Corporate Social Responsibility: Providing Benefits to Organization - Term Paper Example

Corporate social responsibility provides greater benefits to the organization than it does to society and other stakeholders Student’s Name: Course Code: Tutor’s Name: Date of Submission: Table of Contents Table of Contents 2 1.0 Introduction 3 2.0 Arguments for: Corporate social responsibility provides greater benefits to the organization than it does to society and other stakeholders 4 3.0 Arguments against: Corporate social responsibility provides greater benefits to the organization than it does to society and other stakeholders 8 4.0 Conclusion 10 5.0 References 11 1.0 Introduction Corporate social responsibility (CSR) refers to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society (Browen, 1953). Corporate social responsibility is divided into four types that is environmental, community based, human resource, and philanthropy CSR. Environmental CSR focuses on eco-issues such as climate change, Community based CSR focuses on organizational work with other firms in improving the quality of life of the people in the society, human resource based CSR looks at projects that enhance the well being of the workers while philanthropy concentrates on donations by an organization meant to be put in a good cause especially through charity partners. CSR is not a new idea; it has been around for many years. Although CSR was widely discussed in the last forty years of the twentieth century, the idea that business has societal obligations was evident at least as early as the nineteenth century (Browen, 1953). In Britain, visionary business leaders in the aftermath of the Industrial Revolution built factory towns, such as Bourneville (founded by George Cadbury in 1879) and Port Sunlight (founded by William Lever in 1888 and named after the brand of soap made there), that were intended to provide workers and their families with housing and other amenities when many parts of the newly industrialized cities were slums. A similar pattern also emerged in the United States—George Pullman’s town built on the outskirts of Chicago was described as “the most perfect” city in the world (Browen, 1953). Sir Titus Salt (1803-1876) and other charitable industrialists of the Victorian period were motivated by a desire to do good, but they were also motivated by enlightened self-interest. Salt recognized that his mill (Saltaire) workers would be more productive if he offered an improved work environment and better living conditions. He also realized that Saltaire would be less vulnerable to the political unrest and militancy evident at that time among some sections of the population in Bradford, and strikes and other disputes were rare in Saltaire. Indeed, some have asked: “Was Salt’s paternalism (consciously or not) ultimately a device for securing a compliant, captive workforce which could be indoctrinated into disciplined behavior that ensured continued profits?” While acknowledging that the realisation of Salt’s vision secured the continuing profitability of his business, the critics reject these pejorative interpretations of Salt and Saltaire: “It fulfilled the obligations he believed he owed his workers” (Browen, 1953). Milton Friedman (1970) wrote what is seen by many, a decisive piece of work criticizing social responsibility and the organizations who promote their SR credentials. Friedman wrote “If we wish we can refer to some of these responsibilities as ‘social responsibilities.’ But in these respects he is acting as a principal not an agent; he is spending his own money or time or energy, not the money of his employers or the time and energy he has contracted to devote to their purposes. If these are ‘social responsibilities,’ they are the social responsibilities of the individual, not the business.” Friedman also wrote “a business’s only responsibility is to maximize wealth for its stockholders’’ (Cosans 2009, p.391). In the today’s world, organizations have come under increasing pressure towards engaging in corporate social responsibility (CSR). The paper seeks to establish whether corporate social responsibility provides greater benefits to the organization than it does to society and other stakeholders or not. 2.0 Arguments for: Corporate social responsibility provides greater benefits to the organization than it does to society and other stakeholders CSR is increasing becoming important in the today’s business environment. This has been brought about by increasing demands from consumers and the sophistication of investors. CSR becomes increasingly significant for organizations that need to show responsiveness to social problems. The degree to which a business can benefit from CSR varies depending mainly on the type of the business. The available business literature has established a strong correlation between CSR and financial performance. According to Pomona (2009) organizations that demonstrate CSR have a higher probability of being commercially successful in the future. This has influenced numerous organizations to formulate and implement CSR policies. For instance, over 90 percent of the FTSE companies