Definition
Corporate social responsibility is defined as a form of corporate self-regulation integrated into a business model; it is aimed at motivating business entities to voluntarily involve themselves in corporate initiatives, as an alternative to additional or existing mandatory initiatives. It is a form of corporate social regulation integrated into a business model which would function as a built-in, self-regulating mechanism whereby a business would monitor and ensure its adherence to the law, ethical standards, and international norms (Wood, 1991).
Business entities are expected by their immediate society and the government to be responsible for the impact of their activities, as they go about producing their goods and services, on the environment which includes consumers, employees, neighboring communities, stakeholders, and the entire public; by so doing they influence the consumption patterns of their products and services which boost sales and ultimately impact on profit turn over for the organization. Corporate social responsibility promotes the public interest by taking part in development-oriented activities in their communities and live up to ethical standards and expectations; this promotes a sense of responsibility amongst the business entities to an extend they voluntarily eliminate practices that harm their neighbors and the entire public regardless of their legality hence seen as a built-in self-regulating mechanism whereby businesses can monitor and ensure their adherence to law and international norms.
Corporate social responsibility concerns itself with what companies do with their profits as well as how they make these profits, it could be seen as a philanthropic gesture but it goes beyond compliance and addresses how companies manage their economic, social, and environmental impacts as well as their relationships in all key spheres of influence; the workplace, the market place, the supply chain, the community, and the public policy realm (Hess & et. al, 2002).
Abstract
There has been an increasing concern on how organizations can use corporate social responsibility to their advantage in creating a competitive edge in modern marketplaces. The initiative is being viewed as an effective means of establishing and appreciating the fact that, a business entity needs an environment that includes all players in its spheres of influence to achieve economic objectives. The study seeks to explore whether there is a need for an organization to establish a working relationship with the immediate society, people’s attitudes towards the initiative, benefits of engaging in the initiative, and criticisms which would be viewed as loopholes of the initiative.
Introduction
Corporate social responsibility is an initiative aimed at ensuring that business entities do not exclusively engage on fundamental economic gains at the expense of moral and ethical obligations, this implies that, for organizations to thrive in the modern competitive market, it has to establish a state of balance between economic and moral or ethical obligations. There have been cases in which organizations focused on either, but the contentious issue is, to what degree should a company engage in CSR related activities and still remain focused on its main economic pursuit. A good example of CSR at the expense of economic gains is Malden mills decision to continue paying its workers even after the tragic fire incident which had gutted down three buildings out of their eight in Lawrence, Massachusetts in 1995; this eventually contributed to the bankruptcy of the corporation while on the other hand the new management focused on economic gains and catapulted the organization into an international mega-corporation that today is a leader in several industries (Balko, 2004). The question is who deserved the most credit? Is it the management that focused on moral obligations and compensated the workers accordingly despite financial challenges or is it the latter management that focused on the success and eventual expansion of the corporation? Companies are increasingly accepting corporate social responsibility and recognizing the benefits accrued as a result of engaging in related activities to an extend that, there is a paradigm shift on whether to engage like it used to be in the past to how and also how to effectively use CSR to protect organization’s reputation and to develop and implement corporate strategy (Smith, 2003).
Reactions on CSR
There have been arguments in support for CSR which can be classified into two broad categories:
- Moral,
- Economic.
Moral Argument for CSR
For any business to exist it has to make profits, but this does not imply a total disregard to the business environment, it is the duty of each business entity to strive in view of adding value and make life better for all the groups in its spheres of influence. Each and every business entity should establish a working relationship with its surrounding environment due to the fact that a business cannot operate in isolation and would need the societal infrastructure, employees and consumers to achieve its objectives. ‘the purpose of a business should go beyond the maximization of efficiency and profits, CSR is a recognition of that interdependence and a means of delivering on that obligation, to the mutual benefit of businesses and the societies within which they are based’ (Handy, 2002).
Economic Argument for CSR
There are very many economic benefits to a business pursuing a CSR strategy, the economic front is used to persuade those business owners who are not convinced by the moral front to partake in CSR projects. Proponents of this front see the organization’s involvement in CSR projects as a key selling point that guarantees a competitive edge on the marketing of products and services. Business entities that engage in strong CSR involvements mostly benefit from increased sales considering the fact that the projects constitute a marketing strategy and in this brand-driven markets it could help or could be used as a means of matching corporate operations with stakeholder values and demands, at a time when these parameters can change rapidly (Handy, 2002).
Economic argument varies from moral or ethical cases in the fact that business case for CSR does not in any way claim it is the right thing to do, but rather it is to the company’s benefit if adopted and would provide a competitive advantage if well designed.
