Mechanism of Corporate Social Responsibility - Essay Example

Running Head: CORPORATE SOCIAL RESPONSIBILITY Corporate Social Responsibility [The [The of the Table of Contents Corporate Social Responsibility Introduction Nowadays, businesses want to be regarded as responsible corporate citizens. Socially responsible organizations would like to structure their production methods to fit in with increasingly strict environmental regulations. Such firms take seriously their environmental responsibilities in raw material usage, packaging, waste treatment and energy consumption. These businesses will honour commitments, not engage in misleading or deceptive product descriptions and provide a safe working environment for their employees. The topic of corporate social responsibility has been widely argued and debated about because it is becoming an increasingly important concern to the society in which an organization operates in. Over time the classical economic theory based business social responsibility evolved to see business social responsibility as more than just profit. Businesses worldwide have become more socially responsible, but they still are pursuing economic interests. Economic interests will always remain the number one priority for businesses all over the world. "Any mechanism for enforcing or urging social responsibility upon firms must of course reckon with a profit motive..." (Arrow, 2001: 304) Corporate Business and Growing Emphasis CSR Outlook Not all the businesses have socially responsible outlook. Some business owners still regard socially responsible business practices as a waste of money, the cost outweighing any benefits. The majority of business owners, however, regard the cost of socially responsible actions as necessary expense. They make such a commitment an essential part of their business operation. They take a great deal of pride in the reputation their business has established and wish to protect its good name. These businesses want to be seen as responsible corporate citizens, conscious of the high standards expected of them by their customers and society at large. The business world of today is much more complex compared to that of 60 years age, requiring a higher degree of corporate social responsibility. Increasingly, shareholders are starting to question and call to account the decisions made by directors concerning the business's environmental performance. Corporate Social responsibility's (CSR's) time has come, and it is not just a management fad. The key benefits of CSR for companies are in employee retention and helping organizations through dialogue and engagement with their key stakeholders. This enables companies to win better alignment with their markets and customers in the long run, and help stem the growing tide of confrontation. Strategic Ethics And Social Responsibility Strategic ethics and social responsibility are two of the most important, yet perhaps most misunderstood concerns in the world of business today. By their very nature, these fields are controversial, and there is no universally accepted approach for solving their questions. On the other hand, government is encouraging organizational accountability for ethical conduct, and organisations are being asked to prevent and control misconduct by implementing ethics programs. By defining strategic ethics, we can link and compare it with the concept of social responsibility. In this way, we can examine applications in the business context, thus drawing conclusions about their roles in strategy. (Ferrell, 2000, 119-23) With the competing demands from different stakeholders, Corporate Social Responsibility is becoming more important in an organisation. Corporate enterprises are starting to recognize that they have a wider responsibility to the communities within which they operate. Research has shown that by implementing social responsibilities, a win-win situation can be achieved between the company and its stakeholders. Social responsibility is the obligation a business assumes toward society. Jennings (2003:6) defines these responsibilities as being economic, legal, ethical and philanthropic. A business' economic responsibilities are to produce goods and services that society needs and wants at a price that can perpetrate the business and satisfy its obligation to investors. The legal responsibilities are the laws that they must obey. Social responsibility then can be viewed as a contract with society, whereas business ethics involves carefully thought out rules of business organizational conduct that guide decision making. Business ethics relates to rules and principles that guide individual and work group decisions, whereas social responsibility concerns the effect of organizational decisions on society. (Meznar, 1997, 47-66) The Role Of Ethics And Social Responsibility In Strategy When a corporation's values and ethics support its strategy, the company's stability and success is enhanced. Ethics and social responsibility are components of strategy because every business secures its future by making a contribution. Ethics and social responsibility play vital roles in the preservation of this priceless partnership, which can thrive only in an atmosphere of trust and integrity. (McDonald, 2000, 169-85) Many studies have, in different ways illustrated the positive impact of ethics and social responsibility on overall organisational performance. Steidlmeier (1997:105) states "businesses that succeed give consumers the opportunity for feedback. Satisfied customers will return, but dissatisfied ones will continue to damage the firm's reputation. Service fairness - the customer's perception of the degree of justice in a firm's behaviour - is a key element in long term business success." Epstein (1999:114) on the other hand states "Corporate reputation has an impact on stock price and organisational productivity. Business misconduct can damage a firm's reputation. There is also increasing evidence that developing an effective compliance program not only helps prevent misconduct, but also leads to economic productivity". Organisational efforts in regard to ethics and social responsibility affect various organizational stakeholders - including