have ethics policies aimed at CSR. Although businesses should not entirely focus on profit when implementing CSR policies, the long term business benefits related to such practices are many. Unambiguous policies on CSR could be undertaken by a number of departments within an organization. Most of the times CSR practices involve activities in human resources, finance departments, business development and marketing, their benefits depend on the strategies implemented (Baker and Roberts, 2011). In modern organizations, CSR implementation is a toll for risk management aimed at decreasing the risk posed on businesses by a range of practices linked to several probable threats. Successful organizations are keen to put in place risk guards in form of risk management strategies. For instance, organizations that have made tremendous efforts over the years to build a good standing and have invested a lot of resources to maintain it mainly through product development and customer loyalty tactics, may be faster due to scandals; the Enron corruption scandal or Chernobyl environmental disaster. Involvement in such incidents attracts the attention of the media and may cause irreversible damage to the reputation of an organization. It is believed that the only way to predict such events is to by embedding social responsibility into the firm’s culture in order to counteract such risks (Cosans 2009). CSR has been linked with product differentiation. As competition continues to increase in the market, organizations seek creative ways of differentiating their products so as to remain relevant in the market. Product differentiation enables organizations in achieving a competitive edge over their peers by increasing the perceived value of their products in relation to the perceived value of the products of their competitors. Such effective way of product differentiation is CSR where organizations formulate and implement socially responsible policies (Cosans 2009). The differentiated products can satisfy the unmet needs of consumers and eventually the organization reap both financial and business benefits. Organizations that are socially responsible are keen to manufacture products that meet quality, health/safety and also environmental standards. For instance, firms develop and offer environmentally friendly products are likely to make higher sales and they can adjust their prices upwards without their customers fall out. This could be explained by customer loyalty because they are environmentally conscious. In a way, consumers tend to buy such products as an indirect way to keep the manufacturing organization to remain in environment campaigns (Cosans 2009). CSR involves amalgamation of socioeconomic and environmental considerations into the decision-making structures and processes of organizations. CSR is used by organizations to produce direct benefits (Bannerjee, 2008). For instance, operational efficiencies can be attained through reducing energy and materials as input production factors. With increased resource use efficiency wastes are reduced and in some instances materials are recycled. These CSR actions are in themselves eco-efficiency and can produce simultaneous environmental and economic benefits for organizations and thereby throw in an improved financial performance and wider profit margins. Resource use efficiencies can be realized in other phases of CSR such as reorganization the way that information is availed to the existing and potential investors as well as other stakeholders that require transparency in information provision. Fredrick (1960) was of the opinion that “Social responsibility in the final analysis implies a public posture toward society’s economic and human resources and a willingness to see that those resources are used for broad social ends and not simply for the narrowly circumscribed interests of private persons and firms” (Cosans 2009). According to Fredrick (1960), resource use consciousness and efficiency is of utmost importance whereby in using the available resources organizations should keep in mind the needs of future generations. Resources are exploited in such a way as being sustainable and thus long term benefits are accrued. Managing probable risks and liabilities more efficiently through corporate social responsibility can also reduce costs. CSR is crucial in improving relations with the investors and capital accessibility. Pomoni (2009) argues that CSR and financial performance of businesses are correlated. There is increasing evidence of the relationship as shown by Dow Jones Group Sustainability Index (DJGSI), the FTSE4 Good indices and the Jantzi Social Index that organizations that undertake the essential qualities of corporate social responsibility generally perform better compared to their counterparts that do not embrace CSR. In showing the importance of CSR to organizations performance, it has led to creation of funds such as Socially Responsible Investment, Domini Social Equity Fund and EcoValue 21. Therefore, adoption of the CSR approach by an organization can enhance the standing of its business in the viewpoint of the investors, a company’s