Global Perspectives on Risk - Literature review Example

Global perspectives on Risk

Introduction

It would not be a mistake to suggest that business plays an important role in the social environment. Indeed, some might argue that it is largely responsible for the development of the human civilization, as in one way or another, advancement of technology contributed to the success of business. Nevertheless, it must be noted that the contemporary business world is significantly different from its counterpart from the past. There is a point of view, according to which business, especially international, is expected to generate profits as well as high return on investment that the shareholders will enjoy; that is why the novel concept of corporate social responsibility should be largely regarded as a distraction from this course of action and recognised as such that leads to negative outcomes in terms of finance. This paper will argue that corporate social responsibility can hardly be regarded as a distraction for a company and that, in fact, it contributes to the emergence of positive financial outcomes. In order to prove that the analysis will focus on each claim independently and examine various elements of it. For example, while exploring whether corporate social responsibility is a distraction or not, the paper will note that this concept helps the company to achieve strategic goals in human resources management, managing risks, reinforcing the brand and the relationship with the suppliers. As for the positive financial outcomes, it will be argued that recognising corporate social responsibility as one of the fundamental elements of the business model often boosts profitability through innovation and helps a company to become a pioneer in a particular industry. Moreover, it positively influenced the relationship with the customers, building brand loyalty and attract the potential audience. In addition to that, corporate social responsibility impacts the reputation and urged a company to pursuit sustainable path.

Corporate social responsibility is a distraction to business

First of all, it may be important to take a look at the point of view which states that corporate social responsibility is a distraction to businesses. Friedman (2009) states that “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” (p. 133). In other words, when companies start thinking about the corporate social responsibility they inevitably have to spend money on something that distracts them from their ultimate goal which is maximizing the return on profit. Consider the example of Volkswagen: the company thought that it was better to design ECU that would pass the environmental test when under supervision, but emit a lot of carbon dioxide on a daily basis. Therefore, it made a conscious choice not to fulfil its commitment to corporate social responsibility and sell cars that were harmful to the environment.

Corporate social responsibility is not a distraction, but a strategic move

Human resources management

To begin with, it may be particularly important to state that engaging the concept of corporate social responsibility into the decision-making process allows a company to achieve positive outcomes in terms of human resource management. Williams (2013) suggests that this practice has a beneficial impact on the recruitment process since applicants are likely to be attracted by the high profile of a company. Consider the example of Pepsi which is recognised as one of the most ethical companies in the world: it is obvious that it does not have a shortage of applicants (Yu & Cable, 2013). In addition to that, Härtel and Fujimoto (2010) insist that since corporate social responsibility widens the pool that will be used to choose the potential workforce, then it is logical for a company to choose the best people that it can find in it.

There is another positive influence of the concept in question in the field of human resource management proving that it is not a distraction, but an effective way to achieve the desired strategic goals. As found by Mermod & Idowu (2013), those employee who are certain that their company has a wonderful corporate social responsibility record are proud to work for it and vice versa: consider the state of mind of BP employees after the oil spill. In addition to that, this feeling of being proud is likely to contribute to retention, making sure that valuable skills and abilities will stay with the company for a considerable period of time (Gössling, 2011). Finally, as stated by Pillay (2014), one should not forget that nothing retains employees more than an ability to make a change. One would make no mistake that once Facebook revolutionised interaction in the virtual world; so, no its employees are proud that there could contribute to that change.

Managing risks effectively

There is another manifestation of involvement of corporate social responsibility for a company which can be witnessed in terms of risk management. Carroll (2011) notes that reputation has become one of the most valuable assets in the contemporary business world. However, one of the peculiarities of it lies in the fact that it might take a considerable amount of time to build it and an extraordinarily short period of time to ruin it (Min, 2015). That is why it is logical for companies to make sure that they do not perform actions that have a potential to do the latter. Moreover, Griffin (2008) suggests that it often takes a single action to ruin the entire reputation and put a scare that can hardly be removed. Consider the example of Primark: it did have problems with working conditions, but the company recognised its mistakes and completely changed its approach towards working with the subcontractors. Nevertheless, when the hoax about working conditions in China appeared, many believed it because of events which took place in the past and were not related to the present situation.

That is why, as Coombs and Holladay (2012) conclude, paying attention to corporate social responsibility might seem to be a suitable way for a company to be on the safe side when it comes to risk managements. Werther and Chandler (2013) insist that all big scandals are connected to this idea in one way or another. Thus, even Apple was attacked from not supervising its major subcontractor Foxconn; though legally the former is not obliged to do so. Pompper (2015) suggests that the idea of corporate social responsibility encourages the company to think about the consequences of their actions.

