Coporate Social Responsibilty
- Pages: 29
- Word count: 7052
- Category: Sociology
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This Term paper explores corporate social responsibility (CSR) growth since the early 21st century whereas addressing a number of corporate social responsibility theories in the old vis-à-vis the new economy. The visible changes and effects of globalization and its impact on the transition from the industrial to the digital era. The Contemporary reasons why corporate social responsibility (CSR) is embraced in modern organizations and increasing ability for companies to react in the digital age and expectations to develop even stronger cultures of corporate social responsibility, proactively seeking to increasingly honour their moral obligations to society in the 21st century. It also brings out criticisms of modern CSR. Keywords: Corporate Social Responsibility, Global Standards, Sustainable development.
There various ways in which CSR is defined, the Corporate Social Responsibility Newswire Service: the CSR is “the integration of business operations and values whereby the interests of all stakeholders including customers, employees, investors and the environment are reflected in the company’s policies and actions.” according to the World Business Council for Sustainable Development in its publication Making Good Business Sense by Lord Holme and Richard Watts, they defined CSR as “ the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”. “The same report gave some evidence of the different perceptions of what this should mean from a number of different societies across the world. In Ghana it is about capacity building for sustainable livelihoods.
It respects cultural differences and finds the business opportunities in building the skills of employees, the community and the government from the Phillipines CSR is about business giving back to society. European Commission brings out CSR as “a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” Traditionally in the United States, CSR has been defined much more in terms of a philanthropic model. Companies make profits, unhindered except by fulfilling their duty to pay taxes. Then they donate a certain share of the profits to charitable causes.
It is seen as tainting the act for the company to receive any benefit from the giving. Corporate social responsibility is a multidimensional construct comprising four subsets of (1) economic; (2) legal; (3) ethical; and (4) voluntary philanthropic responsibilities (Carroll, 1989, pp 30-33; Ferrell and Fraedrich, ibid, p.6). The economic responsibilities of a business are to produce goods and services that society needs and wants at a price that can perpetuate the business and satisfy its obligations to investors. Thus social responsibility, as it relates to the economy, encompasses a number of specific issues including how businesses relate to competition, shareholders, consumers, employees, the local community and the physical environment.
The legal responsibilities of businesses are simply the laws and regulations they must obey. It is the bare minimum required of business organizations by society in return for allowing them to obtain the inputs they need from the environment, transform inputs into outputs and dispose of outputs — in the form of goods and services acquired by consumers in order to satisfy their individual needs and wants. The legal dimension of corporate social responsibility thus refers to obeying local, national and international law regulating competition (procompetitive legislation) and protecting: workers’ human rights (equity and safety legislation); the consumer (consumer protection legislation); and the natural environment (environmental protection laws).
Ethical responsibilities are those behaviours or activities expected of business by society — yet not codified in law. This subset of corporate social responsibilities may be interpreted as expressing the ‘spirit of the law’ vis-à-vis the ‘letter of the law’ in the previous case. Lastly voluntary philanthropic responsibilities are those behaviors and/or activities desired of business by society and referring to business contributions to society in terms of quality of life and society’s welfare – for example, giving to charitable organizations and/or supporting community projects. Although there would appear to be little disagreement about the need for organizations to act responsibly toward the wider society and the natural environment in which they operate, organizations themselves have adopted a wide range of positions regarding corporate social responsibility.
The various organizational stances vis-à-vis social responsibility in free-market economies fall along a continuum, ranging from a low to high degree of socially responsible organizational practices (Barney and Griffin, 1992, pp. 734-735). The few organizations that take a social obstruction approach to social responsibility usually do as little as possible to solve social and/or environmental problems. In such a case . “the organization does stand apart from society and functions best when it gets back to basics, when it is freed of government regulation and constraints and discards social engineering in favor of just plain engineering” (Schwartz and Gibb, 1999, p.96).
One step removed from social obstruction is social obligation, whereby the organization does everything that is required of it legally but does nothing more. A firm that adopts the social response approach generally meets its legal and ethical requirements and sometimes voluntarily even goes beyond these requirements in selected cases. Finally, the highest degree of social responsibility that a firm can exhibit is the social contribution approach. Firms adopting this approach view themselves as citizens of a society and, as a result, proactively seek opportunities to contribute.
