The Concept of Corporate Social Responsibility in the Financial Crisis - Essay Example

?Corporate Social Responsibility With the rapid changes taking place in the corporate world, coupled with high competition, in addition to, the greater environmental and social awareness that characterizes the global corporate environments (Lee & Carroll 2011, p.115), business corporations have never been more concerned about sustainability and profitability as they are now. The greatest concern for most businesses now is to achieve as much competitive advantage as possible to distinguish themselves from the rest, not only for profit motivations in the present, but also for longer life in the future. In that case, business strategies employed by business corporations target to achieve two most important goals, to see that the businesses remain profitable and to ensure they remain relevant in the future, by producing quality services that meet customer standards. Among the many corporate strategies that have been adopted in the corporate world, to ensure both sustainability and profitability is the concept of Corporate Social Responsibility (CSR), which has gradually achieved massive popularity and significance in businesses world over. Corporate Social Responsibility simply refers to the manner in which businesses behave towards the society or conduct their affairs, in accordance to acceptable standards of operation; all businesses have an obligation to pay attention to, or to be responsive to social and environmental issues (Montiel 2008, p.245), rather than merely focusing on making profits. An understanding and integration of both societal needs and business needs is particularly important to business management in the recent times due to the increasing awareness of social challenges and the emphasis on social responsiveness. In that respect, Corporate Social Responsibility entails engaging in business practices and activities that promote societal goals, thus, is one of the basic means of achieving competitive advantage in the complex and competitive global market environment. Historical background of CSR The concept of Corporate Social Responsibility dates awhile back in history and it has been in existence for more than a decade now, though its prominence and application in the corporate world is largely a present phenomenon for many corporations were not familiar with it until about the mid 1970’s. The pioneers of the concept observed that businesses ought to pursue policies and take decisions or actions that are desirable not only in terms of the objectives but also in terms of the values of society (Archie 1999, p.270). Initial academic debates that led to the development of this concept were the heated exchanges between Adolf Berle, who contended that managers were only responsible to their shareholders, and Merrick Dodd, who maintained that managers were responsible to the public as a whole and not just to the shareholders alone. Dodd further developed his contention by positing that besides the economic responsibilities owed to shareholders, managers have social responsibilities to the society as well; businesses serve a purpose in society and are not merely a source of profit to their owners (Snider, Hill & Martin 2003 p.176). Modern activist movements in the 1950’s and ‘60’s particularly in the US gave the debate a new momentum by turning media attention to business practices that they considered to be unethical or irresponsible, and in the wake of 1070’s focus had shifted to Corporate Social Responsiveness. This gave rise to yet another concept, Corporate Social Responsiveness, which refers to the notion that firms have to respond pragmatically to social pressures while paying considerable attention to their social obligations. A new development that took place in this era was the birth of modern corporate philanthropy, which involved corporations making huge donations for purposes not directly linked with immediate corporate profit. A further development in the concept was the shift from mere corporate philanthropy to strategic corporate philanthropy, especially after the realization that both social and financial returns can be achieved concurrently; strategic philanthropy entails looking for those philanthropy areas that benefit both the society and the business, by focusing on causes that are near the business’s area of expertise. Socially responsible investing, the idea that certain groups of individuals can influence policies and practices of firms through market mechanisms, took centre stage in the 1960’s and ‘70’s; Socially Responsible Investing adopts three main strategies namely screening, social advocacy, and community investment. Perhaps another key development in the concept of CSR is the shift from entrepreneurship to social entrepreneurship, the process of applying business principles and entrepreneurship to solving social problems. Social enterprises are devoted to solving social problems and making a positive social impact as opposed to maximizing profits for the shareholders; there has been yet another significant shift from venture capital fund to social venture capital fund, which entails supporting the growth in social ventures by both supplying seed money to social ventures and training future social entrepreneurs. With the increasing attention to the concept of Social Corporate Responsibility, there has been an unprecedented need for MBA programs to focus on the area of social responsibility and social entrepreneurship. Over the years, the concept of CSR has grown and though it has always been understood in a narrow and marginalized sense, it has now been theorized as a complex