor is often not given their due status and wages. And are made to work long hours in factories with no breaks in between. They are not paid for overtime work or any bonus. Multinationals are freely able to exploit labor as they have a certain influence and control over the government. The government cannot do much about their leverage because sometimes there are very less employment opportunities in such third world nations, so the poor people are willing to work even in such poor conditions for a little amount of money to earn a livelihood (Borrington, 2006). It is also important to note that if there was no foreign investment and technology transfer brought in by these firms then the conditions could be worse. The government needs to be more responsible in terms of regulating fair and universal laws, stable political condition to benefit most from globalization and limit corporate sincerity and hypocrisy. A noted economist, Paul Krugman, has put forward a very significant point that a great amount of successful economic development in the last century has been due to globalization. If it is objected that workers were impecunious by globalization then it is to note that they were in poorer living conditions before the advent of multinationals and exporting jobs. Such businesses have improved the lives of people in general with the arrival of new innovations, sensible business practices and the required investment. The government must find new ways to manage multinationals so that their harmful influence is limited to an extent while not over-shadowing their potential for developmental aims and progression. There has been on-going debate about how effectively can businesses meet the needs of global society in the next thirty years. First, we need to understand what global society is. Global society is the expansion of societies beyond national borders; it is a worldwide society with no cultural, social or physical boundaries; expansion of economies beyond national borders. Businesses must make sure to meet the needs of global society by eradicating poverty, increase resource efficiency, improve the levels of education and life expectancy and increase awareness about environmental issues. Global economy gives the benefits of cheaper products and new innovations to consumers. The Millennium Development Goals were established by world leaders in 2000 and is one way how businesses can effectively meet the needs of global society in next thirty years. Its purpose is to eliminate extreme poverty and hunger, achieve universal primary education, improve environmental sustainability, reduce child mortality, improve maternal health, eradicate diseases like HIV/AIDS, malaria etc and promote gender equality and empower women. They were set up to benefit the whole world, especially third world nations. These goals were set up to be achieved by 2015. It provided a basic guideline for the global society to follow and work towards better human development. The society as a whole must invest effort and money to bring the required changes and improve policies. It has emphasized upon the importance of environmental sustainability to improve economic and social well-being. Major environmental challenges like climatic change and fisheries depletion must be addressed before it is too late and poor countries would be affected the most by it. Developing countries must be ready to mould around these goals, while developed nations must help and support these countries besides their own motives and aims. Practical steps must be taken to ensure environmental nourishment and overcome the problems of for instance carbon dioxide emissions which rose to 28 billion metric tons in 2005. The emissions increased by about 30% from 1990 to 2005 and are expected to grow further at an alarming rate. 12 metric tons of carbon dioxide per capita emissions, per person per year, are the highest in the developed countries with that being 3 metric tons in underdeveloped countries. There is a need for social awareness and education regarding CSR so that investors and shareholders also invest in those firms that are socially responsible. The community awareness needs to be integrated so that the business is to be held responsible for its unethical practices. Ethics training in business is also important to reduce the chances of ‘dirty hands’ and cheating and manipulation are reduced (Grace and Cohen, 2005). This sort of realigns or changes the corporate culture of a firm but adds a feather to any company’s CSR policies and activities. Employee loyalty is increased. Caterpillar and BestBuy are two brands that are known for practicing this. A firm has to take into account its social responsibility and work in the interest of its stakeholders who include employees, customers, society and the environment in a broader prospect. "Man ought to regard himself, not as something separated and detached, but as a citizen of the world, a member of the vast commonwealth of nature and to the interest of this great community, he ought to at all times to be willing that his own little interest should be sacrificed." Adam Smith (Theory of Moral Sentiments, 1790, p.140) Adam Smith also clarifies that self-interest must not be the only objective behind running the business. Caring for the environment and people, practicing ethical behavior and concern for the society in general is all part of a business’s corporate and social responsibility. Caring for the consumer must be the most important part of the corporate social responsibility because it is believed that consumer is always right. You have to care for their rights to choose, to be heard and the rights to safety and information. This is called ‘greenwashing’, according to the TBL theory which we will look into later. To maintain environmental sustainability, Clean Development Mechanisms have been established as part of the Kyoto Protocol to care for the global society and environment. Kyoto Protocol (2005) is a Convention on the challenges and negative impacts of climate change, linked to United Nations Framework. Its main purpose is to build targets like reducing greenhouse gas emissions by EU and introducing mechanisms like joint implementation, carbon trading and establishing a clean development mechanism. The industrialized nations must reduce gas emissions. The convention divided countries into three groups. Annex 1 included industrialized countries that were also members of the OECD. Annex 2 included all those nations of Annex1 except the EIT countries. These countries fund and support the developing nations to implement emission reduction practices and this conducted through the Convention’s financial mechanism. While Non-Annex countries, are mostly developing countries that are prone to the negative impacts of climate change. The main aim is to give protection and caring or the needs of these countries by aiding them