Is Corporate Social Responsibility Just a New Trend or Is It the Modern Business Modus Operandi - Essay Example

? Is corporate social responsibility just a new trend or is it the modern business 'modus operandi'? Date of Submission The origins of corporate social responsibility (CSR) and its eventual integration into the wider business scenario have been discussed by several authors. The work presented by Carroll (1999) states that the history behind corporate social responsibility (CSR) is extensive and its modern foundations were in fact laid as early as the 1950s.1 Since the emergence of the concept till the present day, a key question that has risen relates to the ideological and theoretical basis of CSR and whether the concept carries any practical implications for modern businesses. Lindgreen and Swaen (2010) claim that CSR’s movement from an ideological concept to an applicable one has occurred, primarily because businesses now fully recognize and understand that ‘not only is doing good the right thing to do, but it also leads to doing better’. 2 3 Recent observations and analyses into the financial performance of the firms who have successfully and effectively integrated comprehensive CSR measures within the entire business operations of the organization prove that CSR can in fact lend several strategic benefits to firms.4 5 CSR can be defined as instances in which organizations put in additional effort to participate in programs and initiatives that result in the betterment of the society as a whole, thereby, surpassing private benefits and exceeding the expectations that have been set by governmental laws and legislations, initial theoretical frameworks presented with regards to CSR have criticized the application and implementation of the concept within a corporation.6 Milton Friedman (1970) has gone as far to declare that CSR attacks the foundations on which an organization should be established, thereby, claiming that any business resources that are employed towards the initiation of CSR efforts are essentially a wastage or even exploitation of resources that should instead be directed towards providing the maximum returns to those who have invested in the business that are its shareholders7. The critical question that must be addressed however stems from the observation that in the business scenario of today, organizations are more concerned about CSR than companies of the past ever were which is reflected in the understanding that 80% of the companies listed on the Fortune 500 attend to various CSR initiatives and intensively invest in corresponding programs as suggested by their websites. 8 Evidently, this observation suggests that CSR has now become the modus operandi of modern businesses and not merely a new trend. However, this conclusion cannot be certified unless further studies, empirical researches and discussions are used within the scope of the paper. According to Visser (2010) the progression of the economic age has lead to significant changes in business models and operations, thereby, causing a corresponding change in how businesses deal with CSR.9 The latest stage of the economic age is marked by the slogan of responsibility moving from the management phase of business operations that functioned under the modus operandi of management systems.10 The modern business of today now operates under the modus operandi of business models that are integrated with the main principle of responsibility that a business essentially exercises through its products; this view claims that unlike optimistic definitions of CSR that cover a business’ responsibility towards all stakeholders, modern CSR specifically and exclusively targets the customers alone.11 While for Visser (2010) the internalization of CSR into an organization’s modus operandi is dependent upon the business model12, Murray and Dainty (2009: p245) suggest that this is possible via the means of establishing a successful structure that assist’s CSR management. 13 Commentators such as Sahlin-Andersson (2006) notes that corporate social responsibility is certainly a trend that has surpassed national boundaries to emerge as a global phenomenon across organizations; the widespread success of this trend is attributable to the extensive cooperation between all groups and members working towards the functioning of the business process. Joyner et al. (2002) observe that there is a scarcity of researches that have aimed to establish the ethical and CSR development within the context of small organizations14, but it should be mentioned that in today’s situation, all businesses regardless of their scale and size aim to promote ethical business practices by incorporating corporate social responsibility within the entire framework of an organization’s operations. This view essentially claims that businesses of today aim to operate on a modus operandi that is governed by ethics and corporate social responsibility because of a host of reasons that have been defined in their own right by authors such as Friedman (1962), Nash (1995) and DeGeorge (1999). In essence, it is a reasonable assumption to make that none of the commentators have encouraged or advocated unethical practices in a business however; their means of defining the purposes that should drive the combination of ethics within a business have shown a great contrast. Such that Friedman (1962) advocates the combination of ethical means in a business for the sole purpose of fulfilling the business’ responsibility towards its financial investors and shareholders.15 Nash (1995) postulates that employment of ethical means in a business should be conducted for establishing desirable relations with the customers of a business.16 Only DeGeorge’s (1999) explanation as to why the combining of ethics and morals is necessary within the entire framework of a business shares a close relationship with the principles that lie at the core of corporate social responsibility; ethical business activities must be considered a priority within a business because it is the expectation of the society that a business would conduct its operations in an ethical fashion. 