Corporate Social Responsibility - Essay Example

?Corporate Social Responsibility Table of Contents Table of Contents 2 Introduction 3 Discussion 5 Importance of Corporate Social Responsibilities (CSR) 5 Influence of CSR on Organisational Performance 8 Conclusion 13 References 15 Bibliography 19 Introduction Corporate social responsibility (CSR) refers to the concept through which the organisations contribute for the betterment of the society and the environment. It is essentially a voluntary procedure and not necessarily every organisation takes measurable steps in this prospect. The contribution of the organisations towards corporate social responsibilities includes certain monetary assistance to the society which would facilitate various social developments. Furthermore, the concept of corporate social responsibility can be related to the activities of an organisation which would facilitate in conserving the natural flora and fauna and as well as the socio economic culture (Reset, n.d.). There is no perfect definition for corporate social responsibilities, in simple terms; it can be referred to consideration of the ethical values while performing the business activities by the organisations. Corporate social responsibility also includes transparent or clear business activities e.g. the organisations should consider the legal requirements in their operations. Earlier, it was considered that the chief objective of a business organisation is to make profit, although, the scenario has changed a lot during the past decades and the organisations in the present day context are also expected to provide equal importance to the corporate social responsibility as well. During the recent years, it has been noticed that the organisations are increasingly being pressurised by the various stakeholders involved in the business to take measurable steps towards the corporate social responsibilities (Baird & et. al., 2002). The objective of the paper is to identify the influence of corporate social responsibility (CSR) on the stakeholders’ value. The paper also includes a thorough discussion about the statement, “Corporate Social Responsibility is a waste of shareholders’ money, and is just another way the classic agency problem between shareholders and managers manifests itself.” Discussion Importance of Corporate Social Responsibilities (CSR) Corporate social responsibility has been noticed to grow in importance in the past few decades. The concept of corporate social responsibility can be considered to have significant importance in the global business scenario. It has been found through various researches that the growing importance of CSR has been significantly affecting the relationship between the organisations and the various stakeholders (Economist Intelligence Unit, 2005). Corporate social responsibility is quite important for the organisations to sustain in the long run. It has been recognised that the organisations which are only concerned about the profit margins and ignore the stakeholders’ interest about CSR are likely to show lack of sustainability in the long run (Waldman & et. al., 2012). It is because of this reason that corporate social responsibility facilitates in gaining the trust of the stakeholders because CSR provides transparency to the business activities. Moreover, CSR is also quite important for the development of the society for the reason that business organisations form the background of the economy and a proportionate investment by them in the social activities would result in social development. In addition, CSR facilitates in maintaining a good business-to-business relationship which is also quite important for the business organisations to sustain in the long run. During the recent years, the perception of corporate social responsibility has developed into a major strategy for the business organisations to endure the aggressively emanating competitive market environment. The present market scenario can be characterised by increasing competition and unpredictable consumer behaviour, so implementing the concept of CSR has been noticed to be quite effective for the organisations to survive in the fierce market environment (Scribd, 2012). It can be stated that CSR facilitates the organisations to build up a good reputation as a responsible business house in the market. It has been noticed that the business organisations that support CSR are perceived by the customers to be better than other organisations. A good CSR strategy makes it quite effortless for the organisations to recruit new employees, as the individuals find these organisations to be trustworthy and consequently are more likely as well willing to work for them. The employees tend to be more motivated and productive in their work in case of the organisations which adopt the CSR strategies. CSR facilitates the organisations to abide by the legal requirements which are furthermore important for the business organisations to survive in the market. CSR facilitates the business organisations to relate with various social activities which in result would facilitate in generating a good reputation in the press (Business Link, 2012). In a broader perspective, it can be stated that corporate social responsibility plays a vital role in the development of the economic background of a nation. With regards to the international companies, CSR seems to be quite beneficial for superior business activities and efficient headship. The international companies now-a-days have come to know that the organisational affects on the society and the environment can directly influence the relationship of the organisation with the various stakeholders involved. It is worth mentioning that CSR has quite a significant effect on the prime objective of the business organisations which