Corporate Social Responsibility Framework in the Banking Sector - Literature review Example

Introduction: This paper analyzes the CSR theoretical frameworks of the stakeholder’s theory and the corporate social responsibility framework in thebanking sector. This paper also analysis the business ethics theory of utilitarianism in relation to the banking sector. CSR is an acronym for corporate social responsibility (Cragg, 2002). Corporate social responsibility is an example of a corporate self regulation, which has been integrated to a business model. A company’s CSR policy always functions as a self-regulating mechanism in which a business organization is able to monitor its activities for purposes of ensuring that they comply with the law, international norms, as well as ethical standards that regulate the industry of their operation. Bredeson (2012) believes that in other models, the implementation of CSR goes above its compliance of laws, and involves issues that are responsible for promoting the social good of the society. Cragg (2002) explains that these actions carried out by the company may be required by the law governing the operations of the business under consideration. Collins (2012) therefore explains that CSR involves a process, whose aim is to embrace the responsibility of the actions of a company, which thereafter encourages a positive impact to the society. This is because of the various social activities that the company engages in, on the communities, the environment, consumers, and employees of the organization. On the other hand, business ethics is a concept that is used to refer to the conduct of a business organization regarding the manner in which the organization seeks to achieve its objectives (Moon, 2001). Scholar denotes that most business organizations have put in place their ethical standards which require all their employees to adhere to them. Bredeson (2012) denotes that this field of business ethics normally has a descriptive, as well as a normative dimension. Bredeson (2012) further denotes that when looking at business ethics in terms of career specialization, as well as corporate practice, then it takes a normative dimension. On the other hand when trying to understand business ethics as a behavioral issue, then it will take a descriptive dimension. Examining these theoretical frameworks on the banking sector is important because of the crucial role that the banking industry plays in developing an economy. Furthermore, Collins (2012) denotes that ethical issues in the banking industry will affect everyone, regardless whether they are consumers, employees or the society. On this note, companies operating in the banking sector are always eager to follow the principles of corporate responsibility, as well as business ethics. Stakeholders Theory and the Banking Sector: Cragg (2002) denotes that the stakeholder’s theory is an example of a CSR theoretical framework in which a banking business organization will look out at their areas of operation, for purposes of identifying the various ethical considerations that they have. Bredeson (2012) denotes that banking institutions that adapt this framework will be concerned with satisfying the needs of the society first, before satisfying their needs, i.e. making of profits. This theory goes on to identify and describe the groups and individuals who will be affected by the actions of the company, or who have the capability of affecting the operations of the company (Davis, 2009). Under this theory, scholar denotes that the management of the banking organization will mostly ask three questions, namely, the legitimate claim that stakeholders have concerning the business, the rights that these stakeholders have with respect to the actions of the company, and the responsibilities that these stakeholders can impose on the banking organization (Reilly, 2012). On this basis, Cragg (2002) denotes that the stakeholder theoretical framework denotes that an individual, whose life is affected by the operations of a corporation, has a right and obligation to participate in affairs that direct and regulate the institution. Davis (2009) denotes that banks play a very important role in the economy of any given country. This is because it is always difficult to start a business without having capital. On most occasions, this capital will always come in the form of a loan, from a banking organization. This automatically makes the banking organization as a stakeholder of the business organization under consideration. In a banking organization, the stakeholders of the institution can be categorized into two, either secondary, or primary stakeholders (Davis, 2009). Primary stakeholders of a banking organization include people who have a direct interest with the operations of the banking organization. This includes investors, employees of the organization, suppliers, customers, and creditors. On the other hand, the secondary stakeholders of a banking organization may include environmental groups, labor unions, etc. Davis (2009) therefore denotes that the interests of banking organization will always be decided by the relationship in which the secondary and the primary stakeholders of the banking organization will have. Jackson (2000) denotes that the aim of most banking organizations is to achieve profitability, and hence increase the economic and financial strength of the banking organization. Stakeholders of the bank have the same interest; however, they are always keen on observing the manner in which the profits generated by the banking organization will be shared between the various stakeholders. Collins (2012) denotes that it is at this stage when the conflict between different stakeholders of the banking organization will emanate. For instance, the shareholders of the banking organization will demand a higher dividend, based on an increase in profits, while, the directors of the bank will demand that some of the money received from profits should be re-invested in the business, for purposes of increasing the market share of the banking organization. On the other hand, the government may also intervene by deciding on different tax structures based on a variety of income levels amongst the members of the banking staff. Employees on the other hand can demand for higher wages, while the society will expect the banking organization to utilize some portions of its profits for purposes of helping the society. Collins (2012) therefore denotes that these different expectations and demands from various stakeholders can lead to conflict within the banking organization, and the directors of the banking organization might find it difficult to satisfy all these needs. Based on these problems, Kwarciński (2012) explains that the directors and management of the banking organization will use the stakeholder’s framework to balance and compromise all the contradictory interests of various stakeholders. The banking organization will explore, as well as analyze the conflicts of interest as well as the contentious relationships that exist amongst the stakeholders of the organization. The management will have to identify the incompatible, as well as the compatible interests of its stakeholders, and thereafter introduce a contingency procedure for purposes of examining and solving the conflicting interests that emerge. CSR Framework and the Banking Sector: This term corporate social responsibility (CSR) consists of two meanings. The first meaning is that it is a name for a given theory of an organization which emphasizes on the responsibility to