17 If it is to be declared that corporate social responsibility is indeed the modus operandi of modern businesses, then it is important that before this declaration is made that the multidimensional nature of the concept be assessed first. According to Schwartz and Carroll (2003) there are three constituents to the concept of corporate social responsibility – economic, legal and ethical.18 In their assessments many authors also choose to add the dimension of altruistic duties within the sphere of CSR.19 If this definition is to be expanded upon then it would mean that business ethics only are not corporate social responsibility but a component of CSR that in itself is a comprehensive concept. Cramer and Bergmans (2003: p69) state that CSR must be looked as a concept that is beyond the basic notion of promoting ethical practices in a business, as the foundation of CSR rests upon conducting business activities in such a way that an organization is able to strike a balance between people, planet and profits. 20 Corporate social responsibility has continued to be a topic of discussion and analysis for a considerable period now, which is why it would be wrongful to state that CSR is merely a fad (Bowd et al. 2006) as believed by skeptics.21 However, the CSR bandwagon effect is an observation which is undeniable (Sahlin-Andersson 2006).22 The CSR bandwagon effect is not limited to certain organizations but has also gained tremendously popularity across several industries as the benefits of social reporting and undertaking CSR initiatives have become increasingly clear (Sweeney and Coughlan 2008)23. There is a widespread awareness amongst business managers and executives of today regarding the correlation between CSR and economic benefits that can be enjoyed by a business as a consequence, specifically in consumer-oriented industries the implementation of CSR programs has led to an increase in overall profitability (Fisman et al. 2005; Falck and Heblich 2007). 2425 From the perspective of marketing and advertising, it is observable that CSR can also be used as tool for differentiating between two businesses especially when the businesses are operating in an industry that is highly competitive (Fisman et al. 2005).26 The aforementioned factors suggest that the primary reason why CSR has become an emerging trend and led to the generation of a bandwagon effect is due to the perceived advantages of developing a CSR management structure within an organization that is capable of improving the profitability of a business. Doane (2005) begs to differ with the assertions made by Fisman et al. (2005) and Falck and Heblich (2007), the author notes that the dynamics of the economic environment and the market postulate that businesses must face a trade-off at some point in their decision-making (Doane 2005: p24) and in scenarios where this happens a business is bound to act by its natural instincts and choose profits over ethics, principles and morality.27 Perhaps, the most pivotal claim made by Doane (2005: p26) is stating that under no circumstances will companies engage in competition over ethical practices and CSR initiatives primarily because as organizations invest relentless efforts in receiving positive reviews and high rankings on global sustainability rating they are essentially becoming more advanced in hiding their unethical practices or using corporate social responsibility as a PR stunt. 28 Thereby, suggesting that corporate social responsibility is not the modus operandi of modern business because the concept itself is marred by several criticisms and loopholes that render it to the point of being a fallacious belief. Saha and Darnton (2005) specifically assessed the concept of environmental sustainability that falls under the banner of corporate social responsibility; the results of their research concluded that only a minority of the businesses participating in the study considered the idea of ‘being green’ as a motivation that was driven by social responsibility as the majority of the participating companies were in fact following stringent government regulations in establishing environmentally sustainable programs.29 Thereby, suggesting that the strategies for promoting sustainability undertaken by the businesses cannot be classified dimensions of corporate social responsibility as the concept expects businesses to go beyond the regulations that have been set by the government to do something extra for their stakeholders. This section of the paper proposes that the modus operandi of modern businesses does not rest on the premise of corporate social responsibility because the objectives that are forwarded by the notion of CSR clash with the corporate objectives of the business. Due to this reason the business eventually faces a trade-off between profits and principles and rational assumptions postulate that an organization would choose to advance its economic welfare over the welfare of its stakeholders and the society as a whole. According to Bartlett and Preston (2000), study administered under a workplace environment revealed that employees often question the existence of ethical policies and CSR frameworks within organizations primarily because when the time for decision-making arrives, options are assessed on the basis of success and failure rather than their implications on the overall welfare of the stakeholders of a business.30 This condition essentially creates a dilemma that is also put forward by Davies and Crane (2003) who claim that even in the case of Fair trade companies some decisions were found to be questionable with regards to ethical and moral standards which supports the declaration made by Doane (2005: p24) that one of the underlying limitations associated with the organizational implementation of CSR management systems is that an organization is bound to face a trade-off between profits and principles in which it would choose the former over the latter. An exploratory study that aimed to identify the association between corporate social responsibility and earnings management concluded that earnings management is essentially unfavorable for the stakeholders and it harms their interests however, it is also observable