In 1953, Bowen (1953) wrote the seminal book Social Responsibilities of the Businessman. Since then there has been a lots of contribution in proliferation of theories, approaches and terminologies. Society and business, social issues management, public policy and business, stakeholder management, corporate accountability are just some of the terms used to describe the phenomena related to corporate responsibility in society.
CSR theories and related approaches are focused on one of the following aspects of social reality: economics, politics, social integration and ethics. The inspiration for this hypothesis is rooted in four aspects that, according to Parsons (1961), can be observed in any social system: adaptation to the environment (related to resources and economics), goal attainment (related to politics), social integration and pattern Maintenance or latency (related to culture and values).
1. INSTRUMENTAL THEORIES
In this group of theories CSR is seen only as a strategic tool to achieve economic objectives and, Ultimately, wealth creation. Representative of this approach is the well-known Friedman view that ‘‘the only one responsibility of business towards society is the maximization of profits to the shareholders within the legal framework and the ethical custom of the country’’ (1970).
An adequate level of investment in philanthropy and social activities is also acceptable for the sake of profits (McWilliams and Siegel, 2001). In practice, a number of studies have been carried out to determine the correlation between CSR and corporate financial performance. Of these, an increasing number show a positive correlation between the social responsibility and financial performance of corporations in most cases (Frooman, 1997; Griffin and Mahon, 1997; Key and Popkin, 1998; Roman et al., 1999; Waddock and Graves, 1997). A) Maximization of shareholder value
One of the groups of instrumental theories is the maximization of shareholder value, measured by the share price. Frequently, this leads to a short-term profits orientation Friedman (1970) is clear, giving an example about investment in the local community ‘‘It will be in the long run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That makes it easier to attract desirable employees, it may reduce the wage bill or lessen losses from pilferage and sabotage or have other worthwhile effects.
B) Competitive Advantage
The second group of theories focuses on the strategic goal of achieving competitive advantages, which would produce long-term profits. In both cases, CSR is only a question of enlightened self-interest (Keim, 1978) since CSRs are a mere instrument for profits focused on how to allocate resources in order to achieve long-term social objectives and create a competitive advantage(Husted and Allen, 2000). In this group three approaches can be included: (a) social investments in competitive context, (b) natural resource-based view of the firm and its dynamic capabilities and (c) strategies for the bottom of the economic pyramid.
C) Cause-related Marketing
The third is related to cause-related marketing and is very close to the second process of formulating and implementing marketing activities that are characterized by an offer from the firm to contribute a specified amount to a designated cause when customers engage in a revenue-providing exchanges that satisfy organizational and individual objectives’’ (Varadarajan and Menon, 1988, p. 60). Its goal then is to enhance company revenues and sales or customer relationship by building the brand through the acquisition of, and association with the ethical dimension or social responsibility dimension (Murray and Montanari, 1986; Varadarajan and Menon, 1988). In a way, it seeks product differentiation by creating socially responsible attributes that affect company reputation (Smith and Higgins,2000).
2. POLITICAL THEORIES
A group of CSR theories and approaches focus on interactions and connections between business and society and on the power and position of business and its inherent responsibility. They include both political considerations and political analysis in the CSR debate. Although there are a variety of approaches, two major theories can be distinguished: Corporate Constitutionalism and Corporate Citizenship.
A) Corporate constitutionalism
Davis (1960) explored the role of power that business has in society and the social impact of this power he introduced business power as a new element in the debate of CSR. He held that business is a social institution and it must use power responsibly. Davis noted that the causes that generate the social power of the firm are not solely internal of the firm but also external.The social power equation principle states that ‘‘social responsibilities of businessmen arise from the amount of social power that they have’’ (Davis, 1967, p. 48). The iron law of responsibility refers to the negative consequences of the absence of use of power.).
B) Integrative social contract theory
Donaldson (1982) considered the business and society relationship from the social contract tradition, mainly from the philosophical thought of Locke. He assumed that a sort of implicit social Contract between business and society exists. This social contract implies some indirect obligations of business towards society. This approach would overcome some limitations of deontological and teleological theories applied to business. Afterwards, Donaldson and Dunfee (1994, 1999) extended this approach and proposed an ‘‘Integrative Social Contract Theory’’ (ISCT) According to these authors, this theory offers a process in which the contracts among industries, departments and economic systems can be legitimate. In this process the participants will agree upon the ground rules defining the foundation of economics that will be acceptable to them.