stock market valuation, and its capacity to access capital (Pomoni, 2009). CSR in businesses has been associated with innovation. In the recent times, technological change is highly rapid thus determining competitiveness of products and organizations. The innovative idea is associated with Drucker’s knowledge economy. Corporate social responsibility international organization standards have been developed in recognition of CSR. For instance, ISO 26000 states that social responsibility can help in improving an organization’s competitive edge in the market through innovation (Pomoni, 2009). Many organizations are moving towards embracing important aspects of CSR by formulating and implementing policies with the aim of being ISO certified. Standardization promotes and grows innovative practice which in turn boosts business profit margins (Pomoni, 2009). The importance of corporate social responsibility is increasing due to its ability to enhance employee relations, productivity and innovation. CSR initiatives related to employees encompass favorable working conditions that can contribute to ensuring the dedication and motivation of workers in becoming more innovative and productive. Organizations that employ CSR related aspects and tools tend to provide the pre-conditions for improved loyalty and dedication from employees. These conditions have been established as being key in recruitment, retention, motivation to develop skills as well as encouraging workers to pursue further learning in search of innovative ways not only for reducing costs but also take advantage of new opportunities. This trend maximizes benefits, reduces absenteeism, and may also imply marginally less agitations for higher wages. An outstanding organizational example in promoting CSR in the workplace is that of PeopleSoft, a California business management software company. It encourages or it’s a norm for employees to engage in nerf ball shootouts and minigolf tournaments in the business premises hallways. In the institution, white collar is a T-shirt and coffee is offered free. Part of the organization’s culture is having fun and the company premise is considered the best place of spending a bad day. Values of egalitarianism are held in high regard, where people are treated with respect. In addition, executives do not have secretaries, flamboyant offices or special benefits. The leadership of PeopleSoft is particularly keen on reminding all the employees about the importance of respect for all, the same respect accorded to the president should be given bagel delivery guy. Further, the organization is technology pro and has flexible customer service. Technology is highly dependable in the job application system where the organization utilizes an automated voice response system to accept their job offer. The usefulness of technology in the company is further shown on an employee first day at work; a notebook computer, backpack and tools for posting personal web pages on the organization intranet are offered. This is considered normality rather than written rule (Pomoni, 2009). The company has seen tremendous growth compared to SAP and Oracle and currently stands second largest business management software provider after SAP. The organizational culture is part of its employee CSR whereby PeopleSoft attracts and retains skilled personnel and also selling to customers. PeopleSoft has an outstanding organizational culture, that auger well with the company’s competitiveness. PeopleSoft’s organizational culture has highly contributed to its success. The workers at the company have adopted a particular way of thinking about the challenges the company faces and how to act on them as well as maximizing exploitation of opportunities (Pomoni, 2009). 3.0 Arguments against: Corporate social responsibility provides greater benefits to the organization than it does to society and other stakeholders Corporate social responsibility does not provide greater benefits to the organization than it does to society and other stakeholders. In fact the society and other stakeholders is likely to benefit more from organizations as in the case of Stride Rite Company. When Arthur Hiatt was the chairman of the Stride Rite Company he was a strong believer in CSR and was keen in its promotion. Neimark (1994, p.81-82) has quoted him as once saying that “If you’re pro-business, you also have to be concerned about things like jobs in the inner city and the 38 million Americans living below the poverty line.” He was a strong crusader of CSR and had huge influence in the company’s executive decisions. The Stride Rite Company allotted 4-5 percent of its pre-tax profits to the Stride Rite Charitable Foundation, pioneered setting up on-site daycare and elderly care facilities, gave out for free 100,000 pairs of sneakers to Mozambique and gave scholarships to inner-city youth which paid for Harvard University graduate students to work in a Cambodian refugee camp. This charitable nature of Stride Rite Company did not stop it from crossing its factories in the depressed areas of America implying that its CSR did not translate into sales and cost cutting (Neimark, 