Corporate Social Responsibility: Ethical or Philosophical Sense - Research Paper Example

 Introduction The following discussion will focus on Corporate Social Responsibility (CSR). More, specifically it will focus on how corporations can use CSR to gain or maintain a competitive advantage. Initially, CSR will be defined. First it will be defined in an ethical or philosophical sense. Then it will be defined in terms of the existing standards that are used to determine CSR. This section of the discussion will focus on the International Organization for Standardization (ISO) 26000 publication, Guidance on Social Responsibility and the United Nation's (UN) publication, The Principles of Social Responsibility. Subsequently, criticisms of social responsibility from both the left and the right of the politico-philosophical spectrum will be noted. Once these broad questions relating to CSR have been covered a variety of CSR programs from diverse sectors and locations will be outlined to provide evidence of CSR in action. A concluding section will then draw these diverse strands of argument together and offer conclusions. CSR: A Definition CSR is neither a new concept nor a new term. It follows from the concept of sustainable development. Arguably, the most succinct definition was first published in 1987. Sustainable development was defined by the World Commission on Environment and Development (WCED) publication, Our Common Future, widely known as the Brundtland Report: [16] "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It contains within it two key concepts: the concept of needs, in particular the essential needs of the world's poor, to which overriding priority should be given; and the idea of limitations imposed by the state of technology and social organization on the environment's ability to meet present and future needs . Currently, sustainable development is known in common parlance as the triple bottom line. Sustainable development achieves economic, social and environmental goals. CSR is corporate action that recognizes this triple bottom line by addressing 'the essential needs of the world's poor' while recognizing ' limitations imposed by the state of technology and social organization on the environment's ability to meet present and future needs.' In 1993 the Review of Business defined CSR as "corporate social actions whose purpose is to satisfy social needs". [1] Currently, numerous programs delineate the specifics of CSR. Two developed by international organizations will be briefly considered. The first is the United Nation's principles for responsible development and the second is the International Organization for Standardization (ISO) 26000 publication, Guidance on Social Responsibility. The Principles for Responsible Investment recognize “that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios.” Environmental and social responsibility can improve financial performance, in other words. They further state, “applying these Principles may better align investors with broader objectives of society.” To these ends the principles advocate consideration of ESG in decision-making and ownership, and transparency on ESG issues. [15] The International Organization for Standardization (ISO) 26000 publication, Guidance on Social Responsibility, are “a reflection of the growing recognition of the need to ensure healthy ecosystems, social equity and good organizational governance.” Further, it explicitly states that one of the benefits of adopting these principles of corporate responsibility has a direct impact on competitive advantage. [9] CSR and sustainability consultant Mallen Baker has developed a useful model of CSR that is illustrated below. Diagram 1: The Mallen Baker Model of CSR Source: Mallen Baker. “Corporate Social Responsibility”. http://www.mallenbaker.net/csr/about.php. In Mallen's model governance according to the ISO26000 guidelines is the inner circle. The corporation's behavior in society (CSR) is within the outer circle. The inputs that impact on the corporation are symbolized by the colored arrows that enter the circles signifying the corporation's behavior. Criticisms of CSR Despite the fact that the UN and the ISO are proponents of CSR the concept also has its critics. In a seminal article, published in The New York Times Magazine in September 1970, Milton Friedman argued, as the article is titled, “The Social Responsibility of Business is to Increase Profits”. [8] In this article Friedman criticized those who argue business and businessmen have responsibilities that extend beyond profit taking: “Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades. The discussions of the 'social responsibilities of business' are notable for their analytical looseness and lack of rigor. [8] Friedman claims that the idea of corporate social responsibility undermines free enterprise. He argues that any executive or manager is an employee first and foremost and that employees must be committed to the bottom line of an enterprise.: “to conduct the business in accordance with their [the stakeholders] desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.” [8] Business success is measured by profits, according to Friedman, and that is an executives sole responsibility. However, later in this discussion it will be demonstrated that CSR is profitable and, therefore, in Friedman's model, is fulfilling the executive's primary responsibility to maximize profit. Sean McAleer is a modern theorist of business who supports Friedman's position. McAleer argues that ‘‘a business’s only responsibility is to maximize wealth for its stockholders’’ and that ‘‘corporate morality reduces to legality, and thus that extra-legal negative duties do not constrain profit maximization.’’ [10] According to him, if a business is acting within the law and otherwise focused solely on profit maximization it is behaving ethically. Legality is morality according to McAleer. However, again, one can argue that transparency in corporate governance and responsible supply chain management – i.e. no child labor – are both elements of CSR. In other words, operating within the law is a key element of CSR. CSR has also been criticized from the other side of the philosophical spectrum. In 2004 Christian Aid, a British-based charity asserted that “CSR is a completely inadequate response to the sometimes devastating impact [of] multinational companies.” [5] However, this assertion is actually a criticism of multinational corporations in general rather than a criticism of CSR specifically. Also, in 2004 Oxfam published a report that concluded that any claims to behaving socially responsibly by horticultural and garment retailers was unfounded and revealed to be so as soon as their supply chains were analyzed. In the front of the house, in the retail outlets, their performance might be stellar. However, Oxfam concluded this was only window dressing when the sourcing of their products was examined in detail [11] Again, this is not really a criticism of CSR. In the first place these corporations that Oxfam refers to are violating McAleer's injunction that corporations behave ethically by violating international labor standards. It is a criticism of corporations that claim to be behaving in a socially responsible way but are, in fact, not doing so. CSR and Competitive Advantages Rigorous application of the principles of CSR can offer a variety of competitive advantages to CSR. The most obvious and direct benefit follows from Cause Related Marketing (CRM). CRM is the term used to refer to the communications strategy that accompanies CSR. According to Bronn and Vrioni CSR attempts to convert 'corporate social actions' into improvements in the bottom line: “Basically, the concept entails firms’ communicating through their advertising, packaging, promotions, and so on, their corporate social responsibility, i.e. their affiliation or work with non-profit organizations or support for causes. The point is to attract consumers wanting to make a difference in society through their purchasing.” [4] CRM is portraying an ethical and socially responsible brand image and attracting consumers to a company's products and improving their sales by using CSR to achieve a marketing advantage and improve the bottom line. “The most obvious link of CSR to overall corporate performance is through the reputation aspect. “ [4] Duncan and Moriarity have also developed a relationship between cause related marketing and company reputation. They argue that cause related marketing improves corporate reputation through positive media coverage. It presents to the public an image of integrity, caring and compassion and attracts socially conscious consumers. [7] This finding is particularly important. Positive media is free publicity that reaches hundreds of thousands of readers and viewers. Word-of-mouth and social media contacts among aware and engaged consumers is also free advertising. Therefore, any consideration of the costs of CSR have to also consider the benefits, in terms of improved reputation and free publicity, that also follow from it. In other words, CSR can be seen as a valuable marketing tool. In broadest terms Bronn and Vrioni concur. They cite survey evidence that clearly indicates when price and quality are equivalent, many consumers will consider the reputation of the company prior to making a purchase decision: “One third of Americans say that after price and quality, a company’s responsible business practices are the most important factor in deciding whether or not to buy a brand, and if price and quality are equal, they are more likely to switch to a brand which had a cause related marketing benefit.” [4] CSR can impact on a company's bottom line in other ways also. The idea of reducing environmental impacts is a particularly fruitful way of examining the profit maximizing potential of CSR. At this point simply theoretical benefits will be identified. (The following section will demonstrate these principles in practice.) Consider a manufacturing process that uses a great deal of energy. If those energy inputs are reduced the company is clearly meeting the environmental goals of CSR. However, it is also reducing costs as it has to purchase less energy and in so doing it is improving the profit profile of the process by producing the same product at a lower cost. On the other side of the coin, consider a manufacturing process that produces a great deal of effluent, even toxic by-products. If those products can be extracted and re-used the corporation again is realizing the environmental goals of CSR. However, again, if it is able to reuse these products (or simply sell them) it is improving its profit profile by converting a useless, even toxic byproduct into a commodity. Additionally, a company practicing CSR, may attract better employees: Employees that are more motivated, more creative and more committed to the organization. In this sense, CSR can even have a positive impact on human resources elements of an enterprise. [14] Diagram 2: Model of the range of CSR Benefits Source: de Sousa Filho, José Milton, Lilian Soares Outtes Wanderley, Carla Pasa Gómez and Francisca Farache. 2010 “Corporate Social Responsibility Management for Competitive Advantage” Brazilian Administration Review. 