customers, employees, suppliers, and investors. Many stockholders want to invest in companies that have strong programs in ethics and social responsibility. (Korhonen, 2003, 25-39) In today's business environment, no more than ever have the issues of strategic ethics and social responsibility come to the attention of managers, employees and the wider community. Profit Maximisation and CSR In any business, the main motive is of course profit. Businesses need to recover the money that they have invested in the market, and the fastest way of doing this is of course by profit maximisation. When an organization engages in a business, they will face competition from other entrants in the same market. So, for an organization to get an edge over its competitors and stay in business, it has to lower the price of its goods or services (Arrow, 2001: 305). In any case, the company with the lowest price will most likely have an edge in selling its product compared to its competitors. The only way to achieve this is by reducing the cost of doing business by getting rid of unnecessary expenses. In this case, being socially responsible adds cost of doing business. These additional costs will be passed on to the consumers of the product, and this does not give an organization advantage over its competitors. For example, let's say company A and company B enters the market of making shoes together. Company A acts socially responsible and acts in the goodwill of the society, and on the other hand, company B satisfies only the minimum requirements of social responsibility that is required by the law. In this case, of course company B's products will be cheaper than company A's product because it has less production costs. And if a consumer goes to the shop to buy a pair of shoes, most probably the consumer will choose company B's product, because it is cheaper. In this case, company B gains the market share in the short run and most probably the long run as well. So, when a company is making profits there is no incentive for it to act socially responsible. Conclusion In conclusion, the topic of corporate social responsibility will always be something that will be argued about. Both the classical and socioeconomic view will be used in various organizations globally. But, the fact still remains that any organizations main goal is of course, without any doubt, economic interests. No organization in this world, except for non-profit organizations, will open a business to take care of the society's well being. Since economic interests are the main priority of any organization, it is safe to say that all organizations actually practice the classical view in the real world. Classical view is something that is realistic and in fact is being put to practice by all organizations. On the other hand, the socioeconomic view is a bit farfetched and treats the organization as a human being rather than a business. Even though it has been proven in some cases that incorporating social responsibility is profitable, not many companies incorporate it because social responsibility talks about profits in the long run, where else companies need the profits now just to survive and carry on with business operations. Many companies realize the long-run benefits of corporate social responsibility but cannot afford to sacrifice short-term needs for long-run benefits. Moreover, what is far from now is always perceived as something more risky. Many companies are simply not sure that they will stay in business long enough to receive the benefits of corporate social responsibility. All in all, quite frequently short term goals are much more important for companies than long-term ones. Most companies that actually adopt the socioeconomic view are not one of the top ones. For example, in the recent survey done by Financial Times regarding the World's Most Respected Companies, the companies that got the top places are not the ones that act in the society's well being. According to the survey, the three most respected companies are Microsoft, General Electric and IBM (Coelho, 2003,15-25). Microsoft and General Electric were never very famous for their corporate social responsibility. Microsoft and General Electric are one of best examples of companies who adopted the classical view and have reached to the top. In this case, the argument for social responsibility which states that public image can be created through the socioeconomic view can be rebutted immediately. Microsoft and General Electric have both been involved in dominating the market, polluting the environment and also downsizing their companies just to make additional profits in the course of their business. Nevertheless, these companies are the most respected ones in the society. This shows that the society gives priority and respect to companies that know how to do the business and how to gain financially from the business. References Arrow, N, 2001, Social responsibility and economic efficiency. Public Policy, 21: 303-317 Coelho, P.R.P., McClure, J.E. and Spry, J.A. (2003), "The social responsibility of corporate management: A classical critique", Mid-American Journal of Business, Vol. 18, No. 1, pp. 15-25. Epstein, E 1999. The corporate social policy process: Beyond business ethics, corporate social responsibility, and corporate social responsiveness. California Management Review, 29(3): 99-114 Ferrell, O & Fraedrich, J, 2000, Business Ethics, Ethical Decision Making and Cases. Boston: Houghton Mifflin Company. 119-23 Jennings, M, 2003, Business Ethics, Case Studies and Selected Readings. Chicago: Thomson Learning. p6 Korhonen, J. (2003), "Should We Measure Corporate Social Responsibility", Corporate Social Responsibility and Environmental Management, Vol. 10, pp. 25-39. McDonald, G. (2000), "Business ethics: Practical proposals for organisations", Journal of Business Ethics, Vol. 25, No.2, pp. 169-185. Meznar, M, Chrisman, J & Carrol, A, 1997, Social responsibility and strategic management. Business & Professional Ethics Journal, 10: 47-66 Steidlmeier, P 1997, Corporate social responsibility and business ethics. In Sethi, S & Falbe, C, Business and society: Dimensions of conflict and cooperation, 101-121. New York: Lexington Books Read More