that managers also hold the capacity to manipulate CSR strategies in their organization as a means of hiding their potentially harmful and in some cases unethical practices (Prior et al. 2008). This conclusion also corresponds with Doane’s (2005) work, which asserts that businesses are becoming more successfully in masquerading their unethical practices.31 For example, British American Tobacco won the 2004 accolade for developing a UNEP sustainability report; the irony of the situation is that the company’s primary produce is harmful to the community and the society, which are major stakeholders of the business.32 Andreadakis (2012) asserts that the most fundamental consideration for shaping the modus operandi of modern businesses is the macroeconomic environment and the shape of global financial market.33 The economic crunch and unstability in the market has led business analysts to lay greater emphasis on establishing a new modus operandi for companies which advocates the need for a greater level of governance, accountability and verification in reporting the financial situation of businesses. Thus, the concept of enlightened shareholder value states that companies should not focus on short-term gains but aim to maximize the benefits provided to the shareholders by adopting an approach that is responsive to the needs of the market and the customers in a manner that is also highly ethical and responsible.34 According to Andreadakis (2012), enlightened shareholder value and corporate social responsibility are complementary rather than competing approaches35, this idea is confirmed by assessing the long-term financial gains that CSR is able to promote while, ensuring that the interests of the stakeholders are protected and advanced in business operations, activities and decision-making. An important component of the discussion regarding corporate social responsibility is that of the stakeholder theory and its role as a determinant of CSR. In comparison with the shareholder theory, this theory utilizes the aspects such as legitimacy, power and urgency to identify the stakeholders that seek the attention of the business.36 Empirical evidence shows that characteristics related to stakeholders such their degree of influence and power dictate the level of corporate social activity.37 Jamali (2008) claims that the implications of the stakeholder theory in ways which it is applicable to CSR is a notion that is of significant interest to organizations.38 The emergence of recent scandals involving corporations such as Enron indicate that the with regards to business ethics and corporate social responsibility, the stakeholder theory has evidently failed as it expects managers and business executives to be the catalysts of social responsibility within their respective organizations which they cannot possibly become.39 Friedman’s (1970) criticism of the foundations of corporate social responsibility in which he termed as ‘hypocritical window-dressing’40 represented the views of a population that could not see past the pessimism generated by corporate greed, even though, times have changed corporate social responsibility still has fierce opponents such as Henderson (2001) who outlines that the functioning of corporate social responsibility in a market economy is a utopian concept that has led to severe negative implications, specifically for developing nations and poor citizens of the world. 41 For example, efforts to regulate the labor market have diminished the employment opportunities for workers, furthermore, the concept of global CSR which aims to impose uniform standards in countries across the globe is bound to be more harmful rather than successful primarily because these global standards of legislations and regulations do not take into account difference across nation that could be a consequence of either religion, culture or another factor.42 The business case for corporate social responsibility is strengthened after further research into the specific benefits that the implementation of corporate social responsibility programs, initiatives and strategies can provide to an organization. The arguments supporting the reasons for adopting and developing an effective CSR management system can be divided into four categories – decrease in business costs and potential risks, improvement of an organization’s image and reputation amongst the consumers and establishment of a competitive advantage over other firms in the industry.43 Lastly Kurucz et al. (2008) notes that implementation of corporate social responsibility also leads to value creation for a business through synergy.44 Considering that the business case for corporate social responsibility is backed by extensive empirical evidence and research, companies across the globe are realizing the changes in the business environment and are acknowledging that survival in the industry without putting effective CSR strategies in place is now a faint possibility. According to recent statistical data, up until the year 2002, only 12 companies on the Fortune 500 produced CSR and sustainability reports but a significant proportion of companies publish their CSR reports on a yearly basis. Moreover, UN’s initiative titled the Global Compact has over 8000 companies across the globe, as members who have promised to exercise the highest standards of social responsibility in their business practices in various issues related to ethics and CSR.45 Knowledge@Wharton (2012) reports that several businesses such as Visa have already decided to operate under the modus operandi of CSR even though, the financial crunch across the globe has not vanished completely.46 However, what is important to note is whether businesses aim to internalize CSR within their businesses or simply use it to advance their image in the minds of the customers. Wharton professor Eric Orts suggests that the phenomenon of CSR needs to be revised and redrafted along the lines of modern business in order to gain complete relevance.47 Browne and Nuttall (2013) agree with the views of Eric Orts when they claim that in the context of modern businesses, corporate social responsibility has not been able to