C) Corporate citizenship
In the limited view ‘‘corporate citizenship’’ is used in a sense quite close to corporate philanthropy, social investment or certain responsibilities assumed towards the local community. The equivalent to CSR view is quite common. The term ‘‘citizenship’’, taken from political science, is at the core of the ‘‘corporate citizenship’’ focused on rights, responsibilities and possible partnerships of business in society.
The concern for local community has extended progressively to a global concern in great part due to the very intense protests against globalization, mainly since the end of the 90s. This sense of global corporate citizenship led to the joint statement ‘‘Global Corporate Citizenship the Leadership Challenge for CEOs and Boards’’, signed by 34 of the world largest multinational corporations during the World Economic Forum in New York in January 2002. Subsequently, business with local responsibility and, at the same time, being a global actor that places emphasis on business responsibilities in a global context, have been considered as a key issue by some scholars (Tichyetal1997; Wood and Lodgson, 2002
3. Integrative theories
This group of theories looks at how business integrates social demands, arguing that business depends on society for its existence, continuity and growth. Social demands are generally considered to be the way in which society interacts with business and gives it a certain legitimacy and prestige. As a con-sequence, corporate management should take into account social demands, and integrate them in such a way that the business operates in accordance with Social values. So, the content of business responsibility is limited to the space and time of each situation depending on
A) Issues management
Social responsiveness, or responsiveness in the face of social issues, and processes to manage them within the organization (Sethi, 1975) was an approach which arose in the 70s. In this approach it is crucial to consider the gap between what the organization’s relevant publics expect its performance to be and the organization’s actual performance. Other issues (identification, evaluation and categorization), formalization of stages of social issues and management issue response. Other factors, which have been considered, include the corporate responses to media exposure, interest group pressures and business crises, as well as organization size, top management commitment and other organizational factors.
B) The principle of public responsibility
Preston and Post (1975, 1981) criticized a responsiveness approach and the purely process approach (Jones, 1980) as insufficient. Instead, they proposed ‘‘the principle of public responsibility’’. They choose the term ‘‘public’’ rather than ‘‘social’’, to stress the importance of the public process, rather than personal-morality views or narrow interest groups defining the scope of responsibilities. The development of this approach was parallel to the study of the scope regarding business government relationship (Vogel, 1986). These studies focused on government regulations – their formulation and implementation – as well as corporate strategies to influence these regulations, including campaign contributions, lobbying, coalition building, grassroots organization, corporate public affairs and the role of public interest and other advocacy groups.
C) Stakeholder management
Instead of focusing on generic responsiveness, specific issues or on the public responsibility principle, the approach called ‘‘stakeholder management’’ is oriented towards ‘‘stakeholders’’ or people who affect or are affected by corporate policies and practices.Emshoff and Freeman (1978) presented two basic principles, which underpin stakeholder management.The first is that the central goal is to achieve maximum overall cooperation between the entire system of stakeholder groups and the objectives of the corporation.
The second states that the most efficient strategies for managing stakeholder relations involve efforts, which simultaneously deal with issues affecting multiple stakeholders. In recent times, corporations have been pressured by non-governmental organizations (NGOs), activists, communities, governments, media and other institutional forces. Stakeholder dialogue helps to address the question of responsiveness to the generally unclear signals received from the environment. In addition, this dialogue ‘‘not only enhances a company’s sensitivity to its environment but also increases the environments understanding of the dilemmas facing the organization’’ (Kaptein and Van Tulder, 2003)
4. Ethical theories
There is a fourth group of theories or approaches focus on the ethical requirements that cement the relationship between business and society. They are based on principles that express the right thing to do or the necessity to achieve a good society. As main approaches we can distinguish the following Stakeholder management has been included within the integrative theories group because some authors consider that this form of management is a way to integrate social demands.
However, stakeholder management has become an ethically based theory mainly since 1984 when Freeman wrote Strategic Management: a Stakeholder Approach. In this book, he took as starting point that ‘‘managers bear a fiduciary relationship to stakeholders’’ (Freeman, 1984, p. xx), instead of having exclusively fiduciary duties towards, stockholders, as was held by the conventional view of the firm. He understood as stakeholders those groups who have a stake in or claim on the firm (suppliers, customers, employees, stockholders, and the local community).