Examples of Corporate Social Responsibility
The meaning of corporate social responsibility has remained contentious over the years but there are types of corporate activities that have been singled out as major forms of social responsibility, they include:
- Choosing to operate on an ethical level that is higher than what law requires, indicates that a business entity is not tied by the law to offer certain standards but rather sees it as a responsibility to adhere to its own set quality standards and ethics. This reduces the level of government involvement in regulation to an observer and ultimately guarantees the quality provision of products to the consumers and reduces tensions and mistrust between the government and private organizations.
- Making contributions to civil and charitable organizations and non-profit institutions, most organizations in America and on a bigger scale all over the world contribute immensely to worthy causes in the society to improve reputations and also to be seen to contribute to the well being of the society; this is majorly a philanthropic gesture which could compound to a marketing strategy.
- Providing benefits for the employees and improving the quality of life in the workplace beyond economic and legal requirements, some organizations like Timberland are known to offer family-friendly programs like child care, flexible work programs, and even time off for volunteer work, this clearly indicates a shift from belief in the past when organizations would only offer this services simply because it is lawful to the modern-day belief in which it is out of responsibility and the fact that they feel owed by the society.
- Taking advantage of an economic opportunity that is judged to be less profitable but more socially desirable than some alternatives, this includes organizations shunning from some products simply because they are from endangered species like Home depot on wood and also paying more above-market rates to benefit and groom the sectors in poor countries like it is the case with Starbucks on coffee.
- Using corporate resources to operate a program that addresses some major social problems like improving working standards of employees, suppliers, and the immediate society; and giving donations of drugs, food, or any other product to the less developed countries, which may not bring in economic benefits to the corporations and may even involve sacrificing some profits but would contribute immensely to the betterment of the society.
Benefits
Corporate social responsibility has a lot of benefits to both the organization and the spheres of influence, the following are some of the benefits:
Human Resources
Good programs could be the main sources of recruitment and retention, with the current competition in the job market, favorable CSR program could contribute to successful recruitment and retention through improving the perception of a company among the staff mostly by involving them in the programs; this boosts the sense of ownership amongst the existing employees and provokes interest among potential or prospective employees.
Risk Management
Risk management constitutes a very vital component in development of any business entity, and could be used to build reputations which need to be guarded and protected from all forms of corruption and environmental accidents. A favorable CSR program could build up public confidence within and outside the corporations ultimately offsetting these risks. An example is Johnson and Johnson’s transparent handling of the crisis facing its Tylenol brand in 1982, the company went way above the expected recall capacity following a suspected poisoning incident; acting this way the company saved the brand and it has since remained to be a strong revenue earner for the company; a good CSR program or policy would be an effective means of protecting investments and maximizing its impact (Caroll, 1979).
Brand Differentiation
Market places are currently crowded by suppliers of the same or even closely related products, implying that each supplier must have a marketing edge in order to maintain or improve on sales; a good and favorable CSR policy can play a very vital role in strengthening if not building consumer loyalty based on distinctive ethical values. CSR makes consumers feel appreciated and cared for and in most cases they are compelled to reciprocate by being loyal to the organizational products and activities. The modern marketplaces have been defined to be mature, efficient and highly selective, only the top most brands survive the longest in these markets; this implies that a brand differentiation is important in creating a competitive advantage. It could be argued that competitive advantage can be derived from numerous sources but a strategy that incorporates social responsibility is one of the surest ways especially in the modern global economy where differentiation of the companies along with its product from competitors is key. A good example is NIKE international which has established itself to be one of the most progressive global corporations in terms of CSR with a fully pledged secretariat and annual reports; through this it has achieved a lot in mitigating public opinion and established its brand as a representative of a much more committed corporate citizen (McComb, 2002).
License to operate
Issues to do with taxation and meeting some certain laid down regulations can be challenging to organizations and if not well handled could pose a great interference in the running of organizations. It is with this in mind that most organizations would strive to take voluntary steps in view that this would persuade the governments and the entire public that they are taking issues such as health and safety, diversity or the environment seriously as good corporate citizens with respect to labour standards and impacts on the environment, ultimately being granted a clean bill of operation and good will from various spheres of influence (McComb, 2002).
Business Strategy
A good corporate social responsibility could be used as a business strategy in the sense that it builds customers confidence with the organization, and from most experiences, mostly, consumers would prefer to buy products from companies they trust; suppliers wish to only form business partnerships with companies they can rely on; employees want to work for companies they are proud of and respect; and even NGOs want to work together with companies seeking feasible solutions and innovations in areas of common concern; all this could easily be achieved by designing a favorable CSR policy which would incorporate all the major players either within the organization or amongst the spheres of influence and also which would aim at appealing to the environment on transparency and dedication towards serving their interests. Organizations strive to achieve all these in view that they are part of the market as well as in social and political environment in which the corporations operate in, this would ultimately build a strong working relationship between the organization and key players thus improving organizational capacity to make profits.
