Corporate Social Responsibility Theories - Essay Example

Corporate Social Responsibility Theories Introduction Organizations report their undertakings in form of reports that they generate at the end of every year. The reports consist of the balance sheet and the income statement as the main documents. However, some organizations also report about their corporate social responsibility; this includes social and environmental reports. Social and environmental reporting are not compulsory in organizations although their disclosure has various benefits. Adams (2002: 244-245) argues that, “The main motivation for corporate social and environmental] reporting is to enhance corporate image and credibility with stakeholders.” This paper aims at analyzing Adam’s statement using system-oriented, political, and integrative theories of Corporate Social Responsibility (CSR). System-oriented Theories System-oriented theories include legitimacy and stakeholder theories. These hypotheses explain how organizations relate to their environment by reporting on their social and environmental activities. Legitimacy Theory This theory postulates that companies aim at demonstrating their legitimacy to the society by acting in accordance with the bounds and norms of the community. The bounds and norms consist of all behaviour that the society accepts. Rendtorff (2009, p.145) argues that organizations safeguard the social contract between them and the society by displaying acceptable behaviour. The researcher explains that the social contract between company and the society requires organizations to deliver benefits and desirable ends to the community (Rendtorff, 2009). The failure of conforming to the expectations of the society ruins the society’s view of the company; this view is known as corporate image. Therefore, to avoid conflicts with the society, corporations aim at achieving a balance between their objectives and those of the community. Organizations adopt social and environmental reporting as a technique of maintaining legitimacy and an excellent image to the society. This is because the society expects companies to give back to them and to protect their environment (Gossling, 2011). The public expects organizations to maintain low levels of pollution because high levels threaten the health of individuals. The public also anticipate companies to support them in community projects because the society gives them a chance to conduct business in their environment (Tench, Sun, & Jones, 2012). Companies, therefore, have to report to the society about their environmental and social activities to improve their legitimacy and hence, their image and credibility to the community. Stakeholder Theory Edward Freeman developed stakeholder theory, which argues that organizations aim at providing their stakeholders with value. Stakeholders include all individuals and groups that organizations influence when they achieve their goals (Freeman, & Reed, 1983). This means that stakeholders do not only include shareholders, but they also comprise of regulators, suppliers, consumers, government, interest groups, the public, employees, and investors. Stakeholder theory is divided into two parts that include moral and managerial branches. Ethical Division of Stakeholder Theory The ethical viewpoint of the theory argues that organizations have to treat all their stakeholders equally regardless of their power. Freedman and Reed (1983) disregards the power of stakeholders because they believe that all parties are equal despite the fact that some have a direct influence while others have an indirect influence to an organization. Companies treat stakeholders equally by publishing social and environmental reports in mediums that are accessible to everyone (Idowu, & Louche, 2011). The fair treatment of all stakeholders in a company indicates that the organization is honest and this improves its view from influence groups. All stakeholders then support the company because of the equal treatment that they receive. Managerial Division of Stakeholder Theory Ullman (1985) argues that this perspective of stakeholder theory requires organizations to fulfill the expectations of the most powerful stakeholders before those of less powerful parties (552). This is because stakeholders have different powers, some of which may be direct (most powerful) while others are indirect (less powerful). This viewpoint postulates that companies may use corporate social responsibility reporting as a technique of gaining support from the most powerful stakeholders who are mainly shareholders (Ullman, 1985). The support that shareholders offer to the organization then improve corporate image. Stakeholders also increase their trustworthiness of a company when it reports about its social and environmental activities. Despite the difference in the two perspectives of stakeholder theory, it is clear that this hypothesis aims at improving the society’s view of an organization. Companies enhance the view by reporting about corporate social responsibility because this is a field of interest to all stakeholders. This form of reporting in turn enhances the credibility of an organization to stakeholders. Institutional Theory The institutional theory argues that organizations aim at maintaining legitimacy in the institutional environment to guarantee their survival. Institutions include the rules, routines, and norms that organizations put into practice in their operations; however, the definition is not limited to these factors because of the dynamic environment within which companies operate (Gossling, 2011). Organizations choose the institutions within which to operate based on legal, internal, and external influence. For example, companies have to implement legal rules that affect them in their operations. Another example is that organizations may choose rules and behavior that has led to the success of others in the industry. Finally, companies prefer institutions that are favourable to the internal environment, for example, rules that