Corporate Social Responsibility of American Apparel Manufactures - Case Study Example

Corporate Social Responsibility has been gaining momentum as time goes by since its early years 3 decades ago. Organisations have come to appreciate their role towards various stakeholders and the society or community at large. Profit maximisation goal has therefore taken a separate seat while CSR takes another for them to go hand in hand. Organisations like American Apparel have incorporated CSR strategies towards their Human Resource practices and have reaped numerous benefits. In the process the organisation has faced a number of drawbacks that are directly attributed to these policies but the net effect is the successes it has accomplished to date. Company overview American Apparel manufactures, distributes and operates as a retailer. Its central business lies in the garment industry where is has its base in Los Angels with a factory and stores. It also has 20 branches worldwide with a total workforce of not less than 10,000 (American Apparel 2010). Half of this workforce is in its factory and stores in LA. Its operations range from sewing, cutting, knitting to designing all of which are done in its LA garment factory which is the largest in US. The company is publicly listed and has more than 450 million dollars in market capitalisation (American Apparel 2010). The company has been growing rapidly while ensuring a trickle-down effect of this to its employees by giving higher remuneration and the community at large through its Corporate Social Responsibility strategies. Introduction Since the 1980s there has been an increased awareness by organisations regarding Corporate Social Responsibility (CSR). The perception in the current world of business is that maximisation of profits is one of the organisational goals and that for a business to grow other goals need to be fulfilled (Werther and Chandler 2010). One of them is for the organisation in question to adopt a Corporate Social Responsibility agenda. Engaging in socially responsible endeavours for an organization has proved to be crucial for sustainability and success. This involvement should depict market-oriented responsible actions. These responsible behaviours of an organisation towards the community are in other words the Corporate Social Responsibility actions. The community in this respect includes, but not limited to, employees and to some extent the shareholders and other members of the society. Organisations approach adoption of CSR in different ways and focus on different stakeholders depending on the market goal they want to achieve or priority levels. This paper will look into the advantages and disadvantages for organisations to employ socially responsible Human Resource practices, with a prime focus on American Apparel as an example. CSR on HR policies The success of an organization is highly pegged on the human resources involved in production or service delivery. People run these organizations in whichever capacity and their total productivity drives the organization forward. There is need therefore to ensure that each member of staff produces the highest they can at any particular time. This is however impossible when these employees are not well motivated. Motivation is a key concern and contributing factor towards an employee’s level of productivity (Mullerat 2009). Motivation comes from both within and without i.e. intrinsic and extrinsic motivations respectively. With the increase in businesses and increased competition, there is need for each and every organization to embrace unique ways of trying to survive the harsh environment. This involves adoption of various strategies one of them being the extension of CSR to the human resources practices (Mullerat 2009). In many organisations this strategy is given huge prominence and the results of this are far reaching like the case of American Apparel. This company has taken time to consider the responsibilities it has towards its employees. This is by concentrating on ensuring that their welfare while at work or away is taken care of by the company. This adoption of CSR towards human resource practices in this company has seen it receiving wide acclamation from the business fraternity and appreciation of its products by customers. CSR on HR Policies in American Apparel American Apparel offers one of the highest salaries and wages to even the lowest ranking employees. For instance, the factory workers are paid at least 12 dollars an hour which is twice the recommended minimum wage (American Apparel 2010). Other than that the company offers affordable transport to work by subsidizing on fare. Subsidies also extend to lunch and messaging services in the factory. The company also pays for days that employees take an off and has a program that lends bikes. Due to the consciousness of the immigrant issue in the United States the company has gone ahead and established ESL classes for its workers (Malhotra 2007). This does not only boost their language skills but creates self confidence. In addition to this workers are offered job security by American Apparel employing almost all workers on permanent basis. The garment making industry is known to give seasonal jobs to cover for the high fashion seasons and the like. Health insurance is a key agenda in the company with employees being offered $8 weekly and their children $1-3 per week (American Apparel 2010). The company has gone ahead and built a medical clinic on site which makes it easy for everyone to access medical care. This medical centre provides numerous services including paediatric and emergency treatment. The company has plans underway that are making employees own shares as it is now publicly owned. This stock program is a rare option in the garment industry since many do not even give permanent employment and are run completely on private basis. This approach to Human Resource Management is one of the unique ones in the industry and also considering a wide range of other sectors. This company has concentrated hugely towards extending its Corporate Social Responsibility to cater for its employees. It is clear from all the aspects discussed that the company’s management can decide not to offer these services by acting as the other market players. The company also has a program that involves accepting interns from local schools for them to learn vital skills from technical to managerial levels (UN Global Compact 2007). The company has engaged in these issues after its management appreciation of the various advantages and disadvantages that accrue the application of CSR towards its HR policies. Advantages of CRS on HR Policies There are many advantages for an organisation to adopt CSR towards its human resources. One advantage lies in the motivation aspect as mentioned earlier. Motivated staff results in high productivity. Considering American Apparel, offering a good package to even the lowest level staff acts as a good extrinsic motivation (OECD 2008). Majority of the employees are permanent and this offers them the highly needed job security which creates an assurance in them that they are part of the company for quite a long time and they end up working towards its success. This is a good example of intrinsic motivation driven by some level of assurance. Employees are hard working if well taken care of as American Apparel has done. As a result, the level of supervision is lower thereby lowering management costs. In the garment industry there is a tendency for employees to steal machine parts and even garments. This is however rare in American Apparel as such practices are mostly practiced by casual employees who are also lowly paid. Due to the freedom that employees have as a result of lower supervision, they end up being more responsible thereby high likelihood of them being more innovative and creative (Mareș 2008; Cochran 1984). This creativity has seen American Apparel become one of the LAs most respected companies due to its high quality products. Since employees are satisfied with majority of services offered to them by the company, they are left to show their appreciation by being highly productive and loyal. This increases profits at the end of the day while lowering costs due to economies of scale. As mentioned, employees are highly loyal and American Apparel has seen one of the least employee turnovers in LA garment industry. Retaining employees encourages a creation of an intact corporate culture whereby in this case, American Apparel’s is productivity and sustainability which it has achieved without much straining (Mullerat 2009). As a result of low turnover, the long serving employees are most likely to be highly skilled and have a deep understanding on the subject matter which is the company’s production system. It is also possible to retain highly educated and talented employees through offering them a good working environment and a considerable remuneration. By just having the medical facility on site has reduced a great deal of absenteeism which previously resulted in loss of man hours (Boone and Kurtz 2010). This facility has also improved on employees’ health levels as it offers preventative health care as well. Workers therefore fall ill less often and seek days off less often to take their children to hospital as it also offers paediatric care. These factors go a long way in ensuring a satisfied staff leading to satisfied stakeholders. The management is therefore left to be innovative and develop policies and strategies that aim at maximising on the company’s resources instead of solving labour related disputes as the case is with many other firms. Due to the increased productivity, efficiency and profitability shareholders are less problematic thereby adopting many policies that the management proposes. Each business nowadays requires some form of credit and when the balance sheet of the company is sound then financiers and other partners are more willing to advance credit. This helps in expansion strategies that the organisation may have which in turn boost its market position in the highly competitive LA garment industry (Malhotra 2007). American Apparel high performance in the garment sector owes a great deal to the strategies it adopted years back to reward and appreciate their employees through the many mentioned ways. It goes without saying that it is an example to many in the American corporate sector and that it should boast of having one of the lowest employee turnovers in the industry. When employees are satisfied then all the organisational operations run smoothly which results in American Apparel having one of the most enviable factory working environments. Disadvantage of CSR on