Nature of Corporate Social Responsibility - Dissertation Example

?Contents Contents 1. INTRODUCTION 2. LITERATURE REVIEW 3 2 CORPORATE SOCIAL RESPONSBILITY: IT’S NATURE 3 2.2. THE TRIUMVIRATE 9 2.3 THE MEASURE 11 2.4. SUMMARY 12 3.0. RESEARCH QUESTIONS AND OBJECTIVES 13 3.1 RESEARCH QUESTIONS 13 3.2. OBJECTIVE OF THE RESEARCH 14 4.0. METHODOLOGY 14 5.0 REFERENCES 15 6.0. TIMESCALE 17 1. INTRODUCTION Globalization and rapid developments, in computer information and technology, are two of the most influential factors contributing to the fast phase changes happening in the contemporary period. Through these two elements, the reality of the global market, of virtual realities and faster access and exchange of information are realized (Brooke et al., 2004; Chandra, 2008; Soros, 2002; Suarez-Orozco & Qin-Hilliard, 2004), creating a vision of a better world across the globe. However, in 2007, the world has been hit by global economic crisis, which has led to serious difficulties in the lives of ordinary people (Roth 2009; Yandle 2010). The global financial meltdown has put into limelight the relationship and responsibility of businesses to the society as the economic crisis has been precipitated by excessive risk taking of businesses and masking its dangerous actions through, corporate philanthropic, activities (Bordo, 2008; Lin-Hi, 2010; Reinhart, 2008). The notion of economic institutions having social responsibilities has been widely discussed in the past two decades (Campbell, 2007). This coincides with the fact that also in the last two decades the influence and power of corporations have grown due to global presence of multinational corporations and trans- national corporations, which pave for more jobs and resources, higher standard of living and better social conditions (Uccello, 2009). Nonetheless, it should be noted, that the idea of economic institutions of being responsible not only in fulfilling their fiduciary responsibilities to the shareholders, but also satisfying the public interest and stakeholders demands have been proposed already as early as the 1930’s (Hemingway, 2002). As such, the concept of corporate social responsibility is not something new, but it has long been recognised that corporations have responsibilities towards, employees, shareholders, consumers, local communities, natural environment and other stakeholders (Hemingway & Maclagan, 2004; Zolsnai, 2006). However, due to the global financial crisis the urgency to look into the purpose and relationship of economic institutions (businesses) in the society becomes necessary. The global financial crisis has concretely shown that actions of corporations are not happening in a vacuum, but it has a direct effect not only to the shareholders but also to all stakeholders (Lin-Hi, 2010). In this regard, this research will look into how company combines satisfaction of both the shareholders and stakeholders and on how this can be measured. The research will be mainly dealing with corporate social responsibility; however, the research will attempt to provide alternative insights regarding CSR because the study will be conducted with the experience of the global financial meltdown as its beacon. The experience demands that CSR be re-understood with clearer parameters and measures that will assist people and stakeholders as attempts are made to further clarify the purpose and relationship of businesses in the society. 2. LITERATURE REVIEW In the literature review, current trends and discussions regarding corporate social responsibility (CSR) will be presented. The discussion will cover three sections. The first part will be dealing with the nature of CSR, while the second part will be touching on the apparent relationship among CSR, shareholder satisfaction and profitability. Finally, the third part will be about the means undertaken to determine the impact of CSR. To be able to embark on a discussion, the research has conducted a library research. The electronic databases Academic Source Complete, Business Source Complete, Jstor, Google Scholar, PsycheInfo and ERIC have been searched using a combination of the following key terms: corporate social responsibility, shareholder, stakeholder, profitability, company, global meltdown, globalisation, responsibility and accountability. Likewise, the reference list of the articles has also been searched to identify other related materials. 2.1. CORPORATE SOCIAL RESPONSBILITY: IT’S NATURE Each person has a moral duty to act in pursuit of public interests. In the same regard, there is an assumption that corporations also have the moral responsibility to act in pursuit of public interest since they are given by the society license to operate. In granting corporations license to operate, society is giving firms access to society’s economic resources, which includes natural resources, financial resources, human capital and technology. In this regard, organizational management has the moral responsibility to preserve integrity, efficacy and accountability as organisational management discharge the fiduciary responsibility of the organization. Moreover, it has been claimed that contemporary nature of business is no longer just explained by the traditional conception that the only reason behind the establishment of an organisation is to maximise profit (Bastin, 2003). Although the influence of shareholders is undeniable, of equal importance and value is the role of stakeholders of the company. Organisations’ acceptance of stakeholders’ interest is influenced by several factors affecting the nature of contemporary