The Evolution of Corporate Social Responsibility - Essay Example

?Corporate Social Responsibility Introduction In the writings by Stearns , he began by stating that during the industrial revolution, companieswere only focused on producing goods in mass quantities, providing employment to the locals, and generating substantial amounts of profits. Stearns (2012) further added that during this particular time business organizations did not care to establish a clear link between the business entity, the employees, and the surrounding local communities. A perfect example, to affirm this argument is the famous Roger & Me documentary film, which was produced in 1989 by Michael Moore, who is a famous American filmmaker, political activist, author, and socio-critic. In this documentary film, Moore conducts an investigative research on the impact that the closure of General Motors’ auto plants in Flint, Michigan, United States, had on the local communities. From the documentary film, it is clearly noted how by 1988 a leading company in the caliber of General Motors failed to denote its significant contribution to the local communities where it operated and it even failed to establish a clear structure of how the organization relates with the local communities. At the time of the Closure, Moore, reported that General Motors was making substantial amounts of profits but its decision to relocate its plants to Mexico was mainly motivated by the fact the company was seeking to lower its operating expenses by using cheap labor that was available in Mexico. Whilst making this decision, Mr. Roger Smith, the chairperson of the corporation at that time, failed to be socially responsible because of the fact that his decision led to 30,000 jobs losses, and a severe economic recession within the Flint area. Moreover, there was increase in cases of crime, evictions across the area because of failure to pay rent, and massive exodus of people from the area. Presently, General Motors Corporation is one of the leading companies in the world, which has a well-elaborate corporate social responsible unit that is managed through the GM foundation, and this is a clear indication that corporate social responsibility has evolved overtime and it has grown to become an integral part of the business model of most business organizations. This present essay is based on company law and it seeks to outline and discuss the evolution of corporate social responsibility, including its history, role in the financial crisis, and prospects for the future. The history of corporate social responsibility The writings by McWilliams et al. (2006), aimed at demonstrating the evolution, which human resource management and corporate social responsibility have undergone. This writings succeeded in doing this by first establishing a valid point that during the early stages of industrial revolution, which was taking place across various countries that are now developed, all of the companies treated their employees as machinery that were designed for performing various tasks and being rewarded. This means that companies did not put into consideration the welfare of their employees. However, following the establishment of the significant role that employees play in regards to the financial performance of any organization, there was a dynamic shift on how business entities relate with their human resources and this led to the development of employee welfare management. The present elaborate human resource management was developed from the initial structures of employee welfare management, and it redefined how business entities relate and even manage their employees’ issues, since it was noted that effective management of employees has a direct positive impact on the financial performance of the organization. In equal measure, business entities did not put much consideration on how their businesses relate with the surrounding community, meaning that they were not socially responsible for the local communities that they served or operated form. However, following the establishment of the impact that the local communities have on sustainable performance of a business entity, business organizations/ companies across the World have been engaged in spirited efforts to establish a clear structure on how they interact or relate with the local community. Consequently, this has led to the establishment of corporate social responsibility in the business world and it has been described by Ilias (2004) as “a form of corporate self-regulation integrated into a business model.” According to Tuppen (2002), CSR regulatory framework, work as an in-built, self-regulating mechanism that business uses to counter-check its activities and ensure that they comply with stipulated laws, codes of ethics, and international accepted standards/ norms. Therefore, it is correct to assert that it is a process, which primarily aims at ensuring that a business entity or state corporation becomes socially responsible for its actions and even foster a positive impact arising from these actions on the surrounding local community that is made up of various stakeholders, the employees, consumers, and the environment. In the research study by Salzmann et al. (2005), they stated that the concept of CSR was coined from the noble acts of business, which were actively participating in bringing a positive change towards the local community that they were serving. However, these initial acts were primarily tied to the betterment of the business organization in the sense that the noble acts had an equal benefit to the local community as well as the organization. For example, by training the locals on modern techniques of farming that could yield better crops, food-processing companies positioned themselves to obtain high quality raw materials that will equally improve the quality of their products thus giving them a competitive advantage within the market. Another example is an organization providing streetlights outside its compound of which despite lighting the surrounding neighborhood at night it also act as one of its security sructures. However, it is important to note that the current CSR structures in most organizations do not necessarily aim at benefitting from their own noble acts since some of the CSR