In a more precise way, Donaldson and Preston (1995, p. 67) held that the stakeholder theory has a normative core based on two major ideas (1) stakeholders are persons or groups with legitimate interests in procedural and/or substantive aspects of corporate activity (stakeholders are identified by their interests in the corporation, whether or not the corporation has any corresponding functional interest in them) and (2) the interests of all stakeholders are of intrinsic value (that is, each group of stakeholders merits consideration for its own sake and not merely because of its ability to further the interests of some other group, such as the shareowners).
Human rights have been taken as a basis for CSR, especially in the global market place (Cassel, 2001). Framework based on human rights, labour rights and respect for the environment.
The term came into widespread use in 1987, when the World Commission on Environment and Development (United Nations) published a report known as ‘‘Brutland Report’’. This report stated that ‘‘sustainable development’’ seeks to meet the needs of the present without compromising the ability to meet the future generation to meet their own needs’’ (World Commission on Environment and Development, 1987,p. 8).
The common good approach
This third group of approaches, less consolidated than the stakeholder approach but with potential, holds the common good of society as the referential value for CSR (Mahon and McGo- wan, 1991; Velasquez, 1992). This approach maintains that business, as with any other social group or individual in society, has to contribute to the common good, because it is a part of society.
Globalization and Society’s Changing Expectations of Business Recently, however, society’s perception of corporate social responsibility issues has commenced to change in response to globalization. The term globalization is perhaps one of the most widely used and least precisely defined concepts in contemporary business. According to Schwartz and Gibb (1999) the term ‘globalization’ does not refer to a single process but “serves as shorthand for several related processes”, namely: • an increasingly shared awareness across many publics • a new international financial web
• new open space into which dominating cultures can move • progress from ‘inter-national’ to ‘global’ institutions • declining importance of geography
• dangerous new linkages possible
• greater speed of events
• trend away from nation-states
whereby “shared awareness across publics” highlights the remarkable growth of the contemporary NGO community: non-governmental organizations (NGOs) currently represent millions of citizens around the globe, while the new international media can mobilize those millions overnight if it chooses; the “new international financial web” implies that … ‘transparency, probity and rule of law are nowadays more important to more people than ever’; “open space for dominating cultures” indicates more and deeper debate over international values; the creation of “global” as opposed to “inter-national” institutions refers to the entrance of new unfamiliar players, the ‘stateless corporations’, in the business terrain; “declining importance of geography” suggests that the traditional link between production and place, between economy and the nation state is now breaking down, while more and more people all over the world consider themselves stakeholders in decisions made by businesses anywhere;
“dangerous new linkages” relates to any number of emerging networks whose impacts the public (rightly) feels unsure of; the “greater speed” at which the world now operates emphasizes that companies that become insulated from their markets or communities can be blindsided by changing attitudes more quickly than ever; finally, the shift of power away from nation-states means that the public in general requires more accountability from other powerful actors, such as business, and expects them to respond directly to the demands of public opinion rather than waiting for that opinion to be mediated by government legislation or regulation (Schwartz and Gibb, ibid, p.4). Thus, society’s perception of corporate social responsibility seems to undergo a phase of fundamental change.
A variety of forces -geopolitical, socio-economic, demographic and technological- appear to influence society’s changing expectations of business. First, the recent collapse of several communist regimes, such as the former Soviet Union, around the world has led to the development of a new integrated global business environment with market economies being the clear winner (Tapscott, 2000, p. 18). Second, new problems are emerging -shaking up existing assumptions about our world- including: biotechnology and information technology concerns; the ageing of industrial nations; and mass unemployment. Profound technological change always involves economic upheaval and the impact of computerization is likely to prove of equal or even greater importance than that of electrification (Coyle, 1999, xi). Moreover, genetic engineering technologies being explored today raise more complex issues of scientific and social responsibility than corporate decision makers have ever faced (Schwartz and Gibb, p. 147). The population of the industrial nations is ageing rapidly.