and multifaceted concept of central significance to the decision making function (Cochran 2007, p.449). Presently, the concept of Corporate Social Responsibility has taken on a much broader, yet integrated meaning as “stakeholder management” or “corporate citizenship,” and the practice has not only been accepted, but also legitimized as a significant function of businesses in the corporate world. In this regard, a common trend in the corporate environment today is that businesses are currently investing considerable efforts and directing huge chunks of resources in selecting and implementing CSR practices in their business functions. There is increasing evidence of the intricate relationship between Corporate Social Responsibility and profitability, all affirming the assertion that the high level Corporate Social responsibility has minimal costs and that firms can really benefit from socially responsible actions. For instance, high social corporate responsiveness is likely to yield benefits for the business in form of low employee turnover, good government, and media relations, excellent customer experience, in addition to, higher economic returns (Gholami 2011, p.148). Role of CSR in the financial crisis The financial crisis had far-reaching consequences for the corporate world in general, and the financial sector in particular, and given the intricate relationship between the financial sector and Corporate Social Responsibility, its role in the crisis has always been a matter of discussion (Souto 2009, p.41). There was indeed a resurgence of interest in the concept of CSR, especially concerning companies and their business practices, as a way out of the crisis; CSR provided the framework for the re-examination of value systems especially the financial and economic systems. Responsible business practice entails acting in the present to address future challenges, thus, the financial crisis reveals cases of both responsible and irresponsible business activity. In that case, the crisis highlights two case scenarios, one of businesses that benefited from acting responsibly through socially and ecologically responsible management, in addition to, one in which social engagement that was not related to the company’s core business fell victim of cost-cutting measures. Nonetheless, it is clear that CSR is a strong strategic management tool that prepares companies for the future by equipping them with the capacity to address crises. Lack of integration CSR within the financial sector in general and the banking system together with its related organizations is largely responsible for the financial crisis that befell the world economies. There was potential however, through reconceptualization and professionalism, for CSR to help push for the move towards a stable development of the financial sector. In this respect, CSR was an influential factor that both caused the problems leading to the financial crisis while providing a way out for firms at the same time; the financial crisis was an error of irresponsibility, thus, it could only be repaired by the re-establishment of trust between stakeholders and the financial sector. This provided a great platform for the financial sector to integrate CSR practices into functions to preserve an ideal balance of confidence and responsibility, for overall wellbeing and sustainability of the sector. In this regard, the financial crisis forced the financial corporations and CSR into a perfect symbiotic relationship; incorporation of responsible action and behaviour into the core of businesses played a significant role in re-establishing trust and re-connecting stakeholders. There is increasing evidence that CSR made very positive and significant contributions to businesses corporate reputation alongside major contributions to the society in the financial crisis, especially because it provided many opportunities for financial corporations. Evidently, what financial corporations needed to do in the period of the financial crisis was exactly they are obliged to do as best CSR practices. In this respect, CSR played a significant role in relocating businesses to better strategic positions and overcoming the harsh corporate environment brought about by the financial crisis. CSR achieved this by transforming the fundamental values of the businesses through innovations such as motivating entrepreneurial culture, wider market shares, in addition to, investor confidence. Businesses that continued their CSR practices even in the event of the financial crisis were able to benefit from the long-term benefits and opportunities presented by the crisis including strong business strategies and sustainability (Giannarakis, & Theotokas 2011, p.2). In spite of its significant role in managing the financial crisis, CSR was such a potential threat to businesses survival in the financial crisis because implementation of philanthropic projects in pursuit of social benefits generated costs. However, even though the high initiative cost was a threat for business survival, the long-term costs of negative market perceptions were much higher and harmful for businesses’ survival and profitability. In this regard, CSR practices in the financial crisis enabled companies to build or sustain their brand names, consumers’ trust, in addition to, helping them in redesigning their relationships with the society (Mia, and Al- Mamun 2011, p.177). In general, CSR practices presented both a threat and an opportunity to businesses, and companies that made a trade-off between CSR and survival in the crisis period can attest to the positive or negative ramifications that befall them in the long-term. Evidently, the benefits