Corporate Social Responsibility and Managerial Views - Term Paper Example

Corporate social responsibility and managerial views Introduction Corporate social responsibility, more commonly known as CSR or corporate citizenship, is where the business attempts to understand the environment in which it is operating and how its activities are affecting the environment . It is a form of self-regulation that a business or company places on itself to monitor how its activities impact the environment and find acceptable ethical ways to minimize or entirely eliminate any adverse impact . In simpler terms, CSR means the organization or business taking responsibility for their actions. CSR is not only directed to the community or the environment. It is also directed to shareholders or stakeholders, employees, suppliers and customers. In corporate social responsibility, organizations have come to actively involve members of the public by encouraging them to volunteer at organized CSR events and this makes the community members to be able to better relate with the company or organization and to foster a strong relationship between the two parties (community and company) . Corporate social responsibility can be termed as the intentional involvement of the community and public involvement into decisions made at the corporate level. It helps to improve the company’s triple bottom line which is the 3Ps, profit, people and the planet . There is no established standard upon which activities can be proven to be CSR activities, several companies have come up with their own activities which they deem to constitute CSR . Although CSR has become a widespread global phenomenon, it is still far from being a homogeneous decision in the minds of company executives. Hot debates rage in board rooms regarding what constitutes CSR and how it helps the business achieve its objectives . Many other executives also question the efficacy of CSR in helping the business to achieve its goals and objectives. This has led to different views of people towards corporate social responsibility. Some view it as an utterly essential part of the company’s mission and vision while some brush it off as a mere public relations (PR) gimmick to please the customers, shareholders, suppliers and other stakeholders in the business environment . Some businesses take on CSR activities to hide the eyes of the public from the potentially prejudicial activities of the organization by masking it with these CSR activities. This confusion has also led to improperly executed CSR activities which have flopped and created a negative image and taken away trust in the company. In all this, the need for being ethical in business is the biggest driving force behind companies taking up CSR . History of corporate social responsibility The term corporate social responsibility came into being in the late 1960s toward the mid-1970s. Corporate social responsibility came at a time when many multinational companies were becoming aware of all people who were in one way or another affected by the activities of the organization . These people are simply referred to as the stakeholders. Since then, there have appeared different views of CSR and has evolved to the development of an ISO standard that is internationally recognized for corporate social responsibility which is the ISO 26000 standard. Although the word CSR came into being in the 1960s, the phenomenon actually started way back during the industrial revolution in the 1700s. The probable father of corporate social responsibility is Adam Smith. He was a Scottish native and a scholar cum economist career wise . Adam wrote about free trade and the free market which are the two principles on which business is founded today. Recent findings have traced CSR back to the 1700BC when a King by the name Hammurabi gave sanctions in the form of execution to those who did not carry out business in an ethical and responsible manner . Another historical incident that led to the birth of CSR was in the year 1622 when unhappy investors complained about lack of transparency in the Dutch East India Company . Though not much was seen in the 18th century, by the start of the 19th century, there existed a situation which led to the complete birth of CSR. This position was articulated by famous writers such as Charles Dickens and Karl Max as they were trying to encourage the development of labour laws, communism and socialism . They noted that many businesses, through being highly successful, treated their workers poorly and disregarded the environment and community or society. This was because there was insufficient regulation governing their business activities. These works led to the formation of labour unions in the early 20th century which gave the workers a collective voice to air their grievances and the governments also introduced regulation to govern the businesses. In the year 1920, there began discussions on how business should behave responsibly to the environment, their workers, the surrounding community and other stakeholders . In a speech that was delivered by Wallace B. Donham who was the Dean of Harvard School of Business then, he mentioned that though the business environment was rapidly changing, businesses were slow to embrace changes and this led to the irresponsible and unethical activities. He echoed that there was a need for business to act responsibly towards stakeholders . It was not until the mid-1950s when environmentalists and scientists began to see the detrimental effects that the environment had to endure as a result of the huge industrialization. Companies then began to show interest in the impact that the company or organization’s actions had on the environment and they began to act responsibly in order to save face from bad press and negative PR . This was deemed to be the first steps towards corporate citizenship