1994). Defining CSR has not been unanimously agreed, in fact CSR becomes problematic when real business cases are brought forward. For instance as put by Schwartz and Saiia (2012) “when UBS Bank decided to spend shareholders’ money to voluntarily cut its carbon emissions to address global warming whereas there was no legal obligation to do so, was this socially responsible, or socially irresponsible? Should a beer firm like Heineken provide expensive human immunodeficiency virus/acquired immunodeficiency syndrome (HIV/AIDS) medication to its African employees and their dependents, yet it has no overall direct benefit or even indirect financial benefit to the firm?” In UBS and Heineken cases their financial endowments are drained by CSR without guaranteed benefits. Therefore, CSR cannot be said to be beneficial to organizations in such cases, in fact corporate social responsibility does not provide greater benefits to the organizations than it does to society and other stakeholders. CSR approaches are mechanistic, rigid, and do not differentiate between obligatory and discretionary actions. Bejou (2011) argues that in the recent times many organizations engage in CSR not essentially because it’s beneficial but rather because of increasing criticism. They want to be seen out there being active and promoting CSR thus retaining a ‘CSR image’ rather than profit maximization which is their major objective. Therefore, most organizations may not be undertaking CSR as a self drive but as a cover up from criticisms that may negatively affect their operations. Therefore, CSR does not provide greater benefits to the organizations than it does to society and other stakeholders. Many CSR critics claim that corporate social responsibility costs eat on an organization’s finances, mostly on the investor’s receivables. As Friedman puts it “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” Since an organization is run on agent-principal agreement it should be the responsibility of individual principals to decide whether they want to give out their receivables from an organization (Mulligan, 1986). Operation within the set out rules (payment of taxes, adhering to resource use and environmental policies) should be a satisfactory benchmark for an organization in a society. Otherwise holding organizations at ransom to contribute a portion of its income towards other societal activities should be out of consideration (Pomoni, 2009). 4.0 Conclusion In conclusion, the benefits of CSR cannot be clearly measured because they are principally based on the type of the organization. However, they numerous and they cannot be wished away. Specifically, in today’s business world there is increasing interest in environment protection due to effects of global warming; organizations may take advantage of this in demonstrating how to provide an optimistic future. The opportunities offered for showing responsiveness to social, economic, environmental and ethical issues are many. Organizations have to align their long term interest in undertaking socially responsible initiatives (Baker and Roberts, 2011). There appears to be much greater and more widespread substance to the CSR responses of individual firms than we have seen in the past. Most large corporations now at least espouse a commitment to CSR and in some cases their initiatives appear to go substantially beyond corporate philanthropy and corporate communications that attempt to defend the firm’s societal contributions. Certainly, CSR is no longer the preserve of Public Affairs or restricted to smaller firms that champion CSR in line with social enterprise goals. The impression created overall is that the debate about CSR has shifted, that no longer is it about whether to make substantial commitments to CSR, but how? 5.0 References Baker, M and Roberts, J 2011, All in the Mind? Ethical Identity and the Allure of Corporate Responsibility, Journal of Business Ethics, Vol. 101, no. 1, pp 5-15. Bannerjee, S 2008, Corporate Social Responsibility: The Good, the Bad and the Ugly, Critical Sociology, Vol.34, no. 1, p. 51-79. Bejou, D 2011, Compassion as the New Philosophy of Business, Journal of Relationship Marketing, Vol.10, no.1, p. 1-6. Bowen, H 1953, Social Responsibilities of the Businessman, New York, Harper and Row. Cosans, C 2009, Does Milton Friedman Support a Vigorous Business Ethics? Journal of Business Ethics, Vol. 87, no. 1, p. 391-399. Mulligan, T 1986, A Critique of Milton Friedman’s Essay “The Social Responsibility of Business Is to Increase Its Profits, Journal of Business Ethics, 5, p. 265-269. Neimark, M 1995, The selling of ethics: The ethics of business meets the business of ethics’, Accounting, Auditing and Accountability Journal, Vol. 8, no. 3, p. 81-96. Pomoni, C 2009. The Potential Business Benefits of Corporate Social Responsibility. Jagd Publications. Roberts, J 2003, The Manufacture of Corporate Social Responsibility: Constructing Corporate Sensibility, Organization, vol. 10, pp 249-265. Schwartz, M and Saiia, D 2012, Should Firms Go “Beyond Profits? Milton Friedman versus Broad CSR, Business and Society Review, vol. 117, p. 1-31. Read More