Corporate Social Responsibility: The Definitive Guide - Term Paper Example

Corporate Social Responsibility Number Department 0 Introduction Corporate Social Responsibility (CSR)entails an organization’s strategy to review and act mindfully to improve the companys impacts on the social welfare and the ecology, especially where the company is situated. CSR generally refers to organization’s programs that transcend what may be stipulated in industry regulations or the culture of environmental conservation groups. The program can include incurring short-term expenditures that do not culminate in any foreseeable financial advantage to the corporation, but instead foster positive social citizenship ideals and ecological change. The effectiveness of the classical model of self-regulation is of particular concern in this paper. 1.2 The Classical Model The Classical Model of corporate responsibility argues that general interests of society can be met by different organizations, each of which plays a distinct role in the system (Okpara, & Idowu, 2013). The basic role of corporate bodies should, therefore, revolve around economic issues rather than social development. Rahim and Alam (2014) noted that the primary objective of the business entity should be to make the highest amount of profit, which practically propels executives to act in the best interest of their company shareholders, provided their actions are within the law. The basis of this concept is methodological individualism (Crane, & Matten, 2010). The belief implies that the entity is the most important asset in the system. Habisch (2005) noted that such parties pursue ways in which they can best meet their own interests and act logically to increase self-satisfaction. The classical theory requires that if a corporate body “X” has $10, 000 and it is badly in need of raw materials that would cost half the money to make a product for a period of one month, it would exchange $5,000 for the material. This implies that there are no grounds for the company to spend the entire money on the raw materials when half of the amount would meet the current demand. Such strategy makes the company and its shareholders happy, considering that they would easily access the remainder of the money and benefit from the profits made through the reasoned expenditure. According to Blowfield and Murray (2014), the invisible hand of parties working together in an environment where each party stands to gain mutually satisfying exchanges creates the platform for the most sustainable economic system. As such, the classical theory requires that a corporate body that is keen on fulfilling its utilitarian institutional obligations to society must limit expenditures on social programs that only deepen their debt status and cut into their profits. Crane and Matten (2010) noted that such corporations considered their only ethical duty to the society as working within the legal frameworks. In this model, Korschun, Bhattacharya and Swain (2014) pointed out that the onus shifts to the government which is then expected to enact laws and policies that are of great benefit to the public. 1.3 Ethical effectiveness Classical theorists argue that their model of corporate social responsibility is the most ethically effective to meet the social goals of the people by uplifting their economic status in a number of ways: first, the model is ethical in the sense that it enables shareholders to benefit from the profits (Hennigfeld, Pohl, & Tolhurst, 2006). Under the classical model, Habisch (2005) indicated that if a corporation created bigger budgets for social programs, it would limit the amount of returns that the shareholders stood to gain from their capital. According to Weber and Gerard (2014) pointed out that disenfranchised shareholders would most likely dispose of their shares, creating a slump in the stock value, and eventually limiting the company’s ability to engage in capital intensive expansion programs. Secondly, the company would be seen as ethical in its handling of consumers by meeting their needs of affordable products and services. According to Crane and Matten (2010) this means the classical model does not impose regulations on corporate bodies which may eventually make them believe that charging a few extra dollars on an item would cover their extra expenditures on social programs whilst cushioning them against any potential losses occasioned by unpredictable market forces such as inflation (Prieto, Phipps, & Addae, 2014). Third, with more capital occasioned by higher profits at its disposal, a company practicing classical model would be arguably ethical by ensuring that workers and prospects are more content and optimistic with the job market respectively (Gonzalez-Perez, & Leonard, 2013). Companies would have developed their capacity to expand, employ more people, improve workers’ earnings, and expand the economic status of working, middle-class populations. Lastly, the classic model arguably meets the ethical standards since the society in general would gain from the economic benefits of effective, sustainable businesses which fulfil their tax obligations to the government (Glavas, & Kelley, 2014). The tax revenue would then be used to stimulate social development programs such as improving education, health, roads and social services among other public infrastructures. As such, the model is also attributed to shared ethical responsibility between government agencies and corporate bodies. 