Evolution of Corporate Social Responsibility - Essay Example

?Evolution of Corporate Social Responsibility I. Introduction Companies all over the world have been established for various purposes. Businesses were created to earn profits for the business owners, provide employment to the employees and serve the consumers with their products and services. However, the concept of Corporate Social Responsibility has been added as an expectation from businesses to be of service to society in general. It is one issue that has been gaining interest and controversy in recent years because it affects the operations and marketing strategies of businesses as well as its impact on its stakeholders. This paper explores the concept of Corporate Social Responsibility, tracing its evolution and how businesses implement it as well as how it affects them. II. Definitions of CSR Corporate Social Responsibility (CSR) may be perceived in a variety of ways depending on one’s perspective. One commonly accepted definition is as follows: “The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of local community and society at large.” - World Business Council for Sustainable Development, 2005 Another definition created by the European Commission (2003) is: “Responsible business practices that support the three principles of sustainable development: economic growth and prosperity, social cohesion and equity and environmental integrity and protection.” (p.5) III. Principles of CSR The United Nations is the main promoter of CSR. On December 31, 1999, then Secretary General Kofi Annan declared its principles at the World Economic Forum in Davos (Madrakhimova, 2013): 1. Human Rights – Commercial organizations should maintain support and respect for internationally recognized human rights in the creation of their standards of work. The rights to bargain collectively of workers must be upheld. Forced labour and child labour should be eliminated along with any form of discrimination in the workplace. 2. Ecology – Corporations should be conscious of the prevention of environmental problems and diligent in carrying out a more responsible attitude towards the care of the environment. They need to promote technologies and know-how in the reduction of negative impacts of some systems on the environment. 3. Anti-corruption – Corruption in all forms which include extortion, bribery and red tape must be prevented. 4. Legal responsibility – Legal frameworks bound in the territories where the businesses stand must be enforced. 5. Global responsibility – Compliance with international standards of social responsibility 6. Environmental Responsibility – collaboration of businesses and society in the rational use of natural resources, effective management of the environment and public health from the production of environmentally-friendly products. 7. Cultural and ethical responsibility – Compliance with relevant territorial cultural and ethical customs and traditions as well as moral norms followed by employees and other stakeholders. 8. Philantropic responsibility – support and development of the society and of individual marginal groups through voluntary participation in social programs and social and financial investment. IV. Benefits of CSR In a study of Lithuanian development of CSR practices, Spukiene & Urbonien (2011) report the following internal benefits in adopting CSR practices have been recognized: business sustainability; competitive advantage; easier compliance with legislation; employee loyalty; attraction and retention of qualified employees; increase in productivity, quality and sales; financial improvement and access to capital; and reduction of costs. External benefits from adopting CSR practices were acknowledged as well: improved image and reputation; preservation of the environment; intangible benefits; contribution to Lithuania?s sustainable development; increased visibility; promotion of solidarity in the community; clients? loyalty; and political impact. V. Motivations of CSR What pushes companies to engage in CSR efforts for the community and their stakeholders? Three perspectives are considered in such motivations (Maignan & Ralston, 2002). The first is utilitarian. This perspective work for benefits businesses can obtain from CSR activities such as earning a good reputation in the community for helping out in a worthy cause, hence attracting customers to their business. Another perspective is compliance to external pressure like government mandates, social demand and pressure from supply chain stakeholders (Luken and Stares, 2005). Such demands prod businesses to behave in accordance to norms and societal expectations. Finally, the commitment perspective endorses the self-motivated initiatives of some businesses to perform CSR even without social pressures. This may be explained by the ethical and moral attitudes of the business owners/managers which may be more easily implemented in small, medium enterprises (SMEs) due to its faster decision-making processes led by the owner. Large enterprises may find it more difficult to have this commitment perspective in CSR due to the organizational processes it needs to pass through. SME owners/managers may be motivated to engage in CSR not because of external pressure but simply because they want to do what is right (Jenkins, 2006). VI. History Handy (1939) believed that businesses do not only exist to earn money. A deeper reason for its existence should be sought to make it worthwhile. As a group of people working together, a company can accomplish things that individuals could not such as helping society become better. This entails a bigger and noble responsibility than plainly running the business for profit. When this is agreed upon by everyone, the company engages in activities related to the interests of society such as fund raising projects to help out needy institutions like orphanages or schools, etc. Such activities influence the business environment, work force and eventually the local community (Spukiene & Urbonien, 2011). In 1970, Friedman proposed the idea of maximizing profits in behalf of the stockholders of the business because it is the social responsibility of such business to increase profits. He believed what Hardy negated, that businesses are created for the purpose of making money and it is the owner’s responsibility to fulfil that. However, Freeman (1984, 1999) argued that beyond satisfying the interests of various stakeholders such as employees, the government and society in general, businesses seek recognition and legitimacy in wider society. Hence, CSR provides strategic value for businesses (Branco & Rodrigues, 2006; Porter & Kramer 2006). CSR incorporates awareness of social and political trends in the firm’s strategies. Addressing the various needs of stakeholders is becoming a trend nowadays making CSR essential to competitive success (Reich 2007; Porter & Kramer 2006). McWilliams et al. (2006) contend that CSR should be considered as a form of strategic investment. VII. CSR Models Carroll (1991) presented a CSR model representing four areas that companies may address. These areas are economic, legal, ethical and philanthropic. This model is likened to a pyramid with the base composed of economic responsibility which is a basic duty or organizations in servicing the community with the provision of their services and products for profit. On the next rung of the pyramid is the legal responsibility. Companies need to be compliant with the laws and implement their practices within legal parameters. On top of this level of the pyramid is the ethical responsibility which implies the need to follow the moral norms of the cultural environment the organization serves. Finally, the top of the pyramid is the philanthropic responsibility which reflects the need for organizations to engage in social programs for public service for the welfare of its stakeholders (Carroll, 1991). Another model of CSR is the proactive corporate social responsibility by Torugsa, O’Donohue & Hecker (2013). This involves business practices that go beyond the regular requirements in order to actively support sustainable economic, social and environmental development and ultimately contributing positively to society. The economic dimension of proactive CSR parallelizes Carroll’s economic responsibility which is basic in any business. Companies ensure that their customers are satisfied and their products are of high quality. They also need to ensure safety and supply chain management in order for the business to flourish. This economic dimension reflects in the interactions of employees with customers, suppliers and other stakeholders (European Commission, 2003). How the interaction goes indicates how responsible the employees are and how competent they are in customer service and problem-solving and decision-making processes. Beyond the short term profit maximization, long-term economic performance is emphasized, hence customer loyalty is sought. This also involves effective exploitation of market opportunities and the assurance of improving the quality of life and standard of living of people across the whole economy (Bansal, 2005, Russell et al. 2007; Willard, 2005). The social dimension of the proactive CSR model focuses on the creation of social cohesion and equity between the workplace and the community. This involves the recognition of the health, safety and general well-being of employees, the motivation of the workforce by providing training and development opportunities, and the move to becoming contributing citizens in the community (European Commission, 2003). CSR practices are not formally written in codes of conduct in SMEs unlike their larger counterparts. Instead, it is derived from informal positive relationships that develop trust and reciprocity between SMEs and their employees and the community. Hence issues such as workplace flexibility, democracy and diversity are addressed (Hammann et al. 2009; Lahdesmak, 2005;). However, Brammer and Millington (2006) argue that SMEs are challenged in developing socially-related CSR due to financial and human resource constraints. Funds for the provision of training and development opportunities for employees or supporting community projects through charitable donations or sponsorship may be in short supply. Finally, Buysse and Verbeke (2003) explain that the environmental dimension of proactive CSR involves the innovation, eco-efficiency and pollution prevention as well as environmental leadership. Examples are company sponsorships of the addition of landscaped garden in a village park or the simple adoption of zoo animals by providing for its food for a year. VIII. Barriers