is profit maximisation. It has been noticed in quite a number business organisations with good CSR policies that they are also superior in terms of profit maximisation and growth (Fang, 2009; Reset, n.d.). Influence of CSR on Organisational Performance In the present day business environment, the concept of CSR can be considered to have significant importance for the business organisations to sustain in the long run. Several researchers stated that the money exhausted on CSR can be regarded as an investment rather than expenditure for the reason that it is likely to earn long turn returns for the business organisations. The CSR policies facilitate the business organisations in maintaining a good relation with the various stakeholders that also include investors as well as customers which in return enhance the performance of the organisation (Fonteneau, 2003). The organisations that utilise the CSR policies are likely to abide by the rules and laws and as a result are capable of maintaining a good relationship with the government. Business-to-government relationship has a quite significant role in the smooth running of an organisation and furthermore facilitates in the sustainable growth of the business. The application of CSR policies can also be noticed to minimise the conflicts between the business organisations and the stakeholders. In the development of a business organisation, the loyalty from the stakeholders’ play a significant role and CSR policies are noticed to be facilitating in this context (Ali & et. al., 2010). An organisation’s overall performance depends significantly upon the employee performance. It has been noticed that the employees perceive those organisation to be trustworthy which adopts certain CSR policies and as a result enhances the performance of the employees. The CSR policies tend to enhance the relationship between the employees and organisation and as a result the employees are likely to be further motivated to work hard. Corporate social responsibilities have several encouraging impacts on the performance of the employees as well as the organisation (Ali & et. al., 2010). Corporate social responsibility plays a vital role in all the business sectors. In the present day context, the retail business sector can be characterised by tough competition where the organisations struggle to distinguish themselves from the other competitors. In this context, the application CSR policies can facilitate the organisations as, the consumers now-a-days perceive those organisations to be reliable which adopts the CSR policies (Zur, 2009). CSR policies from the environmental point of view can also include the recycling of the waste product which further can reduce the cost and increase the profitability of the organisation. CSR policies have also been noticed to attract customers who are ethically aware and can also be expected to be loyal to the organisations. CSR develops the public image of an organisation resulting in increase in sales and enhancement of the overall organisational performance as well. Certain investors may consider those organisations to be dependable and responsible which have adopted the CSR policies and as a result may be willing to invest in those organisations. CSR policies can facilitate in rectifying the problems caused by the business activities which if not corrected may hamper the performance of the organisation in the long run (Zur, 2009). Despite the advantages of adopting CSR policies, there are certain disadvantages as well. The application CSR policies involve extra expenditure which may reduce the profit margin of an organisation. It is furthermore necessary to take CSR initiatives in such a way that it would enhance the overall performance of the organisation (Fang, 2009). Among several of the recent business scandals such as Enron and Worldcom, it has been recognised that there has been increasing pressure created upon the corporate executives to emphasise more on the broader strategy that focuses on the stakeholders’ value maximisation. The long-term sustainability of an organisation is quite dependent upon the reputation of the organisation and as well as on the stakeholders’ welfare. Certain researches state that various activities of an organisation affect the stakeholders’ value and need to be counterbalanced on the international standard. In such kind of situations, the concept of corporate social responsibility can serve as a corrective tool for neutralising the negative impacts of the organisational activities and preserving the value of the stakeholders as well as the shareholders (Becchetti & et. al., 2007). Therefore, CSR policies serve in increasing the shareholders’ value but in certain cases, it has also been noticed that the application of CSR policies can hamper the value of the shareholders’ in the short run. There are several researches which state that the commitment of the employees towards the organisation is significantly dependent upon the corporate social responsibilities. These researches state that corporate social responsibilities enhance the commitment of the employees towards the organisation for the reason that the CSR policies also include the welfare of the employees. Thus, it can be stated that the organisations which adopt the CSR policies would be able to perform more efficiently because of the increased level of employee commitment (Ali & et. al., 2010). Influence of CSR on Shareholders The organisations which adopt the CSR policies are generally noticed to have a good reputation in the market. This as a result can enhance the value of the shareholders involved in the business. During the recent years, the interest of shareholders towards corporate social responsibilities has increased to a great extent and the organisations are noticed to