in investment, insurance and technology transfer. Emissions have increased in the Annex 2 countries because of high economic growth. Industrialized nations are mainly developed countries. They have large amounts of productivity which in turns leads to high levels of green house gas emissions. Kyoto Protocol pressurizes these countries to limit this degradation as the emissions are monitored by keeping track records of their trade activities. Some countries find it difficult to limit emissions, so they have to look for other options for alleviation measures in other nations. USA, as being the most developed and influential country of the world must take the lead in curtailing their emissions in business activities so that others may eventually follow. Developed countries must adopt Clean Development Mechanism to instill an emission-reduction project in the developing world because they themselves cannot breakthrough into the global markets (Wara, 2006). But developed countries have an apparently high level of emission compared to developing ones as they have more business activities happening. But if under-developed nation also have emission-reduction programmes then they earn certified emission reduction credits which equals to about one tone of Carbon Dioxide. It can have short-term market impacts like economic implications and global welfare. And also long-term non-market impacts like climate change and mass migration. Reforms must be established like governance reforms, focus of change, irony of an economic crisis and evolutionary and radical change for businesses to effectively cater to the needs of global society. According to their Porter & Kramer approach CSR must be adopted by the action of moral appeal like the customer and local community must be made aware to act morally by not purchasing goods of companies who do not ethically adhere to the social responsibility. The government must enforce moral behavior by initializing the essential laws regarding it. The natural environment must not be degraded and its sustainability must be improved. A healthy society implies the need for ethical strategies and competitive advantage in the form of CSR to be followed by business. This will lead to a successful business. There must be provocative approach towards CSR instead of reactive approach. Companies should give more importance to CSR issues and prioritize social issues and they may require different CSR policies to achieve this. This helps them gain a competitive edge against other companies who do not follow CSR. MNC’s must create a standard of responsibility to become more moral and responsible The Triple Bottom line or TBL or ‘people, planet, profit’ are the three valuable pillars that help us create insight and awareness to bring about the necessary changes in the social, ecological and economic aspects in relation to the success of an organization. ‘People’ includes labor management from salary to health and safety at work, ‘planet’ includes the environment and natural capital in quest of environmental practices and ‘profit’ consists of economic value after deducting all inputs cost; it is the accounting profit plus social and environmental profit made by TBL firm. The three are interlinked because a good environment ensures labor welfare and a satisfied workforce leads to efficiency and thus more profits. TBL ensures that the firm fully abides by the law, achieve a high level of moral responsibility and take in all commercial impacts of its action rather than just financial ones. It requires a change of mindset and implementation for long-term TBL sustainability. Businesses can effectively meet the needs of society in future with the help of TBL by co-evolving and co-relating the seven moments for its transition. They include; technology, relation to nature, production organization, social relations, mental perceptions, daily life and institutional and administrative arrangements. The TBL process will be successful in the long term depending upon the level of application and organizational involvement. A balanced must be maintained between people, earth and money rather than just focusing on the money factor. The challenge is to overcome the problem of profitability and responsibility by integrating all stakeholders. It can be implemented by all companies but requires a long period of introduction. It has proved to be a resilient and influential force. Corporate Social Responsibility must not be taken as a hard and fast rule but an important priority which is to be captured in its own beliefs.. Conflicts must be prevented instead of participating in the development of CSR notion. CSR must be carried out as long as it brings positivity to the society as a whole. Moral grounding and normative values should be established by means of empirical methods of science. It must be based on humanitarian values instead of science or prove of validity of change. All stakeholders of a company which includes consumers, shareholders, government, employees and local community all influence a businesses’ activity by either dialogue or joint actions or individual practices. They all look forward in benefitting from preset standards, instrumentalism and normative view of corporate social responsibility. References: Grace, D., S. Cohen (2005). Business Ethics: Australian Problems and Cases. Oxford University Press. PEW Center (2009) Clean Development Mechanism backgrounder. PEW centre on Global Climate Change. Sari, A.P. and Meyers, S. (1999) Clean Development Mechanism: perspectives from developing countries. Wara, M. (2006) Measuring the Clean Development Mechanism’s performance and potential. Working paper Stanford University. Brand Strategy (2007). "10 key things to know about CSR". London. pg.47 Pitts, C. (ed.), M. Kerr, R. Janda, & C. Pitts (2009) Corporate Social Responsibility: A Legal Analysis (Toronto: LexisNexis). Roux, M. (2007). "Climate conducive to corporate action: 1 All-round Country Edition". The Australian. Canberra, A.C.T. pg.15. Kotler, P., Armstrong, G. (2006) Principles of Marketing. Eight editions. Prentice hall of India, New Delhi. Roberto, Lee, and Kotler. (2006) Social Marketing:  Improving the Quality of Life. Sage Publications. Karen Borrington and Peter Stimpson. (2006) IGCSE Business Studies. London, John Murray publishers. Fred R. David (2005) Strategic Management. Concepts and Cases. Tenth edition.Prentice Hall of India, New Delhi. Sullivan, N.; R. Schiafo (2005). Talking Green, Acting Dirty (Op-Ed). New York Times, June 12, 2005. Sun, William (2010), How to Govern Corporations So They Serve the Public Good: A Theory of Corporate Governance Emergence, New York: Edwin Mellen. Thilmany, J. 2007. "Supporting Ethical Employees." HR Magazine, Vol. 52, No.2, September 2007, pp. 105–110. Visser, W., D. Matten, M. Pohl, Nick Tolhurst (eds.) (2008). The A to Z of Corporate Social Responsibility Read More