in Implementation In the same study conducted by Spukiene & Urbonien (2011), they Identified the following barriers in implementing CSR practices: 1. Economic Barriers: imperfect innovation in enterprises slow modernisation of production facilities and updating of technological processes insufficient growth investments by regions of the country lack of financial resources lack of government support and appropriate regulation poor relations with local government economical crisis 2. Environmental Barriers: lack or different perception of values limited perception of what is environment slow decision of environment protection problems wrong imagination that sustainable, clean environment is responsibility only for big companies fragmented initiatives dealing with environmental problems separately irresponsible business practices lack of environmental strategy and policy 3. Social Barriers: weak co-operation with stakeholders insufficient care in competence and motivation of personnel low awareness of society about companies activities consumers? lack of awareness about CSR initiatives lack of information on CSR still no common clear conception about CSR low activism and weak pressure from society Awareness of these barriers helps businesses in planning better CSR initiatives by working on such barriers to be eliminated through various motivational and educational strategies. Elimination of such barriers may not be totally possible, but sincere efforts to implement CSR will find its way through the remaining barriers. IX. Role in the Financial Crisis Financial crisis is defined by De Bonis et al. (1999) as a range of disturbances in the economy such as sharp declines in asset prices, failures of large financial intermediaries or disruption in foreign exchange markets. The most popular financial crisis was identified in 2007 in America caused by the liquidity shortfall in their banking systems (Taylor and Williams, 2009). The financial crisis led to the decline of house prices and the collapse of Lehman Brothers, the fourth largest investment bank in the US. Their bankruptcy gravely affected the global financial system that banks stopped lending money to each other. McKibbin and Stoeckel (2009) reported that risk premium on interbank and corporate bonds substantially increased. Global trade dramatically fell out as well as investments and household consumption while trade credit costs spiked. European and Asian-Pacific countries were likewise affected by the financial crisis (Wim, 2009). Severe effects included the collapse of financial institutions, higher unemployment, poverty and overwhelming government financial deficits (Adamu, 2009). Companies were compelled to cut down on their CSR as part of budget cuts (Fernandez and Souto, 2009). A significant drop in CSR projects of Fortune 500 corporations was reported in 2008, when the financial crisis was at its peak (Karaibrahimoglu, 2010). On the other hand, in Iceland, three private banks collapsed in 2008 and the cause of the bankruptcy was identified to be the banks’ CSR efforts. Sigurthorsson (2012) reported that the banks were overly concerned about the wellbeing of Icelandic society so it assumed responsibility for better quality of life through intensive CSR initiatives. For them, corporate philanthropic contributions to social and cultural causes were part of their social responsibilities. Former Director General of the Finnish Financial Supervision Authority, Kaarlo Ja?nna?ri (2009) explained that despite best intentions, the Icelandic banking crisis was caused by bad banking, bad policies and bad luck on the part of the bank management. CSR initiatives may be delayed or cancelled altogether during financial crises, however, such desperate times may also be viewed as opportunities for companies to promote their heroic image (Njoroge, 2009). Unstable business periods may intensify the need for CSR to ensure social harmony, security and stability. Since CSR may be threatening to the survival of companies because of its additional financial costs (Giannarakis & Theotokas, 2011) it is imperative for companies to change their paradigms and objectives in relation to social expectations and to adjust to the critical times (Fernandez and Souto, 2009). This should be done with prudence and careful planning. During financial crisis, the increase of CSR can help companies build or sustain their brand name and their consumers’ trust. It becomes an opportunity to redefine the relationship between the company and society X. Prospects for the Future Learning from the past financial crises, CSR should be implemented conscientiously with a good sense of balance between working towards the welfare of stakeholders and staying within budget so as not to upset the company’s finances. Although it incurs additional costs to the company, it is still worth including in the strategic planning because it provides a foundation for corporate innovation. It makes companies more conscientious in managing financial, environmental, social, governance and ethical issues. Hitchcock & Willard (2007) maintain that CSR provides more advantages than disadvantages to companies because it helps innovate new products and processes, open new markets, attract and retain the best employees, improve the company’s image, reduce legal risks and insurance costs