be pressurised more and more by the shareholders to involve in certain social activities. From certain research activities, it has been found that majority of the shareholders prefer the organisations which are involved in certain social activities rather than only concentrating on profit maximisation. Shareholders are also noticed to prefer organisations which sell products which are being produced abiding by the environmental guidelines and always utilise ethical ways for the business transactions. The implementation of CSR policies is a quite expensive procedure and many a times also includes the formation of a separate team for this purpose. The funds for these expenditures are raised from the shareholders, but the returns from these extra investments can only be utilised in the long run. This is why, the shareholders who prefer short-term returns than long-term returns, it is not advisable for them to invest in business organisations who adopt CSR policies (Banerjee, 2007). CSR policies can also be considered as an initiative to manage the risk associated with the business organisation. This in turn reduces the shareholders’ risk and facilitates in increasing the shareholders’ value. The CSR activities that generate a kind of goodwill for the organisations, can serve as a protection to rectify the problems arising out of certain business activities can enhance the shareholders’ value. This is because the shareholders are always faced by the risk of the share value to go down because of certain negative impacts of the organisations’ activities and in this context, the application of CSR can facilitate in maintaining the organisations’ reputation in such situations. CSR policies tend to reduce the market risks such as severe financial losses which in turn can also increase the shareholder value (Godfrey, 2008). Certain shareholders support the CSR policies but it can be noticed that the insiders of the organisations are likely to emphasise further in CSR policies with a view of improving the value of the organisation. In that case, it may happen that the organisation is earning reputation on the cost of shareholders but, the shareholders’ values do not increase likewise (Becchetti & et. al., 2007). CSR policies facilitate the shareholders’ value in several ways, so the extra expenditure made for the CSR policies can be considered as an investment rather than expenditure. Although CSR policies are not likely to result in providing short-term returns, they can provide several significant long-term returns. The organisations which adopt CSR policies are noticed to be transparent in their activities which can facilitate the shareholders in acquiring a clear perception about the organisational activities. This in return facilitates the decision making procedure of the shareholders (Norwegian Ministry of Foreign Affairs, 2009). CSR policies are always beneficial for the society but are not the same for the shareholders. In certain cases, the shareholders may find it undesirable to spend an extra sum for CSR when the CSR policies are likely to be more beneficial for the society and not for the shareholder value. CSR initiatives that are taken for the betterment of the society in certain cases may act as insurance for preserving the organisational reputation in cases when there is a negative effect of the organisational activities on the society. In these kinds of situations, the risk of reduction of shareholders’ value can also be reduced by the earlier investments made on CSR. Whereas, in case of organisations which practice CSR policies for their own profit but at the price of shareholders’ value, investment in CSR can be considered as an unnecessary expense for the shareholders. Conclusion From the above discussion, it can be stated that corporate social responsibilities have severe effect on organisational performance and shareholders’ value. The emphasis on CSR policies have increased to a certain extent in terms of importance in the recent days. Earlier, it was a common notion that the only objective of the business organisations is to earn profit but now-a-days, the business organisations are equally expected to concentrate on certain social and environmental activities. The CSR policies have a severe effect on the relationship between the business and the shareholders. It has further been noticed that the organisations those are not concerned about the corporate social responsibilities show a lack in sustainability in the long run. CSR policies facilitate the business organisations to provide transparency in their activities and as result gain the trust of shareholders. Trust of the shareholders plays an important role in smooth running of an organisation and it can be provided by CSR policies. CSR policies enhance the employee commitment towards the organisation which in turn enhances the performance of the organisation. CSR policies play a vital role in attracting the customers for the reason that the customers consider those organisations to be trustworthy which adopt certain CSR policies. Moreover, in certain cases, CSR policies may act as insurance to neutralise the negative effects on the business activities. In such cases, the CSR policies facilitate in preserving the value of the shareholders and maintaining the goodwill of the organisation as well. References Ali, I. & et. al., 2010. Corporate Social Responsibility Influences, Employee Commitment and Organizational Performance. African Journal of Business Management, Vol. 4, No. 12, pp. 2796-2801. Baird, V. & et. al, 2002. What is Corporate Social Responsibility? Catalyst Consortium. [Online] Available at: http://www.rhcatalyst.org/site/DocServer/CSRQ_A.pdf?docID=103 [Accessed April 27, 2012]. Business Link, 2012. 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