The proportion over 60 in the industrialized countries that make up the OECD is predicted to rise from less than a fifth in 1990 to a third in 2030 (Coyle, opcit, p. xi). While in one half of the modern industrialized world, continental Europe, more than a tenth of the population of working age is currently unemployed — and mass unemployment is here to stay as technology is making more and more workers obsolete (ibid, pp xi, xv and 238). The combined effect of rapid technological progress, ageing and unemployment exerts an unbearable pressure on the kind of welfare state almost all the Western European nations have had in place since World War II, as the proportion of population that pays tax – both of working age and still employed – is continually thinning. A shrinking world, radical technological advancement and the unavoidable end of welfare resulted in enhanced uncertainty and at the same time led to a realization that “problems are increasingly global and demand solutions that presuppose a framework of values acceptable everywhere” (Kidder and Cleveland, 1994).
Cultures around the world thus converged towards adopting some core values, comprising: truthfulness; fairness; freedom; community; tolerance; responsibility; and respect for life (Kidder and Cleveland, opcit). These universally shared values led to establishing international principles regarding the ethical responsibilities of contemporary business to society -the Caux Round Table (CRT) Principles of Business- endorsed by the overwhelming majority of the world’s nations (Schwartz and Gibb, 1999, p. 75). This recognition of fundamental international rights and corresponding responsibilities was further codified into a global corporate code of conduct — grounded on the United Nations Universal Declaration of Human Rights (1948);
the European Convention on Human Rights (1950); the Helsinki Final Act (1975); the OECD Guidelines for Multinational Enterprises (1976); the International Labour Office Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy (1977); and the United Nations Code of Conduct on Transnational Corporations (1972) — covering five major business areas: employee practices and policies; basic human rights and fundamental freedoms; consumer protection; environmental protection; and political involvements (Ferrell and Fraedrich, 1997, pp 202-206). Last but not least, new relationships are currently emerging among the traditional social partners. A major development in this respect has been a significant shift in NGO strategy.
For years non-governmental organizations (NGOs) focused on changing national government policies, while later they expanded their focus to include intergovernmental or supranational organizations such as the United Nations, the Organization of American States and the European Commission (Schwartz and Gibb, opcit, p. 132). Recently however NGOs have begun paying increased attention to the general subject of business and social responsibility, moving away from the traditional “NGO-government” relationship toward a dynamic “NGO-corporate” relationship. The importance of this development has been highlighted by Peter Sutherland, former head of the GATT: “the only organizations now capable of global thought and action – the ones who will conduct the most important dialogues of the 21st century – are the multinational corporations and the NGOs” (ibid, p. 139).
“Social license” generally refers to a local community’s acceptance or approval of a company’s project or ongoing presence in an area. It is increasingly recognized by various stakeholders and communities as a prerequisite to development. The development of social license occurs outside of formal permitting or regulatory processes, and requires sustained investment by proponents to acquire and maintain social capital within the context of trust-based relationships. Often intangible and informal, social license can nevertheless be realized through a robust suite of actions centered on timely and effective communication, meaningful dialogue, and ethical and responsible behavior.
Potential business benefits
The scale and nature of the benefits of CSR for an organization can vary depending on the nature of the enterprise, and are difficult to quantify, though there is a large body of literature exhorting business to adopt measures beyond financial ones (e.g., Deming’s Fourteen Points, balanced scorecards). Orlitzky, Schmidt, and Rynes found a correlation between social/environmental performance and financial performance. However, businesses may not be looking at short-run financial returns when developing their CSR strategy.
Triple bottom line
People planet profit, also known as the triple bottom line, are words that should be used and practiced in every move an organization makes. People relates to fair and beneficial business practices toward labour, the community and region where corporation conducts its business. Planet refers to sustainable environmental practices. A triple bottom line company does not produce harmful or destructive products such as weapons, toxic chemicals or batteries containing dangerous heavy metals for example. Profit is the economic value created by the organization after deducting the cost of all inputs, including the cost of the capital tied up. It therefore differs from traditional accounting definitions of profit.
A CSR program can be an aid to recruitment and retention, particularly within the competitive graduate student market. Potential recruits often ask about a firm’s CSR policy during an interview, and having a comprehensive policy can give an advantage. CSR can also help improve the perception of a company among its staff, particularly when staff can become involved through payroll giving, fundraising activities or community volunteering. CSR has been found to encourage customer orientation among frontline employees.
Managing risk is a central part of many corporate strategies. Reputations that take decades to build up can be ruined in hours through incidents such as corruption scandals or environmental accidents. These can also draw unwanted attention from regulators, courts, governments and media. Building a genuine culture of ‘doing the right thing’ within a corporation can offset these risks.
