The Effectiveness of Corporate Social Responsibility for the Companies - Coursework Example

Background To compete in the global market place firms attempt at some sort of differentiation. While some use product or service differentiation, some try to become sustainable by being ethical in their approach. Some firms have even tried to differentiate themselves by being socially responsible in their approach. They use CSR (corporate social responsibility) as a strategy in all the organizational functions like marketing, finance, and production process. Being socially conscious is important because investors take into account the social performance of a company before deciding to invest in it (Environics, 2001). Social responsibility contributes to an organization’s reputation more than the brand image. A company’s commitment to labour practices and environment has a significant impact on their impression of the company. Companies that ignore CSR place market share at risk. Consumers today look for socially responsible and ethically produced goods. In the coming years companies will be under even greater pressure to deliver on their broader social responsibilities. Firms have there responsibilities to the society – economical, environmental and social. According to Galbreath (2006) CSR is a strategic issue, and cannot be separated from a firm’s overall strategy. Hence this report would explore the role of CSR as a corporate strategy. Corporate Social Responsibility (CSR) Firms may be individual entities but they are bound by the CSR rules or norms of the policy environment of the country they are located in. The governments provide an ‘enabling environment’ which implies a policy environment that encourages business activity that minimizes social or environmental costs and impacts while ensuring profit maximization (Fox, Ward & Howard, 2002). CSR strategies can have a positive or negative impact on businesses depending upon the strategy the firms choose. According to The World Business Council for Sustainable Development, CSR is defined as “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 the local community and society at large” (Castka, Bamber, Bamber & Sharp, 2004). Various other definitions have been formulated by several academicians but they more or less encompass the same principles. CSR and sustainable development CSR is an economic tool to gain sustainable development. Sustainable development is defined as “the development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (The Brundtland Report cited by Cruz & Boehe, 2008). Investors, stakeholders, academicians and researchers have all become conscious of finding synergies between CSR and quality management. They are also attempting to integrate CSR and corporate governance into quality management systems. To meet this end, several tools and national standards have emerged such as GRI guidelines, the UN Global Impact and SA 8000 (Castka & Balzarova, 2007). A new international standard for social responsibility has been introduced in 2008 known as ISO 26000. SA 8000 focuses on working conditions and human rights (Castka, Bamber, Bamber & Sharp, 2004). All these standards show that business efforts care about quality, environment and the social effects of production. The CSR initially builds on the management systems and may pertain to health, safety and quality. The organizations may initially take some time to make sense of the social responsibility in their organizations and hence the situation may be chaotic. All these standards are meant to create pressure on the organizations to demonstrate that they have well structured and integrated management systems. Another method to sustain competitive advantage is to integrate operations, quality, technology and strategy. As the links between these factors strengthen, the organization is able to focus on the right things at the right time. IS 26000 strengthens the focus on the wider stakeholder base (Castka & Balzarova, 2007). Quality management can contribute to CSR if an organization can understand these linkages and find the right synergy between them. In the field of marketing it has been found that firms lose out because of lack of integration of CSR and its marketing activities (Jones, Comfort & Hillier, 2007). Corporate citizenship can help companies to market their products better. CSR can be used in marketing communications and the changing attitudes of consumers have driven the companies to find better new ways to make marketing relevant to the society. When price and quality are perceived to be equal between two companies, consumers would prefer the socially responsible company. CSR can also build and enhance brand image. It can provide more sustainable long term brand value. CSR as a method for global companies to develop strong ties in the local community An organization cannot exist in vacuum and there is a social contact between the organization and the society (Idowu & Towler, 2004). Society will not accept if organizations