initiatives are not even directed towards their immediate target consumers or even the key market (McWilliams et al. 2206). For example, one of the CSR initiatives of British Petroleum Limited has been providing safe and clean water to the disadvantaged communities in different areas of the world where there is no even access to water (Salzmann et al. 2005). Through this noble act, British Petroleum is not likely to experience a positive impact on its financial performance since those people targeted by the CSR initiatives are not likely to start consuming BP products in the near future. Campbell (2007) on his part wrote that the evolution of CSR is directly linked to the heightened competition within the market place whereby businesses are seeking to gain more exposure to their target audiences and performing noble acts within the community positions them positively amongst the target audience. The heightened competition within the market has given consumers a lot of bargaining power and they have developed an integrated purchase-decision making process, which involves considerations about the overall image of a company. Therefore, to gain a positive standing within the mindset of consumers, companies ensure that they are visible to the target audience through their CSR initiatives. In this regard, Schaltegger and Burritt (2005) stated that the current evolution of the CSR concept is largely seen to incorporate marketing initiatives. This is to say that presently, organizations are viewed as including CSR initiatives as part of their marketing strategies. This is because organizations widely publicize their CSR programs and some organizations even have an annual reporting on their CSR program, and since this promotes their public image and even builds a positive public relation, the CSR initiative are widely viewed as a marketing strategies. Legal enforcement of corporate social responsibility As a revisit to the initial definition of CSR, it was noted that it is a concept, which operates as an in-built self-regulating mechanism and this means that it is solely done from the free will of an organization. This perhaps explains why not all organization s across the World have a CSR program or a unit within the company that is in-charge of spearheading CSR initiatives. However, from a broader perspective it is noted that CSR has an impact on human rights, labor rights, environmental rights and sustainable development. Therefore, by considering the magnitude of these rights there is enough ground to establish legal backing or enforcement of CSR on organizations/ companies. The legal enforcement primarily aims at ensuring that these rights are observed throughout the normal operations of a business and even the day-to-day activities. According to Ilias (2004), legal enforcement of CSR within organizations is essential because of the powers that organization posses, of which McWilliams and Siegel (2001) stated that the collective annual earnings of some of the largest multinational corporations surpass the gross domestic product of the entire continent of Africa. Therefore, it means that some organizations are extremely powerful and it is necessary to have legal policies that will ensure that they do not abuse these powers to an extent of becoming socially irresponsible. Internationally, Huge (2005) stated that there are corporate codes of conduct, which are policy statements that stipulate the ethical standards of conducts that organizations should observe. These codes of conduct could be in the form of a policy statement with an organization’s contract with contractors or suppliers, which seek to ensure they realign their activities to the organization’s ethical standards. The Organisations for Economic Co-operation and Development is one particular body that has set forth corporate codes of conduct for its member countries of which the United Kingdom is one of them. According to Steger (2006), OECD’s corporate codes of conduct are contained on its guidelines that majorly address environmental, social, and economic issues. The highly featured guidelines concern labor relations, environmental relations, consumer protection, and anti-corruption, which basically seek to ensure that corporations within the OECD adhere to ethical practices pertaining to these issues. Jaywant, et al (2003) stated that legal enforcement of CSR is spread across various laws within the United Kingdom’s constitution. For example, under labor laws, a legal enforcement exists to ensure that employers act socially responsible and this involves them desisting from employing underage workers and even not violating the rights and freedoms of their workers. Another example, is contained under UK’s environmental regulations whereby CSR is enforced in the sense that organizations within the country are prohibited from engaging in certain activities that would pollute the environment and this even involve a limitation of carbon emission by the organizations. Thirdly, under consumer protection laws, organizations are prohibited as well as forced to act socially responsible by not giving false information to consumers through falsified adverts or by selling to them low quality products or services at the pretense that they are of high quality. Huge (2005) his studies made a general observation that though CSR policy is supposed to be an in-built self-regulation mechanism, the pre-existing legal frameworks in most countries ensures that it is enforceable along crucial aspects such as human rights, labor rights, and environmental protection. For example, environmental laws force organizations to engage in environment conservation activities in order to lower their overall pollution effects on the environment. However, Clarkson (1995) stated that the enforceability of CSR among public and private organizations is also limited to some extent since the organizations are not obliged by the law to perform certain CSR initiatives that are not stipulated by law and they are only done out of free will. For example, it is impossible to force business organizations to plant trees within the neighboring community since this is not stipulated under national constitution. Additionally, it is also impossible to force business organizations to employ college dropouts