Leads to reduction in cost through recycling
A good implemented CSR policy would be in a position to help the business unit in tracing worth recycling products after consumption by the immediate society and an organization can easily craft means of collecting these wastes and recycling at a reduced cost other than buying the materials afresh.
Justification of CSR
Business entities do not have an unquestioned right to operate in the society, they have a duty to ensure they make living in their localities better but not to condemn them to the worst living conditions through shrewd means of operation.
Organizations need the society to progress and it is the duty of the top management to recognize this fact; they rely on the society for employees and consumers which are by the far the most important ingredients for successful operation of a business, implying engaging in CSR initiative is a big plus for organizations appeal to their localities.
There is a social contract between business and the society involving mutual obligations that society and business recognize that they each have to the other; for effective operation business needs their immediate society and society stands to also benefit from the operation of these organizations in their localities, probably through improved infrastructure or even ready market for their produce in terms of raw materials.
Business rely on inputs from the society and socially created institutions, it is the duty of the business entities to recognize the importance of this mutual relationship and seek to cement it through giving back to their localities by embracing CSR initiative.
Criticisms
Corporate social responsibility is seen to distract businesses from the fundamental economic role of businesses, which is always aimed at solving fundamental economic problem; setting up rules for allocating resources and/or consumption among individuals who can’t satisfy their wants, given limited resources; as businesses strive to comply to this responsibility they tend to invest on this calling ultimately reducing their concentration on key fundamental economic problem. When setting up businesses or any organization, the sole motivation is maximization of returns to either the owner or shareholders in partnerships; this indicates that the business or the organization will only be responsible to the shareholders or the owner and not to the society as a whole.
It is seen to be nothing more than mere superficial window dressing such that businesses use it to blind their environment while in reality they are covering a lot of flaws within the organization. There have been critics who argue that CSR is mostly practiced by organizations such as British American Tobacco (BAT), the petroleum giant BP and McDonald’s to sway the public from ethical questions posed by their core operations (Mckibben, 2006), in their view, they claim that organizations purely motivated by maximization of profits are unable to involve themselves in societal responsibilities which would increase their operational costs and ultimately cut on their profit margins.
It is also seen to be an attempt by business entities to pre-empt the role of governments as a watchdog over powerful multinational corporations, laggard firms and governments can sometimes use the existence of corporate social responsibility program to shirk their roles; it is the duty of the government to level the playing field and ensure public welfare through putting the right mechanisms in place aimed at ensuring organizations operate within a laid down framework of policies and uphold laid down ethical standards. For the program to effectively impact a positive contribution to the economy the government and the private sector should strive to put in place an understanding aimed at striking a balance of public and private responsibility and develop new governance and business models for creating social value (Friedman, 1970).
Some critics also see corporate social responsibility as a public relations ploy designed to legitimize or other divert attention from destructive social consequences of corporate activity; when an institution is seen to be involved in taking responsibility over its social challenges like for example ensuring its their obligation not to pollute the environment and to clean up any pollution they cause, governments and policy regulators assume a lot of things with the institution and some destructive social engagements may go unnoticed.
Disadvantages
Corporate social responsibility involves giving money away which would be like a self imposed tax, most organizations aim at maximizing profits at a minimum cost, engaging in CSR activities would result to reducing profit margins thus imposing costs on ones’ business.
Managers are employed not to generate wealth for the shareholders, not to give it away, it is the duty of the managers to strive and ensure they put mechanisms into place aimed at maximizing profits at minimum costs in order to increase share holders stake in the entities.
To attract quality workers is necessary to offer better pay and conditions and this leads to a rise in standards of living and wealth creation; this would not be possible when organizations are involved in a lot of CSR related activities which involve spending because in most organizations pay packages are based on the profitability of the organization which has everything to do with reduced operational costs.
The only recognized motive of establishing a business or any enterprise is to create wealth by providing goods and services, most organizations may see CSR compliance as an added cost and a deviation from intended direction or objectives of the organization and may be tempted to shun altogether.
Conclusion
There has been a gradual recognition of CSR by most organizations over the last fifty years, its meaning, arguments for and attitudes towards the initiative have been changing and the question on whether to engage has shifted to how and most organizations and business entities are working hard to strategically fit CSR in corporation policies in order to effectively develop programs that maximize on the benefits of the initiative both to the organization and the immediate environment if not the entire society as a whole. Involvement in corporate social responsibility is a fundamental approach to establishing a competitive advantage in the modern market in the sense that markets are mostly favorable to organizations which are responsible in their operations. A favorable and well designed CSR policy guarantees support from the business environment and involves top management or strategic decision makers of the organization for effective policy development and implementation.
References
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