motivate employees to work hard (Orlitzky, & Swanson, 2008). The above examples indicate that organizations desire institutions that are acceptable to stakeholders such as employees, the government, and shareholders. A lack of conformity, for example, to legal institutions may ruin the image of the company to the public (Idowu, & Louche, 2011). This is because the public supports companies that follow the institutional frameworks that are set by the government. Organizations also have to implement rules and norms that are favourable to employees; the failure to execute such rules leads to negative attitude from workers and high employee turnover. Therefore, the institutional theory implies that companies have to implement institutions such as rules and norms that are acceptable to all their stakeholders. This enhances public corporate image and credibility of the organization’s activities to the society. Political Theory Political theories emphasize on the power of an organization in the political analysis of corporate social responsibility. The two political theories include corporate citizenship and corporate constitutionalism (Rendtorfff, 2009). The viewpoint of corporate constitutionalism is that organizations have power in the society and that they have to use it responsibly. The failure to use power in a responsible manner leads to the loss of that authority; members of the society will take away that power and give it to a responsible party (Orlitzky, & Swanson, 2008). Organizations, therefore, behave in a responsible manner to maintain an acceptable image to the society. Firms do this by reporting their corporate social responsibility issues to stakeholders. Corporate citizenship perspective, on the other hand, argues that organizations have to be responsible to their environments because they are viewed as independent individuals. The responsibility of organizations to the society is in the form of environmental and social accountability (Tench, Sun, & Jones, 2012). Corporations demonstrate the accountability by publishing reports that discuss and analyze their responsibility to the society. The failure to be accountable to the society may lead to opposition of the company and its activities by the society. The opposition portrays a dreadful image of the company to the society and it decreases the public’s trustworthiness towards the firm (Tench, Sun, & Jones, 2012). Organizations, therefore, use CSR reporting to enhance their image and credibility to the society by practicing corporate citizenship. Integrative Theory Integrative theories argue that organizations depend on their environment for survival. The society in turn demands responsibility from organizations so that it may consider these institutions as being legitimate. The main perspective of this theory is the management of issues (Jack, 2013). This viewpoint argues that organizations need to minimize their zones of discretions; these are the differences between a company’s performance and the expectations of the society. Companies do this by integrating the expectations of the society in their objectives. The other perspective of this theory is the public responsibility. This perspective requires organizations to be responsible to the public by implementing legal regulations and acceptable social behaviour (Orlitzky, & Swanson, 2008). The implementation of this principle safeguards the image of the company in the public. The last perspective of integrative theory is that of reporting corporate social performance (Gossling, 2011). This is because the social activities of organizations also determine their overall performance to the public. The principles of the three perspectives of integrative theory aim at ensuring trustworthiness and positive viewpoints of the public towards organizations. Conclusion The theories of corporate social responsibility indicate that Adam’s argument that organizations safeguard their image and credibility by reporting on their social and environmental activities is realistic. The legitimacy and stakeholder theories postulate that organizations aim at maintaining a cordial relationship with their environment. Institutional theory, on the other hand, indicates that organizations adopt institutional frameworks that are acceptable to their stakeholders. Political and integrative theories indicate that corporations aim at integrating the expectations of the society in their objectives. All the theories point out what organizations do to safeguard their environment that consists of stakeholders. This means that companies aim at maintaining a positive image from the viewpoint of stakeholders. References Adams, C.A., 2002. International organizational factors influencing corporate social reporting and ethical reporting: beyond current theorizing. Accounting, auditing, and accountability journal, vol. 15, no. 2, pp. 223-250. Freeman, R., & Reed, D., 1983. Stockholders and stakeholders. California management review, vol .25, no. 2, pp. 88-106. Gössling, T., 2011. Corporate social responsibility and business performance: Theories and evidence about organizational responsibility. Cheltenham: Edward Elgar. Idowu, S. O., & Louche, C., 2011. Theory and practice of corporate social responsibility. Heidelberg: Springer. Jack, L., 2013. The Routledge companion to accounting communication. New York: Routledge Orlitzky, M., & Swanson, D. L., 2008. Toward integrative corporate citizenship: Research advances in corporate social performance. Houndmills: Palgrave Macmillan. Rendtorff, J. D., 2009. Responsibility, ethics, and legitimacy of corporations. Frederiksberg, Denmark: Copenhagen Business School Press. Tench, R., Sun, W., & Jones, B., 2012. Corporate Social Irresponsibility: A Challenging Concept. Bradford: Emerald Group Publishers. Ullman, A., 1985. ‘Data in search of a theory; a critical examination of the relationships between among social performance, social disclosure, and economic performance of US firms.’ Academy of management review, vol. 10, no. 3, pp. 667-680. Read More