Social Corporate Responsibility in Modern Multinational Corporations - Literature review Example

Social Corporate Responsibility Name Institution Name Instructor’s Name Course Name and Code Date Introduction Over the last few decades, empirical research has brought to light massive evidence that there are measurable payoffs of corporate social responsibility initiatives to firms together with their stakeholders (Becker-Olsen, Cudmore & Hill 2006). However, some economists argue that firms should only pursue activities that add value to shareholder’s economic interests. Advocates for corporate social responsibility hold that any business organization is a nexus of relationships that involve various stakeholders including employees, suppliers, customers, and the community within which the firm is operating without which lasting shareholder value creation is not possible. On the other hand, the notion of social responsibility in business displays a fundamental misconception of the company’s character and nature; the company’s function should and must be economical not social. This essay critically analyses the statement: “Modern multi-national corporations increasingly have a responsibility to go beyond meeting economic and legal expectations to fulfilling ethical and philanthropic functions in discharging their social responsibility.” For this reason, the essay will discuss why multi-national corporations should continuously engage in social corporate responsibility when compared to national corporations. Body According to Xueming & Bhattacharya (2006), intensive research into corporate social responsibility (CSR) have established that corporations can hugely benefit from CSR in four broad ways including implementing cost and risk reduction; gain competitive advantage; develop corporate reputation and legitimacy; and seek win-win results through synergic value creation. By modern multinationals continuously fulfilling ethical and philanthropic functions in discharging their social responsibility they position themselves to profit from the aforementioned benefits (McWilliams, Siegel & Wright 2006). Given this comprehension, this section analyses how these cross-border companies will be able to achieve the said benefits (Becker-Olsen, Cudmore & Hill 2006). When multinationals engage in CSR activities they reduce the company’s inefficient capital expenditures and exposure to risk (McWilliams, Siegel & Wright 2006). It has been established that stakeholders’ demands pose critical threats to the overall firm’s viability; accordingly, corporate economic interests are served by mitigating threats through company’s social performance (Becker-Olsen, Cudmore & Hill 2006). Reducing costs and risks is achieved by multinationals through having employment policies and practices (Lindgreen & Swaen 2010). Having inclusive employment opportunity policies allows the company employ individuals from the locality within they are operating and thus allowing the community to identify themselves with the company (McWilliams, Siegel & Wright 2006). Inclusive policies are essential in reducing employee turnover as it is critical in moral improvement (Dahlsrud 2008). Similarly, lack of diversity can cause higher employee turnover together with absenteeism (Xueming & Bhattacharya 2006). Such strategy is important because local national corporations are identified with local population; therefore, no requirement to make the community to shade the image the company is foreign in the case of multinationals. Shading the “foreign image” ensure the company operates seamlessly and it forces the multinational company to invest immensely to the local community (McWilliams, Siegel & Wright 2006). By companies being environmentally proactive will automatically result in cost and risk reduction. Consequently, Xueming & Bhattacharya (2006) states by being proactive on environmental issues the company is able to lower costs for complying with future and present environmental regulations thus enhancing the company’s efficiencies and lowering operation costs (Matten & Moon 2008). Furthermore, when multinationals continually engage in CSR they are empowered to effectively manage community relations which on the other hand culminate into cost and risk reduction (Becker-Olsen, Cudmore & Hill, 2006). Community relations are important because security and appreciation within the locality where the business operate. In many scenarios, communities protect investments because they associated with each and reviews it relative to environmental impact (McWilliams, Siegel & Wright 2006). Therefore, a local national company already understands the community because it has first hand information when compared to multinationals (Xueming & Bhattacharya 2006). The local tag improves the position