In crowded marketplaces, companies strive for a unique selling proposition that can separate them from the competition in the minds of consumers. CSR can play a role in building customer loyalty based on distinctive ethical values. Several major brands, such as The Co-operative Group, The Body Shop and American Apparel are built on ethical values. Business service organizations can benefit too from building a reputation for integrity and best practice.
An engagement plan will assist in reaching a desired audience. A corporate social responsibility team, or individual is needed to effectively plan the goals and objectives of the organization. Determining a budget should be of high priority. The function of corporate social responsibility planning: To add discussion and analysis of a new set of risks into corporate decision-making. 2. To represent issues within the corporation that watchdogs, NGOs and advocates represent within society. 3. To assess the future. An organizations long term and short term future needs to be thought of. 4. To help prioritize consideration of socially and environmentally friendly projects that might otherwise lack a corporate advocate. 5. To keep corporations aware of potential major societal impacts even when a negative impact may not be immediate, and thus lessen liability. 6. To positively influence decision making where societal impacts are maximized, whilst ensuring efforts are within a given budget.
License to operate
Corporations are keen to avoid interference in their business through taxation or regulations. By taking substantive voluntary steps, they can persuade governments and the wider 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.
Businesses are constantly relying on suppliers to reduce overall costs, while improving the quality of their goods or services. Many modern companies have downgraded the volume of suppliers they do business with, and award contracts to a select few, in order to lower operating costs. By establishing a strong supply chain, companies are able to push for continuous quality improvements, and price reductions. The long-term benefits of the listed above create a better value for stakeholders. -competitiveness and greater profits are created, in turn contributing to a stronger market – Tangible results through the practice of ensuring sound supply chains, and sourcing materials from ethical sources.
CSR Criticisms and concerns
Critics of CSR as well as proponents debate a number of concerns related to it. These include CSR’s relationship to the fundamental purpose and nature of business and questionable motives for engaging in CSR, including concerns about insincerity and hypocrisy.
Nature of business
Milton Friedman and others have argued that a corporation’s purpose is to maximize returns to its shareholders, and that since only people can have social responsibilities, corporations are only responsible to their shareholders and not to society as a whole. Although they accept that corporations should obey the laws of the countries within which they work, they assert that corporations have no other obligation to society. Some people perceive CSR as in-congruent with the very nature and purpose of business, and indeed a hindrance to free trade. Those who assert that CSR is contrasting with capitalism and are in favor of the free market argue that improvements in health, longevity and or infant mortality have been created by economic growth attributed to free enterprise.
Some critics believe that CSR programs are undertaken by companies such as British American Tobacco (BAT), the petroleum giant BP (well known for its high-profile advertising campaigns on environmental aspects of its operations), and McDonald’s (see below) to distract the public from ethical questions posed by their core operations. They argue that some corporations start CSR programs for the commercial benefit they enjoy through raising their reputation with the public or with government. They suggest that corporations which exist solely to maximize profits are unable to advance the interests of society as a whole.
The main principles involving corporate social responsibility involve economic, legal, ethical and discretionary aspects. A corporation needs to generate profits, while operating within the laws of the state. The corporation also needs to be ethical, but has the right to be discretional about the decisions it makes. Levels of corporate social responsiveness to an issue include being reactive, defensive, responsive and interactive. All terms are useful in issues management. Selecting when and how to act can make a difference in the outcome of the action taken.
The rise in popularity of ethical consumerism over the last two decades can be linked to the rise of CSR. As global population increases, so does the pressure on limited natural resources required to meet rising consumer demand (Grace and Cohen 2005, 147). Industrialization, in many developing countries, is booming as a result of both technology and globalization. Consumers are becoming more aware of the environmental and social implications of their day-to-day consumer decisions and are therefore beginning to make purchasing decisions related to their environmental and ethical concerns. However, this practice is far from consistent or universal.
Globalization and market forces
As corporations pursue growth through globalization, they have encountered new challenges that impose limits to their growth and potential profits. Government regulations, tariffs, environmental restrictions and varying standards of what constitutes “labor exploitation” are problems that can cost organizations millions of dollars. Some view ethical issues as simply a costly hindrance, while some companies use CSR methodologies as a strategic tactic to gain public support for their presence in global markets, helping them sustain a competitive advantage by using their social contributions to provide a subconscious level of advertising. (Fry, Keim, Meiners 1986, 105) Global competition places a particular pressure on multinational corporations to examine not only their own labor practices, but those of their entire supply chain, from a CSR perspective. that all government is controlling.