Brand management

Other than have a positive impact on the management practices of human resources and risks, corporate social responsibility also greatly contributes to building a stronger brand which is, obviously, an important element of development and cannot be perceived as a distraction. Jonker and Witte (2010) found that the positioning of many companies is directly affected by their ideas of corporate social responsibility. For example, Starbucks wanted to contribute to the community by spreading the culture that appreciates coffee: that is why it pursued an aggressive expansion strategy. Another point that should be mentioned is that many companies do not want to simply embrace the concept in question: they want to become role models for others (Demmerling, 2013). In other words, the interest towards corporate social responsibility has triggered competition in certain industries: consider the way in which competition changed in oil and automobiles industries as companies have become more aware of their environmental impact (Lister, 2011).

What is more important is that corporate social responsibility is often perceived as the element of brand's strategy that is able to attract the customers (Hooley, Saunders & Piercy, 2004). Think about Tesla Motors: this company will be a number one choice for those who are willing to break the vicious circle of carbon emission and care about the planet. In addition to that, according to Lewis, Goodman and Fandt (2004), the corporate social responsibility often conditions the so-called halo effect. As a result, potential customers are no longer able to perceive a certain brand without strong positive associations. Rosenzweig (2014) notes that as long as this effect is reinforced, the company will enjoy an extremely positive image. Appendix 1 shows the list of top 10 companies that spent the most on activities related to corporate social responsibility. One can hardly deny that each of these companies has a positive image that is associated with it.

Supplier relations

Finally, one of the reasons why corporate social responsibility should not be perceived as a distraction, but rather as an effective tool that can be used by a company, focuses on the beneficial impact that the concept in question has on the relationship between the organisation and the suppliers. First of all, as Sims (2003) insists, companies with a positive record regarding corporate social responsibility will be the number one choice of the suppliers. Indeed, it is obvious that no supplier would turn down an offer made by Google. What is more important is that a considerable amount of attention paid to corporate social responsibility often implies that relationship with the suppliers will be a long-term one (Yawar, 2014). The logic behind this can be easily understood. As suggested by Rühmkorf (2015), corporate social responsibility often implies commitment and the latter is often projected onto various areas of organisational activity, including the relationship with the suppliers. Moreover, the latter may be regarded one of the major stakeholders and their interests will be taken into consideration during the decision making.

One should also keep in mind that a long-term relationship between an organisation and a supplier provides a sufficient amount of room for achieving mutual benefits (Hancock, 2004). If one continues one of the examples made above, it is obvious that a supplier will be happy to work with Google and will be ready to make certain discounts to ensure long-term cooperation with this company. Mohanty (2008) assumes that this is also likely to have a positive impact on the efficiency of the interaction. As found by Idowu and Louche (2011), the more parties interact with each other, the more positive outcomes they are able to achieve due to a long lasting partnership.

Positive financial outcomes

Increased profitability

Now it may be logical to turn to a different aspect of the influence that engagement of corporate social responsibility has on the performance of a company. As mentioned by Horrigan (2010), in many cases organisations are expected to integrate innovations in order to show their commitment to the concept in question. That is why Hawkins (2006) suggests that corporate social responsibility might be regarded as a trigger of research and development that is carried out by a company. Think about Tesla Motors: it is beyond any doubt that this company was able to capitalise on the desire of the people to limit the emission of carbon dioxide into the atmosphere. Thus, Lozano (2008) concludes, being committed to corporate social responsibility appears to be extremely const effective since it urges a company to find new ways to produce the same product, minimising the negative effect.

Another point that should be mentioned is that a company is able to enjoy other advantages that are brought to it by corporate social responsibility. For example, according to Habisch (2005), if a company is able to deliver a product that is sought by the majority of the market, it will pioneer a new direction and will experience a lot of success due to this position. Moon (2014) shows that out outstanding performance of several companies can be explained by the concept in question. Consider the example of Toyota and its Prius: in spite of the fact that the idea to create and electric car was discussed everywhere, it was this company that managed to produce the first successful hybrid car making a bridge between the reality and the desired idea. Aras and Crowther (2010) insist that such actions allow companies to reinforce their image of innovative organisations.

Enhanced customer relations

There are several other outcomes that corporate social responsibility brings to a company that has a positive financial nature. Thus, Perrini (2006) found that customers are likely to stay loyal to a company that has expressed its commitment to the concept above. In other words, corporate social responsibility has ceased to be an abstract concept that is discussed by the scholars; it is a notion that ordinary consumers operate with and use to judge various companies. The advantages of brand loyalty that are brought by this idea can hardly be overstated. You (2015) points out that commitment to similar ideas contribute to the formation of a strong bond between the customers and the company, ensuring that the latter will stay with the former for a considerable period of time. For example, if one takes a close look at the boxes in which Samsung devices are sold, one will be able to see that it is indicated in many places that those boxes are made of recycled paper which implies that a customer has just contributed to the spread of recycling, reducing the negative impact on the planet.