business. These include the notion that since organisations are integrated in the society either physically or virtually, they are deemed as social actors in the public arena (Zolsnai, 2006; Roper & Cheney, 2005). This implies the recognition that corporations’ actions do not occur in a vacuum but take place in actual physical or virtual reality. As such, firms’ actions have consequences not only for the organisation and its shareholders but also for all its identified stakeholders. Thus, as contemporary organisations strive to have a positive relationship with its shareholders; it should also undertake collaborative effort with its stakeholders in order to establish connection with them (Tencati & Zolsnai, 2009). In this regard, corporations are challenged to balance profit with concerns, social values and political beliefs (Tencati & Zolsnai, 2009). Fig. 1 This figure shows that as firms are integrated in the society and that they make use of its various economic resources, organisations they become socially responsible for all the consequences of their actions. In this regard, the notion of corporate social responsibility, is in fact, inherent in the corporation, but has not been given much attention at the beginning. Corporate social responsibility is the responsibility of the organisation to the stakeholders, environment, social, economic and voluntary dimensions in relation to its business life cycle. This way of looking at the meaning of CSR is an acknowledgement of the fact that currently there is no universal definition for the term (Dahlsrud, 2008). Various definitions have been forwarded (Dahlsrud, 2008), each focusing on the five dimensions mentioned. It has been observed that the definitions given centres on what is deemed essential by the corporations itself. In this regard, it has been maintained that one of the several concerns regarding CSR is the inherent vagueness of the concept, which has resulted into variegating definitions with each highlighting different segments of CSR and business dimensions (Dahlsrud, 2008; Hemingway & Maclagan, 2004; Lin-Hi, 2010; Zolsnai, 2006). One key issue arising from the vagueness of the definition of CSR is the observation that because of the broad range and different emphasis on the definition of CSR, there is difficulty in laying down concrete parameters with which it can be claimed that a company is fulfilling its CSR. Dahslrud (2006) claims The definitions do not provide any descriptions of the optimal performance or how these impacts should be balanced against each other in decision-making. However, they do describe the processes in which this can be established. The voluntariness dimension implies that the business should perform above regulatory requirements, which will set the minimum performance level deemed acceptable. But what is the optimal performance above regulatory requirements or when no regulations exist? The definitions answer this by pointing towards the stakeholders. Balancing between the often conflicting concerns of the stakeholders is a challenging task, and the definitions use rather vague phrases to describe how these concerns should be taken into account. Thus, the only conclusion to be made from the definitions is that the optimal performance is dependent on the stakeholders of the business . (p 6) In this condition, what can be maintained is that as businesses recognised that part of their responsibility includes responding to the demands made by the society and other identified stakeholders of the organisation, it opens a framework wherein CSR is considered as an integral in the survival of the organisation in the global market. Although it may seem that organisations are only choosing segments or dimensions of the society with which they decide as something that they are responsible for, since social responsibility acquires different connotation in different businesses and different countries. However, what it manifests is that the idea of CSR is something that organisations have to deal with if they intend to do business in the global market (Campbell, 2007; Ludescher & Rahsud, 2010). Despite this limitation in terms of the definition of CSR, theories have been forwarded explaining the necessity of CSR. These theories are the stakeholder theory, the legitimacy theory, and the political economy theory. Under the stakeholder theory, Caroll (1999) states a socially responsible corporation is one whose managerial staff balances a myriad of interests. Instead of striving only for larger profits for its stockholders, a responsible company also takes into account employees, suppliers, dealers, local communities and the nation. As such, under this theory, CSR is seen as the primordial responsibility of management and that there is an understanding and promotion of the stakeholder/s. On the other hand, legitimacy theory looks at CSR is the legitimacy theory. In this theory, there is an assumption that the actions of the organisation are desirable, proper and appropriate in connection with socially constructed norms, beliefs, values and traditions with which the organisations belongs (Suchman, 1995). As such, organisations using CSR seek to educate and inform, change the perspectives, alter perceptions and replace the external expectations (Lind bloom, 1994). Meanwhile, political economy theory does not only focus on the market economy, but also considers other salient factors such as the interplay between government, social institutions, production processes and exchange of goods and services that are happening. In this regard, under this theory, the relationship of the actions of the organisations is juxtaposed and analysed vis-a-vis the institutional context from where they originate. In this context, understanding why organisations should be socially responsible becomes necessary, as it will determine the existing factors that drive organisations to be socially responsible. Campbell (2007) claims that the determinants for corporations socially responsible behaviour depends on the following: 1. The degree of competition in the market. 