of the local national corporation when it is compared to a multinational corporation that lacks local tag. Corporate social responsibility help multinationals to earn competitive advantage; competitive advantage in this regard is the differentiation strategy that is helps the company to focus on its CSR activities to make themselves unique from competitors (Dahlsrud 2008). Here, shareholders’ demands are regarded as opportunities and thus organizations are called upon to manage their resources to meet these demands as well as exploit the opportunities that come with these demands (McWilliams, Siegel & Wright 2006). For this reason, business strategies are aligned with the social corporate responsibility activities (Lindgreen & Swaen 2010). Equal Employment Opportunity (EEO) policies are also used in this case; firm’s that build their competitive advantage through differentiated and unique CSR strategies always earn superior competitive advantage (Xueming & Bhattacharya 2006). Customer and investor relations programs CSR initiatives also help in the strengthening of the firm’s competitive advantage, customer patronage, and brand loyalty (Becker-Olsen, Cudmore & Hill 2006). Accordingly, CSR activities also empower the company to attract more investments (McWilliams, Siegel & Wright 2006). On the other hand, local national corporations are better placed to market their capability and capacities. It is attributed to the tag it is a local business and therefore, attracts easier investment including customer appreciations (McWilliams, Siegel & Wright 2006). Frequently, local communities tend to assist with a given corporation based on locality and contribution to the success of the corporation is premised on the contribution of the corporation to the entire community (Becker-Olsen, Cudmore & Hill 2006). In this case, multinationals have to be felt in the community and this can be achieved through CSR. Multinationals that engage in corporate philanthropy always align their philanthropic activities with their core competencies and capabilities (Xueming & Bhattacharya 2006). By doing this, distractions from core business are avoided, efficiency of charitable activities is enhanced and unique value creation is assured to beneficiaries (Xueming & Bhattacharya 2006). More importantly, these CSR initiatives will automatically enhance the company’s competitive advantage (Dahlsrud 2008). By continuously engaging in corporate responsibility, multinationals develop reputation and legitimacy; for instance, CSR initiatives are used by companies to create, defend, and sustain their strong reputations and legitimacy (McWilliams, Siegel & Wright 2006). Multi-nationals are perceived to be legitimate in their business operations only when their business activities are congruent with societal goals and values; when they fulfill their social responsibilities (Lindgreen & Swaen 2010). Multinationals can fit in communities and cultures in which they operate by demonstrating their ability to build or create mutual and beneficial relationships with stakeholders (Xueming & Bhattacharya 2006). Value creation by firms is achieved through leveraging gains in reputation and legitimacy that are made through aligning stakeholder interests (Xueming & Bhattacharya 2006). In essence, CSR initiatives undertaken by any multinational enhances its ability to be seen or perceived as legitimate in the eyes of stakeholders (Becker-Olsen, Cudmore & Hill 2006). Customers, employees, and investors always like associating themselves with socially responsible companies (Becker-Olsen, Cudmore & Hill 2006). Corporate philanthropy is regarded as a tool for legitimization (McWilliams, Siegel & Wright 2006). In this regard, multinationals that continuously undertakes philanthropic initiatives extensively legitimize themselves as well as create lasting reputation (Dahlsrud 2008). Corporate disclosure and transparency practices also allow multinationals to enhance their reputation and legitimacy (Becker-Olsen, Cudmore & Hill 2006). Multinationals engage in CSR activities to seek win-win outcomes through synergistic value creation (Xueming & Bhattacharya 2006). Synergistic value creation dictates the company to exploit those opportunities that have the capacity of reconciling stakeholder demands (McWilliams, Siegel & Wright 2006). Connecting stakeholder interests together with creating pluralistic value definition for multiple stakeholders simultaneously is the only way for creating synergistic value (McWilliams, Siegel & Wright 2006). Multinationals can achieve this through charitable giving to education, sports, and other socio-cultural activities. Corporate philanthropy can be used by multinationals to create competitive advantage that is essential in fulfilling the needs of stakeholders (Dahlsrud 2008). Therefore, reputation and legitimacy are important to the success of any organization. Local national corporations are, in most instances, legitimate from the eyes of the community (Becker-Olsen, Cudmore & Hill 2006). It is attributed to the long history since the beginning of the corporation and how the corporation has continued to grow with the community (McWilliams, Siegel & Wright 2006). It is comparatively different from multinationals that come into a community with vast resources with the purpose of setting up a corporation and continue earning profits. Therefore, legitimacy and reputation should be ‘bought’ through CSR in the case of multinational corporations. Stakeholder engagement is also achieved through CSR; the win-win CSR perspective not only aims at satisfying stakeholders’ needs, but also allowing the firm to pursue its financial success (Xueming & Bhattacharya 2006). Stakeholders are important in determining the success of any corporation (McWilliams, Siegel & Wright 2006). The stakeholders come in different forms but include the local/national government, the local community, the expectations and understanding of the community (Becker-Olsen, Cudmore & Hill 2006). Local corporations already have engagements with stakeholders when compared to multinational corporations. The local corporation understands and knows how the community and other stakeholders operate (Becker-Olsen, Cudmore & Hill 2006). Therefore, the local authority does not need to ‘appease’ stakeholders when compared to multinational corporations. The ‘appeasing’ in the view of multinational corporations is sponsoring and championing CSR (McWilliams, Siegel & Wright 2006). Hence, local corporations do not need to invest in stakeholder appreciation when compared to multinational corporations (Xueming & Bhattacharya 2006). The above discussion expansively give tremendous benefits that multinationals are bound to reap if they continually go beyond meeting economic and legal expectations to fulfilling ethical and philanthropic functions in discharging their social responsibility (Becker-Olsen, Cudmore & Hill 2006). Contrastingly, there are five principle arguments against corporate social responsibility: opponents of CSR argue that there is a problem of competing claims, competitive disadvantage, fairness, competence, and legitimacy. This section discusses these arguments independently (McWilliams, Siegel & Wright 2006). Conclusion “Modern multi-national corporations increasingly have a responsibility to go beyond meeting economic and legal expectations to fulfilling ethical and philanthropic functions in discharging their social responsibility.” In this regard, the discussion provides that by multinationals continuously engaging in corporate social responsibility activities they reduce the company’s inefficient capital expenditures and exposure to risk; earn competitive advantage, develop reputation and legitimacy; for instance, CSR initiatives are used by companies to create, defend, and sustain their strong reputations and legitimacy, and to seek win-win outcomes through synergistic value creation. These points have been expansively discussed. Furthermore, multinational corporations are disadvantaged because it lacks the reputation and legitimacy that is associated to local national corporations. Local national corporations have numerous benefits and they are not required to create positive relationship when compared to multinational corporations. References Basu, K & Palazzo, G 2008, ‘Corporate social responsibility: A process model of sensemaking’, Academy of Management, vol. 33, no. 1, pp. 122-136 Becker-Olsen, K, Cudmore, A & Hill, R 2006, ‘The impact of perceived corporate social responsibility on consumer behavior’, Journal of Business Research, vol. 59, no. 1, pp. 46-53 Campbell, J 2007, ‘Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility’, Academy of Management, vol. 32, no. 3, pp. 946-967 Dahlsrud, A 2008, ‘How corporate social responsibility is defined: an analysis of 37 definitions’, Corporate Social Responsibility and Environmental Management, vol. 15, no. 1, pp. 1-13 Lindgreen, A & Swaen, V 2010, ‘Corporate social responsibility’, International Journal of Management Reviews, vol. 1, no. 1, pp. 1-7 Matten, D & Moon, J 2008, ‘“Implicit” and “Explicit” CSR: A conceptual framework for a comparative understanding of corporate social responsibility’, Academy of Management, vol. 33, no. 2, pp. 404-424 McWilliams, A, Siegel, D & Wright, P 2006, ‘Corporate social responsibility: Strategic implications’, Journal of Management Studies, vol. 43, no. 1, pp. 1-18 Xueming, L & Bhattacharya, C 2006, ‘Corporate social responsibility, customer satisfaction, and market value’, Journal of Marketing, vol. 70, no. 4, pp. 1-18. Read More