ABC Corporation, as a financially-oriented corporation, has come under a great deal of scrutiny and criticism for perceived unethical conduct, particularly in light of larger recent economic issues. Although not necessarily coming under direct fire, there is a need within the corporate environment to strengthen the reputation of the brand both internally and externally for future success. This can be achieved by adopting a corporate social responsibility (CSR) program. It is the purpose of this memo to address some of the common issues regarding CSR and to make a case for the adoption of a CSR program within ABC Corporation.
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Common issues regarding CSR include:
- Increased attention on CSR in today’s market
- Measurability of CSR policies
- Strategy of implementation
- Identifying rewards
- Increased corporate responsibility
- Defining morality
- Identifying challenges
The Growing Importance of CSR in a Competitive Market
In recent years, there has been a number of scandals involving CEOs engaging in unethical practices or leading their organizations into unethical practices that ultimately harm the public. This has brought these issues to the forefront as it is a condition of human nature to succumb to unethical behavior when given the chance and these behaviors have brought numerous countries to a point of economic crisis.
ABC Corp. has also experienced its share of unethical behavior, making it necessary for us to embrace the growing trend of ‘Corporate Social Responsibility’ or CSR. Contributing to ABC Corp.’s recent troubles, the most recent economic crisis has caused many in the public realm to lose all trust in the financial market and thus to take a much more active and supervisory stance regarding government and corporate actions (Mulligan, 1988). Many organizations have adopted the CSR label and its general practices of strategic investment in good causes as a means of presenting themselves as “good corporate citizens” of the world.
It can be argued that ABC Corp no longer has the available capital to adopt CSR strategies without cutting into an already narrowed profit margin thanks to the current economic condition of the nation. However, this is not a condition that is unique to our organization. Even firms that have received ‘bail out’ packages from the government are reporting similar performance. Regardless of the profit margin, though, this does not erase ABC’s responsibility to its overall community. Instead, it may make it even more morally imperative that we take action as other governments and corporate entities fail (Cadbury, 2002).
The underlying purpose of CSR policies is to strengthen our organization internally while also promoting an exterior image of a “good citizen.” The internal benefits of these types of policies provide employees at all levels with a reliable framework of expected behavior and a means to address issues of a moral nature as they arise. Corporate encouragement of workforce involved in the welfare of the community also boosts individual employee morale at the same time that it encourages teamwork and organization ‘on the floor’ as well as ‘up the ladder’ increasing overall corporate performance at all levels. These patterns discovered within the organization are then able to extend outward into the external environment, strengthening the consumer base and the company appeal to help us better weather future difficult economic periods.
ABC Corp has resisted efforts to establish CSR policies in the past based upon the common conception that the first and most important goal by far of any organization is to show a profit for its shareholders. As the economy continues to suffer, this thought is held to even more fiercely. Sinking funds into social causes is considered to be little more than a drain on an already struggling bottom line. While it is true that CSR practices are unlikely to show an immediate or perhaps even long-term direct effect on ABC’s cash flow, establishing CSR policies can maximize the overall market value of the firm contributing indirectly to its long-term success.
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As important as determining to adopt CSR policies into ABC Corp is the question of how it will determine to do so. The supply and demand for socially responsible investment opportunities determine whether an organization’s activities will improve, reduce, or have no impact on a firm’s market value.
Adding up the bottom line: Can social responsibility provide a measurable outcome?
The measurability of a given business factor is always an important consideration as the ability to point to positive results is often the primary means by which decisions are made. However, ABC’s presumption that the primary function of business is to profit is flawed by its exclusion of the close-running second most important function of the business. “Business has always been also about productivity and about public service – and the profits it makes need to be distributed and reinvested” (Solomon, 1993). It stands without question that ABC can only exist as long as it has consumers to work with, but without strategic reinvestment in the global community, those consumers soon become priced out of the market and the company also eventually fades.