2. The economy of the society where the organisation is doing its business. 3. The performance of the organisation in the market 4. The presence of strong state regulations 5. Presence of strong non-governmental organisations 6. The existence of collective industrial self-regulation 7. An institutionalise environment that encourages and rewards socially responsible behaviour These factors help determine whether an organisation, despite presence of CSR, will adapt a socially responsible behaviour or not. Corporate social responsibility is an essential element in the survival of an organisation in the era of globalisation. Although, currently, there is no existing universal definition for the concept and that it has acquired different meanings depending on the nature of the business and the place where the organisation is conducting its operations and business, understanding the relationship and functions of CSR in the enterprise is essential and necessary for both shareholders, and stakeholders. This is because of the truism that corporations are social actors integrated in the society, using society’s economic resources. In addition, CSR helps in establishing a good reputation and attaining sustainability for the company (Porter & Kramer, 2006). 2.2. THE TRIUMVIRATE The triumvirate relationship among shareholders’ interest, stakeholders’ concerns and profitability are said to have cause a tension in the authentic nature of CSR. As the shareholders’ interests are claimed to be in conflict with the concerns of the stakeholders (Milton, 1971), there is conjecture that there is a divide between shareholders and stakeholders. However, though the relationship among shareholders, stakeholders and the company’s profitability are considered as unholy (Hemingway, 2002), the triumvirate relationship is not necessarily wrong. In fact, the researcher is of the belief that shareholders’ interests, stakeholders’ concerns and profit have a symbiotic relationship that has to be acknowledged and address if the corporation intends to achieve wider market share. Porter and Kramer (2006) suggest instead of looking at the difference between shareholder and stakeholder as a gap that creates imbalance in the business’ interaction with the society, the two interests should be combined to develop a strategy that will help the organisation gain profit, excellent reputation and sustainability. In this way, a win-win condition is attained by the organisation as it satisfies the demands of both the stakeholders and the shareholders. However, combining shareholders’ and stakeholders’ interests with profit is no easy task, but not impossible. It requires innovativeness, authentic desire to respond to the challenges of the changing world and a bit of sense of responsibility. Creating a strategy that incorporates both shareholders and stakeholders interests is critical because: 1. There are consumers that are considered as ethical consumers. These are customers who are willing to pay an extra for products or services that come from organisations that have a strong reputation of having not only superior quality products but are also known for their socially responsible behaviours (Memery et al, 2005). Tapping this section of the buying public is a win-win situation for the company – profit, unimpeachable reputation and socially responsible behaviour. 2. With the advancement of computer information and technology, access to information has become easier. In this condition, negative information about a company that is posted in a blog can be easily accessed by anybody across the globe, in the same way any, positive feedbacks about a company can be surfed anytime. As such, if a company has a solid reputation, there is an increased chance that it will be patronised compared with a firm who has a soiled image. In a word, CSR helps create a sterling reputation and a strong reputation increases the likelihood of patrons who will purchase the services or products offered by the firm and as such, offering an increased possibility of a good return of investments (Van de Ven 2008). 3. By combining shareholders’ concern and stakeholders’ interest, sustainability is attained. This is advantageous not only in terms of financial returns, but is also beneficial for the stakeholders. Take the case of McDonalds, by deciding to change the materials that it used for wrapping its food; it has reduced its solid waste for about 30%. This action affirms sustainability, which in turn provides financial gain for the company, unimpeachable reputation and a good CSR ranking. From the discussion, it can be deduced that strategic CSR entails a combination of the triumvirate shareholders’ interests, stakeholders’ concerns, and profit. It offers a win-win situation for all. However, Porter and Kramer (2006) maintains that companies should learn to focus on critical issues ,which are not just temporary solutions to pressing current issues, but should explore on problems that open a competitive edge for the organisation. In this regard, strategic CSR allows for a combination of the satisfaction of the shareholders’ interest and the fulfilment of the demands of the society while at the same time opening opportunities for a positive return of investments. 