Importance of Engaging in a Socially Responsible Behaviour - Essay Example

? Corporate Social Responsibility & its Relevance Today of Introduction The case of corporate social responsibility has emerged as a crucial factor for firms all across the globe and gained increasing importance over the past decade. Most firms are now absorbing the cause of social responsibility either voluntarily or as a part of their strategic goals. In other cases, most firms also publish their attempts in social responsibility and CSR activities as a part of their annual publications like the annual reports. The gaining momentum of CSR activities is evident from the fact that many mergers and acquisition dealings are also viewing investments in such activities as a factor for consideration prior to finalising the deal. Despite such growth in the value of CSR activities, the question as to why managers find it important to undertake these activities and whether there is any need for engaging in these activities apart from maintain good public image (Font et al., 2012). There are multitude of problems in the business world which include accounting frauds and corporate irregularities and graver concerns like environmental issues and social obligations. In this regard, the paper discusses the importance of engagement of companies in a socially responsible behaviour and also illustrates reasons behind non engagement of few organizations in the same. The paper discusses evidence of non compliance and lack of belief in CSR initiative in firms and concludes in discussion of relevance of such CSR initiatives in today’s world. Importance of Engaging in a Socially Responsible Behaviour CSR reporting that are now being mandated in firms by various controlling bodies are an attempt to legalise the concerns business activity while making it comply with various environmental, social and ethical issues. It is argued that voluntary as well as compulsory CSR reporting ensures competitive advantage of firms over those who do not engage in CSR reporting (Mahoney et al., 2013). The melamine contamination case of China was a shock for the entire world. It highlighted the need for investors to respond to a corporate social responsibility of companies towards its consumers. It is argued that a firm’s financial performance has direct bearing with consumer buying and selling activities and such immoral behaviours drop sales by drastic measures. In the similar way, the case of Coca Cola and Cadbury contamination brought forth an alarming situation of quality standards and norms that were practiced within the company. These events tarnished the brand name to such large extent that it required years to gain back reputation and hence sales. Hence it is critical to understand the direct linkage between CSR performance and financial results (Kong, 2012). The importance of engaging in CSR activities can also be studied in light of most important financial decisions like a merger and how it impacts the decision and impact on shareholders during such events (Deng, Kang & Low, 2013). In support of shareholder’s value maximisation in engaging in a merger, the role of CSR activity has been explained as a trust building action among the stakeholders (Jo & Harjoto, 2011). This argument thus establishes that high socially responsible firms have greater support of shareholders and stakeholders which in turn contribute towards firm profitability and long term efficiency in contrast to firms that maintain somewhat weak socially responsible image (Jensen, 2001). Evidence of dismissal of view of CSR Corporate governance requires that companies make their activities more transparent, their activities more accountable and their business more socially responsibly. It is argued that companies engage in business ethics, corporate governance and social responsibility merely to gain legitimacy in business activities and they do not really care about what possible impacts these could have on their business activity (Brennan & Merkl-Davies, 2013). According to views of Milton Friedman, social pressures are important to survival of a business. In this view it becomes logical to argue that such social pressures are unwanted costs that the business needs to occur without any monetary returns. Such costs had a negative bearing on company profits, stock prices and return on investment (Chand, 2006). In case of mergers, managers state that engaging in a socially responsible behaviour invites costs that are unwanted by stakeholders and shareholders. In support of this argument it said that implementing environmental standards that are far more stringent than those of competing firms puts the company at a competitive disadvantage by inviting costs that in turn impact company profitability and wealth creation of shareholders. They also argue that companies that have high CSR compliances on acquisition have a lower returns associated with merger announcement when compared to companies with low CSR. This also derives that such mergers are more likely to fail due to shareholder veto (Deegan and Rankin, 1996). Views against CSR activities also suggest that different groups of shareholders and stakeholder have different opinions about engagement towards a socially responsible behaviour of the company. Additionally, different stakeholder groups have varied definitions about CSR activities, for example employees might want more of employee benefits while shareholders might want greater returns on their investments. This brings in a conflict of interest and management might create unwanted tension between groups. This is certainly not desired (Bernea & Rubin, 2010). Do companies report truthfully? The CSR reports are intended to provide an overview of the company’s environmental and social goals, programs, challenges, commitment and progress of those factors. The key audiences of CSR reports has often being limited to nongovernmental organizations and investment funds which are socially responsible, but they act as useful communication vehicles to reach employees, shareholders and customers (Hooghiemstra, 2000). A CSR report principally sheds light on the factors such as the ambitions and commitments of the company and the progress it has made to that piratical area. The statements made in a CSR report must be authentic and truthful and any kind of overstating intentions and progress must be avoided. Studies have suggested that the readers of CSR report principally looks at the authentic efforts of the companies to represent their CSR activities rationally and truthfully (Merkl-Davies & Brennan, 2011). Authentic and true reporting greatly assist readers to scrutinize the sustainability of the activities proposed by the company. However, the big question is: Do companies report truthfully? As a part of socially responsible behaviour, companies are mandatorily required to make environmental disclosures. These include all kinds of revelation in relation with the company and its interaction with its environment. This includes energy consumptions, natural environment, human and community involvement and product safety standards. It is believed that such disclosures are necessary to gain community acceptance. However, it was found that such disclosure norms also invited a lot of strikes and protests detrimental to the image of the organization (Cho, Lee & Pfeiffer Jr, 2013). However, it was observed in case of Australia that most companies made disclosures that were acting in favour of the company image and all information that did not confirm with the standards and legislative norms remained undisclosed and hidden. It also came across as true that companies that were larger in size and had a greater capacity to take systematic risks were the ones who engaged in making disclosures of CSR initiatives. Smaller firms with less capacities refrained from undertaking any declaration activities (Deegan & Rankin, 1996). Hence, this fact makes it evident that companies certainly do not maintain authenticity while reporting the CSR activities. In the similar way, disparities have also been observed among the large and small organizations. Although, companies create a good image for themselves by falsifying the statements but in the long run it is obvious to face the consequences in the form of loosing confidence of stakeholders (Moir, 2001). Views against CSR initiatives also posit that in some cases high CSR might call for over investment by managers that brings reputation and brand name to the managers rather than company and it does not have any direct relationship with shareholder value creation. Conclusion and personal opinion Business owners have the task of providing favourable returns to its stakeholders. This group includes shareholders and other stakeholders among employees and consumers. Despite all limitations in relation to engaging in corporate social responsibility, it is essential for firms to realise that there are responsibilities of business apart from economic returns. The evidence of accounting disclosures and importance of the same in mergers and acquisitions, environmental and safety norms and social building highlight the importance of CSR initiatives in today’s world (Jiraporn & Chintrakarn, 2013). Even if companies argue that CSR reporting and engaging in a socially responsible behaviour has costs that do not have a direct bearing to company profitability, it is impossible to ignore corporate social responsibility because it has become imperative for sustenance of business activities. Evidence of costs of not engaging in socially responsible behaviour is visible in employee burnout, pollution, global warming and corruption (Woods, 2003). These days, start up companies have realised the importance of social responsibility and base their strategies in accordance with ethics and corporate social responsibility. Thus, it can be safely stated that those corporate giants that do not engage in social responsibility and corporate governance should align and transform their strategies. To do so, companies need to have sound sources of data and guidelines that clearly outline the structure of a socially responsible behaviour (Taysir & Pazarcik, 2013). References Bernea, A., & Rubin, A. 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