Corporate leadership is required to help individual owners and investors in our company take action on those issues that are most important to them. Studies demonstrate many owners and investors, including those within ABC Corp, care as much about the maximization of their funds as they do about other social issues (DeGeorge, 1995). However, measurability remains a difficult issue as efforts at social responsibility produce largely immaterial, but not unimportant, benefits. Strong internal standards and enforcement of ethical principles, even at the highest levels, are needed within ABC Corp to ensure that the company stands firm on its ethical base. A study conducted by John Braithwaite (1985) indicates that this kind of strong internal enforcement is even more crucial than a stated code of ethics in maintaining CSR.
One form of ethical social responsibility efforts that can be quickly implemented into ABC Corp’s policy is to incorporate our stated CSR standards into our loan practices. This can take the form of negative action in that we might choose not participating in a particular business sector because of its ethical questionability or positive action in adopting policies that ensure our investees adhere to pre-determined general ethical standards (Hellston & Mallin, 2006). By choosing not to invest in ethically suspicious companies such as those that use child labor, produce harmful products, reject employee rights, or do harm to the environment, ABC Corp can reduce direct and indirect involvement in such practices thus improving our overall reputation. Turning this concept around, we can also adopt policies of actively supporting and investing in companies with strong ethical imperatives and practices.
Measurement of outcomes can then be quantified to some degree as ABC Corp will be able to point to the number of organizations we support that either have ethical standards in place already or that have been encouraged to adopt the same as a result of their desire to work with us. To further boost ABC’s reputation as an industry leader, ABC should provide support to these fledgling companies attempting to put CSR policies into place by ensuring they have the necessary resources. This is an important step in placing ourselves as a leader as many other financial institutions have already adopted these types of policies. Doing anything less would give ABC Corp a reputation as a reluctant follower.
Identifying the rewards
It is suggested and often assumed that there are real, measurable benefits to adopting CSR policies. This is largely due to the immaterial but important psychological and social benefits brought about as a result of these policies. According to Managing Director & CEO of BP, John Manzoni, “in order to prosper into the future, global companies must contribute to solving the issues that the world faces today. Business must rebuild trust by demonstrating that its interests are aligned with those of society as a whole” (Manzoni, 2006).
Employees want to feel good about ABC Corp because it supports good works. If ABC Corp adopted these policies, the good works would help to offset many of the negative feelings within the community thus building brand equity. “Ethical investment offers the opportunity to gain a healthier return on your money by supporting companies that the public feels to benefit the society and the environment whilst avoiding the companies whose activities people dislike” (Vincent, 2008). However, Hellston and Mallin (2006) have found little measurable evidence that social responsibility actually leads to direct financial benefit. Yet even they acknowledge that with the growth in popularity of social responsibility, companies without social responsibility policies may operate at a significant disadvantage in the future.
Companies that actively take a part in improving the economic situation of the public, whether directly or by adopting ethical policies in choosing business partners, are positioned to reap the rewards. An investment in the local economy contributes to the success of the community in a way that ultimately gains its support. A company that invests in the training and education of the neighborhood is also building a potential future labor pool that can either contribute directly to the company as an employee or indirectly as a consumer. By working with ethical local suppliers when possible and the area’s governing body to improve community infrastructure, the commercial environment and the business itself are improved. “Corporate leaders recognize the need to strengthen their own community base. A vibrant local economy can become as important a factor in business growth as export development” (Kanaga, 1999). Ethical practices and policies thus can contribute to company growth in significant yet still largely unmeasurable ways.
Increased responsibility is a reality
In today’s increasingly globalized and corporatized society, it is clear that corporations and financial markets have also gained increasing control over the lives of the public. This only becomes clearer when one realizes the extent to which many governments have increasingly permitted the corporate world to manage the provision of goods and services to businesses with less public oversight (Hellston & Mallin, 2006). This has created an environment in which corporations such as ABC Corp have the ability to behave unethically. However, as recent history has proven, political positions can change and it is more advisable to adhere to strong ethical standards during the slack years so as to emerge with high public opinion in the end. Our history has proven that this can only be encouraged by adopting official policies.