as part of CSR initiative yet there is no such provision under the law. Therefore, the enforcement of CSR is limited to issues that are only stipulated under the national constitution. The role of CSR in the financial crisis According to Campbell (2007), CSR involves an organization being fully responsible for its actions and some of these critical functions that include accounting, auditing, and reporting. In regards to these critical functions, Clarkson (1995) stated that social accounting is a CSR concept that focuses on the communication of environmental and social effects of the economic activities carried out by an organization on the society or a specific group within the society. Social accounting places a great emphasis on corporate accountability whereby the company is supposed to report its activities in a manner that identifies the relevant social behaviors, the key stakeholders that the company should be socially responsible to and the development of the applied reporting measures. Ilias (2004) stated that under the UK’s company law requirements, social accounting features are presented under the Director’s Report. However, it is important to note that failure of business organizations has contributed to recent documented cases of financial malpractice, and fraud. This occurs when a business organization intentionally fails to act socially responsible in regards to its financial activities or financial reporting. Failure to act socially responsible involves giving misleading figures, inaccurate reporting, concealing of certain transaction or monetary figures with basic intent of commit financial fraud. In case this occurs, the business organization is denied an opportunity to know the accurate financial performance of the organization and thereby make accurate decision and plans in regards to the company’s future. According to Macdonald (2012), the genesis of most financial crisis is usually traced to failure of adhering to CSR in regards to accounting, auditing, reporting, and ordinary financial transactions. For example, past financial crisis that took place between the years 2007 to 2010 was caused by failure to abide by ethical financial practices since financial institutions were greedily advancing home mortgages with the main aim of increasing their profits, without giving consideration on the true capabilities of the borrowers in regards to repayment. The unethical practice adopted by the financial institutions violated the minimum capital requirements and when the borrowers failed to repay sums that had been advanced to them, there was a liquidity crunch, which subsequently led to total collapse of the entire economy. It is important to note that as a corrective measure, the UK government introduced various reforms that aimed at ensuring business organizations remain socially responsible whilst performing financial transaction, accounting, and even reporting. Prospects for the future for corporate social responsibility Many companies are increasing integrating CSR into their business model while big companies are increasingly creating a department or even setting up their own corporate foundations whereby they can effectively and distinctively perform their CSR activities, which also include CSR reporting. This trend is attributed to the increased competition in the market whereby business are required to gain customer loyalty by assuring them that they are not just in ‘it’ for the profit. Therefore, in the near future it is expected that CSR will become a common function within the corporate world whereby each and every organization will be participating in activities and actions that they are full accountable for. Moreover, various laws are being enacted to ensure that companies have no option but to behave in a socially responsible manner. Secondly, even the award of tenders will be based on the CSR background of the company whereby companies that have a background of having been engaged in unethical practices will be banned from getting tenders (Huge, 2005). Therefore, corporate social responsibility will not only be emphasized on bigger corporations but each and every organization that engages with the public in the provision on goods and services. References Campbell, J. (2007). “Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility.” Academy of Management Review 32(3), pp. 946–967 Clarkson, M. (1995). ‘A stakeholder framework for analyzing and evaluating corporate social performance’, Academy of Management Review, Vol. 20, pp. 92-117 Huge, G., (2005) ‘Redefining the Role of the Corporation: the Impact of Corporate Social Responsibility on Shareholder Primacy Theory’ 10 Deakin Law Review 572. Ilias, B., (2004). Corporate Social Responsibility in International Law 22 Boston University International Law Journals 309. Jaywant, et al (2003) Understanding Corporate Social Responsibility and Product Perceptions in Consumer Markets: A Cross-cultural Evaluation, Journal of Business Ethics p 597-611 Macdonald, R. (2012). Genesis of the Financial Crisis. Basingstoke, UK: Palgrave Macmillan McWilliams, A. and Siegel, D. (2001). "Corporate social responsibility: A theory of the firm perspective". Academy of Management Review 26: 117–127. McWilliams, A. Siegel, D. and Wright, P. (2006). Corporate Social Responsibility: International Perspectives. Working Papers (0604). Troy, New York: Department of Economics, Rensselaer Polytechnic Institute Salzmann, O., Ionescu-Somers, A. and Steger, U. (2005) The business case for corporate sustainability: Literature review and research options. European Management Journal 23 (1), 27–36. Schaltegger, S. and Burritt, R. (2005) Corporate sustainability. In The international yearbook of environmental and resource economics 2005/2006: A survey of current issues, pp. 185–222. Edward Elgar, Cheltenham. Stearns, P. (2012). The Industrial Revolution in World History. (4th Edition). Boulder, Colorado: Westview Press Steger, U. (2006) Building a business case for corporate sustain-ability. In Managing the Business Case for Sustainability: The Integration of Social Environmental and Economic Performance, pp. 412–443. Greenleaf, Sheffield. Tuppen, C. (2002). Satisfying customers through corporate social responsibility. European Business Forum 11, 63–66. Read More