that arise from the strategic implementation of CSR practices and initiatives are far much significant for a company’s survival than before, thus, the concept was very instrumental in managing the financial crisis. Prospects for the future Given the dramatic prominence of CSR practices and increasing global awareness to societal pressures that require response from key stakeholders in the society, there is no doubt that corporates that integrate CSR practices into their business practice and decisions have great potential for survival and continued profitability in the future. Being a good corporate citizen is definitely a good business strategy because besides helping in the development of competitive advantage, it prepares businesses to be ready to respond to turbulences in the corporate environment, thus ensuring profitability and survival of the businesses. It obvious that companies will make it their primary focus, to incorporate CSR practices in their business operations or risk becoming redundant and being edged out of competition in the increasingly competitive and dynamic corporate environment. An integrated scenario of the future of CSR proposes that the practice might shift focus from the extraordinary to the exceptional, from the position of mere vulnerability within companies to the point of being integrated into the company strategy, policies, and practices. The successful integration of CSR in business practices is attributable to the gradual realization that it is inseparable from solid reputation, trust, brand enrichment, as well as, risk management. In addition, the successful integration can also come by as a result of the realization that it is directly linked with the capacity for the business to anticipate and respond to business opportunities even in the event of fast changing consumer habits and regulatory environments. There are strong indications that CSR practices are here to stay; indeed, they are poised for the future, where they shall be integrated into all core business functions and a lot of research and development will focus in these areas. Nonetheless, there is possibility for a greater paradigm shift in the relations between companies and society, which is redefining the purpose of corporates from merely focusing on enriching shareholders towards social and financial benefits for both the society and the business respectively. In the future, therefore, successful enterprises are those that are capable of striking a perfect compromise between social and business wellbeing (Bravo, Matute, & Pina 2012 p.130); in this regard, businesses will be obliged to define, measure, and report their strategies in developing social, organizational, natural, intellectual, as well as financial capital. The purpose of the future corporates will be determined by the collaborative and integrated relationships between progressive business entrepreneurs, legal minds, scholars, as well as, NGO’s, in addition to, enlightened governments. The role of future corporations will be enforced through hard laws such as charter reforms, which will transform the duties of the stakeholders, regulations that require companies to submit reports about their sustainability, and laws that stipulate the fiduciary responsibility of directors. Similarly, there will be soft laws that will guide sustainability-related stock listing, as well as business coalitions that aim at promoting international environmental accords, and strong corporate commitments towards achieving the MDG’s, thus, the role of CSR practices is likely to remain critical and central to the continued survival of future corporations. Ultimately, the concept of CSR has transformed over the years from a shallow and limited sense, to a complex concept of central significance to the decision making function in the corporate world. Having taken such a broad and complex meaning, CSR has been integrated in corporate functions, a phenomenon that can be attributed to the growing awareness of its significance on business survival in the highly competitive corporate environment. Corporations are social beings that operate within the social context and they have to show a considerable level of responsiveness to social pressures and provide solutions for a better society rather than simply focusing on maximizing profits for the shareholders. The concept of CSR dates back many decades ago, and has gone through a lot of transitions to date, with significant themes in this evolution process being strategic corporate philanthropy, Responsible Social Investing, Social entrepreneurship, which have become the subject of MBA programs in areas that focus on Social Responsibility and Social Entrepreneurship. CSR played a significant role in relocating businesses to better strategic positions and overcoming the harsh corporate environment brought about by the financial crisis. Presently, the concept of Corporate Social Responsibility has been accepted and legitimized as a significant function of businesses in the corporate world and the practice has been institutionalized in corporations. Despite the dwindling position of CSR in the financial Crisis period, where many corporations were making trade-offs between survival in the short-term and cost of initiatives, there are high prospects for the concept in the future. Successful enterprises in the future must be capable of striking a flawless balance between financial benefits and social wellbeing; thus, the purpose of the future corporates will have to be redefined; throughout the literature of this paper, it is clear that CSR is good for business of the corporates. 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