make money, as well as interacting ethically with the community in which the business organization undertakes its affairs. The second meaning of this term corporate social responsibility refers to a specific conception regarding responsibility to make profits, as well as playing a wider role in promoting the welfare of the community. Gini and Marcoux (2012) explains that CSR as a specific theoretical framework is responsible for explaining the manner in which corporations interact with their surrounding environment, and the global world. Graziano (2002) denotes that the CSR theoretical framework comprises of four major obligations, namely, economic, legal, ethical as well as philanthropic responsibility. Economic responsibility is guided by the principle of making profits. Banking organizations are always formed for purposes of making money or profits. Banks normally offer a variety of programs or services whose major aim is to make profits. The most notable service offered by banking organizations is loans. Banks normally offer loans at an interest, depending on the type of loans taken. The interest charged on the loans offered is always the revenue in which the bank takes. Other sources of income include revenue earned on the fees charged the various types of accounts that banking organizations operate, as well as profits made from foreign exchange. Firth (2012) denotes that without the making of losses and profits, and then the concept of business ethics does not exist in the banking sector. On the other hand, legal responsibility involves adhering to the various laws and statutes established by the state regarding the operations of a banking industry. This includes labor laws, taxation laws, as well as following other laws responsible for guiding the banking industry. Scholar denotes that without following the established laws and statutes regarding the banking sector, the banking organization cannot operate. On this basis, business ethics and CSR regarding the banking industry and its operations will not exist (Moon, 2001). Ethical responsibility on the other hand involves a banking organization enacting good policies, aimed at serving the community, and its stakeholders, even when the law does not require it. This includes issues like honesty and integrity while handling their customers, and other stakeholders of the organization. Other ethical practices include good hiring policies, good public relations strategies, etc. It is important to understand that a good ethical practice will always improve the brand name of the business organization, leading to an increase in its market share or profits. Philanthropy is a very important aspect of the CSR framework, and most banking organizations are engaged in philanthropic works, by either supporting the less needy within the society, or even supporting certain developmental activities of the society (Katz and Hargrove, 2009). For example, Barclays Bank is supporting the British premier league, while financial institutions such as the Master Card foundation partners with local banks for purposes of offering scholarships to needy students. An example is the partnership between Master Card foundation and Kenyan Bank, Equity, through the Wings to fly program that grants scholarships to needy and poor students. Utilitarianism and Banking Sector: Utilitarianism is one of the most commonly applied theoretical frameworks, in an organization. This theory denotes that a business decision, in regard to the conduct of the business is only proper and acceptable only if the decision under consideration is able to produce a great good, for a large number of people or individuals. Scholar denotes that the term “good”, refers to the benefits that are able to accrue to various stakeholders of the banking organization. On this basis, Cory (2005) denotes that the moral choices in which an organization makes, should be evaluated by the calculation of the net benefits that each alternative choices, and hence a choice which the best net benefit should be considered. Furthermore, Davis (2000) observes that in making the decision, the views of all the stakeholders who are affected by the particular decision should be fairly considered. Cory (2005) denotes that banking organizations normally use the ethical frameworks of utilitarianism while conducting their businesses. This is more so while they are providing loans, and the interest rates that these banking organizations normally charge. For instance, while determining the interest rates that they would charge on their loans, the banking organization has to look at the laws governing the operations of the banks, the interests of its primary stakeholders, most importantly the investors and those people taking loans (Velasquez, 2012). The banks will thereafter charge an interest rate that is affordable to the loanees, one that respects the rules of the land, and also an interest rate that would enable the organization to make a profit. Making a decision based on this approach is more ethical for the organization, and this is because the consequence of the decision under consideration is beneficial to all parties (Paliwal, 2006). That is, people taking loans are able to pay back their loans, investors will be rewarded with dividends, because of profits, and the banking organization will not be closed for breaching the rules of the land. Cory (2005) therefore denotes that this action by the banking organization is justified, based on the utilitarian ground. Furthermore, Utilitarian always believes on rules, as a means of guiding their actions. They believe that without rules, it is impossible to justify an action. To prove this point further, the banking sector is a heavily regulated sector, in almost all the major countries of the world. These laws usually address factors such as money laundering, disclosure, anti-terrorism, etc. Banking organizations believe that by following the set up laws, then it is for the common good of the society, and the banking organization itself. Conclusion: In conclusion, the stakeholder’s theory, the CSR theory, as well as the utilitarian theory can be used for purposes of explaining the ethical behaviors of an organization. Ethics is a very important aspect that an organization has to follow. Without observance of proper ethical procedures, chances are high that the organization under consideration will fail to achieve a positive brand name. A good ethical practice will always ensure that an organization is able to achieve its aims and objectives. This is through proper business practices that are of the benefit to all the stakeholders of the business organization. Bibliography: Bredeson, D. (2012). Applied business ethics. Mason, Ohio: South-Western/Cengage Learning. Collins, D. (2012). Business ethics. Hoboken, N.J.: John Wiley & Sons. Cory, J. (2005). Activist business ethics. Boston: Kluwer Academic Publishers ;. Cragg, W. (2002). Business Ethics and Stakeholder Theory. Business Ethics Quarterly, 12(2), 113. Davis, M. (2009). The Usefulness of Moral Theory in Practical Ethics. Teaching Ethics, 10(1), 69-78. Duska, R. (2000). Business Ethics: Oxymoron or Good Business?. Business Ethics Quarterly, 10(1), 111. Firth, L. (2012). Ethics in business. Cambridge: Independence. Gini, A., & Marcoux, A. M. (2012). The ethics of business: a concise introduction. Lanham, Md.: Rowman & Littlefield Publishers. Graziano, C. d. (2002). Promoting ethical conduct a review of corporate practices. Morristown, NJ: FEI Research Foundation. 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