HR Policies As much as CSR has been cited to have a number of benefits to an organisation in respect to its Human Resource practices, it also has a number of drawbacks (Bueble 2009). One of the major drawbacks is that it costs money to implement CSR strategies. The immediate loss in resources is viewed by opponents of CSR as one of the biggest drawbacks. It is stated that the purpose of a business is to maximise on profits and when the management diverts resources to cater for social benefits to others, it misses to act according to its mandate. It is true that American Apparel has invested a great deal in training its employees and establishing the medical facility among other initiatives. It is also not possible to quantitatively account for the benefits that accrue an organisation that engages in CSR initiatives (Bueble 2009). As much as American Apparel can attribute its remarkable success story on its immense concentration on CSR towards its Human Resource, it cannot quantify the gains. It is important to note that not all shareholders are pleased with CSR reporting and in that case there arises conflict with the management. This is not a healthy fight as it leads to negative publicity which may hurt the share prices of the company. Corporate Social Responsibility reduces a company’s profits in the short run in case of American Apparel (Campbell 2007). This is due to the heavy expenditure incurred in maintaining it. The company for example reduced its income projections when investing in the medical facility which is the first of its kind. As much as it will assist in offering medical care to employees, it is a huge capital expenditure whose immediate gains cannot be felt. Labour costs are among the highest in proportion to the workforce in the downtown Los Angeles. This is both a short and long term expenditure that the company is to incur as a result of its relatively high remuneration. As stated earlier, increase in productivity level of each employee as a result of the higher income cannot be accurately measured (Mareș 2008). Some may be just acting according to their potential while others within it or even lower. Motivation on the other hand is complex issue to dwell in as it involves human psychology where individuals are different and are motivated by different things. It is stated that apart from working environment and money or other extrinsic reward systems, employees derive their motivation from more complex quarters that are related to their personality. Considering the above disadvantages it is clear to see that an organisation needs to be well aware of all that CSR involves and what it means to them (Mareș 2008). Organisations are different and therefore their key to success may not be the same. It seems with American Apparel these disadvantages are real but the management seems to relentlessly move on with offering more and more incentives to their workers. This is as a result of the existing differences between it and other garment industry players which are not as successful as it is and do not incorporate CSR into their Human Resource practices. Conclusion and recommendations Corporate Social Responsibility is not an easy issue and it causes extensive debates and controversy. Businesses are more than ever required to act according to stakeholders’ expectations some of them being the employees. The Human Resource practices of an organisation need to capture some form of CSR where welfare issues of workers are taken care of. This can be through relatively higher pay, offer supportive services e.g. medical care among others as the case is with American Apparel. It is however an issue or endeavour that chokes a company’s resources and the management needs to think through it and plan their CSR strategy well in order to reap long term benefits from such actions. Through the case of American Apparel, it is clear to see that if well formulated and implemented, CSR on Human Resource practices will amount to sustainable success of an organisation. References American Apparel, 2010. Company profile: American Apparel is an industrial revolution, viewed 01 Dec 2010, . American Apparel 2010, Our workers, viewed 01 Dec 2010, . Boone, LE and Kurtz DL 2010, Contemporary business, 13th edn. John Wiley and Sons. Bueble, E 2009, Corporate social responsibility: CSR communication as an instrument to consumer-relationship marketing, GRIN Verlag. Campbell JL 2007, Institutional Analysis and the Paradox of Corporate Social Responsibility. American Behavioral Scientist. Cochran, PL 1984, Corporate social responsibility and financial performance, Academy of Management Journal. Malhotra, R 2007, Corporate social responsibility done right, American Apparel, Press Achive, viewed 01 Dec 2010, . Mareș, R 2008, The dynamics of corporate social responsibilities, Martinus Nijhoff Publishers. Mullerat, R 2009, International corporate social responsibility: The role of corporations in the economic order of the 21st century, Kluwer Law International. Organisation for Economic Co-operation and Development (OECD) 2008, OECD employment outlook 2008, OECD Publishing. UN Global Compact 2007, Embedding human rights in business practive II,United Nations Publications. Werther, WB Jr. and Chandler, D 2010, Strategic corporate social responsibility: Stakeholders in a global environment, 2nd edn. SAGE. Read More