fail to recognized and support important social values. In order to make a positive contribution to the community, the firm has to give back to the community in the form of philanthropy (Galbreath, 2006). Typically firms engaged in philanthropy when they had surplus funds. Funds should be channeled towards forming social, educational, recreational or cultural enterprises without expecting anything in return. This enhances the image of the firm in the society and has a better impact than the brand image that the firm may carry. The drivers of the CSR strategies are the same worldwide but the context of CSR can vary across countries, reflecting the distinctive trait of the countries themselves. Regional and local differences could alter what constitutes CSR for that firm. If a firm does not take into account the host country differences, it might end up making poor decisions regarding what constitutes appropriate strategies in foreign cultures. To address the CSR strategy in the global context four aspects have to be considered – culture, regulatory environment, NGOs and global standards (Galbreath, 2006). Firms have to operate within the national and regional cultures of another country. Cultures affect values and values determine the role that institutions assume within the society and what society expects of those institutions. Labour-related activities may be different across nations – in some countries child-labour might be permissible to some extent while in some countries it would be considered as criminal violation of labour laws. The firm needs to take a strategic decision whether to impose an international standard of CSR or whether to accept socially responsible norms of regional culture. The firms are expected to operate within the regulatory framework of the land. The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions signed by 34 nations in 1997 has made bribery of foreign officials a criminal act. The firm has to decide whether to follow the home versus the host country regulations. CSR has become NGO-driven where NGOs are non-profit groups that combine resource mobilization, information provision and activism to advocate for changes in certain areas (cited by Galbreath, 2006). Hence NGOs can play an operational advisory or advocacy role. They typically provide social services, information or counseling services or they may be involved in lobbying governments and local, national, and international organizations for changes or adoption of socially responsible behaviour. Since NGOs have a great impact on the corporate strategy, the firm in its global strategy has to decide whether the CSR policy in the home country needs to be customized to the local environment. / CSR as a strategy to alleviate risks Businesses see CSR as a source of business risk as well as a source of opportunity. If not properly managed, CSR can have a negative impact on business but can also yield benefits if handled the right way. Sometimes firms may spend huge sums to maintain a socially responsible behaviour that leads to reduction of profits, thereby impacting the other stakeholders (Galbreath, 2006). The firm then has to make important decisions on the type of CSR strategy to pursue. Increasing consequences of environmental damage, health mishaps, alleged use of exploitative cheap labour, and use of sub-standards materials have enhanced the importance of implementing CSR as a corporate strategy (Yeoh, 2007). It helps to alleviate such risks. Identification and management of relationship with stakeholders Organizations are political arenas in which various forces and coalitions compete (Joyce, 2005). Any organization has several stakeholders and the organization has responsibility towards each of these stakeholders. The stakeholders include the owners, employees, the shareholders (internal stakeholders), the government, the customers, suppliers, the competitors and the social activist groups (external stakeholders). These different stakeholder groups have different interests in the company and their interests may not always be in alignment with each other. For example the shareholders may want to shut down a poorly performing unit of the company and focus on the profitable units but the labour union (other stakeholders) would be more interested in protecting the workers’ jobs. While for the employees pay is the primary consideration, customers want reliable supply of good and services. Creditors insist on creditworthiness and suppliers demand timely payments and the community expects safety and security. The state wants compliance. Thus the management role becomes important to strike a balance between the different interests of stakeholders. Hence CSR is the process of managing the costs and benefits of business activity to both internal and external stakeholders. Identification of the key stakeholders is important because power, legitimacy and urgency would determine the choice to adopt the CSR agenda. The needs of the most powerful stakeholders, as determined