7: 3 July - September, 2010 294-309. Clearly, the practice of CSR has the theoretical potential to offer a wide variety of benefits to company's that apply its principles. CSR, through appropriate application of CRM can enhance brand image and attract new customers and strengthen brand loyalty. CSR can also reduce manufacturing costs by allowing reclamation of once valueless effluent. It can also reduce waste disposal fees by converting effluent into product. Finally, it can have impacts on the human resources operations of a company by increasing the quality of employees and improving retention rates. There are potentially a wide variety of positives to be associated with the diigent and realistic application of the principles of CSR. Bottom line is, CSR can impact positively on the bottom line. The full gamut of these diverse benefits is identified in 'Diagram 2'. Examples of CSR Three concrete examples of the benefits of CSR will now be provided. Aquaculture is one of the fastest growing sources of high protein, low-fat foods in the world today. Many of these fish are raised on ponds separated from open water. As a result of the high concentration of uneaten food and fish waste this effluent can be unsuitable for release into the surrounding natural water system. Therefore it is stored in separate effluent ponds until it can be disposed of. Recent research has demonstrated that this effluent can be treated inexpensively (with the growth of specific aquatic plants) to reduce the concentration of nitrogen and other chemicals that render the effluent dangerous and unusable. [13] The naturally purified effluent can then be reused in the fish raising ponds that it originated in. This process turns a previously toxic waste product into an input in the manufacturing process. It preserves increasingly precious water supplies, protects surrounding natural waters from degradation, and provides a valuable supply of water for the aquaculture operations. This is corporate social responsible behavior that reduces both the cost of waste disposal and the cost of manufacturing inputs. [13] The development of new refining techniques for gold has the potential to have the same impact on that industry. 'Green gold' requires neither cyanide nor mercury in the refining process. Traditional refining methods use these two chemicals in great quantities and, consequently, produces highly toxic tailings or waste. In contrast, In 'green gold' refining a “small, cylindrical machine blends mineralized dirt with jets of pressurized air, water and biodegradable chemicals in a centrifugal motion that produces a cocktail of thousands of bubbles that rise to the surface attached to specks of gold.” This process reduces the environmental 'footprint' of gold refining, makes the process safer for employees, and reduces manufacturing inputs and costs. [3] Again, it is CSR that is good for the company's image (potentially increasing sales), protects the health of the employees (reducing benefit claims), and lowers the costs of the refining process. Walmart provides an illustration of CSR linked to CRM. Walmat has many detractors who point to its negative impact on small retailers and traditional 'downtowns'. Other critics point to its low wages and opposition to employee unionization. However, it has recently partnered with USAID, the Fair Labor Association and other agencies in a 'Responsible Sourcing Partnership' in Brazil. It is an aspect of the company's marketing campaign. It counteracts the criticisms that it is socially irresponsible and committed only to he bottom line and profits. It improves it's brand image. [12] Conclusions The application of the principles of CSR offers theoretical benefits to corporations over a wide range. Furthermore, these benefits can be demonstrated with many practical illustrations. The benefits include, but are not limited to improved brand image, enhanced human resources, decreased manufacturing costs and decreased waste disposal costs. Works Cited [1] Angelidis, J. P. and N. A. Ibrahim. "Social demand and corporate strategy: A corporate social responsibility model", Review of Business, Vol.15, No. 1, pp. 7-10. 1993. [2] Baker, Mallen. “Corporate Social Responsibility”. http://www.mallenbaker.net/csr/about.php. [3] Baker, Mallen. Business Respect. http://www.businessrespect.net/. [4] Bronn, Peggy Simcic and Albana Belliu Vrioni, “Corporate Social Responsibility and Cause Related Marketing: an Overview” International Journal of Advertising 20, pp. 207–222, 2001. http://home.bi.no/fgl96053/csrandcrm2.pdf. [5] Christian Aid, Behind the mask: the real face of corporate social responsibility, 2004. [6] Fair Labor Association. http://www.fairlabor.org/. [7] Duncan, T. and Moriarity, S., Driving Brand Value: Using Integrated Marketing to manage profitable stakeholder relationships, McGraw-Hill, New York, 1997. [8] Friedman, M. “The Social Responsibility of Business is to Increase Its Profits”, The New York Times Magazine, pp. 32-33, 122–125, September 13, 1970. [9] International Organization for Standardization (ISO). ISO26000 – Social Responsibility. http://www.iso.org/iso/social_responsibility. [10] McAleer, S., Friedman’s Stockholder Theory of Corporate Moral Responsibility, Teaching Business Ethics, Vol. 7, pp. 437–451, 2003. [11] Oxfam, Trading away our rights: women working in global supply chains, Oxfam, London. [12] Sam's Club. (August 18, 2009). “Brazilian coffee farmers link with mass market coffee consumers”. Web. 4 Nov. 2010. [13] Snow, A. M. and A. E. Ghaly. A Comparative Study of Purification of Aquaculture Waste water Using Water Hyacinth, Water Lettuce and Parrot's Feather. American Journal of Applied Sciences. Vol.5, No.4, pp. 440-453. [14] de Sousa Filho, José Milton, Lilian Soares Outtes Wanderley, Carla Pasa Gómez and Francisca Farache. “Corporate Social Responsibility Management for Competitive Advantage” Brazilian Administration Review, No. 7, Vol., pp. 294-309, 3 July - September, 2010. [15] United Nations, Principles for Responsible Investment. “The Principles for Responsible Investment”, http://www.unpri.org/principles/. [16] World Commission on Environment and Development (WCED). Our Common Future, Oxford University Press, Oxford, 1987. Read More