In addition to that, some scholars insist that the active role of customers in building customer relations should also not be rejected. For example, Kotler and Maon (2011) suggest that a positive profile of a company in terms of corporate social responsibility urges potential customers to choose a particular company and vice versa. Think about the decline of sales of Shell after and oil spill. Moreover, Mullerat (2010) assumes that it is quite possible that customers would recommend the company of their choice to their friends and relatives. In this case, the connection between corporate social responsibility and financial performance is not obvious, but the reality shows that by simply adhering to its commitment, a company is able to promote its product effectively.

Improving corporate image

As it has already been mentioned above, reputation is currently playing an important role for businesses. That is why Ihlen, Bartlett, and May (2011) show that companies tend to spend a lot on such activities; nevertheless, having a clear and explicit corporate social responsibility agenda seems to be one of the most important element of this since it is largely recognised as the most effective one. Indeed, Hiles (2011) shows that companies may be willing to do anything to have a positive image in the eyes of the potential consumers. Sometimes, these efforts may fire back. For example, the recent global conference on climate change in Paris was largely supported by major oil companies. Some interpreted it as a way to show their commitment to corporate social responsibility. However, it is rather ironic that these companies supported and helped to host a conference that ultimately would put them out of business.

The important role that is played by corporate social responsibility can be explained by the general trend of awareness of the issue and treating it as an important element of the contemporary business (Kotler & Lee, 2005). The Appendix II shows that only 13 percent of the people are not interested in learning about the company's position on the issue of corporate social responsibility. In other words, it is obvious that the consumers expect an organisation to have a well-defined strategy that it would follow. Frederick (2006) mentioned yet another positive impact that engagement of corporate social responsibility is likely to have on an organisation: it will create a protective image that would minimise scrutiny and present a company in a positive light by default. One can hardly argue that all this will have a beneficial impact on sales.

Long-term orientation

Lastly, one should approach the question regarding the influence of corporate social responsibility on business in terms of finance from a broad perspective. Visser (2012) notes that the concept mentioned above does not fully coincide, but is closely connected to the idea of sustainability. In other words, by showing commitment to corporate social responsibility, an organisation also states its commitment long-term development plans. For example, BP acknowledges that petroleum will be gradually replaced by another source of energy; that is why it is currently developing projects that would ensure its ability to dominate the market for alternative sources of energy as well. Landrum and Edwards (2009) insist that the very concept of corporate social responsibility does not make it possible for a company to focus on a short-term success only: if the consumers see that an organisation does not have a commitment to sustainability and long-term development, they will abandon it.

What is more important is that organisations might experience other positive impacts of embracing corporate social responsibility in the long run. For example, Benn and Bolton (2011) state that there is a strong correlation between motivation and performance of a company with employees more willing to stay in a company that has a positive profile in terms of the concept mentioned above. In other words, employee retention may be extremely beneficial to a company in the long run as it will secure the low turnover. In addition to that, Crowther and Capaldi (2008) argue that employees are likely to be more productive in a company that claims its commitment to corporate social responsibility as they will be convinced that every effort that they make contributes to the desired effect. That is why there is a cohort of consequences that can be experienced only in the long run, but they all greatly contribute to the performance of the company.

Conclusion

Having examined all the points which were mentioned in the paragraphs above, one is able to come to the following conclusion: it is not fully correct to treat the concept of corporate social responsibility is a distraction from the company's strategy; moreover, it is contrary to the evidence that commitment to this concept is likely to produce negative financial outcomes. First of all, it must be noted that engagement of corporate social responsibility should be perceived as an effective way to achieve the strategic goals of a company. For example, it positively influences the practice of human resources management, contributing to the number of people willing to apply for a job provided by a company and increasing employee retention. Corporate social responsibility also helps a company to manage risks properly, preserve positive reputations and always operate on the safe side, thinking about the devastating consequences that a single action might have. It also contributes to brand image, making the position more effective and allowing some companies become role models for others, giving them various competitive advantages. Finally, commitment to corporate social responsibility also allows suppliers to build more effective relationships with the organisation.

What is more important is that the concept in question also has a considerable number of positive financial outcomes. For example, it increases profitability through the integration of innovation, making production more cost-effective and allows a company to enjoy the position of a pioneer. It also contributes to customer relations, building brand loyalty and urging people to recommend the company of their choice. Corporate social responsibility greatly improves the image of a company, allowing it to avoid scrutiny and making it positive by default. Finally, it encourages an organisation to adopt long-term orientation.