Social awareness and education
The role among corporate stakeholders is to work collectively to pressure corporations that are changing. Shareholders and investors themselves, through socially responsible investing are exerting pressure on corporations to behave responsibly. The extension of SRI bodies driving corporations to include an element of ‘ethical investment’ into their corporate agenda’s generates socially embedded issues. The main issue correlates to the development and overall idea of ‘ethical investing’ or SRI, a concept that is constructed as a general social perspective. The problem becomes defining what is classified as ‘ethical investing’.
The ethics or values of one SRI body will likely different from the next since ethical opinions are inherently paradoxical. For example, some religious investors in the US have withdrawn investment from companies that fail to fulfill their ethical expectations. The Non-governmental organizations are also taking an increasing role, leveraging the power of the media and the Internet to increase their scrutiny and collective activism around corporate behavior. Through education and dialogue, the development of community awareness in holding businesses responsible for their actions is growing. In recent years the traditional conception of CSR is being challenged by the more community-conscious Creating Shared Value concept (CSV), and several companies are refining their collaboration with stakeholders accordingly.
The rise of ethics training inside corporations, some of it required by government regulation, is another driver credited with changing the behavior and culture of corporations. The aim of such training is to help employees make ethical decisions when the answers are unclear. Tullberg believes that humans are built with the capacity to cheat and manipulate, a view taken from Trivers (1971, 1985), hence the need for learning normative values and rules in human behavior. The most direct benefit is reducing the likelihood of “dirty hands” (Grace and Cohen 2005), fines and damaged reputations for breaching laws or moral norms.
Organizations also see secondary benefit in increasing employee loyalty and pride in the organization Caterpillar and Best Buy are examples of organizations that have taken such steps. Increasingly, companies are becoming interested in processes that can add visibility to their CSR policies and activities. One method that is gaining increasing popularity is the use of well-grounded training programs, where CSR is a major issue, and business simulations can play a part in this.
CSR has inspired national governments to include CSR issues into their national public policy agendas. The increased importance driven by CSR, has prompted governments to promote socially and environmentally responsible corporate practices. Over the past decade governments have considered CSR as a public issue that requires national governmental involvement to address the very issues relevant to CSR. The heightened role of government in CSR has facilitated the development of numerous CSR programs and policies. CSR critics such as Robert Reich argue that governments should set the agenda for social responsibility by the way of laws and regulation that will allow a business to conduct themselves responsibly. Actors engaged in CSR: • governments
• civil societies
Recently European Union countries have actively engaged in CSR regulation and public policy development Recognizably, the CSR efforts and policies are vastly different amongst countries resultant to the complexity and diversity of governments’, corporations’, and civil societies’ roles. Scholars have analyzed each body that promotes CSR based policies and programs concluding that the role and effectiveness of these actors are case-specific. Global issues so broadly defined such as CSR generate numerous relationships between the different socio-geographic players. A key debate in CSR is determining what actors are responsible to ensure that corporation’s are behaving in a socio-economic and environmentally sustainable manner.
The issues surrounding corporate regulation pose several problems. The concept of regulation is inherently difficult to address because of the numerous corporations that exist are vastly dissimilar in terms of corporate behavior and nature. Thus, regulation in itself is unable to cover every aspect in detail of a corporation’s operations. For example, This leads to burdensome legal processes bogged down in interpretations of the law and debatable grey areas (Sacconi 2004). For example, General Electric failed to clean up the Hudson River after contaminating it with organic pollutants. The company continues to argue via the legal process on assignment of liability, while the cleanup remains stagnant.
The laws legally binding the corporation’s behavior and activity are quite insignificant in relation to the global consequences. Only recently have countries included CSR policies in government agendas legislature. Common types of countries who have implemented legislation and CSR laws generally consist of socio-economic and politically sophisticated countries. The level of political stability and effectiveness is inextricably linked to a countries capacity to ensure national CSR policies. The increasing ability and influence corporations have on the economic, political, and social dynamics of society correlate to the recent studies by the UN Commission on Human Rights. More research and international political instruments are being explored to protect and prevent corporations from violating human rights.