and provide a higher quality of life. References Adamu, A. (2009). Effects of global financial crisis on Nigerian economy. International Journal of Investment and Finance, 1(1&2), 11-21. Bansal, P. (2005). Evolving sustainably: A longitudinal study of corporate sustainable development. Strategic Management Journal, 26(3), 197– 218. Brammer, S., & Millington, A. (2006). Firm size, organizational visibility and corporate philanthropy: An empirical analysis. Business Ethics: A European Review, 15(1), 6–18. Branco, M.C., Rodrigues, L.L., 2006, Corporate Social Responsibility and Resource-Based Perspectives, Journal of Business Ethics, vol. 69, no. 2, pp. 111–132. Buysse, K., & Verbeke, A. (2003). Proactive environmental strategies: A stakeholder management perspective. Strategic Management Journal, 24(5), 453–470. Carroll A. B. (1991). The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business Horizons 34 (4): 39-48. De Bonis R, Giustiniani A, Gomel G. 1999. Crises and bail-outs of banks and countries: linkages, analogies, and differences. World Economy 22 (1): 55-86. European Commission. (2003). Responsible entrepreneurship: A collection of good practice cases among small and medium sized enterprises across Europe (Bruxelles, Belgium). Fernandez, B., & Souto, F. (2009). Crisis and Corporate Social Responsibility: Threat or Opportunity?.International Journal of Economic Sciences and Applied Research, 2(1), 36-50. Friedman, M., 1970, The Social Responsibility of Business is to Increase its Profits, The New York Times Magazine, 13 September. Freeman, R.E., 1984, Strategic Management: A Stakeholder Approach, Boston, Pitman Publishing. Freeman, R.E., 1999, Response: Divergent Stakeholder Theory, Academy of Management Review, vol. 24, no. 2, pp. 233–236. Giannarakis, G. & Theotokas, I. (2011) The Effect of Financial Crisis in Corporate Social Responsibility Performance, International Joumal of Marketing Studies Vol. 3, No. 1 Hammann, E., Habisch, A., & Pechlaner, H. (2009). Values that create value: Socially responsible business practices in SMEs—empirical evidence from German companies. Business Ethics: A European Review, 18(1), 37–51. Handy, C. (2002).What?s a Business For? Harvard Business Review, December, p. 54. Hitchcock, D., Willard, M. (2007). The Business Guide to Sustainability: Practical Strategies and Tools for Organisations. Sterling, VA: Earthscan. Ja?nna?ri, K. (2009). Report on banking regulation and supervision in Iceland: past, present and future. Accessed 5 Feb 2011, from http://eng.forsaetisraduneyti.is/news-and-articles/nr/3581. Jenkins, H. (2006). Small Business Champions for Corporate Social Responsibility. Journal of Business Ethics, 67, 241–256. Lahdesmaki, M. (2005). When ethics matters-interpreting the ethical discourse of small nature-based entrepreneurs. Journal of Business Ethics, 61(1), 55–68. Luken, R., & Stares, R. (2005). Small Business Responsibility in Developing Countries: A Threat or an Opportunity? Business Strategy and the ‘ Environment, 14, 38–53. Madrakhimova, F.S. (2013) Evolution Of The Concept And Definition Of Corporate Social Responsibility, Global Conference on Business and Finance Proceedings, 8(2) Maignan, I., & Ralston, D. A. (2002). Corporate Social Responsibility in Europe and the US: Insights from Businesses’ Self-presentations. Journal of International Business Studies, 33(3), 497–514. McWilliams, A., Siegel, D., Wright, P.M., 2006, Corporate Social Responsibility: Strategic Implications, Journal of Management Studies, vol. 43, no. 1, pp. 1–18. Njoroge J. 2009. Effects of the global financial crisis on corporate social Responsibility in multinational companies in Kenya, Covalence Intern Analyst Papers. Available at: www.covalence.ch/docs/Kenya-Crisis.pdf Porter, M., Kramer, M.R., 2006, Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility, Harvard Business Review, vol. 84, no. 12, pp. 78–92. Reich, R., 2007, Supercapitalism: The Battle for Democracy in an Age of Big Business, New York, Alfred A. Knopf. Russell, S. V., Haigh, N. L., & Griffiths, A. (2007). Understanding corporate sustainability: Recognizing the impact of different governance systems. In S. Benn & D. Dunphy (Eds.), Corporate governance and sustainability: Challenges for theory and practice (pp. 36–56). New York: Routledge. Sigurthorsson, D. (2012) The Icelandic Banking Crisis: A Reason to Rethink CSR? Journal of Business Ethics 111:147–156 Spukiene, R. & Urbonien, L. (2011) Development of Corporate Social Responsibility In Lithuania: Present Situation And Future Perspectives Economy Transdisciplinarity Cognition Vol. XIV, Issue 1 Taylor, J., & Williams, J. (2009). A black swan in the money market. American Economic Journal:Macroeconomics, 1, 58-83. Torugsa, N.A., O’Donohue, W. & Hecker, R. (2013) Proactive CSR: An Empirical Analysis of the Role of its Economic, Social and Environmental Dimensions on the Association between Capabilities and Performance, Journal of Business Ethics 115:383–402 Willard, B. (2005). The sustainability advantage: Seven business case benefits of a triple bottom line. Gabriola Island: New Society Publisher. Wim, N. (2009). The Financial Crisis of 2008 and the Developing Countries. Discussion Paper No. 2009/01. UNU-WIDER. The World Institute for Development Economics Research. United Nations University. Helsinki. Finland. Read More