However, there is an even greater moral imperative as the level of corporate influence within the politics of nations such as the United States, Mexico and Argentina becomes more obvious. Corporations’ historic and vast manipulation of the political systems of numerous countries around the world has caused these governments to desert its most basic responsibility in favor of gaining corporate favor. “The now common practice of financing political campaigns has replaced, de facto, the social contract with a corporate one, where those who provide the monies dictate the topics and direction of the governments’ agenda” (Corporate Social Responsibility, 2008).
Part of the problem with adopting socially responsible policies is found in trying to determine just what would be the socially responsible thing to do. Not all ethical questions are as straight-forward as they might seem. As Solomon (1993) has pointed out, ethical evaluations in business have typically been negative since many business transactions are considered to be based on rational and often self-interested calculations as to how the company can best maximize profits rather than remaining focused solely on engaging in socially responsible and ethical actions. This confusion between merely self-interested individuals maximizing their personal benefits as opposed to actually socially responsible corporate practice has led to problems in attempting to distinguish between public and private moralities in connection with CSR. Hermes (2002) suggests that companies adopt policies that embrace the greatest good regarding social, environmental or ethical considerations.
Discovering the challenges ahead
There are several challenges to be faced in adopting CSR policies. These include, but are not limited to:
- Developing an integrated approach to CSR policy adoption and enforcement that applies to all levels of business strategy and activity
- Achieving widespread employee support for the CSR policies adopted
- Ensuring integrated CSR policy remains an important element of ABC’s future corporate policy as the company grows
- Adopting a means of adapting and responding to CSR related issues that arise and require more specific or direct involvement
- Finding a means of quantifying the benefits gained through CSR policy adoption and enforcement
It is acknowledged that precise measuring of the benefits of CSR programs and policies is often difficult and imprecise. It is also true that determining just what constitutes the ‘greatest good’ is equally complicated when attempting to establish social responsibility guidelines. However, there is a need for leadership in the increasingly powerful corporate world to establish some basic standards for human dignity by adopting strong ethical standards that hold all employees and business associates accountable. ABC Corp is in a prime position to incorporate these ideas into our business strategy. A struggling economy and our field of interest have both instigated increased scrutiny by both government and public representatives. By adopting these kinds of policies, the ABC brand will be made stronger. The investments we make to protect the consumer ,as well as the employee, builds loyalty in the public for the brand that will help us overcome our most recent difficulties and will help support us should we find ourselves in such a position again. However, by adopting these policies, ABC will also be working to ensure we are never again in such a position. While the entirety of the effects of these policies may not be measurable in the present, the loyalty and faith in ABC Corp thus constructed on the part of the employee and the public can make the difference between success and failure when times get difficult.
Braithwaite, John. “Varieties of Responsibility and Organizational Crime.” Law and Policy. Vol. 7, N. 3, (1985): 315-343.
“Corporate Social Responsibility.” The Jus Semper Global Alliance (2008).
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DeGeorge, R. Business Ethics – 4th Edition. New York: Macmillan Press, 1995.
Hellsten, Sirkku & Chris Mallin. “Are Ethical or Socially Responsible Investments Socially Responsible?” Journal of Business Ethics. Vol. 66: 393-406.
Hermes. Hermes Principles. Hermes Pensions Management, (2002). Web.
Kanaga, William S. “Corporations Must Act Ethically.” Economic Reform Today (1999). Web.
Manzoni, John “BP and Infosys co-chair inquiry into the role of the global company of tomorrow” Ethical Corporation (2006). Web.
Mulligan, T. “A Critique of Milton Friedman’s Essay The Social Responsibility of Business is to Increase its Profits.” Journal of Business Ethics. Vol. 5: 265-269.
Solomon, R. “Business Ethics.” A Companion to Ethics. Peter Singer (Ed.). Oxford: Blackwell Publishing, 1993.
Vincent, David. Ethical Investments. (2008). Web.