Denmark has a law on CSR. On 16 December 2008, the Danish parliament adopted a bill making it mandatory for the 1100 largest Danish companies, investors and state-owned companies to include information on corporate social responsibility (CSR) in their annual financial reports. The reporting requirements became effective on 1 January 2009. The required information includes: • information on the companies’ policies for CSR or socially responsible investments (SRI) • information on how such policies are implemented in practice, and • Information on what results have been obtained so far and management’s expectations for the future with regard to CSR/SRI. CSR/SRI is still voluntary in Denmark, but if a company has no policy on this it must state its positioning on CSR in their annual financial report. More on the Danish law can be found at CSRgov.dk
Crises and their consequences
Often it takes a crisis to precipitate attention to CSR. One of the most active stands against environmental mismanagement is the CERES Principles that resulted after the Exxon Valdez incident in Alaska in 1989 (Grace and Cohen 2006). Other examples include the lead poisoning paint used by toy giant Mattel, which required a recall of millions of toys globally and caused the company to initiate new risk management and quality control processes. In another example, Magellan Metals in the West Australian town of Esperance was responsible for lead contamination killing thousands of birds in the area. The company had to cease business immediately and work with independent regulatory bodies to execute a cleanup. Odwalla also experienced a crisis with sales dropping 90%, and the company’s stock price dropping 34% due to several cases of E. coli spread through Odwalla apple juice. The company ordered a recall of all apple or carrot juice products and introduced a new process called “flash pasteurization” as well as maintaining lines of communication constantly open with customers.
Increasingly, corporations are motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them. Understanding what causes are important to employees is usually the first priority because of the many interrelated business benefits that can be derived from increased employee engagement (i.e. more loyalty, improved recruitment, increased retention, higher productivity, and so on). Key external stakeholders include customers, consumers, investors (particularly institutional investors), and communities in the areas where the corporation operates its facilities, regulators, academics, and the media.
Business behaviour has always had a significant worldwide impact – in the eighteenth, nineteenth and twentieth centuries, and even before then. In the industrial era however political power generally surpassed economic power since governments were able to control their national economies (Coyle, 1999, pp 18 and 219). The effects of globalization, though, have led to a considerable erosion of power traditionally exercised by national governments. In view of the decline of the nation-state “it has become government, as well as corporate, policy to let the market decide” (Schwartz and Gibb, p. 139). Indeed, the International Labour Organisation (ILO) has repeatedly underlined that public opinion will attain increasing importance over the next few years … “as will the sanction of the market” (opcit, p. 140).
The empowerment of the customer in the new economy, as a result of the undergoing revolution in information and communication technologies. Consumers are nowadays informed and use this information to wield power over companies. Hence, companies experiencing crises as a result of perceived irresponsible social behaviour include Nestle, Royal Dutch/Shell, Union Carbide, Texaco and Nike (Schwartz and Gibb, 1999, pp. 25-65). Responding to enhanced customer information -coupled with consumers’ increasing ability to react- companies may be expected to develop even stronger cultures of responsibility, proactively seeking to increasingly honour their moral obligations to society in the 21st century.
Buhr, H. and Grafström, M. (2004,) “Corporate Social Responsibility” Edited in the Business Press – Package Solutions with Problems Included. Paper presented at the EGOS Colloquium in Ljubljana, July 2004.
Elisabet Garriga, Domenec Mele, “Mapping the Territory” Corporate Social Responsibility Theories
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Kerstin Sahlin-Andersson. Corporate social responsibility: a trend and a movement, but of what and for what? This paper is accepted for publication in Corporate Governance Journal. Schwartz, P & Gibb, B. (1999). When Good Companies Do Bad Things: Responsibility and Risk in an Age of Globalization. N.Y.: John Wiley & Sons. Smith, K. & Johnson, P. (1996). Business Ethics and Business Behaviour. London: International Thomson Publishing Co. Windell, K. (2004) Corporate Responsibility in The Making – Disguised Consultants Furthering New Business Norms. Paper presented at the Scancor conference “Corporate Social Responsibility in the Era of the Transforming Welfare State. LaPietra, Italy in May 2004.
Zoe S. Dimitriades Business Ethics and Corporate Social Responsibility in the e-Economy: A Commentary