2.3 THE MEASURE With the possibility, of arriving at scheme wherein the combination of the satisfaction of shareholders’ interest and the demands of the society with opportunities for gaining profits opening, the necessity of coming with real way of measuring the impact of CSR becomes necessary. This is to ascertain that CSR contributes to the organisation and it can provide means with which manipulation of information can be checked. Thus, developing appropriate means of measuring the impact of CSR is essential especially in view of the fact the institutions that have been involved in the global financial crisis have used CSR to hide their wrongful acts (Lin-Hi, 2010; Ludescher & Rahsud, 2010). Varied criteria are used to assess the impact of CSR (Porter & Kramer, 2006). The concern with this is that it does not provide a clear picture of the impact of CSR. For instance, Dow Jones Sustainability Index puts more weight to customer satisfaction, which is valued at nearly 50%, which is way beyond the percentage allotted to CSR or corporate citizenship. On the other hand, FTSE4Good Index, do not use customer satisfaction or economic performance, as such, although there is a similarity in the approach between the two measures their assessment are entirely different (Chatterji & Levine, 2006; Porter & Kramer, 2006). Media, non-profits organisation, and investment advisory organisations, rely on easily accessible data and information, which do not have a necessary connection on how to determine the impact of CSR to the organisation (Porter & Kramer, 2007). Likewise, it has been noted that when social impacts of CSR are reported, even if it is true, are questionable because of the accuracy of the information. It has been observed that data used in measuring CSR social impact comes from questionable surveys (Porter & Kramer, 2006). Finally, it has been observed those corporations who are not transparent and participative in the data collection, are often, the companies that have something to hide. In this condition, the need to come up a reasonable standard that will authentically demonstrate the impact of CSR becomes necessary. 2.4. SUMMARY In the literature, it has been presented that corporate social responsibility has been questioned in relation to the recent global financial meltdown. Some scholars have claimed that CSR has been used in order to hide wrongful acts that have detrimental effects not only to specific societies, but also to the entire world. In this sense, question regarding the viability of companies’ CSR as genuinely responding to the demands of the society and the relationship of economic institutions to society have been raised. CSR is inherent in the nature of modern organisations. This stems from the fact that organizations are social actors who are given license-to-operate by the society, which in turn, gives them access to use society’s economic resources. From this relation, organisations have the moral obligation to maintain integrity, efficacy and accountability as they discharge the fiduciary responsibility of the organization. Meanwhile, a solid reputation and image is superb for business while working for sustainable development is beneficial for business growth. In this regard, it has been observed that the ‘apparent’ gap between satisfaction of shareholders’ interests and fulfilment of the demands of the society is artificial. It has been proposed that by combining shareholders’ interests, stakeholders’ concern and profitability in strategic CSR, the triumvirate creates scheme wherein the possibility of the win-win situation for all interested parties becomes attainable. However, in the research it has been found that existing way of measuring the impact of CSR are varied, resulting into differences in ranking or coming up with results that are not related with the issue of CSR. 3.0. RESEARCH QUESTIONS AND OBJECTIVES 3.1 RESEARCH QUESTIONS 1. What is the nature of corporate social responsibility? 2. How does a company, through CSR, obtain shareholders’ satisfaction and fulfilment of the demands of the society? 3. How can the impact of CSR be measured? These questions are significant because not only it seeks to understand the nature of CSR, but it also intends to apprehend CSR in practise as used and undertaken by organisations. As such, these questions will try to integrate theory and practise as it attempts to understand CSR, while, trying to formulate a possible way of measuring the impact of CSR. 3.2. OBJECTIVE OF THE RESEARCH 1. To identify factors or means which will enable CSR to attain both shareholders’ satisfaction and fulfilment of society’s demands? 2. To determine means and ways with which the impact of CSR can be concretely measured. 