by the decision makers of the organization would be taken into account. Castka, Bamber, Bamber and Sharp (2004) suggest that a process-based management systems approach should be the foundation of the CSR management system. This will enable the top management get a holistic view of the business and adopt a single system approach to governance. This approach would help to embed the CSR in the organization. The management should first establish, manage, improve and document a CSR management system. The management needs to identify the image it wants to project to the market, where it wants to be, and which stakeholders it wants to attract. Maximizing shareholder return should not be the only motive because a firm has responsibility beyond profits. Economist Milton Friedman argues that earning profits is the only motive of businesses and by pursuing maximum profit and strict accountability to the owners, a firm will be able to accumulate sufficient wealth to meet any social requirements (Galbreath, 2006). This approach demonstrates self-interest and not the interest of the stakeholders beyond the investors and the shareholders. Benefits of CSR By discharging CSR as a strategy it leads to improved odds of long-term survival of the organization (Joyce, 2005). A short-term focus may impair the client performance in the long-run and result in a failure to survive. Giving too much importance to the firm’s CSR can dilute the viability of the firm. Hence an optimum CSR is required to be maintained. By becoming a global player, there are certain responsibilities to be fulfilled. Economic oppurtunities bring with it social and political considerations which cannot be ignored. To what extent the form given importance to citizenship matters depends on how the company deals with past public issues, stakeholder issues and community concerns (Post, 2000). Conclusion Changing customer demands and the intense competition have forced the firms to look for value-addition to their product or service offerings. CSR has been recognized as a great value-addition tool that has served to enhance the image and reputation of the company. The management has to take into consideration the demands of both the internal and external stakeholders of the organization. Maximizing shareholder value is not the only concern. The demands of the different stakeholders vary and the management is responsible to strike a balance between the demands. In the global market place, firms have to integrate the different functions under a single system. CSR helps to build a brand name and is used for marketing communications. CSR can help to alleviate risks but to what extent CSR should be a part of the overall strategy would depend on several factors like the firm locations and the local regulations, the local culture and values. Consumers today prefer a socially responsible company especially when parameters like price and quality are the same. Hence CSR should be a part of the corporate strategy to achieve the benefit of being socially responsible. References Castka, P & Balzarova, MA 2007, 'A critical look on quality through CSR lenses', International Journal of Quality & Reliability Management, vol. 24, no. 7, pp. 738-752 Castka, P Bamber, CJ Bamber, DJ & Sharp, JM 2004, 'Integrating corporate social responsibility (CSR) into ISO management systems – in search of a feasible CSR management system framework', The TQM Magazine, vol. 16, no. 3, pp. 216-224 Cruz, LC & Boehe, DM 2008, 'CSR in the global marketplace', Management Decision, vol. 46, no. 8, pp. 1187-1209 Environics, 2001, 'Corporate Social Responsibility Monitor', retrieved online 26th March 2009, from http://research.dnv.com/csr/PW_Tools/PWD/1/00/L/1-00-L-2001-01-0/lib2001/CSRpoll2001.pdf Fox, T Ward, H & Howard, B 2002, 'PUBLIC SECTOR ROLES IN STRENGTHENING CORPORATE SOCIAL RESPONSIBILITY: A BASELINE STUDY', The World Bank, retrieved online 26th March 2009, from http://www.aph.gov.au/Senate/committee/corporations_ctte/completed_inquiries/2004-07/corporate_responsibility/submissions/sub63_attach1.pdf Galbreath, J 2006, 'Corporate social responsibility strategy: strategic options, global considerations', Corporate Governance, vol. 6, no. 2, pp. 175-187. Idowu, SO & Towler, BA 2004, 'A comparative study of the contents of corporate social responsibility reports of UK companies', Management of Environmental Quality: An International Journal, vol. 15, no. 4, pp. 420-437 Jones, P Comfort, D & Hillier, D 2007, 'Marketing and corporate social responsibility within food stores', British Food Journal, vol. 109, no. 8, pp. 582-593 Joyce, W. B., (2005), ACCOUNTING AND SOCIAL RESPONSIBILITY, Journal of Accounting and Finance Research Vol. 13, No. 3. pp. 1-8 Post, JE 2000, 'Moving from Geographic to Virtual Communities: Global Corporate Citizenship in a Dot.com world', Business and Society Review, vol. 105, no. 1, pp. 27-46 Yeoh, P 2007, 'The direction and control of corporations: law or strategy? Managerial Law, vol. 49, no. 1/2, pp. 37-47 Read More