and led to the term corporate social responsibility being coined in the 1960s. In the 1990s, many companies and organizations felt the impact of globalization, the information revolution and environmental awareness was at a peak level. At the same time, communism was collapsing. These companies had no option but to develop responsible and ethical practices in order to preclude any harm to the environment and the community at large . Schools of thought on corporate social responsibility There are two major schools of thought regarding corporate responsibility and ethics. The two schools of thought are the free market view and the corporate social responsibility view. The former suggests that the only role of the business is present to generate profits and returns for investors and the latter suggests that the business should also do something in regards to the welfare and development of the community . In simpler terms, the free market view suggests that is that “the business of business is business” . An example of the free market view is a company in which investors pump a lot in terms of money and other resources. The investors will need to reap back from the company slowly by slowly through yearly dividends. An example of the corporate social responsibility view is that the town in which a company is formed should benefit from the company or organization’s existence. For example, towns located near where mines are discovered, the mining company generally improves the standard of living in the town by building better housing, infrastructure, etc. The free market view looks at corporate social responsibility as wastage of money or a self-imposed tax. The investors in the business place returns from the business as the top priority for the company and the managers who run the businesses do not have any right to reduce the investor’s dividends by ‘giving away’ some of the money that belongs to the business. These managers are given the simple commitment to increase the wealth of the investors by multiplying their returns by a factor. Capitalism and this free market view have been the epitome of development that we have seen in all countries around the world. In order to improve the standards of living of the workers of the company, the company may decide to increase the wages or salaries paid out and though this may be seen as reducing the investor’s returns, it is a condition that can be compromised. The free market view is best for managing scarce resources . The corporate responsibility view states that the business depends largely on its surrounding environment and the community and the environment and community depend on the business. Therefore, there is a need for a mutual relationship to be forged between the two entities in order for the business to flourish and at the same time for there to be improvements in the environment and the community. In this view, the managers should recognize that the achievement of the company or organization’s goals and objectives depends on the community and the environment and that the necessary measures should be undertaken to ensure that enough care is taken for the environment and the community . Stakeholder theory The stakeholder theory states that a business should be accountable to all people, internal and external, who are affected by the decision made by the management . The theory dissuades from just tendering to the needs of the investors or shareholders and looking at a broader perspective at all the stakeholders who affected by the company, whether they are individuals or groups of people . The theory argues for corporate social responsibility under several key premises. First is that CSR is ethical. Secondly, CSR improves the PR of the company or organization. Third, CSR being some sort of self-regulation helps to avoid stringent measures being taken by regulatory authorities and also reduces the amount of surveillance that is placed on the company or organization. CSR activities can end up being beneficial for the company by increasing their PR and thus helping to boost sales and earnings. CSR helps to attract investors and shareholders. By the company displaying a good public image, they are able to catch the eye of more investors. CSR helps to motivate employees and lastly is that CSR corrects any injury that is caused by the business on the environment or the community that the organization relies on . Dimensions of corporate social responsibility There are five unique dimensions of CSR. The first is the economic dimension. This is where a company or organization gives money for a project or task for the environment or the community. The second is the legal dimension. This is where the company complies with the laid down laws and regulations. It may also represent the company following what the society may view as right or wrong. The third dimension of CSR is the ethical dimension. This is where the company does the noble thing and not just the action which turns a profit for them. The next dimension is that of volunteerism or philanthropy. Here, the company and its employees contribute to the community and environment in terms of man power. The last dimension of CSR is corporate citizenship. Corporate citizenship is where the company contributes largely to the community and to improving the standard of living for the community. These are the five dimensions of corporate social responsibility and they are the basic categories on which all socially responsible actions fall. Benefits of corporate social responsibility Though the benefits of CSR to the company and the community and environment have been mentioned in the previous sections, it is important to reiterate them out in this particular section. The first, and possibly the benefit of CSR with the most significance to the company is that it increases the public image of the company. By