4.0. METHODOLOGY In order to address the questions of the research, a documentary research involving the use of secondary data pertinent to the subject matter of the study will be conducted. In the documentary research that will be conducted, scholarly articles relevant to the topic, financial statements, laws and other important materials and texts will be searched in order to know, understand and claims, viewpoints or arguments made regarding the topic. The process of documentary research often involves some or all of conceptualising, using and assessing of the documents that are deemed crucial to the subject matter of the research (Scott, 2006). Moreover, in the documentary research which, uses secondary data, aside from scholarly written articles, diaries, commentaries, policies and other wide range of texts available in order to clarify the subject matter and the issues that surround subject of the research may be used (Scott, 2006). Secondary data involves the use of scholarly materials and texts, policies, laws, and other available written materials regarding the subject matter for the research. In this regard, as the study will be using secondary data, an extensive library and documentary research will be conducted. The following databases will be searched EconLit, Business Source Premier, Academic Search Premier, GoogleScholar, Eric, and Lexis-Nexis using the key terms corporate social responsibility, shareholders’ theory, stakeholders’ theory, political economy, contemporary organisations, corporate citizenship, socially responsible behaviour, globalisation, consumer awareness and social agenda. For this research, three companies from the dairy sector of Saudi Arabia market will be analysed. In general, the research will be doing a financial ratio analysis and it will be focusing on profitability analysis ratio and capital market analysis ratio. In profitability analysis issue, return of equity and profit margin will be used to get a better idea of how much the company is earning. While in the capital market analysis ratio, the research will be using dividend yield and price-earning ratio to know how much the company is paying out each year relative to its share price. As such, aside from scholarly articles pertinent to the topic, the following secondary data will also be used and analysed 1. Corporate Annual Reports 2. Financial Statements and Balance Sheets 3. Corporate Social Agenda and Policies 4. Consumer Awareness Reports 5. Laws 5.0 REFERENCES Bordo, MD 2008, ‘The crisis of 2007: some lessons from history’ in The First Global Financial Crisis of the 21st Century. Ed by Andrew Felton and Carmen Reinhart. London: Center for Economic Policy. Campbell, JL 2007, ‘Why would corporations behave in socially responsible ways? An Institutional theory of corporate social responsibility’, Academy of Management Review, vol. 32 no. 3, pp 946–967. Carroll AB 1999, Corporate social responsibility – evolution of a definitional construction. Business and Society , vol. 38 no 3, pp. 268– 295. Chandra, I 2008, ‘The five C’s of IT policy’, Internal Auditor, (Dec 2008), pp. 22 – 24. Chatterji, A & Levine, D 2006, ‘Breaking down the wall of codes: Evaluating non-financial performance management’, California Management Review, vol.48 no 2, pp. 29 – 51. Dahlsrud, A 2008, ‘How corporate social responsibility is defined: An analysis of 37 definitions’, Corporate Social Responsibility and Environmental Management, vol. 15, pp. 1 – 13. Hemingway, C.A 2002, ‘An exploratory analysis of corporate social responsibility: definitions, motives and values’, Research Memorandum 24, CMOL.UK: Hull University Business School. Hemingway, C. A. & Maclagan, P. W 2004, ‘Managers’ Personal Values as Drivers of Corporate Social Responsibility’, Journal of Business Ethics, vol. 50 no 1, pp. 33-44. Lindblom, CK 1994, ‘The implications of organizational legitimacy for corporate paper presented at the critical social performance and disclosure’, New York. Perspectives of Accounting Conference. Lin-Hi, N 2010, ‘The problem with a narrow-minded interpretation of CSR: Why CSR has nothing to do with philanthropy’, Journal of Applied Ethics, pp. 80- 98. Ludescher, JC & Mahsud, R 2010, ‘Opening Pandora’s box: Corporate Social Responsibility exposed’, The Independent Review, vol. 15 no 1, pp. 123–131. Magaro, MM 2010, ‘Two birds, one stone: Achieving corporate social responsibility through the shareholder-primacy norm’, Indiana Law Journal, vol. 85, pp 1149 – 1168. Memery, J., Megicks, P., & Williams, J. 2005, ‘Ethical and social responsibility issues in grocery shopping: a preliminary typology’, Qualitative Market Research: An International Journal, vol. 8 no 4, pp 399 – 412. Porter, ME & Kramer, MR 2006, ‘Strategy & society: the link between competitive advantage and corporate social responsibility’, Harvard Business Review, pp. 1 – 16. Retrieved from www.hbr.org. Accessed on 23 May 2011. Reinhart, C 2008, ‘Reflections on the international dimensions and policy lessons of the US subprime crisis’, in The First Global Financial Crisis of the 21st Century. Ed by Andrew Felton and Carmen Reinhart. London: Center for Economic Policy. Roth, F 2009, ‘The Effect of the Financial Crisis on Systemic Trust’ , Intereconomics, vol. 44 no 4, pp. 203-208. Scott J, 2006, Documentary Research, Sage Publications Ltd., London. Suchman, MC 1995, ‘Managing legitimacy: strategic and institutional approaches’, Academy of Management Review, vol. 20 no. 3, pp. 571-610. Soros, G 2002, George Soros on Globalization. New York: Open Society Institute. Tencati, A., & Zolsnai, L 2009, ‘The collaborative entreprise’, Journal of Business Ethics, vol 85, pp 367 – 376 Uccello, C 2009, ‘Social interest and social responsibility in contemporary corporate environments’, The Journal of Individual Psychology, vol. 65 no. 4, pp. 412 – 420. Van de Ven, B 2008, ‘An ethical framework for the marketing of corporate social Responsibility’, Journal of Business Ethics, vol. 82, pp 339 – 352. Yandle, B 2010, ‘Lost Trust: The Real Cause of the Financial Meltdown’, The Independent Review, vol. 14 no 3, pp. 341-361. 6.0. TIMESCALE Month Activity June - July Intensive Library Research July First Draft August Re-writing and Editing of dissertation (4000 words) Read More