produce desirable or expected results, which is why CSR needs to be rewritten and improved upon by incorporating the concept of external engagement that takes into account the external environment and components which influence the decision-making processes in a business.48 O’Brien (2001: p4) suggests that the failure of traditional CSR is attributable to two reasons one of which is that companies usually do not assign sufficient financial resources for the development of CSR programs and implementation of CSR strategies.49 Secondly, there prevails a misunderstanding regarding the implementation of CSR policies which requires that companies do not utilize their non-financial assets and capabilities to launch corporate social responsibility policies, perhaps effective utilization of an organization’s competitive advantage to promote the welfare of the society would prove to be beneficial in this regard. In conclusion, the modus operandi of modern business cannot rely on the premise supported simply by the notion of corporate social responsibility. In reality, companies have either misused or misinterpreted what corporate social responsibility was meant to dictate when it emerged as an integral component to govern the affairs of businesses in a manner that simultaneously aimed to promote the business case and the social responsibility of organizations towards their stakeholders. As Wharton professor Eric Orts states, ‘for companies to take CSR seriously, it has to be integrated into the DNA of the enterprise’.50 Certainly, for many businesses this integration is only limited to the marketing side of the business which seeks to take advantage of the millennial generation and its enlightened consumers who have the ability to distinguish between socially responsible companies and organizations that do not abide by ethical practices. Corporate social responsibility cannot be categorized as a trend however, given its emergence and continued existence in the business environment. Companies cannot afford to detach themselves from the stakeholders to please their shareholders because the days of Friedman (1970) are long gone. Henceforth, it is a plausible assertion to make that while CSR needs to be revamped and then integrated within the business, companies need more comprehensive frameworks to guide their actions and act as a modus operandi. The notion of enlightened shareholder value marks the arrival of unique concept in corporate governance, corporate citizenship and corporate social responsibility that transcends the traditional debate which requires the business to choose between advancing the interests of the shareholders of promoting the interests of the stakeholder. 51 52 Under this approach an increased degree of financial accountability and credibility is promoted along with an understanding that businesses are liable to report to their corporate stakeholders and not just their corporate shareholders.53 This concepts aims to integrate the dimensions of corporate social responsibility and its related components such as the stakeholder theory, corporate governance, sustainability and the business case which aims to assert that socially responsible businesses hold the complete right of advancing their corporate objectives such as profit-maximization, expansion and increased sales in a manner that is also ethical and desirable for the society as a whole. This modus operandi aims to address the reservations that skeptics of corporate social responsibility have had about the integration of the concept into the wider framework of the business as well as the business model, since traditional corporate social responsibility has failed to deliver the expected results.54 The dynamics of modern business dictate that CSR needs to be reassessed and developed in such a manner that it is able to complement the external environment in which an organization operates, by striking a balance between the demands of stakeholders and interests of shareholders organizations can function in a manner that is acceptable to everyone. After its introduction in the UK, enlightened shareholder value is being applied in the US as well to encourage the establishment of an ideal business model that also has sufficient and desirable involvement of the elements of corporate social responsibility. This can be done by incorporating CSR management into the strategic decisions taken by a firm.55 Corporate social responsibility is a multidimensional phenomenon encompassing people, planet and profit56 however, the extent to which businesses are successfully able to integrate the concept comprehensively within their entire framework is contingent to several factors and varies from business to business. Declaring it to be the modus operandi of modern companies would require that businesses employ all dimensions and elements of the concept in their respective business models rather than the benefits of corporate social responsibility with regards to PR or the marketing efforts of an organization. The modus operandi of corporate social responsibility must also govern the dealings of a business with its competitors and other firms in the industry. In terms of tangible benefits gained by CSR, companies might still be encouraged to adopt CSR policies however if they fail to recognize that CSR is a vast principle entailing several elements then the policies would essentially fail or even backfire for the business. While, enlightened shareholder value is a fairly new concept, commentators are optimistic that once the stakeholder and shareholder divide is mended practical advances can be made in the analysis of business models and theories. Unquestionably, corporate social responsibility has progressed since the time of Friedman (1970) to emerge as a dominant research agenda for businesses across the globe, however, further analyses and empirical evidence is needed to develop practical and effective business models that are successfully able to integrate the dimensions of corporate social responsibility, in order to apply the results to modern business scenario. BIBLIOGRAPHY Andreadakis, S. (2012). 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