1.4 Ethical problems in Classic Model In spite of the economic benefits of the classical model of corporate responsibility, the main weakness of the theory is based on the inability of corporate bodies to demonstrate utmost ethics without proper external oversight (Homburg et al, 2013). As such, acts of corporate responsibility which are based on the classic model are arguably made in the best interest of the society, but in the real sense they fall short of rationality (Farooq et al, 2014). For instance, while company “X” would be acting in its best interests by purchasing raw-materials worth $5,000 the decision may not be utilitarian, if suppliers, the government and the environment would suffer losses resulting from the surplus. As Schmeltz (2014) said, such unethical decisions have prompted researchers to contemplate whether: a) government agencies have the capacity to predict irrational actions of corporate bodies and provide consumers and producers constant safeguards they need; b) any law-making organ of government can react to the extremely dynamic nature of the market to ensure the general society enjoys the best protection it deserves from corporate bodies, and c) corporate bodies should owe the public some standard of ethical and social obligations aside from the formal laws regulating their activities already. Regardless, Aras and Crowther 2010) noted that these proposed informal structures could remain as such, especially in a classic model environment where corporate bodies self-regulate. But if they are strengthened to create consistency and bring about any remarkable impacts on perceived unethical corporations, Hack, Kenyon and Wood (2014) said the business entities could feel they are being unfairly targeted and or distracted from their core policy of autonomy and maximization of profits under the prevailing laws. 1.5 Critical look at Self-regulation Corporate regulation aimed at enforcing social responsibility has undergone substantial evolution in academic and policy formulation circles over the past three decades (Crane, & Matten, 2010). Whereas the formulation of neoliberalism theory around the 1980s underscored the need to suspend regulations and build corporate rights to autonomy, the subsequent corporate social responsibility (CSR) discourse adopted since the 1990s tends to favour corporate self-regulation on charitable causes in the form of organizational codes of conduct based on best practices that have worked (Crane, 2008). Filatotchev and Nakajima (2014) said other areas under the ethical construct are; safety and health of workers in the workplace, environmental conservation programs, social and ecological reporting, funding for community development programs and charity. Codes of conduct solely drafted by corporate bodies or industrial regulators form an important part of, but not the only means of corporate self-governance, hence their strength and weakness respectively (Salcines, Babiak, & Walters, 2013). Corporate codes such as the Unilever Code of Business Principles matter most in industries where brand reputation of a product or service is important to consumers (de Colle, Henriques, & Sarasvathy, 2014). According to Jones, Mackey and Whetten (2014) codes regulating worker’s rights are normally associated with labour intensive sectors such as apparel, retail, footwear and sporting goods, whereas those seeking ecological conservation efforts are likely to be associated with chemicals, lumbering, gasoline and exploration of minerals. Despite the specialization of companies in self-regulation based on the damaging impacts of their activities to the society and the environment, self-regulation is ineffective because of its limited parameters of application (Crane, & Matten, 2010). Most internal regulations which are aimed at improving the CSR dwell on fewer areas such as occupational health, pollution and deforestation and leave out equally important issues such as employment rights, the rights and obligations of suppliers, local workers and the communities. As a consequence, large multinationals with perceived good reputation such as Walmart have capitalized on self-regulation to engage in unethical conduct due to lack of oversight. 1.6 Ethical failure of corporations Walmart is one of the large multinationals with poor history of CSR in several areas including labour issues and environmental conservation efforts. Under the self-regulation regime, Walmart invested heavily to prevent its employees from joining workers’ unions and went ahead to deny them overtime pay. According to Crane and Matten (2010) Walmart has been accused of poor environmental policy. In addition, the failure of Enron Corporation demonstrates the greatest company loss in the society since the late 1990s. The loss of 20, 000 jobs, and the subsequent social and economic challenges that faced Enron’s former employees in their attempt to recover their dues were a major failure of the company’s CSR policy. Similarly, GM’s environmental conservation effort such as the 2010 Chevy-led $40 million campaign to reduce carbon emissions in America was an ethically sound initiative, however, millions of recalls of its cars due to safety issues has since dented the company’s resolve to self-regulate effectively (Crane & Matten, 2010). In light of corporate failures of Walmart, Enron and GM, voluntary codes of ethics on corporate social responsibility are not effective. Crane and Matten (2010) noted that corporate bodies are mainly focused on making profits and engaging in programs that bring direct benefits to them as the expense of long-term gains. Walmart’s failures in labour issues were basically guided by the need to limit the wage bill and maximize shareholder value and the expense of utilitarianism. Similarly, GM’s failure to manufacture safer cars has also attributed to the fear of potential of cost-overruns. Enron also failed to keep the society aware of its economic status, hence the massive losses (Glavas, & Kelley, 2014). Nonetheless, keeping the public aware of its economic woes could have shut the company earlier on. 1.7 Conclusion Generally, companies exist not just to make profits, but remain sustainable and stimulate the growth of social programs. Workforces and the society normally grow by expanding their economic status for utilitarian benefit. With the rapid growth of globalisation and the expansion of multinationals, corporate leadership is increasingly having a tremendous effect on the welfare of the society. Despite their attempt to practice CSR, Walmart, Enron and GM demonstrate insufficient corporate social governance. As such, standard ethical rules for corporate regulation should be enforced alongside self-regulation in order to achieve the best outcomes. References Aras, G., & Crowther, D., 2010. A Handbook of Corporate Governance and Social Responsibility. 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