actively participating in activities to safeguard the environment and enrich the lives of the community, the public holds the company in a good image and this will increase the PR for the company. Secondly, CSR is profitable for the company or organization. Though this will be felt in the long run, by the company engaging in various activities for the community and the environment, this will result in word of mouth advertising for the company brands or products and in turn increase sales and revenues for the organization or company. CSR helps to create a distinction between the company or organization and its competitors. Simply put, it creates a competitive advantage. Since the community is able to relate with the business, they are able to be persuaded into choosing this company’s brands or products over those of competitors. CSR also helps to reduce the cost of production and other costs for the organization or company. This is, for example, by reducing the number of legal battles that the company has to fight for any harm caused to the environment. Other costs are reduced by use of green practices such as recycling which reuse products instead of having to develop new ones every time. CSR improves the living standards of the employees and the society at large. Thus increasing the employee satisfaction scale and in turn a higher employee retention rate. CSR helps to conserve the environment through application of clean practices such as recycling. Corporate social responsibility variables The first element or variable is that business conflicts with CSR. There are several issues of concern inside this broad factor. First is that business should not be involved in CSR, since CSR is not their core responsibility. Secondly, business should not deviate from its main objective to make money which is needed for its own survival. Third, business should not undertake any social issues that contradict their main goal of profit making and finally, CSR should be confined to supply of goods services at a profit . The second factor is that CSR is advantageous for business. The issues of interest here are that first, CSR is good for business because it provides an opportunity to help solve social problems. Secondly, CSR can be instrumental in building a better reputation of the business in the community which it is operating. Third, CSR programs can help business develop a positive business profile for themselves in the community. Fourth, the business would be better off by serving the community needs even if it goes beyond regulation. Fifth, corporate social responsibility is instrumental in building a reputable name for the business in the society. Sixth, businesses are more likely to be worse off by discharging social responsibility as it may affect the profit level. Lastly is that CSR can contribute to the profitability, if shareholder and stakeholder needs are addressed in a coordinated way . The third factor is that CSR discontinues laws. Business should not distinguish itself from the greater community as it is part of it. The fourth factor is that businesses have to work more for the society. The first issue of concern is that CSR should incorporate societal goals into business strategy even if it would not be profitable in the long run. Secondly, business should commit to its social and financial obligations simultaneously. Third is that business has both economic and social entities, therefore, should contribute to both these causes. Fourth, the best way to be socially responsible is to run the business without breaking any law. Fifth is that business should address the societal issues during financial crisis when the community wants the business to go beyond greed. Sixth is that business has a fundamental responsibility to comply with the regulatory authority to become a good corporate citizen. Seventh is that business is both a social and an economic institution and as such it should address both social and economic issues. The last issue of concern is that the community has given business power and profit and business should give something back to the community . The fifth and final factor is that business needs to find a balance between the society and business for it to be able to survive. Here, the business needs to balance between its social and economic goals in order to survive in a hostile social environment. Research on corporate social responsibility There have been several research projects that have been conducted on CSR. Research has been carried out on different aspects of corporate social responsibility. A research was conducted in the field of CSR to determine to what extent CSR helps to improve the financial results of a company or organization. Several other studies were done prior to this report but the results varied widely. In the report which analysed 21 different peer-reviewed academic researches done in the period between 2008 and 2010, it was it was found out that there was no clear implication of CSR towards improving a business’ bottom line. In the same research, it was identified that the more important benefit of corporate social responsibility is to reduce the reputational risk of the company and not to increase its profit margins. Of the 21 studies that were investigated, the report give a conclusion that only a meagre 5 of the 21 researches show that corporate social responsibility leads to increased financial performance of the company or organization . In a study conducted in Australia on 60 companies, it was found that with the proper education system and channels, managers were able to make ethical and responsible decisions concerning their companies or organizations. They were also found to have embraced corporate social responsibility and to them, there was more to business than just generating returns for the investors or shareholders . References Read More